Category Archives: Inequalities Singapore

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.

Inequalities & Income – Singapore Opportunity

For the first time in years Singapore’s rate on the Gini coefficient [a measure of income inequality – a Gini coefficient above 0.4 usually signals a large income gap] fell to 0.398 in 2019. This is significant as Singapore’s Gini coefficient in 2018 measured at 0.458. This drop came after the government’s pledge to make tackling social inequality a key priority. Steps to boost low-wage workers’ incomes have picked up speed, with the National Wages Council recommending higher wage thresholds for a broader range of workers. 

ComCare assistance, established in 2005, aimed at providing social assistance for low-income individuals and families. In 2019, it was reported that the disbursement of ComCare rose by 19%, up to S$151 million. In 2020, the Ministry of Social and Family Development (MSF) automatically extended the ComCare assistance for about 6,000 existing beneficiaries. This decision was made in response to the economic and health impacts that the Covid-19 pandemic had had on the lower-income and vulnerable members of society. A latest initiative launched in 2019, ComLink, was set up to provide a centralised hub for support and resources for low-income households. The initiative has been projected to expand its reach to 21 new towns and 14,000 families in the next two years. These actions not only show an increase in financial commitment and support from the government, but a greater effort in building the infrastructure to directly provide more comprehensive assistance to low-income households.  

Although the Progressive Wage Model (PWM) has come under some criticism over its slow implementation, it is undeniable that this programme has helped to grow the annual median income of low-income earners. Since its introduction in 2012, the average annual increase in salaries of the three lowest-paid occupational categories (service and sales workers, plant and machine operators, cleaners, labourers and related workers) was 3.4%. Therefore, the announcement of an extension of the PWM to include two more sectors in the advent of the pandemic has become more of an overdue necessity, given the continued wage lag in other low-skilled sectors.

SINGAPORE OPPORTUNITY

The Sustainable Development Goals (SDGs) aim to encourage sustained economic growth by achieving higher levels of productivity and through technological innovation. Promoting policies that encourage entrepreneurship and job creation are key to this, as are effective measures to eradicate forced labour, slavery and human trafficking. With these targets in mind, the goal is to achieve full and productive employment, and decent work, for all women and men by 2030.

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To Create the World We Want where no one is left behind, we need to ensure that overseas aid reaches the poorest people and the poorest countries. We need to ensure that governments adopt policies that promote equal opportunities for all.

Read more about opportunities for addressing local inequalities here.

SINGAPORE CHALLENGE

According to former GIC Chief Economist, Yeoh Lam Keong, 110,000 to 140,000 households in Singapore are unable to meet basic needs, where60% of these households have at least an individual earning an income. This highlights certain structural issues at play, which cannot merely be resolved through the hard work of an individual.

On a macro level, there is a need to re-examine the role of the government and individual responsibility and adjust wages so that everyone can earn an income that meets their living needs. On a micro level, addressing mindsets and judgements surrounding people living in poverty is crucial to tackling poverty and building an inclusive society. No one chooses to live in poverty.

Read more: The Four Myths of Inequality in Singapore
Read more: Why Low-Income Parents May Make ‘Poor Choices’

SINGAPORE STATISTICS

  • 1 in 10 Singaporeans are unable to meet basic needs in the form of food, clothing, shelter and other essential expenditures.14
  • Singapore is ranked the 3rd richest country in the world, with a GDP (PPP) per capita of nearly US$56,700.15
  • Economist Intelligence Unit (EIU) ranked Singapore as the most expensive city to live for three years in a row16
  • The top 10% wage earning households earn approximately 25 times more than the bottom 10%17
  • The top 20% of earners saw their real wages rise by 27% between 1998 and 201018
  • The bottom 20% of earners saw their real wages fall by 8% over the same period19