Sim Ann, a former top civil servant who joined the PAP in the 2011 GE, wrote an article entitled "Tackling Inequality : Charting our own path". The article was published in the Straits Times on 22 Dec 2011 and appears on her Facebook[Link], I suggest you read her article in full before reading the rest of the posting to thoroughly appreciate what she has to say on the issue...also read all the comments on her Facebook page on this article. It is an intelligently written article but I will tell you where she is wrong and she is wrong where it matters the most.
"For example, one lady who approaches us for help regularly has an unemployed husband. He has been staying at home for years, and refuses to get a job, even though he is able-bodied and quite capable of working. On occasion, our volunteers have been dismayed to find people they have helped continuing to spend money on habits they can ill afford, like smoking."
In her article she cites the case of family asking for help but found to have an able bodied person in household. Her choice of example echoes the perpetual and paralysing fear (or excuse?) of abuse in PAP govt that is used to explain why it cannot do more for the poor. For every such case, there are also cases of people who fall through the cracks in the system that deserve help but find it hard to get any. Any good system in place will have to tend to the cracks and detect abuse. There are many cases of people falling through the cracks cited by Leong Sze Hian in his book and writings[Focus on help for families that need it] as well as this blog. Today, the reality is it is probably harder to get help than abuse the system. There are numerous cases in which the PAP's own MPs feel should get help but cannot get past the bureaucracy that sometimes look more like a firewall against abuse.
She also cite cases of those who can help themselves financially by giving up on expensive habits smoking - hmm..... but it is only expensive in Singapore because the govt tax it so much and prevents smokers from getting their fix from Malaysia. Smoking is bad for health and people should stop smoking regardless of their financial state.
There is another part of the article where she links the current European crisis to welfarism. I'm not a proponent of the welfare state but this view is incorrect[Krugman : Legends of the Fail]. It is ideologically attractive to simply point to the Europe and say that is the end result of having too much welfare but it is not true. Ireland and Spain failed financially because they rescued the banks when the housing bubble in collapse so the PAP govt should at least be equally worried about high housing prices. In the US, they had more welfare in the 70s and 80s but lower deficit and national debt because they also had high income taxes to pay for it. It is common sense that if a govt takes in less that what it spends it will have a deficit funded by debt. The US debt is caused as much by defense spending as it is by welfare entitlement but it is ideological to miss big elephant in Singapore called defense spending. Sim Ann talks about potential abuse of tax payers money by smokers and those who don't work but the sum total of social our safety nets is dwarfed by our spending on defense. We should also be asking how much defense spending is necessary but the PAP won't go there for ideological reasons. With globalisation and dependency on world trade the security threat has changed to all out war to low intensity conflicts, and the high income gap that weakens our social cohesion severely undermines our social defense changing the equation that justifies the tradeoff for high defense spending vs low social spending ...don't forget behind every weapon and platform is a service man with a stake in the socioeconomic system and severe inequality undermines what he has at stake.
The heart of the article and PAP's thinking can be found in this paragraph:
"That way we can evolve our own social model, one that emphasises enterprise and drive, rather than the redistribution of a shrinking pie; one that encourages self-reliance instead of welfare; and one that helps build a fair, just and inclusive society.
Our government spending will inevitably rise over the next decade, as our social needs grow and our programmes expand to meet them. But the government can only spend within its means.
We have kept taxes low in Singapore, especially direct taxes on income. This keeps us competitive and encourages our people to excel in their work, and to make the most of their abilities. For this reason, we must be cautious in taking on new state-funded welfare commitments."
Ideally, if the income gap is small, we can keep taxes low and everyone has the ability to be self-reliant. That is what most ordinary Singaporeans including myself would prefer. However, today we have the largest income gap among developed countries. We do not have a small problem we have a very big problem....and we have to recognise this. She blames globalisation for the inequality but if that is true, why does our income gap have to be larger than all of the developed countries we compete against? We will come to that later.
She says that we should emphasized enterprise rather than "try to redistribute a shrinking pie". But inequality itself is a hindrance to expanding this pie in a sustainable manner. We have to fix the income gap problem first in order to have sustainable growth (see video in previous posting). Redistributing wealth and expanding pie goes hand in hand. Sim Ann got her economics wrong. The US economy had the best growth when income gap was much smaller, the middle income families thrived and taxes were higher in the 50s and 60s. The notion of lowering tax to get economic growth and foster enterprise has a diminishing return when the income gap grows to a point when a large segment in society start to struggle financially - worried about healthcare, housing - you are going to have less drive and enterprise. If you want drive and enterprise, we can energise our SMEs by cutting rents, utilities cost, govt fees, and giving smaller company tax breaks while taxing our monopolies especially GLCs to level the playing field.
Simply growing a economic pie while keeping an income gap as large as what it is today without a fairer more equal distribution of wealth just make no sense. We have been seeing GDP growth but an increasing segment of the populace see their life getting worse. You cannot get people to buy-in to such a system over the long run - it is politically unsustainable and support will erode over time. Many people suggesting tax reform are not doing it because they insist on punishing the wealthy or enterprising individuals in our society. It is because we have waited for other solutions to narrow the income gap for far too long and nothing else the PAP has done has brought down our GINI index and the situation gets worse year after year. Economist Shiller puts it very well when he said that making tazes fairer does not "destroy capitalism" or the important aspects of capitalism (enterprise and drive) but it prevents the wheels from falling off and helps capitalism to survive - Warren Buffett, shares this view.
The PAP has to narrow the income gap even if it means reforming progressive taxes to produce a fairer outcome for our society. Today as the share of corporate profits as a % of GDP rises every year we finding an increasing number of Singaporeans who work full time and cannot make ends meet. In the 2011 GE and PE, the people sent a strong signal and perhaps a "final warning" of sorts to the PAP to get this fixed by the next elections. Today, the PAP is only stretching its safety net to catch an increasing number that have fellen to pverty levels .... It is equivalent to finding homeless people to put into shelters to make the most visible negative outcome of rising cost of housing disappear. The real problem runs deeper and wider - the Occupy movement in US calls it "the 99%" because it is hitting a growing segment of the populace. We have a wider income gap than in US where these Occupy protests have taken place and the income gap has become the key 2012 US Presidential election issue(Economic Inequality an Issue for 2012 Campaign).
The PAP insistence on maintaining the lowest corporate tax and lowest marginal tax rate for the rich among developed countries while at the same time having an income gap that is the highest among developed economies competing against us shows a huge imbalance in policy making. The PAP govt as recently as 2007 was cutting corporate taxes and raising GST which increases tax on the poor as the income gap grew to new highs. The PAP also pursued policies such as importing 3rd world foreign labor to keep wages low and grow the economy. Productivity was neglected and fell behind other countries. If the PAP wanted to maintain low taxes, it should have structured our economy to avoid this 3rd world wage structure.
Sim Ann's article shows an underestimation of the problem and if it remains unsolved when the PAP goes for the next GE, telling voters that the pie has grown and taxes has remained low to keep people enterprising is not going to be enough when most people find their lives getting worse as wealth concentrates in a small segment of society. Sim Ann's article contains no solution to narrow the income gap but merely explains why the govt is constrained by the need to avoid raising taxes for the rich and corporations which is already at the lowest in our nation's history. While the PAP "expands the safety nets" to catch the poorest who cannot make ends meet, the effects of the income gap is spreading to the middle class which is now seeing financial strain. The stresses are building up and the problem is deepening as the govt tackles only the worst cases while many more become worse off. Sim Ann's formulation of "our own path" is a path to a dead end in which the problem is not solved and the status quo is retained.