Mobility better than redistribution, to close the gap

TODAYonline

Past Budgets have been described as either “pro-business” or, in recent years, “social”.

04 March

Past Budgets have been described as either “pro-business” or, in recent years, “social”.

The new Budget before Parliament can be described as “popular” as there is something for everyone, although businesses — deeply concerned over the determined slow-down in the growth of foreign workers — feel that more can be done as we enter the critical phase of our economic restructuring.

One aspect stood out for me in Budget 2013: The accent on redistribution and a more progressive tax and benefits system.

For instance, the Budget provides for higher property taxes on high-end residential property, especially those that are not owner-occupied, as well as higher registration fees for mid-range and luxury cars.

The right-sizing of our social compact remains a work in progress although the urgency is growing.

At times, however, I wonder if the popular Budget may also be (mis-)interpreted as an effort at being populist. The last few Budgets have emphasised equity, rather than equality, in the sharing of the benefits. Few would argue against the principle of shared economic growth. This fundamental philosophy becomes even more important in light of the growing income disparities — moderated slightly by income transfers from the Government’s coffers — and the abiding concern over social mobility.

It is clear that the Government is not seeking to equalise incomes among citizens. That would be regressive and very much a beggar-thy-neighbour policy — appealing in the short-term, but economically fatal in the long-run.

But are we seeing the first indications of an even more progressive tax system, signalling the rise of redistribution? As it stands, the top decile of taxpayers here are already contributing 80 per cent of the tax revenues.

WHEN INEQUALITY IS ACCEPTABLE

It is timely to ask what our focus should be vis-a-vis the Budget: Redistribution or social mobility, or a combination of both?

Social mobility, put simply, is the relative ease and ability by which people move up and down the socio-economic ladder. Redistribution is about how wealth — such as land and money — is shared between people.

The Budget is as much a social policy as it is a fiscal statement. There is a need for both redistribution and social mobility in our society, although efforts should be primarily targeted at enhancing social mobility.

While inequality is inevitable in any society, the acceptability of or hostility to inequality hinges very much on whether it is seen as deserved or undeserved. For example, if wealth and income of the “haves” are seen as being derived through hard work, ingenuity, ability, then it would be regarded as being deserving.

To be sure, governments are expected to reduce the gap between the haves and the have-nots, and to avoid situations where the system creates undeserved sources of inequality.

Regardless of where the emphasis lies, redistribution and social mobility pivot on the basic need to improve access to opportunity in our society. Here, a key policy and societal objective is to secure as best as possible equality of opportunity, rather than an equality of outcome.

Equality of opportunity requires social mobility to be as optimal as possible; while equality of outcomes tends to emphasise redistribution. Few would question that social mobility is the preferred option as it is fundamentally about increasing the pie rather than re-dividing it. It is about levelling up, rather than levelling down.

MOBILITY VITAL TO PROSPERITY

Less social mobility will undermine the meritocratic basis of our society — not because merit is not central, but rather that merit will tend to be confined to a privileged class. This would undermine the legitimacy of meritocracy.

Less social mobility also leads to a hardening of class distinctions, compromising social cohesion.

The knock-on effects of social immobility can result in the failure to restructure our economy. This is because the societal drive in our people to develop and nurture a deep-seated culture of entrepreneurship, productivity and technological advancements will be severely stifled, if not extinguished. The well-being and prosperity of our society will, consequently, be affected.

One essential means of ensuring social mobility is education, and this is where the Budget’s emphasis should be in the years ahead.

As such, the Government’s decision to more than double pre-school sector spending in excess of S$3 billion over the next five years, and the establishment of the Early Childhood Development Agency, are steps in the right direction. Children from less well-off families should not have to suffer permanent disadvantage simply because of their home backgrounds.

Again, no amount of state spending will remove the “opportunity gap” between children from well-off and not so well-off families.

Rather, the drive to expand the pre-school sector’s capacity and competency as well as to ensure high quality and affordable pre-schools will go a long way to ensuring that there is no birthright to a privileged life.

In the final analysis, the Government’s role is to ensure that the “have-nots” not only have as best an access to opportunities as the “haves”, but are also able to take full advantage of the access to opportunities.

LIMITS OF MERITOCRACY

Future Budgets must seek to consolidate the multitude of schemes that seek to help those who suffer from a “skills gap” — to helping them re-skill even as they seek to make ends meet.

In this regard, the expanded coverage of the Workfare Income Supplement (WIS) scheme to include low-wage workers earning up to S$1,900 a month, as well as the introduction of the three-year Wage Credit Scheme (WCS), are to be welcomed.

While questions remain as to how sustainable they are, the WIS and WCS recognise that income support is needed, given that not every Singaporean employee is able to benefit from the economic restructuring. Indeed, some will be worse-off. There remains fervent resistance to a minimum wage policy.

Instead, the revised WIS upper limit implicitly underlines the importance of a living wage even as we operate in a meritocracy, and the necessity to leaven the extreme workings of meritocracy in light of persistent income inequality.

It is significant that the limits of a meritocracy in social levelling are recognised and acted upon. In similar vein, we see the continuing strengthening of social safety nets, with healthcare provisions being the thing to watch as we seek to keep our examination-based meritocracy relevant and adaptable.

We must continue to ask the right questions in our quest for a sustainable social compact. The income gap is certainly a deep concern, but redistributionist tendencies must be kept at bay; a class war is debilitating.

We are much better off trying our best to improve social mobility, and that will require more than fiscal measures.

It will also require Singaporeans and the corporate sector to be seized with a sense of social responsibility in ensuring that our society and policies are characterised by equality, equity and hope for the future.