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http://www.tremeritus.com/2012/10/04/18-ways-to-reduce-the-income-gap/
18 Ways to reduce the Income Gap
October 4th, 2012 | Author: Contributions
With the gap between rich and poor widening, financial advisor and commentator Leong Sze Hian argues that new government policies are needed in several key sectors. But that Singaporeans need to change their mindset as well.
“We need to tweak our labour policies, then automatically wages will rise,” Sze Hian told a packed room at SMU in a panel discussion about income inequality organised by ONE (SINGAPORE) and the Wee Kim Wee Centre.
But the outspoken advocate of poor and disenfranchised families also notes that the government can not do everything.
“We cannot put all the blame on the government. Look at the issue of cleaners. Two years ago, their pay was S$800, now (the amount is) less. Why? Because every time the workers’ levy goes up, (companies) cut workers pay and we accept it. As Singaporeans, we need to be more compassionate.”
In this article, Sze Hian focuses on four key areas where new policies – or in some cases, a return to previous rules – could reduce the income gap, increase purchasing power and ensure that catastrophic illnesses do not also bankrupt families.
Wages and CPF
1. Peg the interest rate paid on CPF accounts to the GIC’s historical rate of return (minus a one-percentage administrative fee).
Singaporean’s retirement funds are essentially invested by the government in securities chosen by the Government Investment Corporation. While there has been some controversy about how this works, it appears that the Government sells bonds to the CPF Board and then provides the funds raised to GIC.
Currently, ordinary CPF accounts pay 2.5%. There’s a slightly more complicated formula for calculating the return on Special, Medical and Retirement Accounts (SMRA), but they tend to pay 5% on the first S$60,000 and 4% on subsequent funds.
But the GIC has a historical rate of return over the past twenty years of about 6 percent in US dollar terms. So instead of paying Singaporeans a 2.5% rate of return on their CPF accounts, it would be more equitable to pay about 5 percent (providing GIC with a profit for administering the funds).
By the way, Malaysia’s Employees Provident Fund (EPF) paid a dividend of 5.8 and 5.65 percent in 2010 and 2009, respectively, and has historically paid a return of between 4.25 to 8.5 per cent.
2. Change the rules for self-employed Workfare accounts.
Self-employed individuals currently do not receive any cash payments from Workfare. Instead, Workfare transfers to the self-employed are paid into their CPF Medisave accounts. This discourages older lower-income self-employed Singaporeans from contributing to CPF to qualify for Workfare.
3. Require employers to pay CPF for foreign employees too.
Current policy exempts employers from having to pay a 16 percent contribution to CPF for foreign employees. This policy puts Singaporeans at a disadvantage as employers save 16 per cent of salary costs when they employ foreigners.
Healthcare
4. Pay Medishield premiums
Instead of making periodic CPF Medisave top-ups to older Singaporeans, use the funds to pay for their Medishield premiums instead. Otherwise, such top-ups can easily be consumed by rising medical costs.
5. Provide coverage for all infants
Currently, CPF Medishield does not cover new-born children with congenital illnesses.
6. Increase public spending
Singapore’s spending on healthcare is one of the lowest in the world. The government currently spends about 1.6 percent of GDP on healthcare. We need to invest more in the health of our citizens.
7. Stop Privatising Healthcare
Private sector spending on healthcare, as a percentage of total healthcare spending, has risen from 25 percent not long ago to 60 percent now. We need to reverse this trend. Private healthcare costs patients more.
8. Subsidise out-patient treatments for those in need
Out-patient treatments at polyclinics can be expensive and a large burden on low-income families and individuals. The government Medifund programme should pay for these treatments. Instead, the government has transferred S$86 million of Medifund surpluses to the Protected Reserves over the past decade or so.
9. Better coverage for workplace injuries – Part 1
An injury at work can be all that it takes to push a family into poverty. The Workmen’s Injury Act was amended a few years ago to reduce employers’ and insurers’ liability for medical expenses arising from workplace accidents to S$25,000. But according to the Ministry of Health, medical fees from five percent of industrial accidents exceed this cap, placing an unfair – and potentially debilitating – financial burden on employees.
10. Better coverage for workplace injuries – Part 2
Require public hospitals to extend the same subsidies to all patients, whether they are in hospital due to an industrial accident or other matter. Currently, ‘subsidised wards’ are actually not subsidised at all if you are hospitalised due to a workplace injury. This means that patients are paying five times as much to stay in a Class C ward.
11. Fight higher costs by changing the way hospitals are reimbursed.
Hospital fees have doubled over the past four years. A major reason for this is that the government reimburses public hospitals based on the MOH’s average treatment type subsidy computation. Yet hospitals are still free to charge higher prices and pass the difference on to patients. Instead, the government should reimburse hospitals for the actual subsidy shown in medical bills.
12. Better means-testing
Review means testing for patients who request for down-grading to lower-class hospital wards. The last time a reply on this was given in Parliament, it was revealed that only one percent of those who applied for downgrading from a higher class ward were successful.
Transparency
Information is a key for effective governance and developing solutions. There are a number of facts though that are not currently public knowledge. For example . . .
13. If someone can not afford medical treatment, what is the likelihood that s/he will receive government support?
MOH discloses the number of successful applications, but not the total number or number rejected. What is the percentage of Medifund applicants that are accepted because they can not pay their medical bills?
14. Make public the criteria for approving Medifund applications.
15. Disclose the “Standard Drug List”.
Patients should be able to know in advance which drugs are subsidised and which are not.
16. How many people discharged from hospital are unable to pay their medical bills?
We know that 21 percent of Singaporeans who seek assistance from Credit Counselling Singapore are requesting help because of medical fees. But we do not know how many patients are left with financial problems due to medical expenses.
Housing
17. Remove the income ceiling of S$2,000 for two-room flats.
This limit is based on a simplistic assumption that every household earning more than $2,000 can afford a three-room flat, regardless of family size or financial circumstances.
18. Do not increase rents for households earning more than S$800.
Families earning between S$800 and S$1,500 may already be finding it heard to make ends meet. The state does not need to add to their burden by increasing their rent. It’s time to reverse this relatively recent policy change.
.
Leong Sze Hian
Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, Wharton Fellow, SEACeM Fellow and an author of 4 books. He is frequently quoted in the media. He has also been invited to speak more than 100 times in 25 countries on 5 continents. He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional qualifications. He blogs at http://www.leongszehian.com.
http://www.tremeritus.com/2012/10/04/18-ways-to-reduce-the-income-gap/
18 Ways to reduce the Income Gap
October 4th, 2012 | Author: Contributions
With the gap between rich and poor widening, financial advisor and commentator Leong Sze Hian argues that new government policies are needed in several key sectors. But that Singaporeans need to change their mindset as well.
“We need to tweak our labour policies, then automatically wages will rise,” Sze Hian told a packed room at SMU in a panel discussion about income inequality organised by ONE (SINGAPORE) and the Wee Kim Wee Centre.
But the outspoken advocate of poor and disenfranchised families also notes that the government can not do everything.
“We cannot put all the blame on the government. Look at the issue of cleaners. Two years ago, their pay was S$800, now (the amount is) less. Why? Because every time the workers’ levy goes up, (companies) cut workers pay and we accept it. As Singaporeans, we need to be more compassionate.”
In this article, Sze Hian focuses on four key areas where new policies – or in some cases, a return to previous rules – could reduce the income gap, increase purchasing power and ensure that catastrophic illnesses do not also bankrupt families.
Wages and CPF
1. Peg the interest rate paid on CPF accounts to the GIC’s historical rate of return (minus a one-percentage administrative fee).
Singaporean’s retirement funds are essentially invested by the government in securities chosen by the Government Investment Corporation. While there has been some controversy about how this works, it appears that the Government sells bonds to the CPF Board and then provides the funds raised to GIC.
Currently, ordinary CPF accounts pay 2.5%. There’s a slightly more complicated formula for calculating the return on Special, Medical and Retirement Accounts (SMRA), but they tend to pay 5% on the first S$60,000 and 4% on subsequent funds.
But the GIC has a historical rate of return over the past twenty years of about 6 percent in US dollar terms. So instead of paying Singaporeans a 2.5% rate of return on their CPF accounts, it would be more equitable to pay about 5 percent (providing GIC with a profit for administering the funds).
By the way, Malaysia’s Employees Provident Fund (EPF) paid a dividend of 5.8 and 5.65 percent in 2010 and 2009, respectively, and has historically paid a return of between 4.25 to 8.5 per cent.
2. Change the rules for self-employed Workfare accounts.
Self-employed individuals currently do not receive any cash payments from Workfare. Instead, Workfare transfers to the self-employed are paid into their CPF Medisave accounts. This discourages older lower-income self-employed Singaporeans from contributing to CPF to qualify for Workfare.
3. Require employers to pay CPF for foreign employees too.
Current policy exempts employers from having to pay a 16 percent contribution to CPF for foreign employees. This policy puts Singaporeans at a disadvantage as employers save 16 per cent of salary costs when they employ foreigners.
Healthcare
4. Pay Medishield premiums
Instead of making periodic CPF Medisave top-ups to older Singaporeans, use the funds to pay for their Medishield premiums instead. Otherwise, such top-ups can easily be consumed by rising medical costs.
5. Provide coverage for all infants
Currently, CPF Medishield does not cover new-born children with congenital illnesses.
6. Increase public spending
Singapore’s spending on healthcare is one of the lowest in the world. The government currently spends about 1.6 percent of GDP on healthcare. We need to invest more in the health of our citizens.
7. Stop Privatising Healthcare
Private sector spending on healthcare, as a percentage of total healthcare spending, has risen from 25 percent not long ago to 60 percent now. We need to reverse this trend. Private healthcare costs patients more.
8. Subsidise out-patient treatments for those in need
Out-patient treatments at polyclinics can be expensive and a large burden on low-income families and individuals. The government Medifund programme should pay for these treatments. Instead, the government has transferred S$86 million of Medifund surpluses to the Protected Reserves over the past decade or so.
9. Better coverage for workplace injuries – Part 1
An injury at work can be all that it takes to push a family into poverty. The Workmen’s Injury Act was amended a few years ago to reduce employers’ and insurers’ liability for medical expenses arising from workplace accidents to S$25,000. But according to the Ministry of Health, medical fees from five percent of industrial accidents exceed this cap, placing an unfair – and potentially debilitating – financial burden on employees.
10. Better coverage for workplace injuries – Part 2
Require public hospitals to extend the same subsidies to all patients, whether they are in hospital due to an industrial accident or other matter. Currently, ‘subsidised wards’ are actually not subsidised at all if you are hospitalised due to a workplace injury. This means that patients are paying five times as much to stay in a Class C ward.
11. Fight higher costs by changing the way hospitals are reimbursed.
Hospital fees have doubled over the past four years. A major reason for this is that the government reimburses public hospitals based on the MOH’s average treatment type subsidy computation. Yet hospitals are still free to charge higher prices and pass the difference on to patients. Instead, the government should reimburse hospitals for the actual subsidy shown in medical bills.
12. Better means-testing
Review means testing for patients who request for down-grading to lower-class hospital wards. The last time a reply on this was given in Parliament, it was revealed that only one percent of those who applied for downgrading from a higher class ward were successful.
Transparency
Information is a key for effective governance and developing solutions. There are a number of facts though that are not currently public knowledge. For example . . .
13. If someone can not afford medical treatment, what is the likelihood that s/he will receive government support?
MOH discloses the number of successful applications, but not the total number or number rejected. What is the percentage of Medifund applicants that are accepted because they can not pay their medical bills?
14. Make public the criteria for approving Medifund applications.
15. Disclose the “Standard Drug List”.
Patients should be able to know in advance which drugs are subsidised and which are not.
16. How many people discharged from hospital are unable to pay their medical bills?
We know that 21 percent of Singaporeans who seek assistance from Credit Counselling Singapore are requesting help because of medical fees. But we do not know how many patients are left with financial problems due to medical expenses.
Housing
17. Remove the income ceiling of S$2,000 for two-room flats.
This limit is based on a simplistic assumption that every household earning more than $2,000 can afford a three-room flat, regardless of family size or financial circumstances.
18. Do not increase rents for households earning more than S$800.
Families earning between S$800 and S$1,500 may already be finding it heard to make ends meet. The state does not need to add to their burden by increasing their rent. It’s time to reverse this relatively recent policy change.
.
Leong Sze Hian
Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, Wharton Fellow, SEACeM Fellow and an author of 4 books. He is frequently quoted in the media. He has also been invited to speak more than 100 times in 25 countries on 5 continents. He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional qualifications. He blogs at http://www.leongszehian.com.
