Introduction
Inclusive growth refers to economic growth that is sustained over time and equitably distributed across all segments of society. For a high-income economy like Singapore with an open labour market and rising income inequality, inclusive growth requires more than raising GDP; it demands a policy mix that ensures the benefits are shared broadly, especially by lower-income groups. Both demand-side, especially fiscal, and supply-side policies can play a role, but their relative effectiveness depends on objectives, timing and the challenges of implementation.
Effectiveness of demand-side (fiscal) policies
Expansionary fiscal policy can boost aggregate demand, especially when resources are underutilised. The government can raise government spending or cut taxes to encourage consumption and investment, increasing AD. As AD rises there is a multiplied increase in real national income, raising growth and reducing cyclical unemployment. If the economy is below full employment this can be non-inflationary growth.
However, while higher GDP raises average incomes, demand-side policies do not on their own guarantee inclusive outcomes. Growth from fiscal spending or tax cuts can be skewed toward higher-income earners or capital owners. A broad tax cut may disproportionately benefit high-income individuals who already pay more in absolute terms, while infrastructure spending may benefit construction firms without directly uplifting low-income households. Without complementary redistribution, demand-side policies may raise GDP without narrowing inequality.
To enhance inclusiveness, fiscal policy can be made more progressive, for example by raising marginal tax rates on top income brackets, introducing a capital gains tax, which currently does not exist in Singapore, and using the additional revenue to expand transfer payments, housing grants, Workfare income supplements and healthcare subsidies for lower-income groups. These measures redistribute income and reduce inequality directly. Yet there are trade-offs: raising taxes on high earners may reduce their incentive to work or invest, and there is a risk of capital and talent outflow in a globally mobile economy, which could shrink the tax base and ironically reduce revenue.
Effectiveness of supply-side policies
Supply-side policies can address the root causes of inequality by improving the productivity and earning potential of low-income workers, through investing in education, skills upgrading and retraining targeted at low-skilled workers. As these workers acquire new skills their productivity rises, increasing their ability to command higher wages and reducing income inequality. The economy's productive capacity also expands, shifting the long-run aggregate supply curve rightward and allowing growth without inflationary pressure, making such growth sustainable.
Singapore has implemented such policies through SkillsFuture and sector-specific training schemes. A more skilled workforce also attracts more foreign direct investment, further boosting AD and GDP. This approach tackles inequality by helping lower-income groups compete in the job market rather than simply redistributing income to them.
However, skills upgrading is neither simple nor immediate. Training and education policies take time to yield results, particularly where re-skilling is complex. They rely heavily on the willingness and motivation of workers, many of whom may be older or less receptive to change, and they risk misalignment if programmes are not market-relevant, leading to underemployment or continued wage stagnation despite certification. Supply-side policies also require long-term fiscal commitment even when results materialise only years later, and the political and social patience required can be hard to sustain.
Evaluative conclusion: which policy is more appropriate for Singapore?
In practice, neither policy alone is sufficient. Fiscal policy that aggressively targets inclusiveness through higher taxation can backfire by reducing work incentives or driving away mobile talent, lowering revenue and weakening growth. Supply-side reforms take time and depend on institutional quality, labour market demand and worker participation. A pragmatic approach is to first use demand-side fiscal policy to stimulate growth, without overly focusing on whether the immediate gains are equitably shared. Once growth is achieved and tax revenues increase, the government can implement targeted redistributive measures and invest in longer-term supply-side interventions to ensure the gains are eventually shared more equitably. This sequential strategy balances short-term responsiveness with long-term structural improvement.