Do Singaporeans have an accurate sense of their wealth and well-being?

By Michelle Teo

/ The Edge Markets |

August 1, 2017 12:25 PM SGT

When V Arumugam married in 1971, he was earning $200 a month working the front desk at a hotel. A few years later, his monthly pay increased to $500. In 1980, he bought a three-room flat in Ang Mo Kio for about $18,000, which was funded with a loan from HDB. Today, the 71-year-old lives in another three-room flat with his 68-year-old wife. The couple live modestly and are careful with expenses, but do not feel they want for anything.

Their diabetes treatments and other healthcare costs are partly taken care of by Medisave and other arrangements at government hospitals. Arumugam says he has even invested in some locally listed dividend-paying stocks.

Arumugam harks from a generation of Singaporeans who did not start out with much, but who are satisfied with how far they have come.

"The cost of living in Singapore has gone up, but proportionately, incomes have also gone up. My income went up,” Arumugam says. To him, the CPF scheme and various programmes to support senior citizens have made a big difference. “For those who are really unable to work because of sickness or old age, the government is here to help. Unless you abuse the system, smoke and drink, don’t maintain (your own) reserves and expect the government to pay for you."

However, many younger Singaporeans are less optimistic about their prospects, and fear that the city state is becoming increasingly unaffordable to them.

By just about every measure, Singapore has become more prosperous over the last 50 years.

According to World Bank data, GDP per capita rose from US$44,200 in 2007 to US$52,961 ($72,097) last year. By comparison, GDP per capita in the US last year was US$57,467, while that in Hong Kong was US$43,681.

Yet, Singapore is now also one of the most expensive cities in the world.

In March, the Economist Intelligence Unit ranked Singapore as the world’s most expensive city for the fourth consecutive year.

The EIU’s cost-of-living survey is used by human resources managers to calculate compensation packages for overseas postings, and hence is perhaps more typical of expatriates’ expenditure. On the metrics EIU used, Singapore was 20% more expensive than New York and 5% more expensive than second-placed Hong Kong.

Has the prosperity achieved by Singapore been negated by the high cost of living? Is the disaffection of younger Singaporeans the result of the model the country adopted to grow its economy? Or, is it just their imagination?

Net exports inflate GDP

In a recent opinion piece published in Hong Kong, investment analyst-turned-financial columnist Jake Van Der Kamp contended that much of the wealth in Singapore is actually in the hands of foreigners, and that Singaporeans themselves have less disposable income than people in Hong Kong. He also asserted that Singapore’s consistent net exports surplus, which adds to GDP, has not traditionally been spent in the local economy.

Song Seng Wun, an economist at CIMB, says Singapore’s GDP figures are inflated by the net exports surplus, and that the average Singaporean family probably does not feel as well-off as the headline GDP figures imply.

"It reflects Singapore’s ability to generate income, not so much by the resident pool, but the foreigners investing in Singapore," Song says.

But foreign investment in export-oriented sectors has helped create jobs that the country would not otherwise have been able to create, he adds. “Would the resident income be what it is today if not for the infusion of foreign investment that has been the hallmark of Singapore over the last 50 years? I don’t think so.”

According to Singapore’s Department of Statistics, the median monthly household income from work among resident employed households has risen to $8,846 in 2016, from $4,952 ten years ago and $4,398 in 2000. The lower tiers of households have seen their incomes rise more. On an annualised, inflation-adjusted basis, those living in four-room HDB flats saw their monthly household income change the most over the past decade, rising 3.6%.

Residents of one- and two-room, and three-room HDB flats saw their incomes rise 2.6% and 3.3%, respectively, over the same period.

The incomes of residents of private apartments and landed properties rose about 2%.

Certainly, there are calls for wages to rise faster, or for a minimum wage to be instituted across the board. Instead, the government has targeted wage hikes in specific sectors: nursing, transport, and security services.

Home ownership a factor?

Irvin Seah, an economist at DBS Group Holdings, says one key difference between Singapore and Hong Kong is that Singapore has among the highest private home ownership levels in the world, as a result of a concerted government policy.

He says this results in a trade-off against personal consumption, which could be lower than in a city where home ownership is lower, such as in Hong Kong.

In an ideal situation, asset appreciation, as well as increases in the costs of living and doing business, would be in line with real income growth. However, as Singapore’s open economy attracts foreigners, incoming fund flows drive up asset prices in a way that increases costs as well as disparities in wealth.

“That’s why the authorities are reluctant to remove (the property ‘cooling measures’ first implemented in 2009) to ensure property is affordable,” Seah says.

Another significant difference between Singapore and many other cities is the social compact between the government and its citizens, Seah adds.

As Arumugam has experienced, there is significant support for lower-income citizens. Singapore’s Gini coefficient among resident employed households in 2016 fell to 0.402 from 0.458, after taking into account government transfers and taxes.

On a y-o-y basis, the income inequality measure improved 0.7% from 2015. It is lower than a decade ago, even when excluding the state’s rebates.

The way Song sees it, what matters is whether the quality of life in Singapore has improved rather than whether headline economic data is exaggerating the reality on the ground. "We should compare ourselves to ourselves," he says. “Are we poorer off now than before?”

For Arumugam, what seems to matter is that he has more cash in his pocket than he did before and that he owns his own adequately sized home. “People in Hong Kong, people like me, work two jobs. And they live in very small houses,” he says. “Some people value money, some value the quality of life. The quality of life is better here.”

- With additional reporting by Sharanya Pillai

This story first appeared on The Edge Markets

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