Rising costs have been a problem for Singapore in recent years due to our scarce resources. As Asian countries grow and competition for these resources intensifies, this may translate to higher costs of production passed onto consumers as higher prices. In the first half of 2009, the inflation rate for the bottom 20 percent income group was 1.6 percent, compared to 0.9 percent for the top 20 percent. As inflation rate differs for households across the income groups, lower-income households will be worse hit and this will contribute to the widening of income inequality in Singapore. According to the 2000 Singapore Census, the average household income from work for the bottom 10 percent is $61 compared to $16,804 for the top 10 percent.
Besides social implications, increasing income inequality also creates economic concerns. A study done by Robert H. Frank of Cornell University, argued that income inequality creates price distortion as rapid income growth for the top earners allows them to spend more resulting in an “expenditure cascade”. This in turn raises the expenditure standards for those in the lower income brackets, and since their incomes have not grown as rapidly, they experience a loss of welfare. This could particularly be seen in the current property prices boom in Singapore leading to higher HDB prices for the lower income here.
Also, current income inequality in Singapore could potentially lead to the future generations of the lower income to sink deeper into this predicament assuming that they may not be positioned to take advantage of opportunities to better themselves economically. When income inequality worsens, poverty could become a major economic issue, which could be a severe strain on government resources dedicated towards this problem. Although many countries utilize the progressive income tax regime as their main tool to tackle income inequality, and even though this is the existing tax structure here, it will be a challenge for Singapore to rely too heavily on this instrument as it could disincentivise the upper levels of society from living here and potentially lead to a brain drain. Hence, the government will have to look into more creative ways of tackling this problem.
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