Wednesday 19 March 2014

Income inequality stabilised, says Govt

Minister Lawrence Wong: Progressive taxes, social spending play part
By Tham Yuen-C, The Straits Times, 18 Mar 2014

THE Government's efforts to bring about inclusive, quality growth have effectively stabilised Singapore's Gini coefficient which measures income inequality, said Acting Minister for Culture, Community and Youth Lawrence Wong yesterday at a dialogue on the Budget.

This has been done through making taxes more progressive and increasing social spending, he added.

As a result, Singapore's Gini coefficient - a measure of income inequality that ranges from zero to one, with higher values indicating more inequality - had "come down sharply" last year. After government transfers, it was 0.412, the lowest in a decade.

Mr Wong was responding to a question from a Singapore Management University (SMU) student who said this year's Budget did little to address inequality and wanted to know how the Government was dealing with income inequality in particular.

The minister said it was a misconception that growth would always worsen income inequality, and Singapore's experience in the last five years had debunked this.

Although the economy had grown, said Mr Wong, the Gini had stabilised.

"(In the last five years), there is no correlation in terms of growth going up and Gini going up as well. It can happen, but it didn't happen in our case," he said.

This was due to a "concerted attempt" by the Government to grow Singapore's economy in an inclusive and sustainable way, with the returns from growth ploughed back into schemes to help the lower income, he added.

About 80 per cent of all government transfers through taxes, handouts and subsidies, for example, had gone to the bottom decile, or the lowest 10 per cent by income. In comparison, they had received about 40 per cent of transfers in 2003.

Over the years, income tax for top earners had risen while those for the lower end had gone into negative territory, with the Government topping up their wages, said Mr Wong.

With these subsidies factored in, the income tax spread was closer to 40 or 50 percentage points, instead of 20 percentage points, he added.

But even as it made taxes more progressive, by shifting the burden on to those who earn more, the Government had also been mindful about not squeezing the average Singaporean, said Mr Wong.

As such, the tax burden on the middle income was still "quite affordable" compared with most developed countries, he added.

For households here in the middle quintile, or the middle 60 per cent representing the middle-income group, an average of 10 per cent of household income goes towards taxes. For a similar household in Britain, 43 per cent of household income goes towards taxes.

During the dialogue jointly organised by the Government's feedback unit REACH and SMU, Mr Wong was also asked why the Government had increased taxes on alcohol, cigarettes and betting, and not raised income taxes.

To this, he said that the hike in so-called sin taxes was not done in lieu of raising income taxes but to discourage consumption of goods that had a harmful effect on health.

Sin taxes had also not gone up since around 2005, and it was reasonable to expect some increase, he added.

Said Mr Wong: "If the individuals over-consume, then society also bears the cost one day."

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