Ministry disputes findings of living affordability study

SINGAPORE — Since 2008, households here in general are spending less on recreational and cultural activities as a proportion of their incomes. In contrast, the expenditure to income ratio for big ticket items such as housing has been generally trending upwards.

And this is an indication that living affordability here may not necessarily have improved, even though overall, households here are spending less out of their income over the years, according to a study done by National University of Singapore economics don Tilak Abeysinghe.

The study, which was interpolated from data from the Department of Statistics, was released earlier this month. It also concluded that the bottom 30 per cent household — in terms of income — are spending more than what they are earning.

Commenting on the study, the Ministry of Finance (MOF), however, pointed out that it did not take into account the fact that households in the lowest deciles, based on income from work, include a disproportionate number of retirees.

“Those who are poor are (commingled) within the lower income deciles with retirees with savings and other assets. Higher expenditures than incomes are in part shaped by this reality, as in other societies as they age,” an MOF spokesperson said.

The MOF also took issue with the study’s methodology. Among other things, it pointed out that the actual housing expenditures for lower income households are “far lower” than the imputed rentals which the study included in determining the spending.

Associate Professor Abeysinghe’s study comes on the heels of a recent Economist Intelligent Unit (EIU) report which ranked Singapore as the costliest city to live in. Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam had earlier pointed out that the EIU report was not a good representation of how life is for local residents.

On his study, Assoc Prof Abeysinghe said households are cutting back on “flexible expenditures” such as spending on recreation and culture in anticipation of paying for big-ticket items including housing and healthcare. “Otherwise there is no reason for people to spend less on recreation and culture as they are getting richer,” he said. “Economic theory simply says that people should spend more when they get richer on luxury goods.”

The study also found that expenditure-income ratio for transport has been rising for higher income groups. It attributed this to increasing private transport costs.

Assoc Prof Abeysinghe said the bottom 30 per cent of households — and not just the bottom 10 per cent or 20 per cent — require “extra attention in the Government’s welfare programmes”. He added: “If low income groups constitute a larger proportion of retirees, they could be drawing down their savings to maintain consumption expenditures.”

Govt focused on needs of lower income: MOF

MOF data showed that the proportion of households with at least one person aged 65 years and above is higher for lower income households.

For example, for the bottom 10 per cent households, almost seven in 10 households contain at least one elderly person while, for the top 10 per cent, it is about one in 10 households.

The ministry’s data also showed that not all the 1st decile households are poor. Compared to higher income groups, they have larger average monthly non-work income from sources such as investments, for example, and around 30 per cent of these low-income households live in a five-room HDB flat or bigger.

Its spokesperson said that for lower income households, their mortgage payments are lower than the imputed rentals because of government grants. Imputed rentals are also rising faster in line with the property market cycle whereas mortgage interest rates have fallen, she added.

Assoc Prof Abeysinghe acknowledged it “could be argued that imputed rent overestimates household expenditure”. But he said imputed rent “cannot be considered an irrelevant cost item” as it captures, to some extent, households’ mortgage payments.

The study was unable to yield any meaningful result on the expenditure-income ratio for healthcare, possibly due to data anomaly, Assoc Prof Abeysinghe said.

In terms of education expenditure, the study found that higher income groups are spending more on education while for the bottom 20 per cent of households, their spending has remained the same or decreased. “Education and social mobility are closely linked and the inability of low income groups to spend on education beyond the public school system will sustain their disadvantage,” the study said.

However, the MOF pointed out that the trend reflected the drop in share of families with children. Moreover, education subsidies have increased for lower income households.

The MOF spokesperson reiterated that the Government is “actively focused” on the needs of the lower income group, and it has significantly expanded schemes to help the lower income group.

“For most of those in the bottom third, government transfers in the form of cash and savings top-ups (not including other subsidies) provide significant supplement to their incomes,” the spokesperson said.