Income Inequality will cost the future generations

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The Wealth Paradox: What growing income inequality is costing Canada’s future generations
BARRIE MCKENNA
OTTAWA — The Globe and Mail
Published Friday, Nov. 08 2013, 6:00 PM EST
Last updated Friday, Nov. 08 2013, 7:07 PM EST

It’s been dubbed the Great Gatsby Curve.

Plot countries on a graph. Put income inequality on one axis, mobility between generations on the other.

A sobering picture emerges. The dream of achieving a better life than your parents is more elusive in countries where the gap between rich and poor is larger.

For now, Canada sits comfortably in the middle of the curve among developed countries. It’s more equal and traditionally more upwardly mobile than those at the extremes of the scale, including the United States, but it trails countries such as Denmark, Norway and Sweden.

And yet a disquieting trend has taken root as Canada emerges from a decade transformed by powerful forces – some beyond our borders, others closer to home. Globalization, a digital revolution and public austerity programs are reshaping the economy. Good paying factory jobs continue to vanish, and middle-class incomes are getting squeezed. Many of the great equalizers – pensions, public health care and education – are threatened by the fiscal challenges facing governments at all levels.

That leaves a greater share of income, wealth and power in the hands of contemporary Jay Gatsbys.

The challenge for the country is to preserve for future generations all the good things that helped previous generations – especially the massive Baby Boom cohort – thrive and get ahead, argues University of Ottawa economist Miles Corak, one of Canada’s leading experts on poverty and mobility.

“We have a sense of being relatively successful in terms of mobility, but it reflects an era that was more equal,” he points out.

Today’s twenty and thirtysomethings are likely to find it much harder to get ahead than their parents did, he warns. For them, even a middle-class life is increasingly elusive.

Sicco Naets, a 39-year-old manager at an Ottawa high-tech start-up, is emblematic of many post-Baby Boomers, who worry the Canadian dream is passing them by. He and his wife earn “well above” the national average. They have two children, one car, little debt and a modest suburban town home.

And yet Mr. Naets is frustrated and angry that his generation seems to be slipping further behind. He dreams of a larger house for his growing family, but he’s fearful moving up will leave him too much debt, too little savings for retirement, or both.

“Compared to my parents, I’m way further ahead from a job point of view, I’m better educated and I’m probably in a higher income bracket. But my standard of living is a lot lower than theirs was,” he says.

Stuck in a slow-growth economy after a decade of stagnating incomes for the middle class, experts say Canada is at a crossroads. It can look to countries that have found creative ways to nurture greater equality and mobility, without sacrificing economic growth. Or it can follow the U.S., Britain and other countries down the path of increasingly isolated social extremes.

While inequality is significantly less pronounced than in the U.S., Canada is trending in the same direction as its neighbour on several key metrics, including ebbing mobility, a rising share of income in the hands of the top 1 per cent and a swelling gap between what CEOs and workers make.

The country’s business elite – the chief executives of the top 100 companies – took home 122 times what the average worker did in 2012, up from a ratio 84-to-one a decade earlier, according to research commissioned by The Globe and Mail.

The reality is that perfect equality is both unattainable and undesirable. Nowhere are wealth and income distributed completely evenly across a population. Countries are all unequal, and that’s generally a good thing. Inequality creates a powerful incentive to work, to invest and to get ahead. More income is the reward for success, which is spread to others when those at the top invest, start new businesses and hire more workers.

But it’s all a question of degree. You can have too much of a good thing.

Former prime minister Paul Martin, 75, figures he’s part of the most fortunate generation in Canadian history. He entered the work force in the booming 1960s, at the vanguard of an age group that would only know rising incomes and boundless opportunity.

But Mr. Martin frets that Canada is now drifting towards a society of extremes and a hollow middle – conditions he argues have helped spawn the anti-government Tea Party movement in the United States.

“The ability for succeeding generations to do better than preceding generations is an essential part of the glue that makes a democracy work,” says Mr. Martin, who now devotes his energy and part of his wealth to fighting for better aboriginal education. “The gutting of the middle class is more than the canary in the coal mine. It essentially opens your society and your economy to all kinds of fissures.”

The major economic transformations of the past couple of decades have certainly been a mixed blessing for the middle class. Rapid globalization and huge advances in technology have depressed wages and marginalized routine work.

They have also made life cheaper, driving down the cost of most household goods, from flat-screen TVs to clothing to furniture. Cheap money has meant people can borrow more to fuel these purchases.

The economic emergence of countries such as China has driven up demand, and prices, for Canada’s prized natural resources – fertilizer, oil, metals, canola and the like. And the benefits of the long resource boom have spread wealth across the country.

But the Great Recession ended the party, leaving the world in slow growth mode for a while.

The 1 per cent will be okay. No worries there. But the transition to sluggish growth and government austerity has left many middle-income earners feeling frustrated, financially squeezed and worried about slipping backwards.

This middle-class angst has made inequality fertile ground for politicians, right across the political spectrum, in Canada and elsewhere.

It’s lonely in the middle

Canada experienced the greatest surge in inequality in the 1980s and 1990s, based on the broadest measure – the so-called Gini coefficient, which plots how far incomes deviate from a society where everyone earns exactly the same. Since 2000, inequality has remained flat.

But other key measures of inequality suggest a less benign picture of what has happened in the past decade. While the middle class may not be sliding backward, it is shrinking. The share of Canadians with middle incomes has been in steady decline since the late 1980s. The share of the population at both the upper and lower extremes has grown.

Canada’s experience of rising inequality isn’t unique among wealthy countries. A host of global factors are at work, including technological change, a shift of manufacturing jobs to developing countries, as well as a surge in self-employment and a proliferation of performance-based incentives for top executives and professionals.

That’s meant downward pressure on the wages of the lesser skilled, and greater rewards for the highly skilled. Routine work – not just in factories but in offices – is rapidly losing value.

But the trend line suggests Canada is not only impacted by wider changes but is breaking away from the pack in pursuit of what has generally been a particularly American dream of making it “big.” Inequality grew faster in Canada from the early-1990s to 2010 than in all but one other OECD country. The concentration of income in the hands of the richest 1 per cent was 10.6 per cent in 2010, down slightly from the pre-recession peak of more than 12 per cent, but up sharply from 7.1 per cent in 1982.

The concentration of wealth is also rising. The top 20 per cent control 70 per cent of net worth.

The Conference Board of Canada gives Canada a “C” grade for inequality, ranking it 12th out of 17 peer countries. Denmark and Norway earn the highest scores. The U.S. is last with a D.

Meanwhile, the spillover effects from the success of the 1 per cent has completely bypassed many communities, including indigenous people and some new immigrant groups.

Large swaths of the country are missing out as well. There is now evidence of growing regional and postal code disparity, exacerbated by the disproportionate growth of financial services, commodities and real estate. More than half of the rising share of income that flowed to the top 1 per cent between 1982 and 2010 went to just two cities – Calgary and Toronto – according to a newly released study by economists Brian Murphy of Statistics Canada and Michael Veall of McMaster University.

The two cities are home to just 20 per cent of Canadian taxpayers. And unlike many other wealthy countries, tax policies have become less effective at reducing inequality in Canada over the past two decades, according to the OECD. That’s due to lower marginal tax rates, fewer tax credits for low-income workers and enhanced savings incentives that go mainly to higher income earners, including RRSPs and tax breaks that favour capital gains over earned income.

In the workplace, many workers have less bargaining power now than at any time in their careers, a consequence of declining unionization, persistent labour surpluses and increased foreign competition.

Health and wealth

Why should Canadians care? It isn’t just a question of fairness. It’s about the long-term health of the economy, and society.

Conservative Senator Hugh Segal argues that years of costly social programs have done little to lift up the one in 10 Canadians who live in poverty. Denying these roughly three million people the opportunity to get ahead, he says, is both “un-Canadian” and bad public policy.

“There is room at the family table for all Canadians,” he says. “Leaving people behind – when so many who live beneath the poverty line work, but do not earn enough to get out of poverty – is simply negligent public policy in a market economy, at all levels of government.”

Canadians are living in “dreamland” if they think the country can avoid rising inequality when the economy is headed into an extended period of sluggish growth and austerity, warns Ed Clark, 66, president and chief executive of the Toronto-Dominion Bank.

“Slow growth doesn’t hurt people like Ed Clark, and closing fiscal gaps doesn’t hurt people like Ed Clark,” he says. “But it sure hurts the average person. So you have all the forces building that are going to put pressure on inequality.”

A recent International Monetary Fund study debunks the conventional wisdom that less equality is a healthy byproduct of a growing economy – namely, that a rising tide lifts all boats. Instead, countries with greater equality tend do enjoy more stable growth over the long haul, according to the 2011 report by staff economists Andrew Berg and Jonathan Ostry. The authors argue that excessive inequality stifles investment, leads to more frequent boom-bust cycles and makes people wary of sound economic policies. Based on an analysis of dozens of countries, they found that reducing income inequality by just 10 per cent extends the length of economic expansions by 50 per cent.

Interestingly, the authors argue that greater inequality may make financial crises more likely as lower income-earners borrow more and save less in a race to keep up with the lifestyles of those at the top. The massive run-up in Canadians’ ratio of household debt to income in recent years suggests many families are chasing a dream they can’t afford.

Inequality is also linked to poorer health outcomes and higher rates of crime and social unrest. Even in Canada, low-income earners are less likely to have a family doctor and to seek early treatment for medical problems.

The result: poorer health for those at the bottom of the income scale – a trend that can exact a heavy economic toll through lost productivity and higher health care bills.

As the Great Gatsby curve suggests, inequality stifles upward mobility, putting the hopes of many Canadians at risk. A significant majority of Canadians – 61 per cent – now say inequality stands between them and enjoying a better life than their parents, according to recent survey by Ekos Research Associates

And yet Mr. Naets, the Ottawa tech executive, figures he’s better off than the generation of twentysomethings behind him. For them, house prices are getting out of reach, many are stuck with too much debt and they face the prospect of much higher taxes for health and social programs that may not be around when their turn comes.

“For people graduating now, how do you sell that story?” he wonders.
 
I wouldn't worry about it if I were Pinky.

The greater the income equality in Sinkieland, the better it is for her GDP and the pockets of Pinky and his ministars.
 
I wouldn't worry about it if I were Pinky.

The greater the income equality in Sinkieland, the better it is for her GDP and the pockets of Pinky and his ministars.

A recent International Monetary Fund study debunks the conventional wisdom that less equality is a healthy byproduct of a growing economy – namely, that a rising tide lifts all boats. Instead, countries with greater equality tend do enjoy more stable growth over the long haul, according to the 2011 report by staff economists Andrew Berg and Jonathan Ostry. The authors argue that excessive inequality stifles investment, leads to more frequent boom-bust cycles and makes people wary of sound economic policies. Based on an analysis of dozens of countries, they found that reducing income inequality by just 10 per cent extends the length of economic expansions by 50 per cent.
 
A load of liberal hogwash.
 
...... The authors argue that excessive inequality stifles investment, leads to more frequent boom-bust cycles and makes people wary of sound economic policies.......

Do Sinkies honestly think Pinky's LEEgime will take note of what's in the report?

For Sinkies' future and that of their children, I urge Pinky to ignore the report and embark on a greater income equality expansion programme.
 
Do Sinkies honestly think Pinky's LEEgime will take note of what's in the report?

For Sinkies' future and that of their children, I urge Pinky to ignore the report and embark on a greater income equality expansion programme.

There is nothing wrong with income inequality. It is not a zero sum game.
 
Do Sinkies honestly think Pinky's LEEgime will take note of what's in the report?
For Sinkies' future and that of their children, I urge Pinky to ignore the report and embark on a greater income equality expansion programme.
Hi Charming, haha, typo or U contradict yourself... The report basically says that the previous "high GDP = good life for all" assumption is misplaced since special efforts mist in addition be place to spread assets around fairly since the rich often end up exploiting the poor in high GDP situations (without asset/income redistributive policies)

So if Pinky Lee is to add asset redistributive policies ("income equality expansion programme")to his high GDP KPI, then the report should be what gives him the impetus to.

You have this contradicted yourself by asking pinky Lee to ignore the Globe/Mail and IMF 'income inequality rethink' reports and yet apply what these reports propose that governments should do.

(FYI)

self-contradiction.jpg

immediate1_4190.jpg
 
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There is nothing wrong with income inequality. It is not a zero sum game.

More on the difference between Equality and EQUITY:

Equality

The ideal of equal access is fundamental to American democracy. The 18th-century notion that all (men) are created equal, before God and before the law, set up the powerful expectation that every citizen deserves the same opportunity to influence the course of democracy, and to benefit from the fruits of a good society. Consequently, the notion succeeds or founders depending on the experiences of citizens in gaining equal access to the means of participating in the discourses that guide governance. But when a society is stratified into poles of advantage and disadvantage, with the inevitable consequences of privilege and exclusion, the promise of equal access to the discourses necessary for democratic participation rings hollow. Fair access, then, may take on a different meaning in each citizen, but its essence remains the interpretation of "fairness" as equal access and opportunity. Correspondingly, access to channels of communication and sources of information that is made available on even terms to all-a level playing field--is derived from the concept of fairness as uniform distribution, where everyone is entitled to the same level of access and can avail themselves if they so choose.

Equity

When some are excluded or lack the knowledge, income, equipment, or training necessary to participate fully in public discourse, they must overcome obstacles to access in order to ensure fairness. In other words, fairness also demands remedies to redress historic injustices that have prevented or diminished access in the first place: for, just as there can be no fairness without equality, there can be none without justice. That is, in order to maximize opportunities for access experienced by certain groups, a good society commits resources in order to level the playing field. When libraries offer literacy programs, when schools offer courses in English as a second language, and when foundations target scholarships to students from poor families, they operationalize a belief in equity of access as fairness and as justice. Similarly, rural telecommunications cross-subsidies, and the E-Rate, establish their political legitimacy by appealing to equity of access as fairness and as justice.

Equality vs. Equity

Policies that stress fairness as uniform distribution tend to succeed with Americans because they appear to entitle everyone; and, thus, reinforce Americans' dominant construction of fairness as equality. Conversely, policies aiming to achieve equity face recurring challenges as "unfair." Affirmative Action, Lyndon Johnson's attempt to overcome generations of discrimination and injustice against women and minorities, became the law of the land without achieving the approval of Americans who saw it as "unfair" because it appeared to favor some over others; and, thus, to negate the more commonly understood concept of fairness as equality and as uniform distribution.

http://www.ala.org/offices/oif/iftoolkits/toolkitrelatedlinks/equalityequity
 
There is nothing wrong with income inequality. It is not a zero sum game.

The reality is that perfect equality is both unattainable and undesirable. Nowhere are wealth and income distributed completely evenly across a population. Countries are all unequal, and that’s generally a good thing. Inequality creates a powerful incentive to work, to invest and to get ahead. More income is the reward for success, which is spread to others when those at the top invest, start new businesses and hire more workers.

But it’s all a question of degree. You can have too much of a good thing.

Former prime minister Paul Martin, 75, figures he’s part of the most fortunate generation in Canadian history. He entered the work force in the booming 1960s, at the vanguard of an age group that would only know rising incomes and boundless opportunity.

But Mr. Martin frets that Canada is now drifting towards a society of extremes and a hollow middle – conditions he argues have helped spawn the anti-government Tea Party movement in the United States.
 
A load of liberal hogwash.

What is so wrong about wanting to give the majority a decent life? A society with 20 percent living more than comfortably and the 80 percent struggling is unsustainable and breeding ground for social instability.

Right-wing crap does not benefit the majority.
 
Oppression and exploitation- these are indicators that a zero sum game is at play.

Oppression and exploitation- these are indicators that a zero sum game is at play.
Re thread : Income Inequality will cost the future generations
There is nothing wrong with income inequality. It is not a zero sum game.
Hi Leongsam, to a certain extent it isn't, to a certain extent it IS a zero sum game.
Where it is, I state my case as follows:

One cannot deny that people are good at telling what is fair and what isn't. In the Singapore context, the govt first boosted GDP by advertising itself to all types of MNC to come open shop in Singapore- thus the LKY era Changi INTERNATIONAL airport, clean rivers, garden in city campaigns etc etc... The MNCs quickly came and made computer hard discs, chips etc and made SG very rich even during the LKY era. Then GCT (with possibly the consent of LKY) said, we're a successful PAP government, we must hire CEO type ministers to bring SG forward (GDP wise) and so pegged minister's salaries to CEO level salaries.

Unfortunately, it is now discovered that like many other countries, it is moral leadership that made the nation successful e.g. S Africa overcoming apartheid rule.

Merely prostituting oneself to MNCs is the low hanging fruit that SG once enjoyed (held first mover advantage) but what China has over the last 10-20 years, grown even better at (the China govt, being more alike to a dynasty, is indeed better at prostituting itself to the capitilistic MNC economics). MNC economics unfortunately, as we well know places share holder interest well above social good/ change... thus widespread income inequality, and sadly so even in communist China and the consequence of govt arrogance and power- widespread civil unrest that happens in China necessitating large 'peace corps'/ para military support etc.

Tunisia is another country, well known as the birth place of the 'Arab Spring', despite "in 2009 ranked the most competitive economy in Africa and the 40th in the world by the World Economic Forum.", the lack of moral authority by the Ben Ali government in a nation plagued by government corruption, inflation, Unemployment, Political repression thus saw Tunisian protest ending President Zine El Abidine Ben Ali's 23years in power.

In conclusion, just as skin colour differs, so might one's income level, consumption patterns to differ. But personal preference aside, that is where differences must end. It is exploitation thus that drives the ilk of people in general, and as ex-Tunisian president learnt, continent high GDP was no defence against the human rights abuses that his government commited- people were angry just the same.

An so where income inequality is not the consequence of personal lifestyle choice but the consequence of exploitation an oppression- the result becomes a zero sum game- and where it is the people who have become angry- it is today the government in power that must shift (/leave).

Oppression and exploitation- these are indicators that a zero sum game is at play.

Tks,
B.C.
 
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What is so wrong about wanting to give the majority a decent life? A society with 20 percent living more than comfortably and the 80 percent struggling is unsustainable and breeding ground for social instability.

Right-wing crap does not benefit the majority.


You use the term "struggling" very loosely.

Not being able to pay the mortgage for a nice car and a fancy house hardly fits the definition of the term.
 
An so where income inequality is not the consequence of personal lifestyle choice but the consequence of exploitation an oppression- the result becomes a zero sum game- and where it is the people who have become angry- it is today the government on power that must leave.

Tks,
B.C.

To even remotely suggest that there is exploitation and oppression in Singapore is so ludicrous that I don't know where to begin.

Singapore is one of the most open and transparent countries in the world. If exploitation was rife, why on earth would 1.5 million foreigners flock to the country to work?

The answer is that they come to Singapore to get away from the exploitation in their homelands.

Singapore is a land of opportunity. The problem is that Singaporeans take the good life for granted and forget that the majority of the rest of the world are far worse off.
 
No need to wait long into the future... Just see the long queues at MPS, number of families seeking assistance!
 
To even remotely suggest that there is exploitation and oppression in Singapore is so ludicrous that I don't know where to begin.
Singapore is one of the most open and transparent countries in the world. If exploitation was rife, why on earth would 1.5 million foreigners flock to the country to work?
The answer is that they come to Singapore to get away from the exploitation in their homelands.
Singapore is a land of opportunity. The problem is that Singaporeans take the good life for granted and forget that the majority of the rest of the world are far worse off.
Hi Leong, PS: I've since made some edits to the quoted text.

Any country with a high per capita GDP number is an attractive place to work- if $$$ is the bottom line for you that is- and whilst oppression and exploitation are NOT rampant (thanks to democracy and education), it would be foolhardy to say that it doesn't exist.

The PAP (under threat of losing another GRC) govt has rightly heeded the peoples calls to differentiate citizenship from PR and foreigner rights e.g. medical services, schooling, HDB properties etc- Singaporeans have served in NS and in other intangible ways and thus do have some intrinsic right to demand higher privileges in terms available public housing, employment and other intangible benifis of citizenship.

Ostensibly, citizens had found the PAP govt's prostituting of Singapore jobs to PRs and foreigners, the high costs of public housing, basic healthcare, education etc etc- a zero sum game and demanded that the government make amendments to its GDP firsts policy or else lose important votes during general elections.

Thanks for replying, but in short, unaffordable public housing, stress at work, pittance paying national service and reservist obligations have all been perceived by Singaporeans as unnecessary oppression and exploitation by the existing PAP moneytised politicians- and if zero sum dynamics had not been in play, the PAP government wouldn't have embarked on its extensive "Singapore conversation" project to see what is it that Singaporeans reaaly want and value in life. (Life is more, it seems to Singaporeans than just a large paycheck and a Mercedes Benz).

Rgds,
B.C.

Moneytised politicians:
ST23Mar2007-+Why+pay+must+go+up.JPG
09Apr2007-+Annex+3-+Pay+Comparison+Before+and+After+Salary+Revision.JPG
 
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Thanks for replying, but in short, unaffordable public housing, stress at work, pittance paying national service and reservist obligations have all been perceived by Singaporeans as oppression and exploitation by the existing PAP government- and if zero sum dynamics had not been in play, the PAP government wouldn't have embarked on its extensive "Singapore conversation" project to see what is it that Singaporeans reaaly want and value in life. (Life is more, it seems to Singaporeans than just a large paycheck and a Mercedes Benz).

Rgds,
B.C.

As you have pointed out yourself, it is a "perception". It does not reflect the reality of the situation.

Singaporeans view public housing as a right and are demanding that they be paid enough so they can afford a roof over their heads without having to struggle to achieve their goals.

However, they have grown so used to having things come easily that they have forgotten that life is all about struggling in one form or another. Some struggle to make ends meet. Some struggle to get promoted. Some struggle to make their first million and so on.

If there was no struggle, the country would be a nation of lotus eaters.

Struggle is a necessary part of human existence. It is the baptism of fire that makes us all stronger and better equipped to face the world.

Remove the struggle and you breed sloth. Why would anyone strive to succeed is they know the government will take care of their needs.
 
Hi Charming, haha, typo or U contradict yourself......

.....You have this contradicted yourself by asking pinky Lee to ignore the Globe/Mail and IMF 'income inequality rethink' reports and yet apply what these reports propose that governments should do......

No typo.

I have only GCE "O" levels so my analytical skills are not as powderful as yours, university grads or President Scorers. (I have stated it in two or three of my earlier posts.)
 
As you have pointed out yourself, it is a "perception". It does not reflect the reality of the situation.
The PAP puts out all the good news but the reality is often on the opposite end. The reality is worse than you realize.

Singaporeans view public housing as a right and are demanding that they be paid enough so they can afford a roof over their heads without having to struggle to achieve their goals.
Why should sinkees have to work 60 or 80 hours a week so that they can 'subsidized' flats?
Given sinkapore's unique circumstances, public housing is a right.


However, they have grown so used to having things come easily that they have forgotten that life is all about struggling in one form or another. Some struggle to make ends meet. Some struggle to get promoted. Some struggle to make their first million and so on.
A middle-class lifestyle should never be a struggle. It should be an attainable goal for all except the laggards. And to have that denied to a majority of sinkees suggest that the country is totally screwed up.
It is ridiculous to accuse the majority of sinkees as laggards. When the government brings in millions of foreigners to depress wages, don't blame sinkees for refusing to work at 3rd world country type of wages. After all sinkees were promised Swiss Standard of Living and sinkees fulfilled their part but employers did not and opted to bring in foreigners who are willing to work for pennies just because they are accustomed to live like they are back home.

If there was no struggle, the country would be a nation of lotus eaters.
Struggle is a necessary part of human existence. It is the baptism of fire that makes us all stronger and better equipped to face the world.
Remove the struggle and you breed sloth. Why would anyone strive to succeed is they know the government will take care of their needs.
Life is not just struggling. You put in the hard work early on in your career and then expect for better lifestyle in mid-life. But in sinkapore, one has to struggle from career start to death. That's not life.
If this is all sinkapore can offer, then the government needs to be tossed out. It is time to reclaim sinkapore from the foreigners.
 
You use the term "struggling" very loosely.

Not being able to pay the mortgage for a nice car and a fancy house hardly fits the definition of the term.

Essential needs for modern living is getting unaffordable. Housing and transportation is essential.
Having to pay $500k for a public flat is outrageous.
A car becomes a necessity when the public transportation becomes less capability to accommodate the traveling needs of sinkees. Taxis can't be found when you need them.
If the sinkapore government wants to improve the public transportation, it can but it won't. For example, it could make it easy for companies to launch car sharing which would reduce the demand for households to buy cars. But no, the government won't do it because the income from car ownership is so enormous.
 
If this is all sinkapore can offer, then the government needs to be tossed out......

Useless governments are always voted out at general elections. Just look at what happens in democratic countries in Europe, USA, Canada, UK and Australia.
 
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