Analysis: Singapore may now have to tackle income gap

SINGAPORE Sun May 8, 2011 4:19am EDT

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SINGAPORE (Reuters) - Pressure may mount on Singapore Prime Minister Lee Hsien Loong to introduce policies that lift wages for low-income workers, make housing more affordable and limit the influx of foreigners after a less than sweet election victory.

The ruling People's Action Party (PAP) won 81 of 87 seats in parliament in Saturday's polls, but the opposition emerged victorious in six -- the highest it has ever taken since independence in 1965.

The more significant factor was the swing of the popular vote away from Lee's party, which won about 60 percent, the lowest since independence and below the around 67 percent at the last polls in 2006.

The swing is a strong signal that Singaporeans are not entirely satisfied with government policies despite strong economic growth in the last five years, including a record 14.5 percent expansion in 2010.

The PAP has resisted introducing social welfare schemes as practiced in the West, but there was strident criticism at this election over the widening gap between the rich and the poor, the high cost of living and complaints about foreign workers stealing jobs.

However, analysts said any changes on the margins are unlikely to threaten Singapore's status as one of the world's most friendly places to do business and as Asia's major wealth management center.

"It is a wake-up call," said Chua Hak Bin, an economist at Bank of America's Merrill Lynch. "There will now be a tilt away from companies and more toward workers and wages, especially the lower income."

The bottom 10 percent of Singaporean households had an average monthly income of S$1,400 ($1,130) last year, versus S$23,684 for the top 10 percent, according to government data.

Many young Singaporeans feel they can no longer afford homes, unlike their parents' generation. Analysts say the government is likely to provide more financial incentives to couples to afford newly built Housing and Development Board (HDB) apartments.

Political commentator Cherian George wrote that tackling high prices of state HDB apartments, traffic jams and the cost of living were election issues that the PAP can easily solve.

"These are problems that are open to technocratic solutions, and the PAP leaders and their civil servants are masters of navigating complex policy terrains when they have the political will to do so," George said.

"Instead, the real challenge post-election is to win back the people's trust."

Financial markets, which have barely been affected by the election campaign, are unlikely to be impacted when they open on Monday because PAP's share of popular vote did not fall below the critical 60 percent level, said Robert Prior-Wandesforde, senior economist at Credit Suisse.

FOREIGN WORKERS

Merrill's Chua said hopes among employers that the government will loosen tight caps on foreign workers in booming sectors like construction and services have faded.

"There is a lot of unhappiness on the ground about immigration, about congestion," Chua said, adding the government will limit foreigner workers to one-third of Singapore's population.

Foreigners now make up 36 percent of Singapore's population of 5.1 million, up from around 20 percent of 4 million people a decade earlier. This has led to complaints about increased competition for jobs, schooling and housing, and over-crowding on buses and trains.

The government has introduced measures to screen for better qualified semi-skilled migrant workers and differentiate between privileges for citizens and permanent residents.

But there lies Singapore's dilemma.

Many of foreign workers take up jobs that ordinary Singaporeans are reluctant to do, such as menial work and low-cost manufacturing.

The issue is complicated by demographic issues -- the majority Chinese population is growing at a lower rate than minority Malays and Indians due to different birth rates, and the government has made repeated efforts to encourage citizens to have more children.

"Immigration would be seen as an imperative but the numbers will be moderated in terms of how the infrastructure can cope with the increase," said Eugene Tan, assistant professor of law at Singapore Management University.

In the near term, the PAP-led government could be forced to focus on better distribution of wealth as the city-state's fast economic growth has not helped to effectively tackle income disparity.

"There will be less focus on GDP growth for the sake of GDP growth and more on distribution of the wealth for the sake of growth," said Credit Suisse's Prior-Wandesforde.

(Editing by Nick Macfie)

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Comments (1)
f00 wrote:
Well that’s unfortunate, a few radical city states on both sides of the political spectrum are nice to give a perspective on different systems. It is a great loss when every political system shifts to the center (preventing anyone from trying out radical ideas which may be better), but I guess that is inevitable in democracy…

May 08, 2011 5:46pm EDT  --  Report as abuse
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