Following complaints about a widening gap between rich and poor, our government has succeeded in reducing inequality. The Gini coefficient, which measures inequality has fallen to 0.41 in 2013 from 0.48 in 2012. A Gini coefficient of one means complete inequality with all the money in the hands of one man. A Gini coefficient of 0 means all the money is equally distributed.
For comparison sake the Gini ranges from a high of about 63 in South Africa/Lesotho to a low of 23 in Sweden, according to the CIA world Factbook. See above link. The Gini for the UK, USA and China are 0.40, 0.45 and 0.47 respectively. Please note that the figures in the link are not from 2013. But they do give an idea of where we stand - somewhere in the middle. So there is no reason to complain about inequality in Singapore. Too much or too little inequality is bad in my view.
A major reason for the fall in inequality was the government payments to low income households. If not for that, the Gini would have fallen to only 0.46 instead of 0.41, the lowest since 2000. The drop from 0.48 to 0.46 was largely due to stricter rules in employing foreign workers.
Curtailing foreign workers compelled employers to hire lower skilled Singaporeans at higher wages.This also reduced the profits of the employers who hired them or even put them out of business. This had the effect of reducing the income of those in the high income group. Higher wages for the bottom strata and lower profits or even losses for the “towkays” mean less inequality.
But there is no free lunch in economics. Inequality is achieved by higher prices for everyone. Our bus drivers and mechanics are mostly foreign workers. Imagine what would happen if we fire them and replace them with Singaporean bus mechanics and drivers. Bus fares will have to go up or the bus company will go broke.
Without foreign workers, our garbage collectors may be paid as much as what Australian garbage collectors earn. Australia does not have a policy of importing foreign workers and have to pay high wages for their citizens to do jobs they are not keen to do. The starting salary of a garbage collector is $42,000 per year, according to this link. (In comparison, the starting salary of an Australian accountant is $35,000 per year.)
As a result, it is too expensive for the garbage to be collected once a day in Australia as in Singapore. Typically, Australian garbage is collected once a week. Singaporeans do not realize that a lot of things are cheap here because of foreign labour.
A strategy of continually reducing foreign workers will backfire on us. That is because costs will only go up. The rich can better afford higher costs. But the middle class will be badly hit. So if you want less foreign workers, the guy who is going to suffer the higher cost of nearly everything is the guy you see in the mirror.
If our government seeks to reduce inequality further by making more payments such as workfare to the lower income group, then a point will be reached when we have to raise taxes. Higher taxes also come at a price. It means slower economic growth and higher unemployment as businesses relocate to lower tax countries. Too much equality results in a stagnant economy and eventually poverty. A good country to compare with is the UK, our former colonial master. To fund its more extensive social spending, it has to tax its people very heavily. Its VAT (similar to our GST) is 20%. But its Gini coefficient is only negligibly lower at 0.40.
High taxation is a job killer. The UK’s unemployment rate is higher than ours. Its per capita GDP is lower than ours which means we are richer than they are. The World Health Organization has rated its health care worse than ours. Of course, being richer means we can afford to buy better health care. So it is important to adopt pro-growth policies like low taxes to make our country even richer.
Of course, too much inequality is also bad. It risks tearing of the social fabric as people from the lower income group will resent those who make more money. If the gap is too wide, it could lead to riots. The Gini coefficient should be at a level where social peace can just be kept and economic growth kept as high as possible. Ultimately, even the poorest Singaporeans will benefit from economic growth in the long run. The problem is that pro-growth policies mean a wider gap between rich and poor which risks tearing the social fabric.
I am reminded of the wise words of Winston Churchill, Britain’s wartime leader who saved his country. He said, “The inherent vice of capitalism is the unequal sharing of miseries; the inherent virtue of socialism is the equal sharing of miseries.”
Cass Owary
TRS Contributor