Should landlords worry? Singapore’s new inequality data suggests tough conversations will continue

SINGAPORE’S household income data is released yearly to little fanfare. But two new aspects of the latest report clarify the state of inequality here – and could pave the way for policy change.

Granted, there are no specific commitments apart from continuing to “review and refine policies”, in either the Ministry of Finance’s regular data report or the accompanying occasional paper, both released on Monday (Feb 9).

Yet, the latest figures are significant partly because they include a group whose effects on inequality were previously overlooked: property-owning retirees, especially landlords.

With a clearer picture of how this asset-rich class contributes to inequality, Singapore can have more informed discussions about what, if anything, should be done.

One of the two changes is about what counts as income. Previously, only employment income was taken into account when measuring inequality.

Now, Singapore looks at market income: both employment income and non-employment income, such as rental income, investment income, and annuity payouts.

The population base for measuring inequality has widened accordingly: all resident households, instead of just resident employed households.

Interestingly, if the old base of resident employed households is kept, then Singapore’s Gini coefficient – the common international measure of inequality – actually improves.

This suggests that some households at the lower end are actually better off than previously measured, thanks to non-employment income.

But when the base is widened to include households that are not employed, Singapore’s Gini coefficient turns out to be worse than previously measured.

This is likely because the wider base captures needy unemployed households at the bottom, and non-working households with significant rental or investment income nearer the top.

As the report itself notes, the true degree of inequality may be even higher, as incomes at the top are likely underestimated. Overseas investments, for instance, may not be captured.

In short, the latest report provides a more accurate – if still understated – picture of income inequality, revealing a Singapore that is less equal than previously believed.

Time to talk about wealth

For an even fuller picture, we now can consider not just income but wealth, figures for which were released for the first time on Monday.

Here, too, the degree of inequality is likely understated, as not all the assets of the wealthy will be captured in the data.

Singapore’s wealth Gini coefficient does not compare too badly to that of other developed countries. Yet at 0.55, it still indicates a situation that is more unequal than equal.

On its own, the figure does not suggest specific policies. But the fact that it is being made public should pave the way for a wider discussion of wealth inequality and how Singapore might want to tackle it.

Such a discussion is arguably long overdue.

Monday’s report follows a similar MOF occasional paper 10 years ago, the findings of which informed a speech that then-deputy prime minister Tharman Shanmugaratnam gave at an Economic Society of Singapore event.

The speech covered income growth trends, the use of taxes and transfers to tackle inequality, and social mobility. Yet, in its nearly four thousand words, “wealth” did not appear once.

Wealth inequality may be tricker to tackle than income inequality for two reasons.

One is logistical: Wealth is hard to tax. The wealthiest people tend to be the most capable of dodging the taxman, whether through creative accounting or having assets overseas. This is also why Singapore has tended to use property taxes as the closest proxy.

The other reason might be the thornier one. Wealth accumulates partly through intergenerational transfer. Few parents want to be criticised for passing what they have to their children, let alone penalised.

By releasing wealth inequality figures for the first time, the government has signalled a willingness to face the issue. Society must do the same. Among other things, this means a certain class must acknowledge its privilege: landlords.

Paying for the privilege

The government has long used property as a proxy for wealth when administrating certain forms of targeted or tiered support, such as GST Vouchers. It has also long received complaints from some higher-value property owners who felt this was unfair.

The release of new income and wealth inequality data, however, suggests that the government will not back down in this regard.

If anything, both changes suggest the need to look more closely at landlords.

First, the inclusion of non-employment income is a recognition that such sources can be substantial, forming a fifth of household income on average.

For most households, a majority of non-employment income is Central Provident Fund interest and payouts. But for the top fifth, rental income and “other investment income” are greater.

For the top 10 per cent of households, rental income forms 26 per cent of non-employment income, with other investment income at 42 per cent.

For the next 10 per cent of households, rental income is 24 per cent and other investment income, 26 per cent.

Second, the wealth statistics support the use of property as a proxy. Property equity forms more than half of household wealth on average, as well as within almost all wealth quartiles.

That is not to imply that the government will necessarily introduce new measures aimed at landlords.

The report notes existing measures to moderate wealth inequality, including progressive property taxes and targeted wealth transfers to the lower-income. It adds that the government will “continue to monitor developments and review its measures to ensure they remain effective and sustainable, as circumstances evolve”.

Still, the new approach does suggest that landlords have less empirical basis for seeing themselves as hard done by.

The measurement approach says quite clearly: Even if rental income is your main source of income, it still counts. Even if your wealth is locked up in your property, it is still wealth.

While policies may not immediately change, mindsets may have to do so. The new inequality measures should remind landlords that they are better off than many fellow citizens – and perhaps persuade them to be more accepting of any future redistributive moves.