There was a lot of fat for economists to chew over in the Budget 2019 announcement.
But observers keeping an eye on changes to Singapore's tax structure might have noted there were a few changes to taxation rates for both individuals and businesses, but perhaps not major ones.
Small tweaks to tax regime
For individuals, Heng announced:
- A personal income tax rebate of 50 per cent of tax payable for YA2019, capped at S$200.
- Tightening GST import relief and liquor duty-free allowance for travellers.
- Allowing taxpayers to claim Grandparent Caregiver Relief in respect of a disabled and unmarried dependent child, regardless of age, if conditions are met.
- Allow the Not Ordinarily Resident scheme to lapse, which allowed foreigners certain tax concessions.
There were a few changes to taxes for businesses too, including support for intellectual property rights, investment in automation, and Singapore-based fund managers.
Heng also announced the doubling of excise duty on diesel, from 10 to 20 cents, along with a reduction in the annual Special Tax for diesel-powered cars and taxis.
But economist Donald Low noted that the Budget did not introduce any new taxes on wealth, nor raise the rates of the few existing wealth taxes.
Writing for Today, the former Associate Dean of the Lee Kuan Yew School of Public Policy said that the Budget reflected how dominant Singapore's "pro-capital" stance is in society.
Said Low, "The missing debate on wealth taxes is not just curious, it is also unhealthy."
Low made three arguments for why wealth taxation should be seriously considered, both as a potentially valuable source of revenue, and a tool with which to address rising economic inequality.
Tax wealth to address inequality
Quoting economics professor Thomas Piketty, Low said that differences in wealth leads to greater inequality than differences in labour income.
Wealth is defined as the ownership of capital, or financial and physical assets. According to Piketty, inequality rises when the rate of return on capital exceeds the economy's growth rate.
As a mature economy, Singapore's growth rate has been below five per cent, while the return on capital is expected to remain close to an average of four to five percent.
Therefore, inequality is on the rise. To address this, wealth and income from capital should be taxed more.
Capital income ratio rises
The second argument Low made was that the super-rich, or the top one per cent, derive a larger portion of their income from sources other than labour.
This upper segment of society have other ways of earning money, like capital gains, dividends, interest and rental income.
However, Singapore taxes these income sources very lightly. Said Low:
"There is no capital gains tax or inheritance tax; dividend and interest income are also exempt from personal income tax. Property taxes are relatively low, and only rental income is taxed at one's marginal tax rate."
He pointed out that in some cases, the super-rich who earn most of their money from these sources might end up paying a lower effective tax rate than the middle class, who earns most of their money from labour.
Low acknowledged that Singapore still has relatively low income tax rates, but the fact remains that the overall tax system is not equitable because capital is taxed much less than labour.
It's a fact that rapid advancements in technology will disrupt the economy and change the nature of income.
Heng himself has publicly spoken on how the economy will be transformed through technology.
However, Low points out that digital technology like Artificial Intelligence will disrupt labour-intensive activities, rather than capital-intensive ones.
Imagine a delivery company. There will still be a demand for goods to be transported, so the owner of the company will be less affected.
But if driverless, automated trucks become standard, the truck drivers will be out of a job.
Low added that capital owners stood to gain more from the changes brought about by technological disruptions, even as some jobs are made obsolete and new jobs are created.
What could be done
Any significant move to the tax structure has traditionally been met by a vocal response.
When Heng announced in 2018 that the Goods and Services Tax rate will be raised by two points before 2025, there was much public debate.
But Low believes wealth taxes can be introduced quite easily.
He proposed introducing a low tax rate on capital gains, from five to 10 per cent. Another move would be to make income from dividends and interest taxable once more.
Low said that these were made tax-exempt in the early 2000s, in order to make Singapore a competitive place for investments and foreign talent.
However, the global financial crisis of 2008-2009 and recent slowdowns in cross-border flows of goods, services and cash meant that such exemptions may no longer be as effective in attracting capital.
Meanwhile, the government is taking off the table a potentially lucrative source of revenue. Low believes that at low levels, a capital tax will not discourage savings and investments.
Another measure the government could consider would be an inheritance tax. Low noted that the estate duty was abolished in 2008.
Unlike income taxes, they do not discourage work, and unlike consumption taxes, they are progressive.
But Low also noted that the previous estate duty had such a high exemption level that almost every estate was exempt, and it therefore did not raise much revenue.
Instead, he proposed that if a new estate duty was introduced, it could treat inheritances above a certain level as taxable income.
This would bring it in line with Singapore's low and progressive personal income tax regime, and deliver similar benefits.
Low also mentioned that wealth taxes were generally unpopular, but due to "naive optimism", many of the middle class who will be less affected also oppose them -- out of the belief that one day, they will be members of the rich elite too.
But if this keeps up, wealth taxes will remain on the backburner, to the "detriment of society."
(H/T: Today Online)
Top image from Donald Low and MBS's Facebook pages.