Thursday, 24 February 2011

Election Budget 2011, The Middle Class Income Stagnation & "Lost" in Retirement Fund

The current  hottest topic in town and the Blogosphere must be ELECTION BUDGET 2011. The Budget always has its greatest bearing on the Middle Class. This class forms a substantially big tax base while their income earnings are often constrained by various factors. Every "squeeze" on the Budget by the Govt. will certainly impinge on this sandwiched class like a nasty "pinch" to the extent that many now feels that the highly acclaimed "tripartite relationship" between  Govt. / Employers / NTUC is more of a nuisance, especially with so many non-unionised firms.

The lowest "underclass"/"working poor"/"lower class" or "the poor" will always be taken care of and given the most "goodies", especially in an Election year. The "Capitalist" /"Upper Class"/ "Super-Rich" and "Rich" Class simply will not be bothered by the Budget due to the enormous wealth and personal assets under their control.

If you are not sure how the class grouping is done, you may refer to this article in the Wikipedia. The "Academic Class Models" are categorized uniquely by  researchers in the US :-
(a) Dennis Gilbert (2002)
(b) Leonard Beeghlev (2004)
(b) William Thompson and Joseph Hickey (2005)

In Singapore, there is a new group of  "will not be bothered", not because they are super-rich; but because they belong to the "Upper Middle Class" and it seems like the Govt.'s complex tax and welfare policies will diligently seek to deprive them of many priviledges in order to "squeeze" and create some savings for the Budget.

In Singapore, the classification seems to follow pretty closely to the William Thompson and Joseph Hickey Model in the US.

(1) For Growth Dividends

The headlines screamed "All adult Singaporeans will get $100 to $800 to be paid in May. These Growth Dividends will cost the Govt $1.55 billion." If you check the details, you will find that if your income is above $100K you will get $100 goodies. If you earn between $30K ~$100K, you get between $300 to $800 depending on the annual value (AV) of your property.

Making a comparison to the William Thompson and Joseph Hickey Model in the US, if you earned the high 5-figure range above $75K to above $100K, you belong to the "Upper Middle Class". For earning between $30K ~  75K, you belong to the  Lower Middle Class and so on.
[Note : Making comparison on currency parity without adjusting for exchange rate]

(2) For Medisave Top Ups

If you check the details, you will see that if your income is above $100K; you will not be entitled to Medisave Top Ups. 

If your income is $30K or less and AV of your residence is $7000 or less, you get between $300~$700 in top-up depending on age.

If your income is $30K or less and AV of your residence is more than $7000 or if you earn between $30,001 ~ $100K, you get between $200 to $600 depending on age.

Making a comparison to the William Thompson and Joseph Hickey Model in the US, if you earned less than $30K, you belong to the "Working Class" or "Lower Class".

And in Singapore, it is probably the "Lower Class" who are entitled to the "hotly-debated-in-Parliament" S$200 plus odd social welfare grant from the Govt.

(3) Utilities and Conservancy Rebates

For 1 and 2 Room HDB Flat :  U-save rebate of $360 and 3 months S and CC rebates.

For 3 and 4 Room HDB Flat : U-save rebate of $340 and #320 respectively and 2 months S and CC rebates.

For 5 Room HDB Flat : U-save rebate of $270 and  1.5 months S and CC rebates.

For Executive HDB Flat : U-save rebate of $235 and 1 month S and CC rebates.

If you stay in private property, you don't enjoy rebates; although you pay taxes generally, not to mention higher property taxes.

(4) Healthcare and Means-Testing

I recall I wrote to My Paper in Mar 2008 regarding MOH's criteria for means testing and its impact on middle-income earners. A copy of their reply is still available in the MOH website now.

MOH uses the criteria of $3,200 and $5,200 monthly salary as the bottom and top benchmark to allocate healthcare subsidies. Or annually $41,600 ~ $67,600 income. Hence, the level of subsidies is reduced for the "Lower Middle Class" upwards from annual salary earning of $41,600.

How much has the Govt. taken from the Taxpayers since 2003?

As we all know, personal finance is a zero-sum game. If you spend lavishly somewhere, you have to scrimp somewhere else (unless you're willing to abuse your credit card). The same for a country's finance. If you want to spend more on the "Lower class" / "Working class" you would have to scrimp or "take" from the "Lower and Upper Middle class", etc. This is "income distribution" which is quite fair but not if income is stagnated or if PMETs' pay is marginalised due to imported foreign talents.

Many may not realised that whatever "goodies" given today were actually taken from or would be taken from them or others' pockets later on. To see how much the Govt has taken from the Middle Class since 2003, perhaps the easiest is to look at this webpage of OCBC Bank. (Link : How would the recent CPF revisions (August 2003) affect my retirement planning?)

"Middle income earners making $6,000 or more are hit hardest by the recent CPF cuts. If we take a shorter-term perspective, those in the age group of 50-55 are hit hardest.
With an eventual 7 percentage point cut in employer’s contribution and the lowering of monthly salary ceiling to $4,500, this older group could be looking at a yearly cut of $6,660.
For a person who is 50 years old, the $6,660 reduction per year over a period of 5 years at a 4% rate of return will result in lost of retirement funds of $37,500.
Comparatively, those in the younger age groups are only looking at a 3 percentage point cut in employer’s contribution. If they are making more than $6,000 a month, the yearly cut is $4,500. Although on a yearly basis, the cut is less but if we take a longer-term perspective, the cut can be quite significant.
Assuming a reduction of $4,500 per year for 20 years at 4% rate of return, the lost in retirement funds could be $140,000. If we take a 30-year time horizon, the lost in retirement funds could be as high as $263,000.

The above is only illustrative and not comprehensive. So was "national credit" abused like your credit card to rescue the economy since 2003 and also pay all of your "goodies"? No wonder this Budget decided to leave the employers "out" and dumbfounded?

There is no need to guess who took over as PM in 2004 the following year and also announced a proposal to build the 2 Integrated Resorts with Casinos. No wonder that the "Progress Package" actually bought the PAP fewer votes in the 2006 General Election and a "Suicidal Novice" opposition team could win 30.9 % of the votes against him. 

It is also no wonder that this economic strategy left only 14% of S'poreans ready to retire, money wise according to this survey in Nielsen's Global Aging Report today, the lowest when compared to the Asia Pacific (22 per cent) and global (18 per cent) averages. It means only only the "Upper class" and "Upper Middle class" are ready to retire when the Lower Middle class and below are "alienated". Even the marginal lower end of the "Upper Middle class" will be impinged.

Reposted : As the God Of Wealth walked high on stilts to distribute "goodies" during the Chinese New Year festive season, this old lady (Bottom Right) sat "alienated" and aimlessly near this exit door at the new MBS IR Resort.
MICA Minister Lui Tuck Yew agreed during a post-Budget dialogue that the current payout criteria, which is based on income and type of home, "isn't always the best in terms of being as targeted as possible", but "it kept things simple and understandable".

In addressing the "Cost-of-Living" issue at a forum organised by REACH to gather feedback on Budget 2011, (My Paper 23 Feb 2011, HOME) Mrs Lim Hwee Hua; Minister in PMO and Second Minister for Transport and Finance said :

Usually strong growth is accompanied by some form of inflation and, therefore, we just need to make sure our incomes grow faster than inflation...

The problem is I don't even see income being increased to cover the inflationary figures for the last few years. And this is the way how many of the private sectors firms are operating. And this is the way how many of the private sectors firms (both MNCs and local SMEs) are operating.

How will the Govt increase general income by 30% over 10 years?

How to increase personal income by 30% next 10 years .... ? As a PMET, I am not even sure if my current employment could be sustained in the volatile global economy. After "siphoning" a substantial portion of the retirement fund out of the CPF of 80 % of the population since 2003 to rescue the economy in previous crises, the PAP is telling Employers to return it by "increasing income of 30% over the next 10 years" by boosting national productivity by 2~3% annually. This is an ideal but will it really works? It is a big question mark. Personally, I do not even see general income increasing now to cover the annual inflation rate for the last year, not to say another 2% productivity gain. If we cannot even implement "Minimum Wage System", how could we then ensure general wage increase to cover inflation and productivity?

If I were a employer, I would rather choose to "retire" immediately if I do belong to the top 14% in Nielsen's Global Aging Report. What the Govt cannot give back as "30% increase in income" they delegate it to the employers because employers cannot vote in the coming Election as an entity but individual citizens can? In case this goal cannot be delivered, whom do you think the blame will be shifted in 10 years' time? And who will bear the burden? Either the political leaders will leave the scene by retirement or will our future generation have to carry the burden. If you are a baby-boomer borned in the late 50s or early 60s, would you still be comfortable if you are far from the top 14% mentioned in the Nielsen's Global Aging Report now?

Others also still  see this as "a poor Budget" because "it will win the election not on its merits but for its 'goodies' . The 'goodies' are merely a temporary measure to assuage unhappiness without addressing the fundamental problem in our society'. Many voters are still "demanding for a concrete solution to the rising costs of living and a less liberal foreign workers policy among other things."

When you could not even accumulate enough for your own retirement needs how could you have enough to support your parents' retirement and also to have more babies? And certainly this 80% of the population "lost" in retirment will not qualify to make it to the Retirement Club at PMO.

Latest Breaking news:

The Gov't accepts the electoral boundary changes recommended by Electoral Boundaries Review Committee for the next General Election

Reference #1
ST Online February 22, 2011
Only 14% of S'poreans ready to retire, money wise: study

ONE in three Singaporeans plans to retire/was already retired before he reached 60 years of age, two years earlier than the current statutory retirement age of 62 years old in Singapore, according to Nielsen's Global Aging Report.

However, only 14 per cent of the Singapore consumers surveyed admitted they are financially ready for retirement - the lowest when compared to the Asia Pacific (22 per cent) and global (18 per cent) averages.

In Singapore, 82 per cent said personal savings would be their primary source of retirement income.

Travel is Singapore consumers' most favoured post-retirement activity, leading with 73 per cent, followed by volunteer work (51 per cent) and joining a club and participating in its activities (49 per cent).

More than 26,000 consumers in 53 countries throughout Asia Pacific, Europe, Latin America, the Middle East and North America took part in Nielsen's Global Aging Report.

Reference # 2
OCBC Website

Reference # 3 12 Jan 2007
by chantc

SINGPORE: Middle class wages have been stagnant in the past 5 years, according to economists, and this could lead to social instability.

These concerns were shared at the annual Institute of Policy Studies Singapore Perspectives conference......

Economists believe a US economy slowdown in business and consumer spending may cause problems for Singapore, but as Singapore is tops in the ASEAN resilience index, it should be able to weather external shocks, thanks to a diversified economy and strong Asian demand.

They predict that growth going forward will be 3 to 5 percent.

The long-term growth limits for a mature economy was previously in the 3 to 5 percent range.

However, economists are asking who this growth is for. The income of the bottom 30 percent of the population has fallen. What is more worrying is the fact that the majority of Singaporeans in the middle class has only seen about a 1 percent increase in nominal income in the last 5 years.....

"With the rate of immigration, even among unskilled and semi skilled labour at a rate twice of what we experienced in the 90s, at a rate fastest in the developed world, the question is - does this dampen our real wages as we grow? Does the strategy itself dampen real wages and depress real wages at the low and middle end of the spectrums? They are sacred cows but we should step back and think about them," said Yeoh Lam Keong, Vice President, Economic Society of Singapore.

Another reason cited for middle class wage stagnation is the move by the government to cut CPF employer contribution rates for older workers by 4 percentage points over the last 2 years.

"So if you were a worker in the 50-55 age group, you could have seen your wages fall as much as 10 percent over the last 3 or 4 years. Now with the economy improving, the government could bring that back, the increase is 1 or 2 percent. I'm in support of CPF tinkering but probably it happens far too often, but I think there's probably some justification to look back and think that the restructuring was a bit too aggressive on the CPF side and it has contributed somewhat to a very sandwiched middle class," said Chua Hak Bin, Director, Asia Pacific Econ & Market Analysis, Citigroup Global Markets Singapore.

Reference # 4
Household income and the Social class in the United States
Academic Class Models

Reference #5  24 Feb 2011
The Policy of Give and Take
By Dr Wong Wee Nam

Reference #6
ST Online 19 Feb 2011
Personal incomes to rise 30% over 10 years



  1. Hi Mr yak, it is great that another person has see through the government scheme to redistribute wealth from only the middle class to placate the poor. They will never think of redistributing the wealth from the top 5% which they belong as they think they deserve all their money.

    I am 100% confident that they will fail in increasing personal income by 30% in the next 10 year. Instead the personal income might even decrease if they do not change their policies soon to adapt to the high inflationary, possible energy and food scare future and to deal with the consequence of further financial tsunami from the west and china. Moreover, we also have a ticking housing and debt time bomb to battle.

  2. This blog is having the very informative and needful thing about Money. Here anyone can find information like Exchange rates comparison.