TR EMERITUS

From our Correspondent During the Kent Ridge Ministerial dialogue held at NUS two days ago, Minister Mentor Lee Kuan Yew stressed that that problem of a widening income gap is one that most countries - not just Singapore - have to contend with and it is "inevitable" in a globalized world. MM Lee's claims about the "inevitability" of Singapore's widening income gap were debunked last year in a paper co-authored by a researcher, Mr Mukul Asher, from the Lee Kuan Yew School of Public Policy entitled "Singapore's Policy Responses to Aging, Inequality and Poverty: An Assessment". (read abstract here) Besides income inequality, the paper also addressed the twin problems of aging and poverty in Singapore which may be contributed partly by the government's policies. The paper criticizes Singapore's over-reliance on a single-tier mandatory savings in the form of CPF to finance retirement, housing and to a lesser extent, healthcare as well as the government's migration policies to allow non-citizen population to triple between 1990 and 2005 to 30 per cent (it is now 36 per cent) in order to sustain growth and competitiveness at the expense of citizens. It argues that Singapore has the fiscal, institutional, and organizational capacities for a modern multi-tier social security system instead of the current inadequate and inequitable arrangements which require individuals and their families to bear disproportionate risks in financing retirement, healthcare and short-term income support. Short of being a helpless victim of globalization, the paper concluded that "this reflects conscious policy choices arising from a Darwinist vision of society, and the need of socio-political control...and therefore cannot be attributed to globalization phenomenon." In other words, Singapore's widening income gap is largely a result of the government's long-held policy of depriving citizens of an adequate social safety net in order to spur them to continue working harder to support themselves and families. While globalization does contribute to income disparities, the government can ameliorate the situation by limiting the influx of foreigners and providing more social assistance to citizens like in other developed Asian countries. Singapore has one of the highest saving rates in the world at 47 per cent. Instead of investing its vast fiscal surpluses in children which will generate a much better returns, they end up mostly in the country's two giant sovereign wealth funds - GIC and Temasek, which suffered heavy losses lately as a result of the global financial crisis. The limited and inadequate social security system is necessary to keep citizens on their toes at all times and to diminish their interest in politics. With Singaporeans having to work extra hard in order to pay off their ever rising loans, few will be adventurous enough to join the opposition to challenge the ruling party. As a result, Singaporeans are continuously being held hostage by the ruling party over estate upgrading which affects the value of their flats and their CPFs which they are unable to withdraw in one lump sum now under the annuity scheme. A subservient and apolitical citizenry makes for easy control and governance thereby enabling the ruling elite to implement unpopular policies with little fuss since the majority of the populace are too caught up with earning money than to bother themselves with politics and current affairs. In summary, the government can do much more to reduce the growing income gap between the poor and the rich, it is not simply an "inevitable" consequence of globalization. Though Singapore is an open economy and cannot expect to buffer itself from external shocks, the government has the resources and capacity to develop a multi-tier social protection system for its citizens. The problem of such a system is that it will empower the citizens and reduce their heavy reliance on the ruling party thereby threatening its political hegemony. Singaporeans must realize that as citizens of their country, they have the right to demand the government provides them with certain basic benefits such as free education up to the college level at least and easily affordable medical care which commensurate with developed countries elsewhere though not necessarily an exact replica of the welfare system in the West. Embracing globalization fully without putting in adequate safeguards to protect the interests of citizens is not only foolhardy, but detrimental to the development of the nation in the long run.  Read More →

OPINION Singapore's income gap is the second highest among developed countries after Hong Kong whose figures are skewed by a disproportionate higher number of billionaires. The rising inequalities are contributed partly by government policies which benefit the rich more than the poor, most notably recent changes made to the CPF and income tax. The lower and middle income groups are especially dependent on the CPF contributions from their employers to supplement their meager income. In 2003, the employers' CPF contribution was reduced to 13 per cent before being increased to 14.5 per cent in 2007. At the same time, a series of cuts were made to the personal income tax between 2002 and 2007. It is estimated that the cumulative impact on average wages of the CPF cuts was 3.6 per cent and that of income tax cuts was plus 0.8 per cent (Chua, 2007a). The overall net impact was significantly negative, particularly for the middle income groups. The reduction in the personal income tax base has also benefited the higher-income groups more as exemplified by the exemption of interest income from income tax. According to IRA, only 31 per cent of the labor force paid income tax in 2005 with most of the subsidies going to the upper income group. In 2006, Goods and Services Tax (GST) was increased from 5 to 7 per cent to "assist the poor" as according to Prime Minister Lee Hsien Loong. The irony of it is: the hike in GST will affect the poor more than the rich as it contributes directly to higher prices for food, transport and other essential items of daily living. To the higher income group, the two per cent increase in GST is short change to them as they can easily afford it, but not to the poor where a few additional cents can impose a significant financial burden on them. Two years later in 2008, Singapore abolished the Estate Tax, which it had inherited during the British era to encourage Singapore to become a attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners. The Finance Minister, Mr.Tharman Shanmugaratnam in the budget speech said "Wealth is also being managed today on a global basis. Proponents of removing estate duty have therefore argued that removing it would encourage wealthy individuals from all over Asia to bring their assets into Singapore, thus supporting the growth of the wealth management industry." Needless to say, the move will benefit the rich more as it helps to preserve their wealth and enable them to pass it to the next generation. As we can see from the above discussion, the widening income gap is not an inevitable consequence of globalization as claimed by MM Lee. It is contributed in part by the policies of the government which appear to favor the rich more than the poor. Since it is the rich who pay the bulk of the income tax, they are the largest beneficiaries from income tax cuts. The retention of the $4,500 salary ceiling for employers' CPF contribution further constrain the growth of the income of the middle income group while benefiting the big businesses and employers. Together with liberal immigration policies which put the Singapore worker at a disadvantage, these help to depress wages under the guise of keeping our workforce "competitive". To compound the problem, the state provides few welfare benefits to the lower-income group who are expected to be self-reliant with the odds stacked against them. Fewer than 5 per cent of households in the low-income group are beneficiaries of the public assistance scheme. The amount of assistance is kept at only 5 to 8 per cent of per capita income. In 2005, out of a population of 4.3 million, only about 2,700 people qualified for the scheme, most of which are old and destitute. The monthly allowance for those on the scheme was increased lately from $290 to $330, hardly sufficient to survive in Singapore. Without adequate help from the state to boost their income, the poor is trapped in vicious poverty cycle. Due to inadequate qualifications, they have to compete with cheap foreign labor for jobs which pay miserably. The root cause of the problem lies in the masses lacking political rights to demand for better wages and living from a government dominated by a rich and well-connected elite. The political system is cleverly manipulated to entrench the ruling party in perpetual power with little opposition which enables them to pass legislation and bills with impunity and scant regard for the lower and middle income groups. Unless the state steps in and tilt the playing field in favor of the poor, Singapore's income gap is like to continue widening in the next few years to come.   Related articles: >> What the government can do to narrow Singapore's widening income gap >> Researcher from LKY School debunked MM Lee’s claims that widening income gap is inevitable >> MM Lee: Never mind the Gini coefficient!  Read More →

From our Correspondent Following a rare biting editorial published yesterday in the Straits Times questioning the role of PAP grassroots advisers in managing the Lift Upgrading Program (LUP), an irate Singaporean David Lim wrote to the ST Forum lampooning the ruling party for "instituting state organs to become PAP organs". As Mr Lim puts it succinctly: "In essence, the Government has forgotten the difference between the organs that implement policies - for example, civil service and municipal concerns - and the Government, thinking both are the same. In fact, in 40 years, it has institutionalised state organs to be People's Action Party (PAP) organs." The People's Association is a statutory board paid for by taxpayers' monies. Its board of directors should never be staffed by the Prime Minister and fellow ministers in the first place. The PAP should not make abuse the PA to appoint its losing candirdates as "grassroots advisers" to interfere in the running of the two opposition wards. A more appropriate name will be "PAP constituency advisers" and they should be funded entirely from the PAP's coffers and not the PA. It defies common logic and rationale that HDB, also a state agency has chosen to work with the two non-representatives of Hougang and Potong Pasir instead of their MPs as is the usual practice. On a practical note, too many cooks spoil the broth and LUP should be managed fully by the MPs and not the non-elected losers who do not have access to the resources offered by the Town Councils. The LUP are managed by PAP MPs in other wards and therefore it makes little sense that opposition MPs cannot implement the initiative as well on the filmsy grounds of partisanship. The PA has no business in going around to appoint grassroots advisers on behalf of the people. In fact, the residents should be permitted to form grassroots organizations and committees simultaneously on their own beyond the over-arching reach of the PA. Right now, all residents' committees and community centers are functioning as PAP organs in the constituencies as they are under the control of the PA, a supposedly non-partisan statutory board helmed by PAP ministers themselves. While this unique arrangement serves the interests of the PAP by entrenching its presence at the grassroots levels, it does not facilitate nation-building in the long term. The RCs and CCs are becoming a clique of PAP or affiliated members which are largely disconnected from the bulk of the citizenry and as such they are not truly representative of the actual grassroots. Activities organized by these quasi-PAP organizations are always attended by the same old faces and this is not conducive to the promoting racial and social harmony amongst the disparate groups of people in Singapore. The government should purge the PA of all partisan influence by appointing only civil servants with no political allegiance to its board of directors. Residents should be given the freedom and leeway to form associations on their own to serve and advocate their interests and register them either under the PA or the Registrar of Societies. PA should play the role of a regulatory authority and allow these grassroots organizations to function autonomously. The self-appointed grassroots advisers will then liaise directly with the MP to manage the estate without undue interference from "external" advisers parachuted from outside by the PAP. This will prevent a repeat of the ugly fiasco whereby a non-elected losing candidate at the elections masqueraded as the people's representative to announce the LUP program and claim credit for it while leaving the elected MP in the dust.   Related articles: >> Why Mah Bow Tan is wrong on LUP >> LUP has to be implemented through government channels >> Low Thia Kiang strikes back at HDB and PA >> Lame reply by HDB and PA on why LUP are announced by PAP losers >> Mah Bow Tan:” I don’t expect non-PAP MPs to explain LUP” >> Eric Low rapped for stealing limelight of Low Thia Kiang >> Eric Low claimed credit for bringing LUP to Hougang  Read More →