How to set up cash transfers that reduce poverty and inequality without waste

Keywords / Monday, February 20th, 2023

Cash-strapped Singaporeans are asking for more help to cope with the high cost of living. Cash transfers are one type of assistance, but some criticise these as wasteful handouts. NG KOK HOE explains the merits of cash transfers and how they can be structured to reduce the risk of misuse and fraud.


Cash transfers are payments from the state to individuals, usually aimed at social objectives such as reducing poverty and supporting families with young children. Unlike policies that require individual contributions such as the CPF, cash transfers are funded by general taxation. In contrast to subsidies and rebates that lower the cost of public services (i.e. reduce expenses), cash transfers add to individual resources (i.e. increase incomes).

There are many ways to design cash transfers. Conditional cash transfers require recipients to first do something, for instance, send their children to school or attend medical checkups. There are prominent examples of these in Latin America. Some cash transfers are targeted at selected social groups while others are universal. Selection based on the applicant’s income or wealth is known as means testing. Cash transfers also vary in terms of generosity, how long eligible persons are supported and whether the programme as a whole is permanent (like ComCare) or one-off (like the Assurance Package payments).

Cash transfers offer several advantages. It is quicker to deliver money than services. This makes cash transfers a responsive tool during crises like the COVID-19 pandemic and the 2008 Global Financial Crisis, not just to support household spending but also to stimulate the economy. Compared to goods and services, people have more room to make their own choices about how they use cash. Such autonomy and flexibility are a welcome alternative to the paternalism that poorer people sometimes experience in welfare institutions. Cash transfers provide a means for redistribution. They can reduce poverty and inequality. This is apparent when the transfers are targeted at poorer groups. But even universal flat-rate cash transfers can be redistributive if richer people pay more taxes that are used to fund the transfers.

In neoliberal thinking, which valorises market competition and personal responsibility and eschews redistribution and collective responsibility, cash transfers are sometimes known as handouts. This pejorative term reflects anxiety that cash payments may be vulnerable to misuse and fraud. From a public administration perspective, one-off cash transfers are often less strictly monitored than permanent schemes and may lack accountability. Because of their high visibility, governments can use them to relieve immediate political pressure while avoiding necessary structural reforms. Used this way, one-off cash transfers encourage short-term policy thinking.

Permanence and adequacy are key. Except in times of crisis, permanent cash transfer schemes that provide sustained and sufficient support have the greatest potential to address systemic inequalities and ensure the meeting of basic needs. In more mature welfare states, some of these schemes have become institutionalized and known by other names, such as basic pension and child benefit. Short-term and ungenerous cash assistance schemes that apply stringent means testing and onerous application protocols often end up creating social stigma and a revolving door of return help-seekers, with no lasting impact on economic security and life opportunities.

– By Ng Kok Hoe, Senior Research Fellow and Head of the Social Inclusion Project, Lee Kuan Yew School of Public Policy, National University of Singapore.