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Income Inequality In Singapore: How Government Transfers Reduce The Gap Between The Highest And Lowest Income

A resident staying in a HDB 1- or 2-room flat would have received an average of $13,670 in government transfers in 2020

With movies such as Crazy Rich Asians and more high-profile millionaires (and billionaires) making Singapore their residence in 2020, it appears that the sky’s the limit for the highest income group in Singapore. Yet, in 2020, during Singapore’s worst-ever recession as the economy contracted by 5.8%, Singapore also recorded our best year for income equality: our Gini coefficient (after government transfers) dropped to 0.375, the lowest in a decade.

In this article, we explore how government transfers work to reduce the income gap between the lowest and highest income groups in Singapore, and thus examine how in a year of recession, Singapore actually reduced our income inequality.

Read Also: 5 Things We Learned From Singapore’s Key Household Income Trends, 2020, And How COVID-19 Impacted Singaporeans

The Gini Coefficient As A Measure Of Income Inequality

The Gini coefficient is a commonly used measure of income equality. Internationally, there are multiple ways to compute this coefficient. The Gini coefficient referenced in this article is based on household income from work per household member. Regardless, based on the internationally accepted scales of the Gini Coefficient, the trends are similar: Singapore’s income equality hit a new record in 2020 after government transfers.

Source: Key Household Income Trends, 2020

What Are Government Transfers?

Government transfers are the ways that the government redistributes income and wealth to the population. In Singapore, this is most apparent in the various government schemes targeted at the lower income group as well as various social groups. This includes GST Vouchers, CPF and MediSave top-ups.

According to the Key Household Income Trends, 2020 published by the Department of Statistics, Singapore, resident households staying in HDB 1- & 2-room flats received an average of $13,670 in government transfers per household member. This is an increase from $10,680 in 2019. On average, across the population, government transfers has increased by almost $2,000 from $4,684 in 2019 to $6,308 in 2020 per household member.

Government Transfers Are Funded From Government Revenue (Mainly Taxes)

Given that government transfers are forms of income redistribution, the source of the revenue is important. To reduce income inequality, you would have to redistribute from the higher income to the lower income.

According to Singapore Budget 2021, 40% of Singapore’s operating revenue comes from corporate income tax and personal income tax, followed by 15% from Goods and Services Tax.

Source: MOF

Corporate income tax in Singapore is taxed at a flat rate of 17% with some exemptions and rebates for eligible companies. This forms 21.3% of government revenue. Personal income tax in Singapore is tiered with higher income paying more taxes and lower income paying less or no tax. This forms 19.8% of government revenue. Goods and services tax (GST) is currently at 7% and forms 15.3% of government revenue.

Arguably, one can say that the government revenue is funded more by those in the higher income groups. For example, the higher income group are more likely to be paying corporate income tax (from owning a business), stamp duty (from buying property), motor vehicle taxes (from owning and/or buying a car) compared to the lower income group.

GST is one tax that may affect the lower income disproportionately and Singapore has addressed that in the form of GST vouchers – which is a form of government transfer.

Read Also: How Much In GST Vouchers (Cash, U-Save, MediSave) Will I Be Receiving In 2021?

Government Transfers Are Distributed Via Various Schemes, Subsidies And Rebates

Aside from Budget 2020’s Care & Support Package where a cash payment was given out for every Singapore Citizen above the age of 21, the government has rarely given out handout (cash or otherwise) to its citizens without some form of means testing or eligibility criteria. This means that the government transfers are often targeted at the lower income group or groups who require additional assistance.

The government transfers are often tiered if they have a broad reach. For example, in the Household Support Package 2021, only the lower income group received the additional $200 GST vouchers-cash, while other households received support in form of utilities and service & conservancy charges rebates, tiered to their HDB flat type.

Read More: Household Support Package: Here’s What (And When) Singaporean Households Will Be Getting In 2021

Examples of government transfers include:

  • Citizen benefits: Top-Ups to CPF and Medisave Accounts, GST Vouchers, Pioneer Generation Package, Merdeka Generation Package, Silver Support Scheme, SG Bonus, Solidarity Payment and Care and Support Package
  • Employment-related: Workfare Income Supplement (WIS), SkillFuture Credit, Self-employed Persons Income Relief Scheme (SIRS), NTUC Driver Care Fund, Special Relief Fund, NTUC Care Fund (COVID-19)
  • Housing-related: utilities, rental and service and conservancy charges, Enhancement for Active Seniors (EASE), public rental subsidies from 2003 onwards, Parenthood Provisional Housing Scheme
  • Education-related: Edusave Pupil Fund, Edusave Merit Bursary, Edusave Awards and Edusave Scholarships for Government or Government Aided Schools, and subsidies related to the cost of primary, secondary and tertiary education, Post-Secondary Education Accounts top-up, Uplift Scholarship, Global Talent Ready Programme
  • Child-related: Baby Bonus from 2001 onwards, top-ups to Child Development Account (CDA), CDA First Step, centre-based infant and childcare subsidies from 2002 onwards, MOE Kindergarten Care subsidies
  • Health-related: subsidies for medical bills incurred at A&E, day surgery, hospitalisation episodes, Haze Subsidy Scheme, Interim Caregiver Scheme and Medishield Life subsidies. From 2006, include subsidies for medical bills incurred at specialist outpatient clinics and polyclinics, Medifund disbursements. HPB health screening subsidies from 2002 onwards, Community Health Assist Scheme from 2009 onwards. Screen for Life
  • Assistance-related: Interim Disability Assistance Programme (IDAPE) from 2002 onwards, ComCare programmes from 2004 onwards, Caregivers Training Grant and Home Ownership Plus Education Scheme from 2007 onwards, Assistive Technology Fund in relevant years, Foreign Domestic Worker Grant, Home Caregiving Grant, Interim Financial Transport Assistance for Persons with Disabilities, VWO Transport Subsidy Scheme, Taxi Subsidy Scheme, Seniors’ Mobility & Enabling Fund, Elderfund, Careshield Life Subsidies, Mobile Access for Seniors, CDC Voucher Scheme, Grocery Vouchers, Temporary Relief Fund and COVID-19 Support Grant

Is It Possible To Receive The $13,670 In Government Transfers?

According to the Key Household Income Trends, 2020, a resident staying in an HDB 1- or 2-room flat would have received an average of $13,670 in government transfers in 2020.

Government Scheme, Subsidy, Rebate Or Payment Max Amount Received
GST Voucher (permanent scheme)
– Cash
– U-Save
– MediSave
Workfare Income Supplement (WIS) and Special Payment $4,000 + $3,000
Care & Support Scheme 2020
– Cash
– GST Voucher-U-Save
– $100 for Seniors
– Grocery Vouchers
COVID-19 Support Grant $800 x (3 + 3)= $4,800
Self-Employed Person Income Relief Scheme (SIRS) $3,000 x 3 = $9,000

As seen from the table above, some of the permanent schemes such as GST Vouchers and Workfare Income Supplement would have already accounted for more than $5,000 in government transfers for the lower income. This is without accounting for the additional special payments. This also does not include any of the education, health, child or assistance-related government transfers, nor does it include the value of seniors-specific schemes such as Pioneer Generation Package, Merdeka Generation Package or the Silver Support Scheme.

Additionally, significant amounts were given under COVID-19 support measures such as the Care & Support Package, COVID-19 Support Grant, SIRS. In particular, the employment related measures added between $3,000 (WIS Special Payment) to $9,000 (SIRS) to the government transfers in 2020.

With such significant government transfers made under COVID-19 support measures, perhaps we should not be surprised to see that Singapore’s income inequality had narrowed in 2020. Instead, the real challenge will be in the future years ahead where the government is less likely to issue such generous support while managing a budget deficit. Will Singapore be reliant on government transfers to manage income inequality or is this something that our society can work towards without government intervention? That remains to be seen.

Read Also: Guide To Workfare Income Supplement Scheme And How Much Those Who Are Eligible Will Receive

Cover image credit: Raymond Quek aims to provide interesting, bite-sized and relevant financial articles.

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