Oecd study shows income inequality created by pap is killing s'pore's economic growth

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OECD STUDY SHOWS INCOME INEQUALITY CREATED BY PAP IS KILLING S'PORE'S ECONOMIC GROWTH


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15 Dec 2014 - 5:37pm








A new report by the Organisation for Economic Co-operation and Development (OECD) showed that "when income inequality rises, economic growth falls". TRS takes a look at what this means for Singapore.

The OECD showed that when inequality increases by 3 Gini points, it would drag down economic growth by 0.35 percentage point per year for 25 years, or a cumulated loss in GDP at the end of the period of 8.5 per cent.

The Gini coefficient is a measure of inequality.

Indeed, this is exactly what the OECD traced among its member countries.

"The gap between rich and poor is now at its highest level in 30 years in most OECD countries."

The OECD looked at the income inequality for a period of 30 years, from 1985 to 2005 and saw how this impacted GDP growth from 1990 to 2010.

The OECD calculated that, "Rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico and New Zealand, nearly 9 points in the United Kingdom, Finland and Norway and between 6 and 7 points in the United States, Italy and Sweden."

And what about countries where income inequality declined?
The greater equality helped increase GDP per capita in Spain, France and Ireland, prior to the economic crisis.
But what is causing the income inequality to rise?

The OECD report said that one key reason is the growth in the gap between lower income households and the rest of the population, but "this negative effect of inequality on growth is determined not just by the poorest income decile but actually by the bottom 40% of income earners."

"While the overall increase in income inequality is also driven by the very rich 1% pulling away, what matters most for growth are families with lower incomes slipping behind.

Also, "One reason is that poorer members of society are less able to invest in their education."

The report also showed that "the human capital of people whose parents have low levels of education deteriorate, as income inequality rises."

How does this apply to Singapore?

In Singapore, Singapore's income inequality is not only the highest among the developed countries, it also shot up the fastest.

The Gini went up from 0.436 in 1990 to 0.522 in 2005, according to the Chartbook of Economic Inequality.

If so, it is likely that Singapore would have lost more than 10 percentage points off its GDP growth.

Today, the poorest 40 percent in Singapore earn less than $2,500 every month. This thus means that the rising income inequality are affecting those who earn less than $2,500 the most.
Indeed, The Inequality Trust had showed that Singapore has the largest rich-poor gap among the developed countries.

Also, it has been shown that Singapore also has one of the lowest levels of social mobility because of the inequality.

If so, how can income inequality be narrowed?

"The most direct policy tool to reduce inequality is redistribution through taxes and benefits," the OECD report stated.

"Instead, policymakers need to be concerned about how the bottom 40% fare more generally. This includes the vulnerable lower-middle classes who are at risk of failing to benefit from and contribute to the recovery and future growth.

"Anti-poverty programmes will not be enough.

"Not only cash transfers but also increasing access to public services, such as high-quality education, training and healthcare, constitute long-term social investment to create greater equality of opportunities in the long run."






However, in Singapore, the government continues to spend the lowest in education and healthcare, as a percentage of GDP, as compared to the other developed countries.

The Singapore government also spends the lowest, as a percentage of GDP, for social protection.

Not only that, the government has refused to define a poverty line and there is still no minimum wage in Singapore. A study by a National University of Singapore economist Tilak Abeysinghe also showed that the poorest 30 percent of Singaporean households have to spend 105 percent to 151 percent of their incomes.

In short, the PAP's "trick-down" economics do not work.

Not only that, the richest 1 percent in Singapore have 14 percent of the share of income in Singapore while the richest 10 percent has 42 percent of the share of income, leaving the rest of the population to scramble for what is left.

The Singapore prime minister belongs to the top 0.1 percent in Singapore. It has also been shown that every time the People's Action Party (PAP) increased their own ministerial salaries in Singapore, the income inequality exacerbates as well.

If so, it looks like the problem of income inequality in Singapore is directly created by the PAP?

However, where the OECD and even the International Monetary Fund (IMF) have called for redistributive policies to reduce income inequality but where the PAP is concerned about increasing their own salaries and thereby increasing income inequality, will they be interested in reducing income inequality in Singapore and protecting Singaporeans?

Moreover, the PAP has stridently refused to increase public spending for social protection and for education and healthcare.

Based on the OECD's conclusion and analysis, it looks like the PAP's self-interest has not only made worse the lives of Singaporeans, it has also thwarted the growth of Singapore's economy.

If so, the PAP has to either change its belief system or a government which will look towards protecting both the economy and the lives of the people will need to be put in place to ensure the sustainability of Singapore.


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