Singapore’s falling Gini Coefficient, and why it shouldn’t bother you…

 

Department of Statistics reported on 18 February that the Income Gap in Singapore has narrowed, according to the latest released Gini Coefficient.

Singapore’s Gini coefficient was 0.463 last year, down from 0.478 in 2012.  The Gini coefficient after government transfers and taxes was 0.412 – the lowest since it was first calculated in 2000.

To the laymen on the street, it means our income gap has narrowed; many low income households have benefited from Government assistance. Let’s hope the trend continue as Government try to level up the low income households and provide opportunities for upward social mobility.

It is a relief to see the Gini Coefficient has improved. Critics may be harping on the fact that Singapore still has significant income gap compared to the Nordic countries and other OEDC countries; but in Singapore, the income gap may not be that apparent as suggested by our Gini Coefficient.

I have few points to raise.

1. Gini Coefficient measures income gaps but does not tell if the overall standards of living has improved

The following Gini indices and PPP are compiled by CIA, US. (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html)

Out of the top 20 countries with very low Gini Coefficient (meaning more equal income distribution), 5 are actually relative poor with per capita GDP (PPP) about US$20,000 or less.

Nordic countries and some of their European counter parts have done well in terms of income and equality but Nordic countries are notable for their very high taxes and generous welfare schemes which may hurt work incentive. Besides these countries are almost homogenous and well-endowed with natural resources, it’s very hard for other countries to emulate.

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The following illustration (fig 1) may help us to understand the issue better.

Countries A, B and C all have the same income gap. However, C is the least desirable and B is the most desirable as standard of living in country B is higher than that of the country C. Back to the above table, Kazakhstan, Ukraine and Belarus may be like country C and Nordic countries may be more similar to country B. It would be ideal to achieve both high income and low income gap, but these two goals may not always be compatible.

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Now look at Fig 2 to and compare the two countries, is it more desirable to be country A or country C? Country A enjoys high income but its income gap is more significant than country C which has much lower standard of living but enjoys equality. Please also note that the “poor people” in country A (denoted by the bottom line) enjoy much higher standard of living than the “riches” (as denoted by the top of the red line) of the relatively poor country.

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2. With narrowing income gap and higher income, Singapore seems to be in the right direction

Now put Singapore into the picture.

Singapore’s Gini coefficient was 0.463 last year, down from 0.478 in 2012.  The Gini coefficient after government transfers and taxes was 0.412 – the lowest since it was first calculated in 2000.

The income gap, as indicated by the three pink vertical arrows are narrowing as the general income levels rise. The low income groups see an improvement of standard of living and rising income as Government provides assistance and opportunities for social mobility. This is what Singapore are doing at the moment and we should continue to strive to level up standards of living for all while keeping the income gap narrow.

One would should always to take note of that income gap will always exist and government should not close the income gap at all costs as this may hurt work incentive and entrepreneur spirit. US is one good example, based on CIA’s data, US has Gini index of 45 (2007). This is could be due to its vibrant entrepreneur spirit which has created many self-made billionaires.

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3. The very nature of our city state and open economy may have caused our perceived income gap

The international media often likes to mention that Singapore has world’s highest concentration of millionaires and billionaires. The concentration of the ultra-rich and those overseas billionaires who have taken up Singapore PR status or citizenship may have, by default, caused the Gini index to go up but this is just mathematics and we should not be too worried about it.

The important issues here is equal opportunity for all and good access to necessities such as education, healthcare and basic accommodation – just to name a few.

 

 

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