Thursday, February 21, 2013

Lower Income Screwed by Inflation

We all know that already but facts reported and repeated. For the lowest 10% of households, real income drop by 1.2% per household member in 2012. BTW Inflation in 2012 was 4.6%. Budget coming soon, will this be addressed in the form of subsidies and rebates, to lessen the burden of inflation and shrinking wages as a result?

Median household income growth moderated in 2012
By Imelda Saad | Posted: 20 February 2013 1610 hrs

SINGAPORE: Singaporean households earned more from work last year compared to the year before, but wage growth moderated, with bottom earners being the hardest hit.

Despite the economy slowing down last year, wages continued to rise.

The median monthly household income from work grew in 2012 by 7.5 per cent in nominal terms, and 2.7 per cent in real terms after factoring inflation of about 4.6 per cent.

According to the Department of Statistics' latest report "Key Household Income Trends", household median income rose by S$530 -- from S$7,040 in 2011 to S$7,570 in 2012.

Despite the wage growth, the rate of increase actually moderated.

In 2011, real wage growth was 5.6 per cent.

Analysts put it down to several factors, including the economic slowdown and inflation.

Dr Tan Khay Boon, senior lecturer at SIM Global Education, said: "I believe this is linked to the economic growth rate, because our last year's economic growth has significantly slowed down -- although it's in the positive range, it has slowed down significantly.

"Wage growth may still be able to increase partly because of the tight labour market, but the increase will be more moderated because of the economic slowdown."

As for the lowest 10 per cent of households, they saw real income dropping by 1.2 per cent per household member in 2012, while the top 10 per cent of households saw real income growing by about 5 per cent.

Associate Professor Annie Koh, Vice President of Business Development and External Relations, Singapore Management University, said: "I think if you look at the bottom 10th percentile, again if you look at just the headline figures alone, you would be asking 'what are the jobs, what are the descriptions and what are they paid at', and essentially those wages do not move.

"So again with inflation variable being higher this year than last year, if your real wages went down, it's because your nominal wage did not change. Inflation hits you and therefore in real terms, you're actually taking back less."

The Gini Coefficient, which measures the wage gap, increased slightly to 0.478 last year, from 0.473 in 2011.

Government transfers like utilities rebates, GST Credits and Workfare Bonus helped to mitigate this gap. With such social transfers, the Gini Coefficient moderated to 0.459.

Figures also showed that Singaporeans who live in smaller flats received more of such transfers.

On average, resident households received more than S$1,300 of transfers per member, from the various government help schemes.

Those in 1- to 2-room public flats, received the most -- at over S$6,000 per household member, followed by those in 3-room HDB flats at S$1,530 per household member on average.

Analysts said that as a developed country, the income divide in Singapore would remain, but it could be managed.

They added that more could be done to help low wage earners.

Dr Tan said: "The more long-term issue is to help this group to move up the income level. That means provide education and training, provide job opportunities that are higher value-added for these group of people to move into."

But the outcome of re-skilling and enhanced productivity takes time. So analysts argued that year-on-year, the government needed to look into setting aside more funds for social transfers.

Assoc Prof Koh said: "So if you're looking at a budget surplus that's coming up, everyone's expecting it -- they'll say 'why isn't the government helping us as we tide over this period waiting for this upskilling to get the higher wages coming'."

With Singapore's Budget Statement coming out on Monday, analysts expect the government to dish out more help for the lower wage earners.

They said there is room for more social transfers to help with immediate needs and added that the government should press on with long-term efforts to help the low income group.

Assoc Prof Koh said: "There's definitely a need for us to look at inter-segment and inter-governmental transfers beyond just credit bonus for work, beyond just healthcare subsidies.

"Literally, I think there should be a longer transfer mechanism -- maybe not in terms of tax reliefs, because if you are in the low-income bracket you are not taxed at all."

"So how are you going to get better subsidies to help the buying power of the lower 10 per cent of our population?" added Assoc Prof Koh.

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