Spotlight on calculation of income inequality

After taxes and transfers, some countries have a lower measure of income inequality than Singapore.

This is because these countries typically impose higher overall taxes on the working population, and in particular on the middle income, in order to finance large social transfers, said Finance Minister Heng Swee Keat yesterday.

Singapore's approach, on the other hand, is to keep the tax burden light and provide targeted support for people of lower income, he said, in a written reply to a parliamentary question by Non-Constituency MP Leon Perera, who asked how Singapore's Gini coefficient after taxes and transfers compared with those of other developed economies.

Mr Heng said the calculations after taxes and transfers also "do not reflect the full range of government policy interventions that are unique to the Singapore context", such as subsidies for the purchase of Housing Board flats.

The Gini coefficient measures income inequality from zero to one, with zero being most equal.

Using a method called the square root scale to adjust for different household sizes that is used by the Organisation for Economic Cooperation and Development, Singapore's figure was 0.356 last year after taxes and transfers. In comparison, latest figures for countries such as Canada, Denmark and South Korea were lower at 0.318, 0.256 and 0.295 respectively, while those for the United States and United Kingdom were higher at 0.390 and 0.360 respectively.

Before taxes and transfers, Singapore's figure, at 0.417 last year, is low compared with that of many major developed economies, said Mr Heng.

The latest available figures, before taxes and transfers, for the United States (0.506), United Kingdom (0.520), Canada (0.435) and Denmark (0.444) were higher than Singapore's, while South Korea's figure (0.341) was lower.

A version of this article appeared in the print edition of The Straits Times on March 20, 2018, with the headline 'Spotlight on calculation of income inequality'. Print Edition | Subscribe