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In an adjournment motion in Parliament on Monday (Nov. 1), Workers' Party Member of Parliament Jamus Lim proposed that Singapore adopt a wealth tax of between 0.5 percent and 2 per cent on net wealth above S$10 million.

Lim, an associate professor of economics and an economist, said that doing so could improve the diversity of the government's revenue sources, and reduce overall inequality in society.

Can help reduce inequality

Lim explained that academic literature points to how rising inequality undermines economic growth, worsens health outcomes, conditions divergent educational attainment, and alters political stability.

"For economic, social, and moral reasons, therefore, countries cannot afford to allow inequality to continue an inexorable rise," he said.

Lim explained that Singapore's Gini coefficient — the most popular measure of inequality in which the higher the number, the more unequal the distribution of income or wealth is — prior to taxes and transfers, is comparable with many other major developed economies.

This includes Scandinavian countries famously-known for being egalitarian such as Denmark, Sweden, and Norway.

However, after taking into account redistribution, Singapore’s metric of inequality jumps to the top of the range, comparable to that of the United Kingdom and United States.

Share of total wealth held by top 1 per cent in Singapore grew in 2020

He also noted the share of total wealth held by the top 1 per cent grew last year to around 34 per cent, and the number of people with assets of S$40 million or more rose by 10 per cent, reaching a total of more than 3,700 ultra-high net worth individuals.

Compared to the wealth Gini of comparable neighbouring economies such as Japan, Korea, and Taiwan, Singapore's — which one estimate puts at 0.783 — is much higher. Lim added:

"Now taken together, these facts suggest that inequality is a real and pressing issue, and our nation’s efforts at redistribution have been far more restrained than in other advanced economies, including that of our immediate neighbours. We can do more to address our inequality problem."

Singapore's overall tax system is progressive, but a quarter of taxes are still regressive in nature

Lim also said that while Singapore's overall tax system may be progressive, a quarter of taxes are still regressive in nature.

Singapore should therefore try to minimise, as much as possible, the number of regressive components in the tax regime, "rather than being content that the system is progressive overall".

Even with the current GST voucher scheme, for example, Lim said the Goods and Services Tax (GST) affects lower-middle and middle-income families disproportionately more than the wealthy, despite contributing only 11 per cent of revenue.

Lim pointed out that a wealth tax not only helps to make the tax system less regressive, it also provides the government with more sources of revenue, particularly the contribution from capital.

Common objections to wealth tax and rebuttals

Lim laid out some common objections to taxes on capital, or taxes applied to any form of productive assets. One such objection is that it is a double taxation of income, and could discourage saving behaviour.

However, he stated that a case can still be made for separate taxation of capital, if we can accept that taxes should be levied when productive gains are made. In this case, a wealth tax reflects the indirect benefits that individuals and firms receive when investing, such as Singapore's well-functioning legal system and financial infrastructure, or initial tax breaks.

Another common objection is that wealth taxes may be excessive, and could "kill the very goose that laid the golden eggs".

However, he said there is little difference, in principle, between taxes on the flow of profits and the stock of wealth, as long as the latter also generates income.

He pointed out that Singapore is no stranger to taxes on capital and wealth, with an estate duty between 1929 and 2008, and stamp duties on properties.

Suggestion: Implement progressive net wealth tax

Lim shared several possibilities for taxes on capital, including reintroducing the inheritance tax, or making estate duty more progressive.

"The top marginal tax rate for properties above S$1 million is currently set at 4 percent. We could introduce another tier for higher-value properties, at 5 percent, for properties valued above S$5 million, or for owners of multiple properties that cumulatively exceed S$5 million.

This suggestion was recently raised by my Sengkang colleague, Louis Chua, in his speech to this House on the Income Tax (Amendment) Bill. As he shared, with a relatively high threshold, the aspiring middle class would not be penalised by such a tax.

This option has the added benefit of tempering increases in house prices—even in public housing—because private housing prices have a spillover effect on public markets in Singapore."

His next suggestion was to introduce a progressive net wealth tax on the highest tier of wealthy individuals.

This would be a tax of 0.5 per cent on net wealth above S$10 million, 1 per cent on net wealth above S$50 million, and 2 per cent on net wealth above S$1 billion.

This tax may be designated to a special-purpose foundation mandated to spend on government-approved uses that are consistent with national priorities, until it is depleted, he suggested. 

"In either case, the returns on wealth in any given year would typically significantly exceed these tax rates; otherwise, they should get rid of their wealth manager," Lim said light-heartedly. "So the ultra-rich should generally not expect to even see any decrease in the principal on their assets."

Tax competition is mindset more suited for 20th century

While some might be concerned that implementing a wealth tax could threaten Singapore's competitive position as a global wealth management centre — particularly relative to our closest competitors, Hong Kong and Switzerland — circumstances have changed, Lim said.

"Recent geopolitical developments in Hong Kong are a reminder that political stability and respect for property rights are far more important determinants for factors for siting one's immobile wealth."

In fact, he noted that Switzerland — the world's leading wealth centre — maintains progressive estate taxes, and Zürich — the "beating heart of Swiss wealth management" — applies wealth taxes even more aggressively.

"More generally, we need to disabuse ourselves from the mistaken notion that low taxes offer the most competitive advantage for our status as a global financial centre," Lim said.

He also noted that in a recent PwC report that listed 12 factors that made Singapore “best in class within the region” for asset and wealth management, none of the factors was “low taxes”.

"Tax competition is a mindset more suited to the 20th, rather than the 21st, century," he stated.

Wealth taxes are an opportunity to create new opportunities

Lim closed his speech saying: "Wealth taxes can improve the diversity of our government’s revenue sources, and help manage the societal dislocations that result from rising inequality."

He ended with a nod to Christopher Nolan's Dark Knight trilogy, harkening to Bruce Wayne's decision to use his own wealth to rectify Gotham's immense inequality, which Wayne himself had been a beneficiary of:

"My heartfelt belief is that all of us — the ultra-wealthy included — want to live in a world where we can all contribute our fair share to make it a better place, both today, and for our children.

That is how I view wealth taxes: it is another salve for our imperfect world, an opportunity to create new opportunities for Singaporeans, and an idea whose time has come."

Indranee Rajah: Singapore has one of the most progressive tax and transfer systems in the world today

Responding to Lim's adjournment motion, Second Minister for Finance Indranee Rajah said that Singapore has one of the most progressive systems of taxes and transfers in the world. She gave the example of almost half of Singaporean workers do not need to pay any personal income tax.

"Over 60 per cent of the net GST from households and individuals is estimated to be collected from the top 20 per cent of resident households, foreigners residing in Singapore, and tourists," she said.

She also pointed out that for every dollar of tax a Singaporean household "around the middle" pays, they receive around twice the amount in benefits. Lower income households receive even more, with about four dollars in benefits for every dollar paid.

Singapore's Net Investment Reserves Contributions also help to ensure that Singapore does not need to borrow to fund its spending.

Indranee Rajah: government continuously reviewing tax system

Indranee said that the government is continuously reviewing Singapore's tax system, "not only to meet the needs of today, but the challenges of tomorrow".

The three most pressing challenges faced by Singapore are a rapidly ageing population, climate change, and renewing our social compact by reducing inequality and promoting social mobility, she stated.

Even as spending needs increase, revenue streams are becoming increasingly uncertain, and global tax developments will have an uncertain impact on revenue streams:

"Clearly, we cannot be status quo. But whatever we do must strike the right balance among raising sufficient revenue, maintaining competitiveness and progressivity, and being sustainable."

Wealth taxes not off the table, but the right balance needs to be struck: Indranee

She stated that the government is "not in disagreement" with Lim's focus on wealth taxes, in the sense that they are "constantly looking for ways to be able to supplement our revenue, but to do that in a way that strikes the right balance".

"So on wealth taxes, it is not about having more types of wealth taxes, per se, rather, what matters is having wealth tax policies that work in the context of each jurisdiction," Indranee added.

The question has never been about whether the government wants to tax wealth, but rather a practical one, about how to do so effectively, so that it cannot be easily avoided, she said:

"At the end of the day, we don't have any issue with wealth taxes, per se. We just want to make sure that whatever we put in place actually works."

Indranee disagreed with Lim's assertion that tax rates are not a factor considered by companies, saying that it cannot be discounted completely, as businesses and individuals will still look at tax rates.

She pointed out that both wealth and talent — Singaporean and foreign alike — can move, and thus Singapore must tax in a competitive way that "allows people and companies to generate revenue in order to encourage them to stay here, and that revenue then can be used and reallocated and redistributed".

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Top photo via CNA.

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