Photo of FOSG forum by Tay Kheng Soon

Low levels of welfare makes UBI expensive to implement in Singapore

by Chris Kuan

At the Future of Singapore (FOSG) forum on the economic and social causes of poverty, a Finnish exchange student asked Yeoh Lam Keong, former GIC chief economist about his opinion regarding the Universal Basic Income (UBI) which is undergoing an experiment in Finland. Lam Keong said that the UBI is very expensive to fund and that he preferred basic income for the lower rungs of income earners. I did not have a chance to debate with him as the forum was closed after his remarks.

In the debate over the UBI, some of the key essential features of the UBI got lost in the one key reason we are talking about the UBI – that is as a response the advent of the AI revolution where employment will be lower and income disparity becomes wider. What are the key essential features that are missing?

First, UBI has to be universal (i.e. even the rich gets a UBI) in order to avoid the cliff effect that has been a major problem in disbursing welfare. That is to say, there is a huge disincentive at the point where a welfare recipient’s earned income exceeded his/her eligibility for welfare. Therefore any additional income earned over this point generates a massive “tax” since his total disposable income fell sharply (like a cliff) as welfare is withdrawn, even though he is earning more from work. The UBI removes this cliff effect.

Second, there is a lot of misconception about the UBI in that it is often seen in isolation from the entire tax and spend framework of the government providing the UBI.

The UBI is not an extra freebie – it is to replace a whole swath of welfare benefits. The UBI is expensive because it covers every citizen, but it is not as expensive if we consider the reduction in expenditures in social entitlements, e.g. state pension which is a huge liability to a welfare state, unemployment benefits, etc. Given that social security and welfare comprised upwards of 50% plus of a typical European government budget – the reduction in social entitlements would have reduce the expense of funding a UBI.

But In the Singapore context, therein lies the problem in the implementation of a UBI. The Singapore government did not spend much on welfare so a Singapore UBI cannot be part funded by a reduction in welfare. That makes the UBI extraordinarily expensive to Singapore but that is entirely the government’s own doing.

Editor’s note – With more and more automation in the workforce and the eventual introduction of advanced Artificial Intelligence that can take over the jobs of low skilled workers, governments around the world have to relook at how its population that survives on low-skilled work is to be cared for. There will come a time where government cannot simply say that one has to fend for him or herself by working, when there is no more paying jobs for their skill set available in the market (No…SkillsFuture will not address this problem). Examples of how that it will take place, we already have such scenarios where people who stay at home to look after their kids or aging parents with illness, not being paid for their work and have to think of means to sustain their living. The disruption to the existing economic model is soon coming and governments along with its population have to be prepared for it, in mindset and in policies.

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