(Updates with comment from analyst in fourth paragraph.)
Jan. 4 (Bloomberg) -- Singapore will cut salaries for its prime minister and top office holders after voter unhappiness over a widening income gap weakened support for the ruling party in last year’s elections.
Prime Minister Lee Hsien Loong’s annual income will fall 36 percent to S$2.2 million ($1.7 million) while the president’s compensation would be reduced 51 percent to S$1.54 million, based on the government-appointed Committee to Review Ministerial Salaries’ recommendations released today. New ministers will make about S$1.1 million, down from S$1.58 million, according to a statement on the committee’s website.
Lee, 59, who said today he would accept the proposed cuts, created the panel in May after his ruling People’s Action Party won that month’s general election with the smallest margin of popular votes since the island’s independence in 1965. Singapore’s ministers are among the world’s highest paid as the government previously benchmarked their wages against salaries of chief executive officers and other top earners in the country.
“An entry-level minister will still make more than President Obama but you can’t please everyone,” said Eugene Tan, a political commentator and assistant professor of law at the Singapore Management University. “Income inequalities are inevitable but the government is now increasingly moving towards how they measure quality of life and development, rather than just GDP growth.”
The city state’s gross domestic product increased 41-fold from 1960 to S$285 billion in 2010, based on 2005 market prices, and the economy grew 4.8 percent last year after expanding a record 14.5 percent in 2010.
While investor- and immigration-friendly policies have helped drive Singapore’s economic success, making the country the easiest place to do business according to the World Bank, its growth has come with a widening income gap. The island’s Gini coefficient, an income inequality measure, rose to 0.48 in 2010 from 0.444 in 2000, according to the statistics department. A reading of zero means income equality, while a reading of one means complete inequality.
The island has the highest proportion of millionaire households globally, according to the Boston Consulting Group, contributing to higher property and consumer prices that have pushed up living costs for its poorer citizens. Inflation was 5.7 percent in November, matching the fastest pace since 2008.
The government had previously said the million-dollar ministerial earnings prevented corruption and helped attract and retain talent. The salary of a new minister will now be benchmarked to the median income of the top 1,000 earners who are Singapore citizens and with a 40 percent discount “to signify the ethos and sacrifice that comes with political service,” the pay review committee said today.
A pension plan for ministers will be scrapped, reducing their annual compensation, the panel proposed. Prime Minister Lee’s salary was S$3.07 million in 2010, excluding imputed pensions, the statement showed. The 36 percent decline in his annual income projected by the committee includes imputed pensions for the 2010 pay. His annual salary excluding pensions will decline 28 percent under the revision.
U.S. President Barack Obama is paid about $400,000 annually. Japanese Prime Minister Yoshihiko Noda’s pay was cut 30 percent in November to 27.51 million yen ($359,000) a year from 39.29 million yen, the government said in October, in advance of legislation that would reduce public servants’ pay to help fund efforts to rebuild from the March 11 earthquake and tsunami.
“The government intends to accept your committee’s recommendations,” Lee said in a Jan. 2 letter to Gerard Ee, who chaired the Singapore panel. Singapore will move a motion in parliament on Jan. 16 to adopt the proposed changes “as the basis for setting political salaries,” he said in the letter, which was posted on the committee’s website.
The new salaries will be backdated to when the current cabinet was sworn in, the government has said.
Opposition parties in last year’s elections decried ministerial compensation, comparing their pay to those of ordinary Singaporeans facing rising living costs and pressure on wages from an influx of foreign workers. After the vote, Lee pledged his party will change the way it rules.
Since the elections, the government has tightened rules on foreign workers and made it more expensive for non-Singaporeans to buy property in the city of 5.2 million people.
Lee announced the setting-up of the salary review panel on May 21 at the swearing-in ceremony of his cabinet, saying Singaporeans have “genuine concerns” over the salaries of its politicians.
“Politics is not a job or a career promotion,” he said then. “It is a calling to serve the larger good of Singapore. But ministers should also be paid properly in order that Singapore can have honest, competent leadership over the long term.”
Singapore is ranked fifth among the least corrupt nations in the world in a 2011 index by Transparency International. The list of 183 countries was topped by New Zealand, Finland, Denmark and Sweden.
Singapore’s policy of paying its top officials millions of dollars won the support of Rupert Murdoch, chairman and chief executive officer of News Corp., who highlighted the benefits of such wages last year.
“We ought to look at the most open and clear society in the world, which is Singapore, where every minister gets at least a million dollars a year, and the prime minister a lot more, and there is no temptation,” Murdoch said during a testimony to a British parliamentary committee after a hacking scandal. “It is the cleanest society you’d find anywhere.”
--With assistance from Sachiko Sakamaki in Tokyo. Editors: Stephanie Phang, Sunil Jagtiani
To contact the reporter on this story: Shamim Adam in Singapore at firstname.lastname@example.org
To contact the editor responsible for this story: Stephanie Phang at email@example.com