Still, there are things we can do in Singapore to rein in costs.
Costs are a big issue for Singaporeans and need to be addressed
There is little doubt that high costs are bothering many Singaporeans. The YouGov survey in April 2025 found that a whopping 72% of Singaporeans considered the cost of living as a top issue of concern.
It also appears that high costs could be causing some financial difficulties. For example, another survey, by ADP Research and published in 2025, revealed that 60% of workers in Singapore were living pay-check to pay-check in 2024. That is bad enough, but what was striking was that this figure was so much higher than countries such as China, South Korea and Indonesia, which are poorer than Singapore, well above the Asia-Pacific average of 48%.
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By comparison, Forrester Research’s survey in 2021 found that the percentage of Singaporean consumers who lived pay-check to pay-check was then 53% — so it appears that the situation has actually worsened in recent years, despite the impressive headline economic growth the country has enjoyed. This could be because income growth has slowed in recent years — real median employment income fell by 0.4% per annum between 2019 and 2024, reversing the average annual growth of 2.2% seen from 2014 to 2019.
In addition to living costs, we also have a problem with the cost of doing business. The QBE Singapore SME survey completed earlier this year showed that two-thirds of survey respondents cited increased costs and diminished profitability as their primary business challenge. This was up from half in the same survey done in 2024, suggesting a meaningful deterioration in business conditions as a result of costs. In addition, 70% of the respondents believed that increasing operating costs would hurt the economy.
We need to take the issue of rising business costs squeezing small and medium enterprises seriously. The global economy is weakening as a result of the trade wars and other dislocations, which will translate into weaker economic growth in Singapore. Exports and manufacturing production are already contracting, and things could get even worse. SMEs may be just about to manage the higher cost structure when the economy is doing well, but when the economy turns down, many will face a life-or-death struggle. SMEs employ a large share of the workforce in Singapore, so how well they fare will determine how resilient our economy is to the coming global slowdown.
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To some extent, Singapore is rich and may have to live with higher costs
There are a number of theories in economics that explain why costs will increase as a country becomes more developed. One theory (the Balassa–Samuelson Effect) argues that higher productivity growth in dynamic sectors such as manufacturing will raise wages across the economy, including in the less dynamic sectors such as retail and personal services. As those latter sectors suffer higher costs, the prices charged to their customers will rise as well, adding to costs. Another theory (Baumol’s Cost Disease) says that certain services, notably education, healthcare, and caregiving, are less likely to enjoy productivity gains simply because of their nature, that they are not scalable or where automation possibilities are limited. As wages rise in other sectors with higher productivity, these lower-productivity sectors will also have to pay higher wages. That results in rising unit costs and persistently higher absolute prices for services — a dynamic particularly relevant to Singapore given its service-heavy economy.
There are other forces causing costs to escalate as a country develops. For example, in Singapore’s case, land is exceptionally scarce, and in some instances, labour is also constrained relative to abundant capital. This drives up land rents and, in segments, wages. In short, economic theory says that high costs could be simply reflecting true economic scarcity, and that is a reality that firms and individuals have to learn to live with.
But is the theory applicable in real life, and have costs gone beyond what the theory projects?
It is this hard-line, pro-free market view that leads to the conclusion that Singaporean SMEs should not complain about high costs because that’s just how an efficient market works. If an SME is suffering from high costs, then, too bad, it means that the firm is not the most efficient and that it is better for it to shut down and release the scarce labour and land resources to other firms that are capable of bearing these costs and remain profitable.
Unfortunately, there is a lot that can be questioned about how such theories apply to Singapore. Most pertinently, the assumption in all these efficient market theories in economics is that there is perfect competition and no other distortions in the economy. In an economy where the government owns 90% of the land, is there really perfect competition and no distortions? As we argue below, when we discuss the impact of high land costs, that is simply not the case.
Moreover, if we apply this rather fundamentalist view of free markets rigidly, and we get a situation where Singapore-owned firms suffer disproportionately and exit the market while foreign-owned firms then dominate certain sectors, is that an outcome that the majority of Singaporeans will be happy with?
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Digging deeper into the issue, and even if we accept the theory, doesn’t the extent to which costs rise also depend on other factors? In Singapore’s case, we need to investigate whether policies that were well-intentioned may have played a role in inflating the cost structure.
Consider the following:
• Is our land pricing policy the original sin behind a high cost structure?
The government is estimated to own about 90% of the land in Singapore. Since it effectively monopolises land supply, it determines land prices. Thus, the price of land in Singapore is not purely an outcome of free markets but policy-influenced.
This is important because land costs cascade through the economy through their effects on the wages that Singaporeans demand, given their desire to own homes: the higher land prices are, the higher the cost of new homes, and the higher the salaries that the average Singaporean demands. High land prices also translate into higher residential and commercial rents — land owners will want a certain rental yield, so the higher the land price, the higher the rent they will charge in order to achieve their yield objectives.
There is an argument to be made that land auctions like the ones that the government uses result in the most efficient allocation of land. But what is efficient at the micro-economic level is not necessarily efficient at the macro-economic level if the resulting high cost structure impedes overall economic competitiveness and the survival of the SME sector. And, if the government owns virtually all the land in the economy and can pull land parcels off the market if the minimum bid price is not reached, is that really a free and efficient market working?
• Are price-based mechanisms in transport policy compounding our cost challenge?
Singapore was bold and innovative in introducing road pricing in the early 1970s to control congestion. Over time, the use of pricing measures has expanded into something that could be an overkill. We have certificates of entitlement (COEs) whose prices have skyrocketed. We also have electronic road pricing (ERP), where the rates have also gone up significantly. This is on top of the extraordinarily high petrol taxes and expensive registration and other fees for vehicles.
In principle, economic theory tells us that one congestion price should suffice. To have COE, ERP, registration fees and fuel taxes overlap means that the total price of driving and owning a private vehicle could potentially overshoot what is necessary to control congestion, while adding to cost pressures. Moreover, the COE system turns vehicles into quasi-assets, creating bidding wars that most Singaporeans cannot afford to compete for, but get the indirect downsides from higher costs.
The time has come to ask if the huge costs imposed on vehicle usage and ownership really match the benefits in terms of reduced congestion. Also, are there other means of reducing congestion, such as high parking charges in congested areas?
• Would we have lower costs with more aggressive consumer protection and competition policies?
In most developed countries, there are highly empowered and active government agencies that monitor the level of competition in the economy and that separately act in the interests of consumer protection. By ensuring a high level of competition in markets and by taking up the cudgels in favour of the consumer against big corporations, these institutions help ensure that prices are kept fair for consumers.
Singapore has an outstanding Competition and Consumer Commission of Singapore (CCS). The problem is not with the agency but with the powers it has. Competition policy in key sectors is not governed by the CCS but by sector-based regulatory authorities with multiple functions, and for whom competition and consumer protection may not be the highest priorities.
What should be done?
In essence, Singapore should reconsider how far it goes in adhering to free market fundamentalism, particularly in land policy. Not everything has to be left totally to the market. Take hawker centres as an example. There is a reason why we can still get quite delicious kopi tarik at $1.30 a cup in some places in the city centre, because there was an understanding that the stall holders would be charged reasonable rents and, in return, they would charge reasonable prices. The system works, and as far as one can judge, there is very little damage done to the economy.
At another level, there should be a regular review of legacy policies such as our approach to congestion prevention, with a rigorous study of whether the benefits of the policy still outweigh the costs — and whether there are better ways to alleviate congestion.
In addition, policymakers should consider empowering the CCS so that it can address competition issues across the whole economy and also strengthen its consumer protection arm.
Finally, it might be timely to increase the level of integration with our hinterland, something that is more feasible now with the progress being made with the Johor-Singapore Special Economic Zone. Improved and more seamless access to Johor might allow Singaporeans to access cheaper goods and services there and help alleviate cost-of-living pressures.
Manu Bhaskaran is CEO at Centennial Asia Advisors
