He sketched out his reasoning by pointing to the fact that many Singaporeans are not benefitting from globalisation. The income gap is widening, and something serious must be done by way of a social safety net. The Workfare bonus, which saw S$150 million of payouts to about 330,000 low-wage workers earlier this year, will be repeated in future years. There may be other schemes, e.g. health-related, not yet announced.

At the same time, the GST increase is also needed because direct taxes may have to be reduced to keep Singapore competitive with other countries equally desirous of investment, Lee said.

As reported in the Straits Times, each percentage point increase in the GST brings in about S$750 million a year to the government coffers.

By this move, the government is indicating that it has become cognisant (belatedly?) of the widening income gap and the widespread frustration that is felt. Despite many schemes and financial subsidies for re-training, many older workers are unable to find jobs after being laid off, with levels of pay similar to the lost jobs. Structural unemployment and underemployment is here to stay, particularly for the older workers.

The insistence on "no welfare state" as an article of faith will now have to be finessed away, lest an unattended problem festers into social unrest.

* * * * *

Many people in the blogosphere have criticised using an increase in the GST for wealth transfer purposes. It's not that they disagree with the need for wealth transfer, but they point out that the GST is a regressive tax, hitting the poor more than the rich. Well, not really. It is a flat tax, though it will behave like a regressive tax since the less well-off use a larger proportion of their income for consumption rather than for investments and savings.

While these critics have a point, it is necessary to examine the details -- when they come out. Much depends on how much the government intends to transfer to the less well-off compared to how much they will rake in from the GST.

For example, if the poorest quarter of Singaporeans end up paying, say, 10% of the GST increase (i.e. about $300 million a year), but get social welfare pay-outs amounting to S$600 million a year, then there will be a net wealth transfer in their favour.

So I would suggest we hold our fire and engage with the details when they are announced.

* * * * *

I walked past a bus stop today, and saw a notice put up by a bus company announcing that there would be a bus fare increase (actually, it was implemented last month), "for the benefit of commuters".

"Hmmph, someone's trying to pull a fast one," I said to myself. So I stopped to look at the details.

It announced that simultaneous with the fare increase, the bus company would be giving "transport vouchers" to senior citizens.

Well, that's nice and dandy, but what will happen when the vouchers run out? Then they too will have to pay the increased fare like everybody else.

And that too is something we need to bear in mind when we scrutinise the details of the budget next year. The GST tax increase will naturally be permanent, but will the Workfare or whatever schemes be short-term ones?

Some no doubt are very sure that the People's Action Party will not want to make the schemes permanent. It would serve their electoral purposes better to be able to announce generous new schemes each time an election is called.

I don't think they can wait so long before making significant pay-outs. Elections in Singapore come around only at 4- or 5-year intervals. But they may design a scheme that pays out the minimum they can get away with on a regular basis, leaving a significant hoard that they can throw around come election time to sway voters with their largesse.

Again, we need to watch the numbers closely when they are released.

* * * * *

On the other hand, there are people who are already muttering about how this is going down the slippery slope to a welfare state, which in Singapore's political parlance, is about as bad as original sin. We must get people back to work, they say. Yet, unemployment is not the key problem, and thus their urgings miss the point. Our unemployment rate is in the 4 - 5% range, which is not too bad.

The key problem is that wages for lower-skill jobs have stagnated or fallen due to the effects of globalisation. These people are working, but they are not earning enough to make ends meet, especially as Singapore's cost of living continues to go up. Bus fare increase, remember?

The widening income gap is not just a consequence of an open economy in the face of globalising trends. Our aging society is also exacerbating it. We have lots of foreigners in our midst, not because of the globalisation of trade, industry and even services, but because we simply don't have enough people of our own. It may look like they have taken jobs away from locals, but in many cases, I'd say, they are jobs that the locals either won't or can't do.

* * * * *

This is the age "pyramid" for Singapore's resident population of 3.6 million. The Department of Statistics defines "resident population" as citizens and Permanent Residents.  It is obvious that we have an aging population. The most populous band is that of the 40 - 49 year-olds. The actual number of people in Singapore is 4.5 million (June 2005). Thus, we have 900,000 foreigners, most of whom are working.

Evidently, we have a lot of jobs. On the left is a similar type of graph, but showing the numbers of employed people in Singapore, by age bands.

The third diagram superimposes the two [1], and straight away, you'll see the misfit.

We have plenty of jobs for people in their 20's and 30's, but not enough citizens and Permanent Residents.

That's why almost all foreigners working here are in their 20's and 30's (grey-arrowed points).

Singapore seems to have an economy that requires lots of young people, when our own population is growing old.

Why should jobs "be for young people", you may ask? Can't a job be done by someone older? Alas, it's not so simple. Either the job requires strength and agility, or it requires new knowledge, e.g. in emerging technologies. Theoretically, it is possible to retrain an older worker in bio-science or information technology, but many of Singapore's older workers don't even have a good grounding in basic education or the English language. They are not trainable.

Our need to have a cutting-edge economy means we constantly need a lot of people with new knowledge. Our obsession with keeping the city clean and renewing our infrastructure endlessly, means we need a lot of strong young men. Trying to shoehorn our older workers into these jobs would be foolish; they would deliver neither the quality nor the efficiency, if they even understood what the jobs were about.

Since we have a steadily aging population, this structural mismatch is going to be with us for the foreseeable future. The older Singaporeans tend to lose out because many of them do not have what the economy needs, limiting their job and income options. The younger Singaporeans and some better-placed older ones tend to enjoy the fruits of globalisation.

If we had lots of younger Singaporeans and fewer older ones, the problem of a widening income gap might still be there but not be so obvious. As a ratio of total households, those with stagnating and falling incomes would be smaller than it is now. That there would still be a widening income gap is the effect of globalisation. The effect of our demography is that the ratio is much higher since we have more older Singaporeans able only to do old-economy jobs, and fewer younger Singaporeans able to take advantage of the new economy. Hence, the social problem of stagnating and declining incomes is a lot more noticeable. And politically sensitive.

It has taken the government a long time to realise this – that the problem won't go away. At last, they're breaking away from an ideological resistance to social welfare in order to come to grips with it.

This discussion however, points to an even bigger issue. It is this: Is the income gap problem going to get worse as our population ages? Is Singapore sustainable without addressing our demographic problem?

© Yawning Bread