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Saturday January 13th 2018

Why the poor will get poorer and rich will get richer in Singapore

The government will likely raise GST next year to shore up its coffers in order to help out the poor more – that’s probably the official excuse we will hear from them.

When they raised GST to 7% almost ten years ago on 1st July 2007, the same reason was also given ie to top up the government’s budget so that they could spend more on social and welfare services.

For every percentage point increase in GST, tax revenues could go up by about S$1.5 billion and it is a tax that is difficult to evade unlike corporate or personal income tax. For the 2017 financial year, $11 billion GST was collected – about 16% of the government’s total operating revenue of $70 billion.

Who are The Poor?

Without a proper poverty line, it is difficult to determine how many are the actual poor people living in Singapore right now.

Are those who have no homes, nothing to eat and without any proper income deemed poor and thus deserve more help?

How about those who live in our rental flats but struggle to pay bills of all kinds in order to survive to their level best?

To be fair, the government has poured in alot of money through ComCare – a large-scale welfare social initiative to help the poor and elderly through the five Community Development Council (CDC).

Financial wizard Mr Leong Sze Hian has written an article about how the government spent only 0.1% or $130 million of our $400 billion GDP in 2016 on ComCare benefitting 40,000 households.

Moreover, according to the World Bank data in 2014, the government spent a mere 4.9% of our GDP on healthcare which is ranked right below most OECD countries. Countries like US, Sweden, Denmark, Japan and Switzerland spent above 10% of their GDP on healthcare. Mr Heng Swee Keat says the government will hope to increase healthcare expenditure from $4 billion in 2010 to $10 billion this year to about $13 billion by 2020.

Poor People’s Campaign

Our Poor People’s Campaign reveals that at least one out of 10 people we visited either have no water supply ie reduced to a mere trickle due to prolonged non-payment of SP bill or no power supply due to the inability of the occupants to pay their utilities bill on time. They probably belong to the poorest of our poor people here.

For those who used a power meter box which acts like a Ezy card, when the value dips to zero value you will face a power shut-down and everything stops working.

There are families we knew who need to sleep outside at the shopping mall as their power has being cut due to a lack of funds to top up their Pay U meter. Sleeping in a air-con mall in the open beats lying down with perspiration in your own flat without a fan blowing in your face.

So how many people are considered poor in Singapore? My personal take is that about 60,000 families may have fall into that category going by how many rental flats we have right now. If you have a minimum of four family members living in that household, you are looking at a figure of around 240,000.

Acquiring a rental flat from the government is not as easy as it looks as the total household income must not be above $1500 and you need to pay rent too which can be as high as $300 depending on how much you earn. The tenancy usually lasts around 2 years before you reapply for an extension.

The government has rammed up supplies for rental flat units from 42,000 units in 2007 to 60,000 by this year. It is not a good sign though as it reflects the real economic barometer of the livelihood hardship face by many ordinary Singaporeans struggling amidst a escalating rise in the cost of living.

Malays also form about a third of the 60,000 households living in rental flats and many have being living in rental units since they are born. Some even have their parents living in a rental place within the same block where they are staying reflecting the difficulty of many who are poor to escape from the poverty cycle.

Many live like their parents before them struggling with all kinds of bills and constantly going round in their own economic duress of under-employment or unemployment. The low wage offered for blue-collared work does not help many to ever have the opportunity to lift themselves out of the economic abyss.

Rental flats also do not really provide much optimism to the poor especially for those who have being doing so all their entire life. In fact, a report by Channelnewsasia dated 5 Dec 2016 “8 things you should know about Singapore’s wage gap” reveals that many of us made our wealth from the property market.

As the flats we own grow in value in tandem with the current prevailing economic growth, many Singaporeans get to enjoy the fruits of our prosperity by selling the property and if its a discounted HDB BTO flat, the premium one gets to enjoy can be a life-time of savings. They then upgrade to a bigger unit or even a private property to reflect their status.

A poor person who lives in a rental flat has no such luxury as he doesn’t own the flat but rent it from the HDB using only cash. So, he can never ever have the chance to participate in the country’s economic prosperity.

Moreover, according to the report by Credit Suisse, 73% of Singapore’s wealth is owed by the wealthiest 20%. The bottom 20% owns only 1% of the country’s wealth.

It is not surprising that as the rich gets richer their wealth will also grow thus furthering the wage gap but the other spectrum also holds true – the poor will get poorer if nothing changes along the way as inflation and any tax increase will affect them far more severely.

The government has also removed the Estate Duty tax on the rich in 2008 to welcome foreigners to bring in their wealth further widening the gap between the in-coming rich foreigners and local poor Singaporeans. Singapore is now considered a notable haven for the secret storage of illicit funds from abroad as no question will be asked as to how the wealth is earned or acquired.

With the speculation that our government may rise GST in next year’s 2018 budget, the poor will in all likelihood suffers the most from this move despite the assurance that they will continue to receive GST rebates to enable them to cope with the regressive tax.

Another way out for the poor to be able to cope better with the GST increase is for the government to spread the taxes e.g. necessity goods such as milk, rice, sugar, oil, pampers, etc be exempted from GST so that the poor will not suffer so much when they purchase essential household items.

To the rich, a 2% increase is negligible but to the poor any form of tax increase on essential products will greatly impair their economic expenditure as every dollar counts.

Disadvantages of being poor

A lack of minimum wage legislation further dampens the hope of many of our poor from ever having the chance to improve on their livelihood. Many earn around $7/hour on average and their miserable income means that they usually struggle from hand to mouth with no savings whatsoever. The motivation to work is also not there due to the ultra-low wages.

Far more significantly, this group will probably not have enough savings in their CPF to prepare them for retirement further taxing the government’s coffers in their latter years. As we are a rapidly ageing population, this will have serious ramifications as by next year those who belong to the group age above 65 years old will equal those age below 15 years old for the first time in our short history.

Between 1965 and this year, Singapore’s population grew from 1.9 million to 5.5 million. However, the number of citizens aged 65 and above is increasing rapidly, as population growth slows. The size of this group of citizens doubled from 220,000 in 2000 to 440,000 today, and is expected to increase to 900,000 by 2030 (source: https://www.gov.sg/news/content/singapore-feeling-impact-of-rapidly-ageing-population)

Moreover, many of our poor do not have ready access to  any proper formal education which further deters them from ever escaping from the poverty trap. Alot of these poor folks grew up with just a secondary education or at best a ITE one which offers very little scope for career advancement. Their salary is trapped at the $1000 plus mark forever.

The narrow pathway to success via a tertiary education and also a channel that is very often out of the reach of our poor means that they will remain in poverty for a long time and some even forever. A traditional system of regular tuition classes and enrichment lessons – often out of the financial reach of the poor – mean those with a reasonable income source has the potential to ensure that their children have a stronger head start in life via the educational route.

The huge wage gap here between the have’s and the have-not’s also exuberate the problem we face in this prosperous little powerhouse with the world’s tenth highest GDP (nominal) per capita of USD$52,900 – Luxembourg led the table with USD $105,000.

According to ValuePenguin.sg, the top 10% of our income earner make $30,175 per month compared to the bottom 10% income earner of $1909 – almost 15.8 time in comparison!

It is also worrying that the government has distributed the $200 GST special bonus to low-income families earning $28,000/annum and below and the number is a mind-mingling 1.3 million Singaporeans (out of about 3.3 million working Singaporeans).  This shows also that perhaps the government cut-off poverty line is somewhere at the proverbial mark of $2000/month income and below.

This income mark made sense as anyone who earns below $2000 will probably struggle to make ends meet. After CPF deduction of 17% from the employee, he is only left with around $1500 and for a family of 4 members this is hardly sufficient.

As Singapore struggles to cope with being one of the world’s costliest country in the world and a stagnanting income for the past few years, much more can be done to help the poor improve on their economic situation.

But is rising the GST the only way to help the poor?

Conclusion

Besides education, the government can look deeper at having a minimum wage in place so that the poor can earn a reasonable wage in order to survive. The workfare income supplement meant for those who earn below $2000 though laudable is simply too little as much of the component is given back to one’s CPF.

Some just receive as little as $20 in cash monthly depending on how much you earn and how long you have being at work with the majority of the aid in CPF which is of no use to the worker currently.

As Singaporeans brace for another debilitating move by the government to raise GST sometimes next year, we foresee that the poor will suffer more and the rich will probably shrug if off as another small bite to their huge coffer.

Singapore will remain a very rich country filled with poor people…

Written by: Gilbert Goh

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One Response to “Why the poor will get poorer and rich will get richer in Singapore”

  1. Jie Ming says:

    Hi! Gilbert,

    Your interesting note on the poor gets poorer. I agreed with your writing but one thing we need to know why the poor gets poorer are opportunities. When you are poor, it also means your credit rating will be bad too. So no matter how great potential you have to make money, the banks will never stand by your side to support. And for the rich, any great potential of money making will be fully supported by banks or investors. Tell me, how to get rich when you are poor? We must also look at each poor person for the reasons why they are poor. Usually the poor are no good in money management. Some may lose a job, some over spent on their credit cards, borrow unwisely to gamble… I do agreed if our government could implement more ways to help the poor but at the end of the day, if the poor cannot help themselves, how to become rich?

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