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Record low in income inequality due to ‘massive transfers’, schemes tilted towards lower-income groups: Heng Swee Keat

Record low in income inequality due to ‘massive transfers’, schemes tilted towards lower-income groups: Heng Swee Keat

Finance Minister Heng Swee Keat pictured on Feb 21 during Ask the Finance Minister 2021. (Photo: Marcus Mark Ramos)

SINGAPORE: Income inequality in Singapore fell to a historic low in 2020 due to “massive transfers” and schemes tilted towards supporting lower income groups, said Deputy Prime Minister Heng Swee Keat on Sunday (Feb 21). 

Speaking on CNA’s Ask The Finance Minister programme, Mr Heng said Singapore’s Gini coefficient was 0.375 in 2020 after Government transfers, down from 0.398 in 2019. This is Singapore’s best performance since the Government started tracking the data in 2000, he added. 

“When we measured inequality last year, it is at a historic low. That came out of massive transfers, because our schemes were tilted towards supporting our lower income group,” said Mr Heng in the post-Budget forum, where he answered questions from Singaporeans.

On Feb 8, the Singapore Department of Statistics said resident households received S$6,308 per household member on average from various Government schemes in 2020, which was higher than the S$4,684 received the year before.

Responding to a question on Sunday about how he plans to cushion the knock-on effects of the impending Goods and Services Tax (GST) hike, Mr Heng, who is also Finance Minister, said that the S$6 billion Assurance Package, which was introduced at Budget 2021, will provide “very significant support” for households. 

"For our lower 20 per cent of households it is equivalent to not paying the increased GST for 10 years, and for the average (household) it's five years," he added. 

The Government initially announced in the 2018 Budget that it planned to raise the GST from 7 to 9 per cent. 

However, Mr Heng said in last year’s Budget that the GST rate hike would not take place in 2021, in light of the impact of COVID-19 on the economy. 

READ: Emerging stronger from COVID-19 crisis the focus of Budget 2021

READ: What you need to know about Budget 2021

In this year’s Budget speech, Mr Heng said the increase will happen between 2022 and 2025, “sooner rather than later” depending on the economic outlook. 

“GST is often seen as a regressive tax. But in fact, if we look at the overall balance of what people pay and what people get, we have turned it into a very progressive system,” said Mr Heng during the forum. 

In Singapore, the top 20 per cent of households pay 56 per cent of the taxes but get back 11 per cent of the benefits. On the other hand, the lowest 20 per cent of households pay 9 per cent of the taxes but get 27 per cent of the benefits, he added. 

READ: Budget 2021: GST hike to happen between 2022 and 2025

“You can see how it is tilted that the better-off pay a lot more taxes and get less benefit. Those who are less well off pay a lot less in the form of taxes but get a lot of the benefits. And in fact many of our workers do not even pay personal income tax,” said Mr Heng. 

“Our system has been designed over the years to tilt our support to provide greater support for those with greater needs.” 

HOPE TO BALANCE BUDGET OVER NEXT FOUR TO FIVE YEARS: DPM HENG

In his Budget speech on Feb 16, Mr Heng announced that all eligible households will receive a one-off special payment of between S$120 and S$200 this year, as part of a S$900 million Household Support Package for Singaporeans. 

The package includes the extension of a service and conservancy charges rebate, a S$200 top-up in the relevant education account for each child under 21 and S$100 worth of Community Development Council (CDC) vouchers for all Singaporean households. 

READ: Budget 2021: S$900 million Household Support Package to help families with expenses

Lower- and middle-income Singaporeans will also receive an additional one-off cash payment of S$200 under the GST Voucher scheme.

Finance Minister Heng Swee Keat pictured with his panel of guests on Feb 21 during Ask the Finance Minister 2021. (Photo: Marcus Mark Ramos)

Mr Heng had also announced that the Government will draw on its past reserves for a second consecutive year, with an expected deficit of S$11 billion for this Budget. 

In response to questions about the deficit, Mr Heng said on Sunday that it is a “very very stressful time”, as the world is in a severe recession and the path to recovery depends on the trajectory of the COVID-19 pandemic. 

“But still I think with vaccination and with the progress that we’re making, I think there is hope that we will be able to recover, hopefully in 2021 but then beyond that. Even then it will take time for us to fully recover. That said, what we are hoping over the next four or five years is that we will still be able to balance our budget during this term of government,” he added. 

READ: Budget 2021: Expected deficit of S$11 billion; Government to draw on reserves for 2nd straight year

“If the recovery is as we expected, then I think we have a good chance of balancing our budget. I would like to return to a balanced budget because not only have we drawn on past reserves on two consecutive years, but there's also been a huge draw on the past reserves. So we do have to really think hard about how we maintain our reserves.”

SINGAPORE NEEDS TO PREPARE FOR THE UNEXPECTED

The key focus of this Budget is on workers and jobs growth incentive, said Mr Heng. 

He was responding to observations that the Budget announcements will help Singaporean workers stay employed amid this crisis. 

“We fully understand that if the breadwinner or the sole breadwinner in a family loses a job, it is not just he or she (who) will be affected. But the entire family will be affected,” he added. 

Noting the S$5.2 billion allocated to the jobs growth, Mr Heng said: “In the coming months and years, the economic environment will be different, jobs will be changing. Trends have been accelerated, digitalisation is one good example. 

“So how to help our workers move into jobs or move into companies which are still hiring is a major part of this Budget. And that coupled with all the training schemes, will help our workers to learn new skills to move into new jobs.” 

READ: Budget 2021: S$5.4 billion boost to SGUnited to support hiring of 200,000 locals

READ: Budget 2021: Jobs Support Scheme extended for worst-hit sectors as part of S$11 billion package

Over the next five to 15 years, the pace of change will further accelerate and Singapore needs to prepare for the unexpected, Mr Heng said in closing. 

“I think one of the things that we must be prepared for as individuals and as a country, is that we must always be prepared for change, and we must always be prepared for surprises. Because if we can anticipate what big crisis will come, we will be able to prevent it,” he added. 

“But so far, I think humans have not had the ability to be able to predict the future with such accuracy. So we must get ready for the future.”

Watch Ask the Finance Minister 2021 here: 

Source: CNA/hw(ta)

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