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Income inequality – Part 2: Exacerbated by the State

Published

10 years ago

on

By Benedict Chong
Governments tend to believe that they have at their disposal tools and mechanisms that will help them manage income inequality. Some of these include elaborate policies and schemes for taxes and subsequently transferring these back to the needy of society.
These mechanisms are often cited by the Singapore government, the opposition and more recently, by protesters at Hong Lim Park. The protest held on 27 September, better known for its controversial march that intruded a YMCA charity event, also saw speakers bring up some of these policies and schemes, in the quest of improving them.
This article will examine some of the solutions the speakers claim will solve inequality, vis-à-vis some of the current schemes that the State has employed for that same purpose. (Video recordings of the points made by the protesters are also available online.)  But do such measures really work?
Minimum wage
Minimum_Wage_IncreaseOne of the most important and prevalent proposals to bridge the income gap is to implement a minimum wage. In Singapore, a minimum wage is one of the cornerstone policies of the Worker’s Party and apparently the Hong Lim Park speakers as well.
While most economists believe that higher prices decrease consumption, they also conveniently ignore the fact that labour markets work the same way as the goods and services market.
Legislated increases in wages above productivity levels would ultimately result in either unemployment or higher costs which will be passed on to the consumer in the form of higher prices. With inflation rising, pressure to increase the minimum wage also increases, starting a vicious cycle of continuously increasing prices and legislated wages which do nothing except harm economic competitiveness.
An ‘open door’ immigration policy instituted by the State should theoretically have led to lower prices to accompany lower wage rates in Singapore. Unfortunately, this is not the case with skyrocketing property prices, escalating food costs and increasing public transportation fees.  And this can only be due to government intervention. For example, worker levies increase the real cost of supposedly cheaper labour, with the difference going into State coffers instead of benefitting the consumer in the form of lower prices.
A minimum wage is thus not an answer to income inequality. Its implementation will only worsen inequality as unemployment soars in response to higher labour costs. While enforcing a floor on labour costs may be a populist stand by blogger Roy Ngerng and the Worker’s Party, it will eventually be self-defeating and counterproductive.
Transfer payments and welfare spending
no free lunchIn another segment of his speech, Ngerng reasoned that the government should take care of its citizens because we pay taxes. He listed examples which included GST, currently at 7%.
But the premise here is that government is expected to levy taxes on the population. And that is just quite simply erroneous. Governments always give populist reasons for unpopular policies and prior to implementing GST, the State declared that the extra revenue was for social spending.
However, GST is a regressive tax which harms the poor. The official standpoint is that the rich tend to pay more in GST because they purchase big ticketed items such as yachts, Swiss made watches, and other luxury items. But how many of these luxury items can the wealthy purchase? On the other hand, the poor have to spend on food, water, clothing and other basic necessities every day, raising an already high cost of living.
Of course, the government will point out how GST rebates are being distributed as a form of transfer payments. Yet, if these rebates are going to the poor and middle class, what is the rationale for GST, especially with all its inflationary pressures? After all, the middle class usually contribute the majority of such taxes.
Another policy practiced by Singapore is a progressive or graduated tax system. This system aims to increase the tax burden on the wealthy given that people in lower income brackets pay lower or no taxes. But there are several problems with this system. Because this policy taxes nominal and not real income, a rise in income levels lower than that of inflation may result in the arbitrary individual paying more taxes and causing a decrease in his disposable income.
This is especially true in a country as susceptible to inflation as Singapore. In addition, a study in US has shown that this ‘redistribution’ process only distributes 30 cents of every dollar appropriated to the intended recipients. Contrast this statistic to private charities where 70% of all donations tend to go directly into programs championed by the organisation and the argument for State welfare programs becomes a nonstarter.
Milton Friedman once said that “any reason to reduce taxes is a good reason”. Unfortunately, we seldom see tax decreases with talk of a possible third increase in GST rates even being considered. The State is inherently inefficient due to its bureaucratic nature and paying even more taxes will only serve to subsidise ever more wastage.
Simplifying tax, reducing bureaucracy
The solution here would be to implement a flat tax rate and eliminate GST altogether. The implementation of a flat tax would ensure that everyone pays the same tax rate while avoiding the pitfalls of climbing up tax brackets. It will ensure a fair and equitable system for everyone as recited in the Singapore pledge without unfair treatment of the more productive. Eliminating GST as a regressive tax will reduce the tax burden borne by the poor and middle class.
The registrar of charities should also be closed with the humanitarian sector in Singapore liberalised, reducing the red tape preventing such organisations from doing what they do best – helping those in need. The competition for donor dollars would encourage more transparency and accountability. This will largely avert the possibility of the financial irregularities that plagued NKF and RenCi in recent years.
Other than the provision of the most basic of infrastructure such as the rule of law and incorruptibility of leaders holding political office, all the State has to do is stay out of market functions and let the economy run its course. Unfortunately, that is becoming an increasingly difficult task with needless rules and regulations being introduced to reign in apparent economic ‘excesses’.
Very often, all that is necessary to lift the general welfare of the people is to eliminate all regulatory barriers to entry into the economy. Governments have never created prosperity through the use of active legislation. Singapore achieved first world status because the State mostly stayed out of the way while foreign MNCs operated or invested in the country. Starting from a low base, it is only expected that Singapore would achieve high economic growth, with or without the PAP, in the presence of the rule of law.

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Lim Tean criticizes Govt’s rejection of basic income report, urges Singaporeans to rethink election choices

Lim Tean, leader of Peoples Voice (PV), criticizes the government’s defensive response to the basic living income report, accusing it of avoiding reality.

He calls on citizens to assess affordability and choose MPs who can truly enhance their lives in the upcoming election.

Published

1 year ago

on

15 September 2023

By

SINGAPORE: A recently published report, “Minimum Income Standard 2023: Household Budgets in a Time of Rising Costs,” unveils figures detailing the necessary income households require to maintain a basic standard of living, using the Minimum Income Standard (MIS) method.

The newly released study, spearheaded by Dr Ng Kok Hoe of the Lee Kuan Yew School of Public Policy (LKYSPP) specifically focuses on working-age households in 2021 and presents the latest MIS budgets, adjusted for inflation from 2020 to 2022.

The report detailed that:

  • The “reasonable starting point” for a living wage in Singapore was S$2,906 a month.
  • A single parent with a child aged two to six required S$3,218 per month.
  • Partnered parents with two children, one aged between seven and 12 and the other between 13 and 18, required S$6,426 a month.
  • A single elderly individual required S$1,421 a month.
  • Budgets for both single and partnered parent households averaged around S$1,600 per member. Given recent price inflation, these figures have risen by up to 5% in the current report.

Singapore Govt challenges MIS 2023 report’s representation of basic needs

Regrettably, on Thursday (14 Sept), the Finance Ministry (MOF), Manpower Ministry (MOM), and Ministry of Social and Family Development (MSF) jointly issued a statement dismissing the idea suggested by the report, claiming that minimum household income requirements amid inflation “might not accurately reflect basic needs”.

Instead, they claimed that findings should be seen as “what individuals would like to have.”, and further defended their stances for the Progressive Wage Model (PWM) and other measures to uplift lower-wage workers.

The government argued that “a universal wage floor is not necessarily the best way” to ensure decent wages for lower-wage workers.

The government’s statement also questions the methodology of the Minimum Income Standards (MIS) report, highlighting limitations such as its reliance on respondent profiles and group dynamics.

“The MIS approach used is highly dependent on respondent profiles and on group dynamics. As the focus groups included higher-income participants, the conclusions may not be an accurate reflection of basic needs.”

The joint statement claimed that the MIS approach included discretionary expenditure items such as jewellery, perfumes, and overseas holidays.

Lim Tean slams Government’s response to basic living income report

In response to the government’s defensive reaction to the recent basic living income report, Lim Tean, leader of the alternative party Peoples Voice (PV), strongly criticizes the government’s apparent reluctance to confront reality, stating, “It has its head buried in the sand”.

He strongly questioned the government’s endorsement of the Progressive Wage Model (PWM) as a means to uplift the living standards of the less fortunate in Singapore, describing it as a misguided approach.

In a Facebook video on Friday (15 Sept), Lim Tean highlighted that it has become a global norm, especially in advanced and first-world countries, to establish a minimum wage, commonly referred to as a living wage.

“Everyone is entitled to a living wage, to have a decent life, It is no use boasting that you are one of the richest countries in the world that you have massive reserves, if your citizens cannot have a decent life with a decent living wage.”

Lim Tean cited his colleague, Leong Sze Hian’s calculations, which revealed a staggering 765,800 individuals in Singapore, including Permanent Residents and citizens, may not earn the recommended living wage of $2,906, as advised by the MIS report.

“If you take away the migrant workers or the foreign workers, and take away those who do not work, underage, are children you know are unemployed, and the figure is staggering, isn’t it?”

“You know you are looking at a very substantial percentage of the workforce that do not have sufficient income to meet basic needs, according to this report.”

He reiterated that the opposition parties, including the People’s Voice and the People’s Alliance, have always called for a minimum wage, a living wage which the government refuses to countenance.

Scepticism about the government’s ability to control rising costs

In a time of persistently high inflation, Lim Tean expressed skepticism about the government’s ability to control rising costs.

He cautioned against believing in predictions of imminent inflation reduction and lower interest rates below 2%, labeling them as unrealistic.

Lim Tean urged Singaporeans to assess their own affordability in these challenging times, especially with the impending GST increase.

He warned that a 1% rise in GST could lead to substantial hikes in everyday expenses, particularly food prices.

Lim Tean expressed concern that the PAP had become detached from the financial struggles of everyday Singaporeans, citing their high salaries and perceived insensitivity to the common citizen’s plight.

Lim Tean urges Singaporeans to rethink election choices

Highlighting the importance of the upcoming election, Lim Tean recommended that citizens seriously evaluate the affordability of their lives.

“If you ask yourself about affordability, you will realise that you have no choice, In the coming election, but to vote in a massive number of opposition Members of Parliament, So that they can make a difference.”

Lim Tean emphasized the need to move beyond the traditional notion of providing checks and balances and encouraged voters to consider who could genuinely improve their lives.

“To me, the choice is very simple. It is whether you decide to continue with a life, that is going to become more and more expensive: More expensive housing, higher cost of living, jobs not secure because of the massive influx of foreign workers,” he declared.

“Or you choose members of Parliament who have your interests at heart and who want to make your lives better.”

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Political observers call for review of Singapore’s criteria of Presidential candidates and propose 5 year waiting period for political leaders

Singaporean political observers express concern over the significantly higher eligibility criteria for private-sector presidential candidates compared to public-sector candidates, calling for adjustments.

Some also suggest a five year waiting period for aspiring political leaders after leaving their party before allowed to partake in the presidential election.

Notably, The Workers’ Party has earlier reiterated its position that the current qualification criteria favor PAP candidates and has called for a return to a ceremonial presidency instead of an elected one.

Published

1 year ago

on

5 September 2023

By

While the 2023 Presidential Election in Singapore concluded on Friday (1 September), discussions concerning the fairness and equity of the electoral system persist.

Several political observers contend that the eligibility criteria for private-sector individuals running for president are disproportionately high compared to those from the public sector, and they propose that adjustments be made.

They also recommend a five-year waiting period for aspiring political leaders after leaving their party before being allowed to participate in the presidential election.

Aspiring entrepreneur George Goh Ching Wah, announced his intention to in PE 2023 in June. However, His application as a candidate was unsuccessful, he failed to receive the Certificate of Eligibility (COE) on 18 August.

Mr Goh had expressed his disappointment in a statement after the ELD’s announcement, he said, the Presidential Elections Committee (PEC) took a very narrow interpretation of the requirements without explaining the rationale behind its decision.

As per Singapore’s Constitution, individuals running for the presidency from the private sector must have a minimum of three years’ experience as a CEO in a company.

This company should have consistently maintained an average shareholders’ equity of at least S$500 million and sustained profitability.

Mr Goh had pursued eligibility through the private sector’s “deliberative track,” specifically referring to section 19(4)(b)(2) of the Singapore Constitution.

He pointed out five companies he had led for over three years, collectively claiming a shareholders’ equity of S$1.521 billion.

Notably, prior to the 2016 revisions, the PEC might have had the authority to assess Mr Goh’s application similarly to how it did for Mr Tan Jee Say in the 2011 Presidential Election.

Yet, in its current formulation, the PEC is bound by the definitions laid out in the constitution.

Calls for equitable standards across public and private sectors

According to Singapore’s Chinese media outlet, Shin Min Daily News, Dr Felix Tan Thiam Kim, a political analyst at Nanyang Technological University (NTU) Singapore, noted that in 2016, the eligibility criteria for private sector candidates were raised from requiring them to be executives of companies with a minimum capital of S$100 million to CEOs of companies with at least S$500 million in shareholder equity.

However, the eligibility criteria for public sector candidates remained unchanged. He suggests that there is room for adjusting the eligibility criteria for public sector candidates.

Associate Professor Bilver Singh, Deputy Head of the Department of Political Science at the National University of Singapore, believes that the constitutional requirements for private-sector individuals interested in running are excessively stringent.

He remarked, “I believe it is necessary to reassess the relevant regulations.”

He points out that the current regulations are more favourable for former public officials seeking office and that the private sector faces notably greater challenges.

“While it may be legally sound, it may not necessarily be equitable,” he added.

Proposed five-year waiting period for political leaders eyeing presidential race

Moreover, despite candidates severing ties with their political parties in pursuit of office, shedding their political affiliations within a short timeframe remains a challenging endeavour.

A notable instance is Mr Tharman Shanmugaratnam, who resigned from the People’s Action Party (PAP) just slightly over a month before announcing his presidential candidacy, sparking considerable debate.

During a live broadcast, his fellow contender, Ng Kok Song, who formerly served as the Chief Investment Officer of GIC, openly questioned Mr Tharman’s rapid transition to a presidential bid shortly after leaving his party and government.

Dr Felix Tan suggests that in the future, political leaders aspiring to run for the presidency should not only resign from their parties but also adhere to a mandatory waiting period of at least five years before entering the race.

Cherian George and Kevin Y.L. Tan: “illogical ” to raise the corporate threshold in 2016

Indeed, the apprehension regarding the stringent eligibility criteria and concerns about fairness in presidential candidacy requirements are not limited to political analysts interviewed by Singapore’s mainstream media.

Prior to PE2023, CCherian George, a Professor of media studies at Hong Kong Baptist University, and Kevin Y.L. Tan, an Adjunct Professor at both the Faculty of Law of the National University of Singapore and the NTU’s S. Rajaratnam School of International Studies (RSIS), brought attention to the challenges posed by the qualification criteria for candidates vying for the Singaporean Presidency.

In their article titled “Why Singapore’s Next Elected President Should be One of its Last,” the scholars discussed the relevance of the current presidential election system in Singapore and floated the idea of returning to an appointed President, emphasizing the symbolic and unifying role of the office.

They highlighted that businessman George Goh appeared to be pursuing the “deliberative track” for qualification, which requires candidates to satisfy the PEC that their experience and abilities are comparable to those of a typical company’s chief executive with shareholder equity of at least S$500 million.

Mr Goh cobbles together a suite of companies under his management to meet the S$500m threshold.

The article also underscored the disparities between the eligibility criteria for candidates from the public and private sectors, serving as proxies for evaluating a candidate’s experience in handling complex financial matters.

“It is hard to see what financial experience the Chairman of the Public Service Commission or for that matter, the Chief Justice has, when compared to a Minister or a corporate chief.”

“The raising of the corporate threshold in 2016 is thus illogical and serves little purpose other than to simply reduce the number of potentially eligible candidates.”

The article also touches upon the issue of candidates’ independence from political parties, particularly the ruling People’s Action Party (PAP).

It mentions that candidates are expected to be non-partisan and independent, and it questions how government-backed candidates can demonstrate their independence given their previous affiliations.

The Workers’ Party advocate for a return to a ceremonial presidency

It comes as no surprise that Singapore’s alternative party, the Workers’ Party, reaffirmed its stance on 30 August, asserting that they believe the existing qualifying criteria for presidential candidates are skewed in favour of those approved by the People’s Action Party (PAP).

They argue that the current format of the elected presidency (EP) undermines the principles of parliamentary democracy.

“It also serves as an unnecessary source of gridlock – one that could potentially cripple a non-PAP government within its first term – and is an alternative power centre that could lead to political impasses.”

Consistently, the Workers’ Party has been vocal about its objection to the elected presidency and has consistently called for its abolition.

Instead, they advocate for a return to a ceremonial presidency, a position they have maintained for over three decades.

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