Monday, 28 February 2011

Room for fresh ideas on income gap

I wrote this over Saturday morning. The ideas in this piece had been percolating in my head over the past week, and they all came together and gushed out over a few hours. First published in today's TODAY.

Room for fresh ideas on income gap

Keep our economic model, but set up endowment to fund measures to ensure a minimal standard of living

05:55 AM Feb 28, 2011

As I thought about last week's Budget statement, a quote by Albert Einstein kept playing in my head. The pre-eminent genius of the 20th Century once said: "The definition of insanity is doing the same thing over and over again and expecting different results."

I am of course not suggesting in any way that the Government is mad, but what struck me most about the Budget - which Parliament will debate today - was that it was pretty much more of the same, albeit "upsized" for the anticipated elections: More ad hoc special transfer payments to help the low-income, more tax incentives to increase productivity, more funding for training and research and development, so on and so forth.

Finance Minister Tharman Shanmugaratnam said that Singapore's approach to helping the low-income must "remain centred on opportunities, not entitlements".

Many Singaporeans would agree with this, and they would disagree with the need to change a winning formula when the past policies have worked.

But I would hazard that most of those stuck at the wrong end of the widening income gap would disagree about the past policies having worked. Based on Department of Statistics figures, the Gini coefficient increased from 0.442 in 2000 to 0.472 last year, or from 0.430 to 0.452 if government special transfers are taken into account. So it is understandable for the low-income to question if more of the same would really address the issue.

At a forum at the National University of Singapore (NUS) last Tuesday, economist and NUS assistant professor Chia Ngee Choon noted that the Government's targeted 30-per-cent increase in productivity over the next 10 years would probably be achieved only by the middle and upper class, and asked: "Does this tide of economic growth raise all boats? It may raise only those in the middle income and above." In other words, the opportunities may be there, but they will fall largely to the middle- and high-income.

If the strategies used in the past have not successfully addressed one of the most critical socio-economic issues facing Singapore, why then would more and more of the same lead to a different outcome this time?

I am not advocating the wholesale abandonment of our existing economic model. But surely it is time for a fresh think about how to address the widening income gap.

For starters, the way we characterise and think about a stronger social safety net has to change. I am not calling for a Nordic-style cradle-to-grave social welfare system, or for the Government to use generous benefits backed by punitive taxes to equalise incomes across society.

But we have the room and resources for institutionalised social welfare measures to ensure a minimal standard of living reasonably commensurate with our overall developmental status as a society.

Anything beyond that minimal level should not be based on entitlement, but must instead result from the opportunities that the Finance Minister talked about, which we have to work hard to keep open to all. Entitlements and opportunities do not have to be mutually exclusive.

Some will argue that this would represent a dangerous first step down a slippery slope of ever-shriller calls for increased benefits. But this argument implies a willingness to disregard the suffering of our less-fortunate brethren, simply because of a theoretical risk that our Government cannot resist public pressure.

We can also mitigate any such "slippery slope" risk by funding such measures through a substantially-funded endowment fund, and topping up the fund only when resources are available - much like what is being done with the ElderCare and Comcare funds, as well as the National Research Fund.

The Government had, in its National Report for the United Nations' Universal Periodic Review process submitted recently, affirmed that "Singapore fully subscribes to the principles enshrined in the Universal Declaration of Human Rights (UDHR)".

The UDHR provides for everyone to have the rights to social security and an adequate standard of living. But the latest Budget measures fall short of those commitments.

Government surveys have found that a four-person household needs about S$1,700 per month to cover basic costs of living, according to Professor Kishore Mahbubani, Dean of the Lee Kuan Yew School of Public Policy. Yet statistics show many low-income households in Singapore fall below this threshold, and there were no Budget measures to specifically rectify this.

Ad hoc transfers like the one-off "Grow and Share" package in this year's Budget fall short of what our commitment to the UDHR requires, depending as they do on the existence of surpluses and the discretion and generosity of the government of the day.

In his New Year message at the start of this year, Prime Minister Lee Hsien Loong identified the widening income gap as a key concern to tackle. The lack of fresh ideas in the Budget statement was therefore disappointing. Hopefully this will change after the Budget debate that starts today.

Siew Kum Hong is a corporate counsel and the vice-president of MARUAH (Working Group for an ASEAN Human Rights Mechanism, Singapore), a human rights NGO and gazetted political association.


Hri Kumar said...

Kum Hong,

How does this idea work? If an able-bodied person decides that he does not want to work, do we all have to ensure that he has a "minimal standard of living"?

If he is earning a living, but refuses to upgrade himself, do we pay him the difference between what he earns and the "minimum" sum he needs? Where is the money from the endowment fund going to come from - all of us I presume?

How much will such a fund require as a start and how much do we need to replenish it annually? What programs or other expenditure are we dropping to fund it? Unless these questions (and many others) are answered, I am afraid you have wasted a Saturday."

The Pariah said...

I am NOT convinced about "Grow and Share" managed by Govt. It is more of "Destroy and Dissipate" facilitated by Govt hand-in-hand with Market.

EXAMPLE: En bloc law that facilitates or forces monetization of the main (or only) crown jewel bought with CPF savings slated as retirement nest-egg.

Instead of helping Singaporeans to grow and preserve wealth on SAME and INTER-GENERATIONAL BASIS - esp with (i) rapidly ageing demographics (Singapore has one of the fastest rate of ageing in the world) and (ii) rocketing healthcare costs (Singapore spends one of the lowest percentage of GDP on healthcare in the world - even less than African countries net of Medisave reimbursement), what did the PAP Govt do under the en bloc law?

With track record from 1999 when en bloc law was first incepted, there is ample statistics to prove the prevalent "Double the price; Half the size" anecdotal accounts post-en bloc. But the PAP Govt chose to keep mum whilst flying their purported flag of "Transparency and Accountability".

Post-en bloc, who benefits?

(A) Corporate developers.

(B) Foreigners (percentage of foreign ownership in prime areas is higher).

(C) Flippers and specu-vestors (despite hot-air exhortations about home, community, rootedness, bubbles).

The PAP Govt hypes about the purported "will of the majority" and "free market forces" based on their careful calibration to skew the en bloc law.

Who is left out in the cold?

Owner-occupiers with only one residential property who heeded PAP Govt exhortations NOT to over-commit CPF savings into real estate.

SOLUTION: Mandate one more settlement option for qualifying owner-occupiers - One-for-one exchange on same strata area, same floor level and same geographic orientation of living room main window.

Post-en bloc, these owner-occupiers become Squatters, Refugees, Downgraders and Downsizers with a SUB-PRIME ASSET that continues to form a substantive proportion of their entire portfolio for retirement.

But who cares, eh?

NOT Hri Kumar, NOT the PAP.

The Pariah said...

The growing Gini co-efficient is likely due to pulls and pushes at opposite ends of the income spectrum.

Push-ups at the top end are likely having more impact, especially with more accentuated booms-and-busts within shorter time cycles ... because of PAP's shifts in economic sectoral focus towards, eg, pharma, semi-cons, fund management that are traditionally and inherently highly cyclical.

ASSUMPTION: If (a big IF)we “accept” GDP Bonus as a single KPI is appropriate regardless of primary job focus of different ministers and senior civil servants in charge of matters ranging from national reserves to drains.

QUESTION 1: Why is GDP Bonus not pegged to average GDP Growth over the electoral term or 5 years, whichever is longer, on an accrual basis?

QUESTION 2: Why is there no provision for clawback for negative GDP performance?
[Bankers' bonuses in future would be clawed-back under the upcoming regime post-Wall Street fiasco.]

Current PAP pay structure for ministers and senior civil servants:

20% GDP Bonus PLUS
27% Job-Perf Bonus

47% Total Variable Component

QUESTION 3: Wouldn't ministers and senior civil servants be motivated towards Volatility (rather than Stability) under above pay structure?

Example of two scenarios over 4 years:

(A) GDP Growth:

- Volatile Model

Year 1 - 0%
Year 2 - 10%
Year 3 - 0%
Year 4 - 10%

- Stable Model
Years 1 to 4 - 3% each

(B) GDP Bonus:

- Volatile Model:
16 months' bonus over 4 years
[0 bonus for two years and 8 months' bonus for two years (8 x 2 = 16)]

- Stable Model: 12 months' bonus over 4 years
[3 months' bonus for each of the four years (3 x 4 = 12)]

IF proposed averaging is applied for GDP Bonus computation, then even the Volatile Model would yield the same 3 months' bonus for each of the four years.

I don't hanker even for one peanut in offering this alternative.

"DO RIGHT" BY THE PEOPLE - that's the driving motivation.

Not peanuts.

If you are a small monkey, you hanker for small peanuts. If you are a big gorilla, you go for big peanuts.

It is bad enough to have monkeys in your house. What should we do when we already have gorillas inside?

Siew Kum Hong said...

@Hri thanks for the comment. Your questions are important enough that I've posted my response in a blog post: