Was Cost of Living an election issue in the 2020 Singapore General Election?

by Roy Ngerng

Was the cost of living an important factor during the recent 2020 Singapore general election?

Below is some data that helps to put things into perspective.

The People’s Action Party (PAP)’s Vivian Balakrishnan revealed two weeks ago during a political debate, that at 60% of the labour force, Singapore has one of the highest proportion of Professionals, Managers, Executives and Technicians (PMETs) workers in the world.

With Singapore having one of the highest GDPs per capita and cost of living in the world, it might be assumed that one of the highest PMET shares in the world would, therefore, mean that Singaporeans would also have among the highest wages in the world.

In the chart below, you can see that Singapore has among the highest GDPs per capita in the world.

However, when comparing the median wages of middle-income workers with other advanced economies with similar GDPs per capita and cost of living, Singapore actually has the lowest median wages.

In fact, the median wage Singaporeans earn is as low as countries with half, or even less than half the GDP per capita of Singapore – like Italy, Spain and Malta.

(The definition of “advanced economies” is based on the International Monetary Fund classification – Hong Kong and Macau have not been included in this comparison. Singapore’s GDP per capita is about US$65,000; the comparisons in this article defines countries with similar GDPs per capita as those with GDPs per capita higher than US$40,000; Singapore’s median hourly wage is calculated by dividing the median monthly wage of S$3,275 in 2014 by the average of 46 work hours in 2014 to obtain a median hourly wage of S$16.39 or 10.34 Euros; Australia’s median wage can be found here, Canada’s median wage can be found here and New Zealand’s median wage can be found here.)

With wages being so low for middle-income Singaporeans, low-income workers without a doubt therefore also earn the lowest wages among these advanced economies – comparing the basic wage of outsourced cleaning workers in Singapore with the minimum wages in these other advanced economies, Singaporeans also earn the lowest wages. (The S$1,236 basic wage that outsourced resident cleaners earn translates to 780 Euros; Australia’s minimum wage can be found here and New Zealand’s minimum wage can be found here.)

In fact, Singaporeans earn lower wages than countries like Spain, Slovenia and Malta which have GDPs per capita less than half that of Singapore’s.

In the chart below, you can also see that countries with higher minimum wages also have higher median wages. However, Singapore has both the lowest minimum and median wages among this group of advanced economies with similar GDPs per capita and cost of living, and only on par with Spain and Slovenia which have half the GDP per capita of Singapore – this is even though Singapore has among the highest GDP per capita in the world. In fact, Singaporeans’ wages are only slightly higher than Greece, which has a GDP per capita only one third that of Singapore’s.

One reason why Singaporeans earn such low wages is that, in Singapore, the share of total labour compensation as a proportion of GDP is only 45.3% (according to data compiled by The Conference Board; official data shows Singapore’s wage share is only about 40%) – which makes Singapore’s wage share the third-lowest among advanced economies.

After 2021, the Singapore PAP government intends to increase GST from 7% to 9%, because PAP’s Heng Swee Keat said, “money not enough”. But is this really so?

One way to compare Singapore’s finances is to look at the tax wedge.

According to the Organisation for Economic Co-operation and Development (OECD), the tax wedge is calculated by expressing the personal income tax, employee and employer social security contributions, as a percentage of labour costs.

Accordingly, Singapore’s tax burden would be about 32.9%. (Using the median wage of S$4,000 a month, personal income tax using the Inland Revenue Authority of Singapore’s calculator would give S$61.77 a month, in addition to a monthly S$800 employee Central Provident Fund (CPF) contribution of 20% and a S$680 employer CPF contribution of 17%, which added together and divided by the total labour costs of S$4,680 (the median wage inclusive of employer CPF contribution) would give 32.9%.)

When comparing Singapore’s estimated tax wedge with the other advanced economies, Singapore tax wedge is actually not low – it is actually similar to the average tax wedge being paid in other advanced economies with similar GDPs per capita and cost of living.

The question, therefore, is whether a 9% increase in GST is still necessary, given this figure.

This fact is even starker when we compare how much the PAP government actually spends on social protection for Singaporeans – in other words, how much of the tax and social security revenue collected is actually returned to Singaporeans?

Comparing the social expenditure is one way to look at whether the tax and social security Singaporeans pay is being returned in a proportionate manner.

When comparing social spending with other advanced economies, the PAP government actually spends the lowest public social protection expenditure after Hong Kong, as a percentage of GDP.

In terms of healthcare, the PAP government also spends the third-lowest among other advanced economies, as a percentage of total health expenditure.

As a result, Singaporeans, therefore, have to fork out even more out of their own pockets for their healthcare expenses, which results in them having to pay the highest out-of-pocket health expenditure among advanced economies with similar GDPs per capita and cost of living, as a proportion of total health expenditure.

In fact, by monetary value, Singaporeans also have to pay the second-highest out-of-pocket health expenditure among these advanced economies, when accounting for the cost of living.

In terms of retirement, more than 74% of Central Provident Fund (CPF) elderly members could withdraw only less than S$500 a month from their CPF. The Online Citizen Asia also calculated that the average CPF payout each elderly CPF member could receive was only S$355.

The OECD uses a measure of gross pension replacement rate, which it defines as the “gross pension entitlement divided by gross pre-retirement earnings [to] measure how effectively a pension system provides a retirement income to replace earnings”. If we are to use Singapore’s average wage of S$5,549 in 2019 as a baseline for comparison, the average payout of S$355 would suggest that Singaporeans would only be receiving a replacement payout of 6.4%, which would be the least adequate pension replacement rate, as compared to other advanced economies with similar GDPs per capita and cost of living. (The overall average wage is used for this comparison as the average wage breakdown by age is not available in the Singapore Yearbook of Manpower Statistics 2020.)

According to a study conducted by several academics from the National University of Singapore, the Nanyang Technological University and the Lee Kuan Yew School of Public Policy, elderly Singaporeans aged 65 and above would require S$1,379 a month in order to have a basic standard of living. The S$355 elderly Singaporeans are receiving is therefore only a quarter of the basic amount they would need for basic living – elderly Singaporeans are therefore not receiving adequate retirement payouts.

In terms of the social protection expenditure on pensions, the PAP government also spends the least among the advanced economies.

In other words, all these figures show that while the PAP government has collected a tax wedge from Singaporeans similar to other advanced economies, it has instead returned to Singaporeans one of the lowest, if not the lowest spending, for our social protection as well as in healthcare and retirement.

Not only is there no reason to increase the GST to 9%, the valid question to ask is – where has all the money gone to, if not to Singaporeans?

As such, while policy debates this election has been sidetracked by the smear campaigns and personal attacks that took centre stage, there should be no doubt that cost of living issues would have weighed heavily on the minds of Singaporeans voters, given the comparatively low wages, high tax wedge burden, and the social expenditure that is being controlled by the PAP government whilst not only mean Singaporeans cannot access enough of their monies to pay for healthcare and retirement but have to continue to pay out of their own pockets for these basic necessities on their comparative low purchasing powers.

A responsible government would have allowed Medisave to be withdrawn in higher amounts for healthcare, and instead of putting a limit on what Singaporeans can claim from Medisave, abolish this limit and then put a cap on how much Singaporeans have to pay out of their own pockets instead. This was what The Workers’ Party (WP) proposed in its election manifesto to do – to expand the use of Medisave. The Singapore Democratic Party (SDP) also proposed setting a cap of S$2,000 a year on how much Singaporeans have to pay for healthcare. The Progress Singapore Party (PSP) also proposed for the government to pay the MediShield premiums of Singaporeans.

A responsible government would also ensure elderly Singaporeans would be able to withdraw enough from their CPF retirement funds to retire. For a start, the SDP proposed paying 80% of Singaporeans an additional S$500 a month for retirement.

They have also proposed implementing a minimum wage or living wage to increase wages.

You can think about whether this new PAP government would take the actions that a responsible government would.

At the next election, it is worthwhile to remember these when making your vote.

Better still, bookmark this article to read at the next election, to remind yourself what is really at stake.

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