Friday, March 4, 2011

Room for fresh ideas on income gap

Keep our economic model, but set up endowment to fund measures to ensure a minimal standard of living

Feb 28, 2011

by Siew Kum Hong

As I thought about last week's Budget statement, a quote by Albert Einstein kept playing in my head. The pre-eminent genius of the 20th Century once said: "The definition of insanity is doing the same thing over and over again and expecting different results."
I am of course not suggesting in any way that the Government is mad, but what struck me most about the Budget - which Parliament will debate today - was that it was pretty much more of the same, albeit "upsized" for the anticipated elections: More ad hoc special transfer payments to help the low-income, more tax incentives to increase productivity, more funding for training and research and development, so on and so forth.
Finance Minister Tharman Shanmugaratnam said that Singapore's approach to helping the low-income must "remain centred on opportunities, not entitlements".
Many Singaporeans would agree with this, and they would disagree with the need to change a winning formula when the past policies have worked.
But I would hazard that most of those stuck at the wrong end of the widening income gap would disagree about the past policies having worked. Based on Department of Statistics figures, the Gini coefficient increased from 0.442 in 2000 to 0.472 last year, or from 0.430 to 0.452 if government special transfers are taken into account. So it is understandable for the low-income to question if more of the same would really address the issue.
At a forum at the National University of Singapore (NUS) last Tuesday, economist and NUS assistant professor Chia Ngee Choon noted that the Government's targeted 30-per-cent increase in productivity over the next 10 years would probably be achieved only by the middle and upper class, and asked: "Does this tide of economic growth raise all boats? It may raise only those in the middle income and above." In other words, the opportunities may be there, but they will fall largely to the middle- and high-income.

[Perhaps the problem is that for the tide to raise all boats, the boats must all be seaworthy and able to float. If there are holes in the boat, these must be patched (education, improving employability, job enlargement, job value). Or perhaps the problem is not the boats. You go to war with the army you have not the army you prefer to have. Similarly we should pursue economic growth with the labour force we have or can muster, not the one we prefer to have. So what are our people trained for? What career or jobs do our schools prepare our children for?]

If the strategies used in the past have not successfully addressed one of the most critical socio-economic issues facing Singapore, why then would more and more of the same lead to a different outcome this time?
I am not advocating the wholesale abandonment of our existing economic model. But surely it is time for a fresh think about how to address the widening income gap.

[I think the income gap will continue to widen. Mathematically, there is a floor to income. It is zero. But there is no ceiling to income. Those who can, will want to earn as much as they can. Those who can't, can't. The gap will widen, for as long as we are plugged into the world. For as long as incentives are tied to income, for as long as money is the default method to keep score. How else will people know that they are winning.

Perhaps more important than a GINI coefficient is a "good life" standard of living. If everyone is assured of a getting a good job, securing a steady income, and affordable housing, income inequality does not matter?]

For starters, the way we characterise and think about a stronger social safety net has to change. I am not calling for a Nordic-style cradle-to-grave social welfare system, or for the Government to use generous benefits backed by punitive taxes to equalise incomes across society.
But we have the room and resources for institutionalised social welfare measures to ensure a minimal standard of living reasonably commensurate with our overall developmental status as a society.
Anything beyond that minimal level should not be based on entitlement, but must instead result from the opportunities that the Finance Minister talked about, which we have to work hard to keep open to all. Entitlements and opportunities do not have to be mutually exclusive.
Some will argue that this would represent a dangerous first step down a slippery slope of ever-shriller calls for increased benefits. But this argument implies a willingness to disregard the suffering of our less-fortunate brethren, simply because of a theoretical risk that our Government cannot resist public pressure.

[It is not so much the slippery slope of welfare, but the moral hazard of disincentivising work. If you are assured of welfare, then why struggle? If you will get the minimum cost of living stipend, why bother struggling to work to perform up to standard?]

We can also mitigate any such "slippery slope" risk by funding such measures through a substantially-funded endowment fund, and topping up the fund only when resources are available - much like what is being done with the ElderCare and Comcare funds, as well as the National Research Fund.

[As he mentioned, those funds seem to provide a little of what he is suggesting. In addition, the public assistance allowance to the unemployable.]

The Government had, in its National Report for the United Nations' Universal Periodic Review process submitted recently, affirmed that "Singapore fully subscribes to the principles enshrined in the Universal Declaration of Human Rights (UDHR)".
The UDHR provides for everyone to have the rights to social security and an adequate standard of living. But the latest Budget measures fall short of those commitments.
Government surveys have found that a four-person household needs about S$1,700 per month to cover basic costs of living, according to Professor Kishore Mahbubani, Dean of the Lee Kuan Yew School of Public Policy. Yet statistics show many low-income households in Singapore fall below this threshold, and there were no Budget measures to specifically rectify this.

[What is "many"? It would be helpful to have a figure.

Say 500,000 people are in households with less than $1,700 income. Say they have only $850 (exactly half) on average. And this is for a 4 persons household. So that's about 125,000 households.

To commit to this $1700 figure, the govt would have to give $850 to each of the 125,000 households. That works out to $106.25m. Per month. Or $1.275b per year. That is a lot to provide minimum social welfare. That's more than the budget of most ministries.

So it would not be true to say that Singapore has the "room and resources for institutionalised social welfare".

Of course this all hinges on what is the "many" low income households. 125,000 households is just over 10% (about 13%) of households. Maybe there's only 100,000 (Still about $1b a year). Maybe 50,000 ($0.5b - possibly affordable).

Arguing without figures is like fucking without a condom. Very dangerous.]

Ad hoc transfers like the one-off "Grow and Share" package in this year's Budget fall short of what our commitment to the UDHR requires, depending as they do on the existence of surpluses and the discretion and generosity of the government of the day.
In his New Year message at the start of this year, Prime Minister Lee Hsien Loong identified the widening income gap as a key concern to tackle. The lack of fresh ideas in the Budget statement was therefore disappointing. Hopefully this will change after the Budget debate that starts today.

Siew Kum Hong is a corporate counsel and the vice-president of MARUAH (Working Group for an ASEAN Human Rights Mechanism, Singapore), a human rights NGO and gazetted political association.

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