Growing Income Gap Threatens Social Fabric

Forty years ago, there was a very different Singapore. Singapore was a third world country with a GNP per capita of less than US$320. The city’s population was then growing rapidly, unemployment was rising at over 13 per cent per year and its infrastructure was poor. To add to these woes, more than two-thirds of its population was living in slums and squatter settlements on the city’s fringe.

It was then that Singapore embarked on a rapid industrialisation programme to create new jobs and to promote economic development. The government of Singapore also gradually adopted neo-liberal economic policies which seemed to benefit Singapore society as a whole. Singapore was soon transformed from a colonial urban slum into a first-world city.

However the same neo-liberal economic policies and the export-oriented economics, which contributed to the emergence of Singapore to be one of the richest countries in the world, has disproportionately lifted the top-tier of society while leaving a growing number of low-wage earners in the economic lurch.

Income gap – an expanding gulf

Between the years 2005 to 2007, the income for families in the upper echelons grew by 6 to 11%, whereas those in the bottom, only saw their income increase by between 3 and 4%. Official data which showed that 20% of the national households were suffering from declining income was released just after the last general elections. When Mr. Brown, a Today newspaper columnist, questioned why this data was released after and not before the elections, his regular column in the newspaper was abruptly terminated.

But the fact remains, income disparity in Singapore has grown markedly in Singapore, far more than most developed countries in the region like Japan, Korea and Taiwan and even developing countries which have also experienced long periods of growth. A November 9, 2007 Reuters Article, “Singapore’s economic boom widens income gap”, by Melanie Lee, highlights this inequality by comparing two very real people, who live in the opposite ends of the income disparity spectrum.

Although some may argue that the growing income disparity is but the effects of the inevitable need for globalisation and because of the open nature of the economy of Singapore, there are other factors which have made this inequity more acute.

Government policies

One major factor is the education policies, which is strongly biased towards the cognitive elite. Statistics show that well-educated families provide better opportunities, encouragement, exposure and developmental support for their children. As a result, children from these well-to-do Singaporean families enter better schools, gain university education and benefit from various study options and so continue to command high salaries and continue the upward spiral; while the children who are not from the cognitive elite are down-trodden and are limited in each step, pushing them into a downward spiral. The utilitarian ideals of meritocracy in education, which has limited the options for large numbers of school goers, does subtly distort the social fabric of Singapore by creating two extremes that may never meet, except with appropriate interventions and affirmative actions.

Another factor which contributes in a major way to the growing income inequity is the recent adaptations to the tax structure. The recent reductions in the personal tax base benefits the higher income groups more than the lower income segment. This is further exemplified by the exemption of interest from income tax. The corporate income tax has also been progressively reduced over the years, from 40% in the 1960s to 18% currently. With the reductions to the personal and corporate income taxes, the government implemented the Goods and Services Tax (GST) in April 1994; and since then has raised the GST from 3% to the current 7%. Like any other direct consumption tax, GST is regressive in nature as it undermines the equalizing role of the taxation policy, as it equally affects the rich and the poor. Even the GST offset packages do little to ease the pain of the low and middle income households.

The government’s manpower policies towards attracting foreign talent are another major factor which contributes to the growing income gap. The number of foreign workers has tripled between the years of 1990 to 2005. Foreign workers currently make up 30% of the labour force in Singapore. Although the spillover effect from the expatriates has helped to increase the salaries of the locally trained professionals and the managers, the same spillover effect of workers from under-developed or developing countries like India, Sri Lanka, Bangladesh and the Philippines, has artificially kept the salaries of the Singaporean semi-skilled and the unskilled workers low.

The efficiency with which law and order is dispensed in Singapore is one of the main reasons why Singapore is placed at the helm of the globalised world. The growing income inequality, if left unchecked, can have profound ill effects, which may affect the good standing of Singapore in the globalised world. This is especially so for a service-oriented economy and a multi-religious society like Singapore. Perceived biases from those in the lower end of the income disparity spectrum could trigger social unrest; and crime and mortality rates may also increase due to the sense of vulnerability felt by this group.

Some suggestions

So, what should the government of Singapore do to arrest the growing income disparity? Of course there are no easy solutions. The introduction of the Central Provident Fund (CPF) Life Scheme by the government is one move in the right direction. But more should be done and the following are good suggestions:

  1. A Living Wage Scheme should be explored and implemented to reduce inequality of incomes.
  2. Adopt a progressive tax structure for personal, corporate and Goods & Services taxes. In addition, the government of Singapore should consider adopting Earned Income Tax Credit (EITF) with graduated tax rates, which has been used by the United States of America successfully to deal effectively with income disparity since 1975 lifting more than 5 million people since its implementation from federal poverty lines; and have since been adopted by other countries like United Kingdom, Ireland, Canada, New Zealand, Austria, Belgium, Denmark, Finland, France and the Netherlands.
  3. The Central Provident Fund which in essence is a single-tiered social security and pension system is not able to meet the ageing challenges of Singapore. As such, there is a real need to develop a multi-tiered social security and pension system, which could stunt the growth of income inequality and would also ensure that gains from economic growth are more widely distributed.
The growing income disparity is an issue that cannot be altered, but it is also an issue that cannot be ignored, as it threatens to tear the social fabric of Singapore. History does show that there is only this much the poor and oppressed can bear before they start fighting for sustenance and relief from abject poverty. It would be good for the government of Singapore to learn from history and provide the necessary relief to those at the lower levels of society lest we return to the state we were in 40 years ago, to the era of pre-independence.