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    Feb 19, 2014

    Inequality falls as rich get poorer

    INCOME inequality has dropped to a record low, according to the Key Household Income Trends report released by the Department of Statistics yesterday. But this may not necessarily be a good thing.

    The lowest-earning 10 per cent of households saw their income creep up slightly - from an average of $440 a month per member in 2012, to $463 last year.

    The gap was reduced partly because of more government transfers to lower-income households, and partly because the highest-earning 10 per cent of households saw their income drop from an average of $11,552 a month per member in 2012 to $11,198 last year.

    The 5.2 per cent drop, after taking inflation into account, for the most well-off households was the first in four years.

    The last time they saw a drop in income was at the height of the global financial crisis in 2009, when their average monthly income per member fell to $8,945 from $9,199 the previous year - a fall of 2.6 per cent.

    As a result of the latest "levelling down", the Gini coefficient, a measure of income inequality, has fallen from 0.478 in 2012 to 0.463 last year.

    After factoring in government transfers and taxes, the figure is 0.412 - the lowest since 2000.

    A Gini coefficient of zero spells total equality and that of one means total inequality.

    But it may not be a reason to pop the bubbly.

    OCBC economist Selena Ling told MyPaper: "If this trend continues, the Government will have to be more resourceful in where to get its revenue in terms of not putting too much reliance on personal income tax, which makes up the bulk of the operating revenue."

    Since the rich pay the most taxes, a fall in their income could hit revenues.

    CIMB economist Song Seng Wun noted: "It is not really a case of the bottom racing ahead, but a slower growth for those at the top. For example, wage growth for those in the financial sector was more modest due to more subdued market conditions."

    Bank of America Merrill Lynch economist Chua Hak Bin said: "Stricter foreign-worker policies and a tight labour market have helped to lift wages for the bottom decile."

    But he warned: "The danger is that restructuring and excessively strict foreign-worker policy may hurt job growth and companies setting up shop in Singapore, if the tightening goes too far. That will not augur well for wages or labour demand in the longer term."

    Meanwhile, the median monthly household income rose to $7,870 last year, 4 per cent up from 2012. After taking into account inflation, the rise was 1.6 per cent from 2012.

    The data from the report is based on the sample of households surveyed in the Comprehensive Labour Force Survey. Some 33,000 households were involved in the survey, conducted by the Ministry of Manpower in the middle of last year.

    For now, shrinking income inequality seems set to be a trend.

    "At this juncture, the market conditions continue to be difficult in the finance sector. What we saw last year could well extend into this year," said Mr Song. "Given that the Government is trying to get higher wages for the lower-income group, we could see the income inequality gap continue to improve. It is good that the lower-income (group) can gradually move up."