Wednesday, March 23, 2016

How to think about a basic income in Singapore.

Some societies are starting to think about implementing a basic income. A basic income is a form of unconditional welfare that gives everyone a basic salary to live regardless of whether he has a job or not.

This idea is attractive to both sides of the political spectrum. The left obviously want some more ways to narrow the rich-poor gap. The political right thinks that it is a form of welfare which does not require a lot of social workers so it keeps the government lean and mean - everyone gets a small wage so long as he is alive and kicking.

Singaporeans are probably not at the stage to consider a full basic income because it would rob Singaporeans of the will to go out and do some solid work for the country. But done at a very small scale, a fixed amount of funds going into every citizen's spending account every month may possibly incentivise someone to take bigger entrepreneurial risks. It also provides home-makers a small allowance. It would certainly benefit the folks in my age bracket who is facing structural unemployment.

Suppose we start at a very reasonable $100 a week or $400 a month for all citizens. There are 3.27M Singapore citizens here, so the price tag will be $15.7B a year. To put a perspective on how much that is, the value is twice that of the Pioneer Generation Package. For the entire FY2014, personal taxes collected is equal to only $8.9b with GST collections being about $10.2b ( From here ). As part of this mental exercise, everyone must be willing to double their income taxes and GST to put $400 into every citizen's pocket every month. Of course, in this exercise I did not cover changes to corporate taxes because the whole point is to get Singaporeans to become more entrepreneurial.

This arithmetic exercise can result in different conclusions. Some readers will interpret this as the Singapore government being able to afford a $400 basic income - just increase personal, GST and corporate taxes. Others will argue that it's not worth levying so much taxes on the middle class so that everyone can get a pittance every month, it is more effective to use the money to improve the transport or education system which has a better impact on citizens.

Of course, you can roll your own basic income. To generate $4,800 of income a year, you would just need $60,000 invested at 8% yields or $70,000 at slightly less than 7%.

But perhaps subtle change will allow all Singaporeans to attain this without levying a cost on tax-payers.

There is still no such thing as a SG-REIT ETF. It's such a simple idea that I'm sure some folks have thought about doing this.

If SGX can approve a simple product which is a fund consisting of equal-weighted REITs listed in the Singapore stock exchange, everyone will have access to a highly diversified real-estate portfolio which currently yields 7.3%. Singaporeans don't have to be very sophisticated to get their basic income of $400, they just need to accumulate $70,000 and have an account with a local broker.

But I can imagine why this would be a nightmare scenario for professional fund managers.


  1. I too have thought about the potential for a REIT ETF in Singapore, especially since we have a local REIT index too - so a passive ETF following it could be setup at very low cost. Unfortunately, low-cost ETFs have not taken off in a big way here due to our small population/market. STI ETF took ages to get to where it is today - liquidity was poor until a few years ago. Perhaps one idea is to get CPF to work with a fund manager (perhaps like Vanguard) to establish a REIT ETF and allow CPF members to DCA from their CPF-OA on a monthly basis? This might create a big enough market.
    One concern with REITs however is the continuing need to do rights issues - could be tricky for an ETF to handle?

  2. Good point. I guess the ETF would have to sell the rights issue as far as possible or let it expire I guess.

    There are crappier ETFs in SGX right now and an ETF which pays 7.3% would become a favorite quite fast.

  3. Oh yes, other than the 2 STI ETFS, the rest of the ETFS listed locally are terrible - much better alternatives on NYSE, LSE and even HKSE

  4. That said if an investment of 196,200,000,000 was made on behalf of everyone in SG, earning a rate of 8% a year, we'll have our $400 a month too? :)

  5. Not really. Investments don't scale that way. Yields will compress and political pressure will ensure that the money is dissipated in other ways. I am not sure if we have 192b lying our coffers anyway so I need ro do some research on that.


    SINGAPORE - Temasek Holdings grew its net portfolio value by S$43 billion to a fresh record of S$266 billion for the year ended March 31, the Singapore investment company announced on Tuesday during its annual performance review.

    One-year total shareholder return (TSR) was 19.2 per cent. One of the key measures of Temasek's performance, TSR for 10 years and 20 years were 9 per cent and 7 per cent respectively. Since its inception in 1974, Temasek's return to its shareholder - the Ministry of Finance - has been 16 per cent.

    And this is just Temasek, there is also GIC.