3 Ways Income Inequality Can Be Reduced in Singapore

3 Ways Income Inequality Can Be Reduced in Singapore

Picture this: you’re standing by the side of the street at 10pm, exhausted after a gruelling day of work, and desperately trying to flag a taxi home. The MRT just broke down, leaving you stranded in the middle of nowhere, and Grab and Uber surge pricing is high sky, so you have no other option.

All off a sudden, a Ferrari zooms by, driven by a boy who looks twenty-one and will probably never have to work a day in his life.

That’s what income inequality feels like to many Singaporeans.

According to a recent report, income growth is slowing for less well-off Singaporeans. This means that, unless something is done about it, income inequality looks set to rise in Singapore.

How do we prevent income inequality from rising without mimicking welfare states and expecting everyone to pay massive income taxes? Here are some suggestions.


Redistribute the tax burden to the wealthy

Singapore will never be a welfare state. Such a massive overhaul of the system would be too much for this country, and our entire economy would collapse.

Be that as it may, it’s important to ensure that the taxes Singaporeans do pay redistribute wealth to those at the bottom.

Under our current system, income taxes are very low. However, consumption tax in the form of GST, vice taxes and COE is quite high. 23% of the government’s tax revenue in 2015/2016 came from GST (as opposed to 21% coming from income tax). And now that the GST will be hiked up to 9% in a few years, this percentage looks set to rise.

The trouble is, consumption tax like GST actually increases the burden on the lower income groups. That’s because a lower income person is likely to spend a larger percentage of his income on goods and services on which GST is payable.

Meanwhile, wealthier people are able to save and invest a larger percentage of their income, meaning a lower percentage of their money will be spent on consumption tax.

In order to battle income inequality, the government will have to find a way to shift the tax burden to the wealthy.


Remove streaming from the education system

When a recent study announced that there is a clear divide amongst social classes in Singapore, and that elite school students tend to have fewer ties with non-elite school students, nobody was surprised.

Streaming begins as early as Primary 4 when students are placed in the EM1, EM2 or EM3 streams according to their results in the exams. In Primary 6, students are sorted into secondary schools according to their PSLE results. Obviously, streaming students so often and so tightly at such an early age clusters all the academically stronger students (who are also more likely to be from wealthy families). These students are grouped together in elite schools that have better resources than regular schools.

Meanwhile, in schools with larger numbers of Normal Tech classes and fewer Express classes, there are disproportionate numbers of students from broken homes or who’ve suffered abuse. For these kids, doing well academically is an uphill battle as they’re surrounded by other underachievers, and even their teachers often think they can’t do better. They also lack the social capital of those in elite schools, which makes things harder for them in adult life.

As a result of the streaming system, a doctor or lawyer in Singapore is less likely to have childhood friends working in blue collar jobs, while ITE students are less likely to have close friends with university degree holders.

Some people are still in favour of the streaming system as they feel it helps academically students get ahead. Be that as it may, there is no question that it exacerbates both social and income inequality.


Raise wages at the bottom

Income growth for low-wage Singaporeans has been an issue for quite some time, and the government has tried to redress this with initiatives like the Workfare Income Supplement scheme, that raised cleaners’ minimum income to $1,000 a month, or $1,200 a month for those cleaning hawker centres.

While the government has insisted that a minimum wage is not the way to go, more care should be taken to ensure that incomes at the bottom do not continue to stagnate.

We’re not at all against using foreign labour to plug the gaps in our workforce, but there is some merit to the argument that foreign labour has suppressed the wages of low-income workers.

A common refrain is that foreigners are brought in to do jobs that Singaporeans “don’t want” to do. But at the same time, foreign labour can also undercut wages to the point where they are too low to supply a living wage to Singaporeans.

It is not that Singaporeans don’t want to do the jobs, but that they can’t survive doing them, as they do not have the option of sharing a room with other workers for a few years and then returning to a more inexpensive home country.

The government needs to be vigilant about raising the wages of lower income workers, and to be aware that businesses have the tendency to want to keep wages low and try to get foreign labour to take up jobs that fall below a certain wage threshold. If wages at the bottom aren’t rising at the same pace as everyone else’s, then income inequality can only worsen.

Do you think income inequality is a serious problem in Singapore? Share your views in the comments.