Inequalities & Income – Singapore Challenge

Though Singapore has put in place various policies and financial assistance, the current schemes still lack clear benchmarks and targeted outcomes for low-income households. Moreover, evidence suggests that the financial assistance put forward by the government is still insufficient. As of 2018, the bottom 20 percent of households witnessed an income shortfall of S$335 each month. Even with the regular government transfer (Workfare etc.), households with a monthly income of S$2,235 were spending S$2,570 a month. Although the rise in inequality can be traced to globalisation and the largely open nature of the Singapore economy, the meritocratic based education system, new adaptations to the tax structure, and the government’s wage and manpower policies have all played a major role in exacerbating the issue. 

It is common knowledge that the Singaporean education system is meritocratic. What started as a mechanism that values skills, knowledge and merit has now become an unfair system that privileges those from higher socio-economic backgrounds. 

As a stand alone, the tax policies in Singapore are relatively progressive. Many employed Singaporeans who earn S$22,000 or less per annum do not pay anything in personal income tax. However, when personal income tax is considered alongside indirect taxation, the net result is a regressive tax system. Indirect taxation—most notably, the Goods and Services Tax (GST), disproportionately affects lower income earners, as the same rate applies for all groups. This results in a larger percentage being taken from people at the bottom of the income spectrum. Conversely, the taxation system works differently for the rich in Singapore. In order to set itself up as a tax haven and to attract major investments, Singapore has never subjected taxes on capital gains, and as of 2008, it abolished inheritance tax (estate duty). Given that the rich derive a significantly larger share of their income from capital, the absence of wealth tax means the rich are able to maintain and grow their investments, gains and overall wealth over many years. Whereas, the tax imposed on labour income and consumption significantly affects those from the working and lower class, thus making the overall tax system less equitable than it should be.

Instead of the minimum wage and unemployment benefits, the Singapore government introduced a wage ladder scheme in the form of the Progressive Wage Model (PWM). First introduced in 2012, the PWM currently only covers three sectors within the community — cleaning, security and landscaping. This model was aimed at improving the wage levels of low-income earners, and although it had had some successful outcomes, criticism of its sluggish implementation and limited efficacy remain. Among the reasons cited for this slow and incomplete implementation was its complex structure, requiring tripartite consultation and negotiation. While salaries of workers in low income sectors have risen in the last few years, their absolute and relative wages continue to be significantly lower here than in other developed countries. 

These challenges were further exacerbated by the Covid-19 pandemic. Key findings demonstrated the devastating financial impact this pandemic has had on low-income families. Drops in reported household incomes from work prior and post COVID-19 were stark. Median household income pre Covid-19 was at S$1,600 and fell to S$500 post pandemic. While the figures for the median per capita income (PCI), [calculated by taking total household income from work and dividing it by the number of persons in the household] which was at S$425, saw a decline of 74% to S$113 post pandemic.

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