Possible cost of universal income for Singapore

I would like to start off by saying that this was written after only a couple hours of googling and some Excel spreadsheet calculations. Thus, the figures are debatable but would in my opinion give a good measure of the cost of universal income. My concern is in regards to the tax impact on Singapore and not the principles, morality, philosophy, politics etc of universal income.

I was never a supporter of universal income and treated it as an avoidable cost to the country, but with the introduction of AI, robotics, the cloud and remote factories into our world, as well as the pace in which the technologies are adopted, I am convinced that much of the world’s households including Singapore would plunge into debt and poverty.

Globalisation and technology will and has depressed wages. Having a job no longer means not being in poverty. Although poverty means many things to many people, it also cannot just be based on a single dollar value and would also mean differently in different countries.

All the good of universal income need no introduction, securing the basic needs of each citizen of a country ensures political stability and may, according to some arguments make citizens more adventurous and daring. Starting businesses, be more inventive, make more social aware choices due to the fact that his/her basic survival needs are met.

Singapore had started to plan and implement some schemes to combat for the eventuality of Singapore becoming victim of globalisation and technology. They are as follows:

1. CPF — a forced savings scheme that becomes a medical insurance and pension payment plan after one retires.
2. WIS — a workfare income supplementation. Workers earning below $2,000 get some top ups by the government each month in cash and in CPF contributions.
3. Rebates — there are several rebates in Singapore, such as the GST rebate, Utilities rebates etc. These are given to qualifying households to offset the costs of tax and utilities price increases.

Universal income in Singapore borne by Individuals and not the state

In Singapore, individuals receive a “pension/income” after the age of 65. However, these are from the individuals own forced savings accounts.

The question arises, what if the government had to save for the retirement payments instead?

Although not a scientific method and only by inference, the possible tax rates that would have to be implemented were deduced from the CPF contribution rate.

The contribution rate is 37% on the first S$6,000 of a person’s monthly salary and allocated into different accounts. Due to the fact that the Ordinary account can be used for the servicing of mortgage loans, children’s education as well as investments, I have only included the special account and medisave account as the implied tax rate.

Implied tax rate data from CPF website

The Singapore government has done well to impose the burden of “social security” or universal income upon retirement upon the citizens so that the universal income would vary according to the individual’s pre-retirement income. (The higher your income, the higher amount of savings, thus the higher amount paid out later)

Rather than giving the same pay out to someone who had a higher income as that of a lower income person and thus suffering a huge drop in lifestyle, a higher income person can retain some of his pre-retirement lifestyle from his owned forced savings account.

Universal income in Singapore borne by the state paid to everyone pre-retirement

However, the above only deals with Retirement income. The question arises, what if the government takes upon itself to pay an income to every Singaporean age 20 and above an income of $625 per month?

The sources of the numbers are from Singapore tax statistics website. The number of citizens figures are from several sources and at best approximates.

It will cost the government a whopping S$22.35B per annum! The government can either print money and with it all the negative consequences or raise them through taxes.

Or on the extreme side of things, each Singaporean would have to bear $18K of this universal income, which is ridiculous since his “return” of $7,500 per annum pales in comparison.

Thus we have to assume that corporate tax rates and GST would have to increase to make up the difference.

However, since we need the corporations to invest in Singapore, it is self defeating to raise taxes when globally, all countries even the US are targeting for lower corporate taxes.

How much would the GST rate needs to be increased?

GST would have to be raised to 21% to raise funds for the universal income.

Assuming all the S$625 per month is used to buy staple produce, the value of the S$625 would immediately be reduced to (S$625 less $131.25) S$493.75 due to the 21% GST tax.

To cater for the 21% taxes, the universal income needs to be raised to approximately S$845 per month in order to maintain the disposal income value of S$625 (S$845 multiplied by 0.74) and taxes raise to 26%.

Therefore, there is no one stop solution. With the mixed bag of policies currently already implemented, the government can stave away pre-retirement universal income payments if it is aggressive in pursuing economic growth friendly policies such as ensuring the infrastructure of roads, rail services, internet, electricity, water etc are well maintained, ensuring the tax policies and legal system is fair and friendly and most importantly, aggressively sell Singapore as a top destination for business.

On its home turf, it must monitor and build smaller and cheaper housing to counteract the depression of wages. It has to release more land with controlled rents to allow suppliers to offer “cheap” (as opposed to affordable) avenues for the lower middle income family to shop for food and necessities (hair cut, clothes, shoes…). An internal eco-system needs to be adopted and if properly managed, it will not end up as slum communities we see in other countries.

The cost of universal income is about S$30B per annum and therefore bearing this in mind, investing into the future of Singaporeans will be cheaper than bearing the cost of paying S$30B per year.

Free primary, secondary and tertiary (including poly) education should be given. Polytechnic/ITE education should be given free to citizens to continuously study and upgrade themselves to adapt to the new economy.

Selling the tax raises AFTER the cost is incurred (free education) is easier as this taxes are directly incurred for an expenditure/investment. Singapore can count on its reserves to fund the free education and subsequently recoup it back thru raising of taxes (income and gst).

The cost of not doing so would be dire. The eventuality of robotics, AI, cloud and remote factories will be a given. Singapore has to adapt or die.