Is Basic Universal Income Viable in Singapore?

The concept of Basic Universal Income could be traced back to 1796 proposed by Thomas Paine in the United States. Ever since then, there have been actual experiments in Alaska, Africa, Iran, Netherlands, Finland, etc. Most are implemented on a small scale but Alaska and Iran are on a nationwide level, they are still running the scheme.

Alaska payout is around $1000-$2000 per year to all citizens since 1982. The amount depends on the oil revenues of their state-owned investment fund. However, the population of Alaska is just 730,000 people which makes financing it more manageable.

As for Iran, there is a population of 84 million people, the universal basic income has been implemented since 2011. The amount equates to US$40 per person per month which sums up to US$480 per year.

 

Why the need for a UBI?

 

In an ideal world, everyone could be doing the things they love and yet not worry about finances with UBI. In this type of utopian environment, there could be an abundance of wealth as wealth should be measured not only by how much you have in your bank.

More importantly- your mental state, health, family bonding and living environment.

However, to accomplish this, it is an uphill task for any government. The funding of UBI would be a real nutcracker for governments to balance their budget and yet implement this scheme.

Looking at around the world now, with massive technological advancements through Artificial Intelligence and ever-increasing wealth disparity between the top 10% and the rest of the population, the call for a serious look into UBI should not be undermined.

 

Disruption of the Job Market

 

With the technological advancements, loss of jobs that are repetitive, easy to replicate or menial would all be on the verge of being eliminated.

Just imagine, in the not too far future- we would have driverless cabs, cars, buses and trains, drones that will be delivering our foods and parcels, an AI system that will take over the conveyance job of a lawyer, an effective AI system that will cut through most middleman’s job (property agent, car sales, and stockbroker), the replacement of most production jobs by robotic arms and General Practitioner numbers could be halved by the embracement of telehealth.

This is not a pipe dream as it is already happening on many fronts. So when a person lost a job, the first thing that they would think of to tide things over could be being a cab driver or food delivery gig. 

Sadly, these are not viable options in the future. There could be lots of jobs being displaced going forward.

As with all things, the plus side will be there would also be higher value chain jobs (Controlling the drones, working on the backend of the AI system, technicians for repairing the AI machines) created but the net effect would likely be a decrease in the number of jobs in the market.

 

Wealth Inequality

 

In the US during the 1950s, the average CEO pay would be twenty times the pay of a typical employee. Currently, it is close to 200 times. For exceptional CEO such as Apple’s Tim Cook, the figure is an astonishing 6000 times. The top 1% of America’s richest have 16 times more wealth than the bottom 50%. This statistic was just 6 times in 1990.

Given these facts, there is an urgent need to rebalance the equation, especially looking at how to cut the loopholes for the rich to minimise taxes. Therefore, UBI would be a possible avenue to distribute wealth from one end to another.

 

Pros and Cons of UBI

 

The advantages of UBI would be that people are likely to:

• Have a happier lifestyle as there is a safety net to take care of their basic needs
• Have a more productive workforce that will be trained to take up higher-value jobs while they are on UBI
• Free to pursue their passions such as in art and culture
• Be more entrepreneur knowing the opportunity cost to fail would be lower with UBI
• More social cohesion and more could be engaged in social work or volunteering
• Ending Poverty

 

The disadvantages of UBI would be:

• The lack of incentive to work
• The huge cost of maintaining the system
• Social mindset and build-up changes to a less productive nature

 

Is it viable and how do we finance it?

 

On the whole, it looks like UBI would have a net positive impact on society and everyone would be happier and less stressed with the monthly handouts. We could have a choice to do what we are passionate about and be trained for higher-value jobs while on UBI.

However, an ideal situation would need the finances to implement it on a grand scale. With that in mind, let’s try to use Singapore as a testbed to see if the numbers could work out.

If there is any country that is likely to pull it through, it will be Singapore with its prudent government and financial strength.

There is a total of 3.5 million Singapore citizens with an average household size of 3.22. It gives us 1.08 million households. If we take 2 adults per household, we will have a figure of  2.18 million citizens over 21 that is entitled to the universal basic income.

We will be setting the income at 800 SGD per pax. The total budget annually for this scheme will come up to slightly over 20 billion dollars a year.

It is good to note that the basic income is unlikely to sustain a family if both adults choose not to work as a recent article highlighted that a family of 4 with 2 kids in Singapore would need around 6k to survive monthly.

However, the government could pay an allowance for those who are in the midst of government-initiated training to upgrade themselves. By adopting a more frugal lifestyle, they could just pull through.

These are some possible government revenue sources that could be explored to finance the UBI:

• All the different AI units (driverless car, drone or robotic arm) could be classified as AI employees and they would be taxed accordingly to that of a normal human worker.
• Increase in income taxes from top tier 22% to 30% across the board
• Making use of investment returns from state own sovereign funds
• Increase in the goods and services tax from 7% to 10%
• Savings in social welfare transfers eliminate double-counting by offering the beneficiaries with highest of either their social payout or UBI.
• UBI would be extended only to those earning below 8k a month with a scaled decrease in basic income from 5k to 8k.

Source: Budget 2021- mof.gov.sg

 

Looking at the potential sources of income, let’s see how we can balance out the deficit caused by UBI. It is always prudent to be able to balance your budget rather than just be irresponsible and live life on borrowed funds of future generations.

Firstly, the income from taxation of AI employees would be tough to gauge without sufficient data but on a conservative note, we could just deem it as 3 billion dollars which are on par with betting taxes and motor vehicle taxes.

With an increase of income tax from 22% to 30%, it could see an inflow of additional potential 5 billion dollars using an estimated 12.37 billion collected in 2021 as our base.

The increase in GST from 7% to 10% should net us an additional 5 billion dollars using 11.34 billion estimated revenue from GST in 2021.

Savings from transfers to social welfare will be hard to gauge without the figures but given the social transfers to individuals and organisations being around 2.4 billion dollars in 2019, we could have a potential 1 billion dollars savings from the double counting.

We will eliminate the amount saved from not handing out basic income to those earning above 8k to add buffers for our estimates.

Lastly, the amount from our sovereign funds would be able to top up the difference. The government can make use of up to 50% of the net investment returns for times of crisis like the recent pandemic.

Given that the Singapore government should have at least a trillion dollars of assets based on published figures by GIC, Temasek and MAS.

The figure of Singapore’s total reserves is a secret but we believe it would be more than just those managed by GIC, Temasek and MAS. A 1% of return could be used that would net 10 billion dollars that can be used to finance the UBI scheme. 

Also, given the annualised returns by GIC to be 6.8% and Temasek to be 8%, we could assume returns to be 6% in the future to be on the conservative side. With inflation at 3%, the real returns after deducting the 1% for UBI would still be a healthy 2% real growth for our reserves.

The estimated inflow from the potential sources highlighted should give us a figure of 24 billion dollars versus the estimated 20 billion dollars needed.

Source: Budget 2021- mof.gov.sg

Looking at the Singapore budget from 2019 to 2021, we could see there was a huge deficit for 2020 and 2021 which was more of an outlier as there were huge payments out for social welfare due to the pandemic.

That has led to the use of the net investment returns of sovereign funds to balance the budget as highlighted earlier.

The usual situation is a surplus or just a slight deficit given the prudence and capability of Singapore’s government just like in 2019 before the pandemic.

In recent times, Singapore’s government have been doing lots of social wealth transfer such as the Pioneer and Merdeka packages which have been well appreciated by the elderly.

There are also well thought out infrastructure spending on health care and national development. Therefore, there will be strains on the budget.

Nonetheless, if the time comes for a real look into UBI, we believe the finances of Singapore’s government would be able to withstand the huge cost and sustain it based on our estimates. 

 

Summing Up

 

Universal Basic Income could be a reality in the future given the potential jobs exodus; a high unemployment rate with people unable to get a job despite their best efforts would be a recipe for chaos in the whole society and economy. 

Therefore, when the time comes for AI employees to take over most of the jobs productively and efficiently. UBI might not be a good to have but a necessary element of the government’s policy. On the whole, it should have a net positive effect giving people the options to pursue less threaded paths and reduce stress in financial matters.

Taking Singapore as a testbed, we conclude that it is possible and viable for Singapore to implement UBI if the need arises. As for other countries, they have to start to carve out a path towards UBI especially so if their government’s reserves and finances are in a perilous state. 

Wealth transfer to lessen wealth inequality would be a good start by cutting down on loopholes for the nouveau rich to find a way out of their obligations to society.

 

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