Essay on Reducing Income Inequality in Singapore

Introduction

Singapore has a high-income inequality level that has been growing and linked to fast economic growth it is currently experiencing. According to Organisation for Economic Co-operation and Development (OECD) nations, Singapore was ranked as the second at 0.458 below Chile at 0.465, in having the greatest income inequality level among the developed states (Solt, 2016). In the majority of developing nations such as India, Brazil, and China, strong economic development is a principal factor which is causing income inequality. Additionally, the achievements from economic development are shared unequally among citizen. Conversely, the rich persist to be wealthier at the expenditure of the deprived. In Singapore, there are various economic pointers which reveal its economic growth. For instance, in 2010, its GDP grew by 14.7% which was the highest economic growth rate globally. Additionally, since 1989, Singapore per capita has increased drastically from sixteen thousand dollars to forty-eight dollars (McCarthy, 2011). These and other economic indicators back Singapore's economic objectives where it intends to permit every family to live with the self-sufficiency of materials and dignity. Therefore, the most appropriate ways of reducing income inequality that Singapore should introduce is the idea of minimum wage, redistribution of the tax burden to the rich, and strengthen social security.

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Minimum wage denotes the lowest salary that employees can legally receive from their employers. Employers in Singapore should not be permitted to remunerate their workers at a rate which is below the prevailing market rates. For low-income Singaporeans, income growth has recently become a problematic subject which has made the government attempt to redress it via initiatives such as the Workfare Income Supplement project. This scheme furthermore has, for example, increased the minimum income for cleaners to $1,000 and to $ 12,000 monthly for cleaners who clean hawker centers (Poh, 2018). The government requires to be vigilant concerning the issue of increasing the salaries of low-income earners and recognize that enterprises have the tendency to keep salaries low. This is because where income at the bottom is not increasing at the same rate as the rich's, the income inequality in Singapore will only become worse. Therefore, to reduce income inequality for at least 20% of low-income Singaporeans, a binding minimum wage fixed higher than market wage will increase their salaries hence decreasing income inequality level.

Redistribution of the tax burden to the rich is also an essential approach that Singapore can adapt to reduce income inequality. Under the present Singapore taxation system, income taxes are minimum. On the other hand, consumption tax in the form of goods and services tax, Certificate of Entitlement, and vice taxes is additionally high. For instance, in 2015/2016, government tax income of 23% was derived from GTS which was in contrast to 21% income revenue obtained from income tax (Pickett & Wilkinson, 2015). The problem was that consumption tax such as GTS raised the burden on the low-income earners since they spent more of their salaries on products and services where GTS is payable (Dhamani, 2008). Conversely, rich people are able to invest and save a bigger portion of their revenue which denotes that they spend less on the consumption tax. Therefore, to reduce income inequality, the Singapore government should adopt measures which would shift the tax burden to the rich. One of these measures includes re-instating the tax-regime which was reducing income inequality. It could also adopt the graduate rate system evident in the United States federal tax that shifts higher tax responsibilities to earners whose revenues increase at a faster rate. At the same moment, the low-income earners should be subjected to refundable earned income tax credit abbreviated as EITC. Additionally, the Singapore government can also introduce a taxation mechanism where individuals are taxed centered on their expenses and assets rather than on their salaries (McCarthy, 2011). This can be through progressive GST where tax can be different, for instance, on the usage of expensive products and possession of luxury commodities which can be exposed to higher taxes compared to fundamental products.

Strengthening social security is additionally a fundamental policy to reduce income inequality. Wider public aid systems merged with risk pooling by the Singapore government in CPE structure are some of the most suitable approaches to reduce income inequality. In Singapore, the Public Assistance Program is an anti-poverty initiative which was developed for protection of retirement income and poverty alleviation (Dhamani, 2008). However, it encompasses of limited self-funding Central Provident Fund abbreviated as CPF. Thus, while the number of aging population increases in Singapore, it is essential that the assistance programs be wider depending upon durable organizational, institutional, and fiscal abilities of its government. Additionally, the criteria for entitlement should be generalized to ensure that individuals with limited formalities and procedures' knowledge also benefit from CFE and that the government does not use much on transactional expenses than they utilize on real benefits. Furthermore, it is essential to recognize that a single-tier, which include mandatory savings, for example, CPE Life scheme is not adequate to offer disability merits and handle inflation risks. Therefore, the Singapore government is required to introduce a multi-tier structure combined with benefits and contribution schemes, in that there is a greater level of risk pooling compared to that in the current CPE Life scheme. Takayama (2017), stated that the multi-tier would be sufficient in relinquishing the requirements of the fast aging population in Singapore. He also stated that it would additionally abolish the anxiety and vulnerability faced by low-income earners regarding their future hence reducing their income inequality.

Conclusion

Income inequality has been found to be high in Singapore according to various sources. It has been discovered to be a significant concern which should be addressed if Singapore government wants to achieve its objectives of self-sufficiency of materials and dignity. Therefore, minimum wage, redistribution of the tax burden to the rich, and strengthening social security has been found to be the most fundamental approaches as supported by various scholars that Singapore can adapt in efforts to achieve these aims.

References

Dhamani, I. (2008). Income inequality in Singapore: Causes, consequences and policy options. Singapore, National University of Singapore.

McCarthy, A. (2011). How Do You Support Low-Income Workers To Reduce Inequality? - A Singapore Case Study. Retrieved from https://ajmccarthynz.wordpress.com/2011/01/07/how-do-you-support-low-income-workers-to-reduce-inequality-a-singapore-case-study/

Pickett, K. E., & Wilkinson, R. G. (2015). Income inequality and health: a casual review. Social science & medicine, 128, 316-326.

Poh, J. (2018). Ways Income Inequality Can Be Reduced in Singapore. Retrieved from https://blog.moneysmart.sg/opinion/3-ways-income-inequality-can-reduced-singapore/

Solt, F. (2016). The standardized world income inequality database. Social science quarterly, 97(5), 1267-1281.

Takayama, N. (2017). Several Questions on Basic Ideas of the 1994 World Bank Report" Averting the Old Age Crisis."