By Robin Chan Assistant Political Editor
Much attention given to inequality in Singapore in recent
years has focused on income inequality. There is a good reason: Singapore’s
income gap, as measured by the Gini coefficient for income, is one of the
widest among developed countries at 0.478.
The Gini measures how income is distributed in a society.
The closer the Gini is to 1, the more unequal the distribution of income.
To narrow this gap, the Government has made efforts to raise
wages at the bottom and increase taxes on wealth at the top. Among other
things, it has given cash handouts and supplemented incomes with Workfare
Income Supplements for low-income earners. It is also working with tripartite partners to boost incomes
for low-wage sectors. It recently required cleaning companies to follow wage
guidelines for cleaners’ starting pay. In addition, the Government has started extracting a bigger
pound of flesh from the rich through the tax system. Last year’s Budget
introduced more taxes on high-end assets, including luxury cars and homes. Some analysts are predicting more such moves to help lessen
the income divide in this year’s Budget on Feb 21.
But the income gap is only one part of what separates the
rich from the poor. Another – possibly more alarming – factor fuelling economic
and social inequality is wealth inequality, according to a number of recent
studies.
Wherefore wealth?
Income often refers to earnings from work, although it can
include income from other sources such as rent. Wealth measures income
accumulated over time, so it tends to have a cumulative effect over years.
Wealth also includes assets in the form of property, stocks and inheritances.
All these can grow in value separately from income.
A person with zero income can be very wealthy. A person may
have $10 million in assets (and is hence considered wealthy) but can have zero
income in a particular year – if he is not working and does not collect rent or
dividends from his assets. Income and wealth must be taken together for a
fuller picture of a household’s true economic power.
American think-tank Pew Research Centre last December
published a report on wealth inequality which said: “Most researchers agree
that wealth is much more unevenly distributed than income.”
It cited data showing that the top one-fifth of United
States families earned about 60 per cent of all income but owned nearly 90 per
cent of all wealth. A separate report by the International Monetary Fund (IMF)
last October said that the ratio of private wealth to national income in the
world has more than doubled since 1970. This means wealth is growing more
quickly than incomes. “Household wealth is very unequally distributed – even more so
than income,” the report said. “In advanced economies, the top 10 per cent own,
on average, more than half of the wealth (up to 75 per cent in the US),” it
added. This means wealth is “arguably, a better indicator of
ability to pay than annual income”, the report said.
Another reason the wealth gap is as significant as – if not
more significant than – the income gap is that a build-up in wealth can become
entrenched over time and is harder to redistribute.
For example, a rich family with houses worth $10 million can
pass them on to their children, who may use those houses as collateral or
capital to buy more property or build businesses to accumulate another $20
million for their descendants. And the cycle goes on.
So while wealth inequality has received less mention in
Singapore than income inequality so far, it is arguably an even more important
challenge facing our society.
Mind the gap
So how wide is the wealth gap in Singapore?
There are no official numbers on wealth distribution in
Singapore. But piecing together different data gives some clues. A global wealth report released by Credit Suisse last
October said Singapore’s median wealth per adult (aged 20 and above) was
US$90,466 (S$114,925), which means half of Singapore’s adults had more, and
half had less than that amount. But the mean wealth per adult was US$281,764.
This adds up the total amount of wealth held by every adult, divided by the
number of adults.
This gap between the median and the mean is one of the
biggest in the rich world, according to the Credit Suisse report. It implies
that much of the wealth in Singapore is in the hands of a few. Unlike the
median, the mean can go up significantly if the total wealth is pulled up by a
few super-rich individuals. Indeed, the report showed that the top 1 per cent of
Singapore’s wealthiest hold more than a quarter of the country’s wealth.
It also illustrated the wealth gap in another way. Some 4.4
per cent of Singapore adults have more than US$1 million in wealth, while 20
per cent have less than US$10,000, the report said.
Of the other 215 countries surveyed, only Denmark and France
had both a larger percentage of adults at the very top and at the very bottom,
indicating a wider wealth gap than Singapore.
What are some reasons for this vast gulf in wealth?
One could be the property price surge. This is significant
given that nine in 10 households here own their homes and the home makes up
half of a household’s net wealth in Singapore.
While reports from third parties such as Credit Suisse shed
some light on the wealth gap, they are not comprehensive. Associate Professor Poh Eng Hin, who is assistant dean of
accountancy at the Nanyang Business School, suggests that government agencies
track wealth more closely and release the data. This could come from a combination of numbers from the
Monetary Authority of Singapore, the Inland Revenue Authority of Singapore and
household balance sheet data collected by the Department of Statistics. Panel studies that track wealth of the same family or
individual over time would also give a better sense of wealth inequality in
Singapore, he added.
Getting a handle
Inequality in wealth has an impact on social mobility. There
are reasons to believe that wealth mobility could be even lower than income mobility.
That is, the chances of someone from a nonwealthy family staying nonwealthy is
high, the Credit Suisse report pointed out.
Also, an increase in wealth, unlike incomes, is not
necessarily directly a result of work. This raises questions about how truly
meritocratic Singapore can be. This is why – even though the goal for Singapore
is not to equalise outcomes, but to equalise the starting opportunities in life
– there is a strong economic and moral case for higher wealth taxes. Apart from helping to reduce inequality, it can also be an
efficient and effective way to raise revenue for public coffers, the IMF said
in its report last October. “In principle, taxes on wealth also offer
significant revenue potential at relatively low efficiency costs.”
The IMF also said increasing progressivity in property taxes
is one of the best ways to tax the wealthy, which is exactly what Singapore is
doing. This means taxing second and third homes more than the first, and taxing
more costly properties at a higher rate. Raising taxes is always a sensitive political and economic
issue.
But with tax revenues needing a boost to match higher
government spending on social safety nets – such as the recently announced
Pioneer Generation Package – raising taxes on the wealthy is likely to be more
effective than raising taxes on incomes alone. Singapore should not be afraid to take the lead in this
area.
Last year, Hong Kong’s South China Morning Post said
Singapore’s Budget – and its imposition of higher wealth taxes – posed questions
for Hong Kong’s own fiscal options: “The Singapore way may not be ours, but it
does raise the question whether our top tier of wealth or income should be seen
to pay more to help bridge inequality. It is a debate in which the wealthy
should take part, in the interests of the city in which they prospered.”
The same can be said for Singapore. After so much focus on
income inequality, it is time to kick-start a discussion on how the wealthy can
contribute more to bridge inequality.
This article was first published in The Straits Times on Feb
11, 2014
Copyright © 2014 Singapore Press Holdings. All rights
reserved.
Published on Feb 11, 2014
