The debate in the Straits Times on “inequality” continues!
I refer to the article “Focus on right measures of income inequality” (Straits Times, Aug 8).
It states that “I read with interest Professor Linda Lim’s article about income inequality and its debilitating effects on Singapore’s growth (“How inequality and low wages can stall growth”; July 21). While I agree with several of her points, especially that too much inequality can have adverse consequences, I disagree with her on many others.
While Prof Lim alludes to the Gini coefficient, a fair bit of the data she cited – including from the World Inequality Report 2018 by a group of researchers, including French economist Thomas Piketty – is about the income garnered by the top 10 per cent of the population. The income garnered by this group is a flawed measure of income inequality and has very little bearing on how the average person is faring.
Looking at Singapore, I found data on the Gini coefficient between 1981 and 2014, published by the Government, using two alternative ways of calculation. The data shows that using the more stringent method – which gives higher values of the coefficient – there was an increase from 0.46 to 0.48 between 1981 and 2014.
The values based on the other definition of the Gini coefficient – used by the Organisation for Economic Cooperation and Development group of developed nations – are lower, ranging from 0.40 to 0.43. Admittedly, the coefficient did go down until 1990, after which its rise was faster, to a peak of about 0.48, before 2008.
If we look at the aggregate picture, the rise in the Gini coefficient has been hardly alarming, rising by 0.02 in 33 years.
The above values do not take into account the effect of taxes and transfers, which should further soften the impact of a high Gini coefficient.
POOR NOT GETTING POORER
Thus, it seems that for the past three decades or so, Singapore was in a situation of rising per capita income levels with somewhat high Gini coefficient values before taxes and transfers. This is hardly a situation of the poor getting poorer. The rich may be getting richer, but the poor are also making progress.
Being a globalised city state means that Singapore’s Gini coefficient is likely to be higher in value than for larger countries.
The presence of numerous small businesses in a globalised city state (where the businesses are exposed to international competition) could bump up the Gini coefficient when either of the extreme outcomes (complete failure or significant success) occurs.
Rapidly rising property prices – against which the Singapore Government has built a hedge in the form of Housing Board public housing – will also push up the Gini coefficient because higher-income groups who have access to capital for the down payment on properties are more likely to benefit from rising property prices.
Lacking capital, the lower-income strata, on the other hand, are unlikely to benefit to the same extent from rising property prices.
The Government provides its citizens with a number of “transfers”, most of which benefit the poor disproportionately. Schooling for instance, is almost free, and housing is subsidised for the majority. Even tertiary education, after government subsidies, is comparable in costs to countries such as Japan and Canada and much cheaper than in the United States.”
Comment: While the Gini coefficient for Singapore seems to be lower than New York, London and Hong Kong, much of the “transfers” may not be disposable income that can be used.
For example:
- Workfare Income Supplement – (the bulk of it goes to CPF )
- Rebates on utilities (your electricity and water prices may have increased through increase of tariffs)
- Rebates for service and conservancy charges (S & CC) (increase announced on 17 February 2017 by as much as 20%!)
- top-ups to Medisave accounts (not disposable cash that you can use, but only in the future for ever increasing healthcare fees)
- Pioneer Generation Package (not disposable cash that you can use, but only discounts on healthcare fees, etc)
- healthcare related subsidies like Chas scheme (not cash, but helps you to pay less)
- health screening subsidies (not cash, but helps you to pay less)
- MediShield Life premium subsidies (not cash, but helps you to pay less on a declining scale for four years for increased premiums)
- MediFund (not cash, but helps you to pay 50 to 100% if you cannot pay your hospitalisation bills, subject to means testing)
- training subsidies (not disposable cash)
- school education subsidies (not cash, but helps you to pay less)
- public rental subsidies (not disposable cash, but helps you to pay less)
- CPF Life bonus and voluntary deferment bonus (not cash, goes to your CPF)
- income tax rebates (not cash, helps you to pay less tax)
- property tax rebates (not cash, helps you to pay less tax)
Mostly not cash disposable income?
Arguably, how much do most of these government transfers really help, when most of them are not cash disposable income, but helps you to pay less of what may be comparatively “overpriced” services compared to other countries –Singapore is the most expensive city in the world for the fifth year running (The Economist) – or money that you can only use in the future to pay for ever increasing prices?
May hardly get anything?
To illustrate with another example – if you are a healthy non-elderly (below age 35) low-income family with no children and work long hours – you may not get any income tax rebates, property tax rebates, CPF Life Bonus, education subsidies, training subsidies, MediFund, health screening subsidies, healthcare related subsidies, Pioneer generation package, Medisave top-ups, Workfare Income Supplement, etc!
“While healthcare costs have been going up and are higher than those of regional neighbours, they are much lower than those in other developed countries such as the US. Public transport, which lower-income groups tend to use more of, is much more extensive and cheaper than in most other countries.
Access to these transfers, coupled with low tax rates (much lower than those of countries such as Japan and Canada), should alleviate some concerns about Gini coefficient values, because many of these transfers benefit the lower-income groups more than the higher-income ones.
In fact, the same source (data provided by the Government) shows that though the poor in Singapore lagged behind the other groups in absolute growth in incomes between 2004 and 2014, they were tops when it came to growth in incomes after taxes and transfers.
According to a 2017 report, the average annual government transfers per household member amounted to $10,245 for those residing in HDB one-and two-room flats versus $3,312 for those in landed properties. In fact, the drop-off is dramatic after the poorest category: The above figure for those residing in three-room HDB flats is only $4,408, 57 per cent lower than for HDB one-and two-room flat residents.
This is not to say that there is no room for improvement, nor that Singapore can afford to be complacent about inequality.
Providing equal opportunity to people of different socio-economic classes remains a work in progress, and work should continue in that respect. Managing healthcare costs is another big challenge, especially as the population ages and inflationary pressures on healthcare costs build up.”
Comment: Why is it that the ‘elderly sick’ rather die, than to be a financial burden to their families?
According to the article “Straits Times avoids mentioning financial burden among elderly as a cause of increased suicides” (theonlinecitizen, Jul 30) – “It was reported today (30 Jul) that the number of elderly committing suicide hit a record high last year (2017).
ST avoids talking about financial burden causing suicides
The Straits Times also reported the same story of the number of suicides among the elderly hitting record high.
However, it avoided mentioning financial burden and cost of living as one of the reasons for the increased elderly suicide rates altogether.
ST merely quoted some social service people mentioning other possible reasons for suicides like social isolation and loneliness.
Financial burden among elderly is a cause of suicides
However, SPH did use TNP, a newspaper with a smaller circulation, to mention about financial burden among the elderly as a cause of suicides.
TNP interviewed Madam Hamidah Mohd, 69, who said that suicide is often discussed by those around her age.
“I had a neighbour who said her life had no meaning because her children refused to visit her. She told me she did not have anyone left and saw little point in living when she did not even have enough money for food,” Mdm Hamidah disclosed”
In this connection, according to the Death Attitudes Survey by Lien Foundation in 2014 – “Top death fear – medical costs –
So it is not surprising that medical costs are what Singaporeans fear most (88%), followed by being a burden to family and friends (87%). These results are similar to the 2009 poll, where being a burden to the family emerged as the top fear, followed by medical costs. In 2013, when asked what are the priorities at the end of life, 87% of Singaporeans wanted to ensure their death would not be a financial burden to family members.”
Healthcare is affordable in Singapore!
“However, in discussing inequality, it is vital to look at indices that are relevant and useful for Singapore, not those that can paint a misleading picture that could lead to incorrect conclusions and policies.
Focusing on the wealth of the top 10 per cent would suggest a Robin Hood type of solution, increasing taxes on the rich. This was precisely what Prof Lim suggested in a follow-up article to her first (“How to reduce inequality: Curb foreign worker numbers, support SMEs, tax high-earners more”; July 28).
But, in 2014, 40.4 per cent of taxes were paid by the top decile (10 per cent) of income earners in Singapore. The bottom half of the population, in terms of income earned collectively, paid 21.6 per cent, or half the amount paid by the top 10 per cent.
Reducing income inequality should be about pulling up the poor and not bringing down the rich, through higher taxation or otherwise.
A World Bank report published in 2016 made the following comment about strategies for reducing inequality: “Taking on inequality involves human capital accumulation, income generating opportunities, consumption smoothing, and redistribution.”
Consumption smoothing is about encouraging consumption by the lower strata, possibly through transfers such as food stamps to reduce the impact of poverty.
Much of the focus of the popular debate ignores the first three ways to tackle income inequality and focuses on redistribution (especially punitive taxation) which is a blunt – if populist – tool to tackle inequality.
Punitive taxation has many other toxic side effects as well. Most importantly, it blunts dynamism, innovation and entrepreneurship, without which Singapore could easily become more equal – and uniformly worse-off.
The French philosopher Voltaire once famously said: “Each player must accept the cards life deals him or her; but once they are in hand, he or she alone must decide how to play the cards in order to win the game.”
Extending Voltaire’s logic, the “cards” that Singapore has been dealt (small land mass, no natural resources and high population density) are very different from the cards that countries such as Norway, Finland and Canada (small populations, large landmasses and significant natural resources) have been dealt, and it would be disastrous for Singapore to follow the model followed by others in terms of income redistribution or otherwise.”
Comment: As to the recent remarks in Parliament – “But economic reasoning is empty without a moral foundation; such foundations cannot and do not exist without a conversation about values. Not just what is cheap, but what is right, not just about generating income, but about giving meaning. For too long, we have made decisions based more on an economic compass, as if the use of one dollar has the moral equivalence of the loss of another” – isn’t it time for us to reassess our policies of – from a cashflow perspective – not spending any money on pensions (CPF), healthcare or public housing (HDB) – because the annual cash inflows exceed the outflows for each and all of these three areas?
Leong Sze Hian
