Singapore must ease ‘bandwidth tax’ on the poor

The debate on poverty in Singapore has tended to focus on how much help the Government —and society at large — should extend to the poor.

Advocates for doing more argue that given Singapore’s prosperity and its claims to be a first-world country, the little that the Government spends on welfare, compared with other developed economies, is unconscionable.

The Government, however, contends there is no shortage of help schemes for the poor. In November last year, Minister for Social and Family Development Chan Chun Sing defended Singapore’s kueh lapis approach for helping low-income Singaporeans as being more targeted and flexible in meeting their needs than a single poverty line. Poor households need only to apply for the various social assistance programmes that subsidise housing, childcare, healthcare and eldercare.

On other occasions, the Government has argued that providing generous and poorly targeted aid would undermine work incentives and encourage more to rely on state welfare.

THE PSYCHOLOGY OF POVERTY

Recent research on the psychology of poverty suggests that much rethinking of the design of the welfare system in Singapore is required.

Perhaps the most important finding in this growing field of research is that poverty imposes a large cognitive tax. Research by Professor Sendhil Mullainathan at Harvard suggests that the tax is as large as 13 IQ points.

For instance, when asked to think about a US$300 (S$380) car repair, low-income respondents did no worse on IQ tests than high-income ones. But when asked to think about a car repair that would cost US$3,000, the low-income group did considerably worse, while the IQ performance of the high-income group was unaffected.

In their book Scarcity: Why Having Too Little Means So Much, Prof Mullainathan and Prof Eldar Shafir use the term “bandwidth tax” to describe the cognitive burden of poverty. We are familiar with the term “bandwidth”. Good projects are abandoned or put on hold when we or our organisations lack the bandwidth — the time or the attention — to work on them.

Likewise, the poor might be aware that a certain course of action, such as applying for social assistance, would be good for them, but they may not pursue it because they lack the requisite bandwidth.

One implication of their research is that the poor are poor not because they suffer from some cognitive or cultural deficit, as popular myths suggest. Rather, these perceived deficits are themselves the results of being poor.

The context of poverty makes it difficult for the poor to do many of the things the rest of us consider routine — going to work regularly and punctually, pursuing higher education or getting a professional degree or spending money without having to worry about having enough at the end of the month.

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Prof Esther Duflo, an MIT economist, has argued that the poor pay a lot more for doing nothing than do other people. This is because the more privileged an individual is, the greater the number of decisions that are made automatically for that person.

Take public housing subsidies in Singapore as an example. The subsidies that benefit middle and upper-middle income groups, such as the Central Provident Fund (CPF) Housing Grant for families purchasing Design, Build and Sell Scheme (DBSS) flats and Executive Condominiums, are provided automatically when these families purchase their flats.

In contrast, the Additional CPF Housing Grant and the Special CPF Housing Grant aimed at lower-income Singaporeans require applicants to fill up forms, submit documents that prove that they have been employed continuously in the past 12 months and show the income they earned during that period. Their application has to reach HDB within a given deadline.

Prof Duflo argues that instead of berating the poor for not taking personal responsibility, we should think of ways of “providing the poor with the luxury that we all have, which is that a lot of decisions are taken for us. If we do nothing, we are on the right track. For most of the poor, if they do nothing, they are on the wrong track”.

MAKING BENEFITS AUTOMATIC

Making social assistance automatic eases the bandwidth tax on the low-income because they do not have to think about applying for these benefits.

In Singapore’s context, what this might mean in practice is that an individual who currently qualifies for the Workfare Income Supplement (WIS) would automatically qualify for the full range of assistance — additional housing, childcare and student care, education, healthcare and eldercare subsidies — that someone with similar income and family circumstances would qualify for today. By giving such benefits in non-tradable vouchers rather than in cash, the Government can ensure that these benefits are used for their intended purposes.

WIS may, in fact, be the right platform for the Government to build a welfare system that provides help for the poor automatically. First, WIS already encourages more than 300,000 low-wage workers to be employed. Integrating social assistance schemes with WIS would send the signal that work is the best means of improving one’s life.

Second, WIS is disbursed routinely and automatically with minimal bureaucratic hassle. While there are income cut-offs and a simple test of the annual value of the recipient’s housing, there is no need for low-wage earners to specially apply for it. Neither is there any stigmatising and intrusive means testing.

Third, having a single welfare and workfare system lets the Government track more meaningful indicators of the well-being of the poor — both those requiring long-term aid as well as the temporary and working poor.

It is also worth emphasising that making benefits automatic does not go against the state’s philosophy of self-reliance nor does it erode the work ethic. Policymakers can continue to link benefits to employment, income earned and, where appropriate, annual value of the recipient’s housing.

The only important change is that Singaporeans, especially lower-income households, no longer have to jump through bureaucratic hoops to obtain the assistance they are entitled to.

As a society, we have yet to define what poverty means or reach a consensus on the outcomes that our social assistance programmes should achieve. These are issues that require a full debate but, in the meantime, we can quite easily improve the design of our welfare system by making benefits automatic such that the cost of doing nothing for the poor is minimised.

What we propose is not a silver bullet for the complex problems of poverty or inequality. Rather, it is a way of reducing the incidence of lower-income Singaporeans ending up on the wrong track because of design weaknesses in our welfare system.

ABOUT THE AUTHORS:

Donald Low is Associate Dean (Executive Education and Research) at the Lee Kuan Yew School of Public Policy. Alisha Gill is a case study researcher at the School

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