Singapore set to tax the rich to give to the poor | Opinion
FEBRUARY 20 — Last Friday, Finance Minister Lawrence Wong presented Singapore’s annual budget.
Now, as a basic statement of the government’s financial position and intentions, including taxes and government spending for the following year, the budget is still important. Its provisions affect the lives of everyone who lives and works in Singapore.
This year’s budget is particularly important.
As it prepares to adapt to a post-Covid19 world, there appears to have been a shift in government spending and revenue priorities.
In Budget 2022, there is a visible shift towards the taxation of wealth – particularly the wealth of the wealthiest members of society. In 2020, the richest 1% of Singaporeans were estimated to hold a 34% share of the national wealth.
It is one of the highest concentrations of wealth of any developed country. And it may also be an underestimate as Singapore is home to many high net worth individuals whose wealth is based overseas.
Singapore has long been reluctant to impose high taxes on wealth, preferring to attract wealthy individuals to the island nation. But this year, as costs and inflation rise globally, putting pressure on low-income people and with the government’s revenue position affected by spending during the pandemic, the government has put in place a number of measures that will increase the total amount of tax paid by the wealthy.
Significantly, taxes on high earners will increase. Income over S$500,000 (RM1.5 million) per annum will now be taxed at the rate of 23% and income over S$1 million will be taxed at the rate of 24%. Previously, the top tax rate was 22%.
These are not high income tax rates overall, but for Singapore, which has long been something of a tax haven, these increases are significant.
High-end properties will also see an increase in taxes. By 2024, the maximum rate of tax on investment properties/second homes will be 36% of the value of the annual rental yield of the properties, the maximum tax currently levied on real estate is 20%.
Tax rates for owner-occupied properties will also increase, with the top tax rate rising from just 16% currently to 32% by 2024, although this will only apply to very high value properties .
These are relatively important cooling measures. Buying investment property in Singapore will now be considerably less attractive.
While Singapore has long benefited from appreciating property prices, foreign investors are now snapping up properties in Singapore at such rates that many Singaporeans risk being squeezed out of their own housing market. Particularly the market for condos and single-family homes; these measures should alleviate it somewhat.
Higher fees will also be imposed on luxury cars. A new additional registration fee will be charged at the rate of 220% for the portion of a car’s free market value above S$80,000. So, if a car is worth S$100,000 on the open market, $20,000 will be subject to a 220% tax.
This will dramatically increase the cost of super luxury cars of which there seem to be an ever increasing number on Singapore’s roads. The sight of this type of wealth irritates ordinary Singaporeans who in many cases find it difficult to own any type of car – so it makes sense, again, to push the ultra-rich to tone down some excesses .
Overall, these measures seem reasonable and the government is committed to using the funds generated to increase spending on the local core and on disadvantaged groups.
The Workfare program, which allows the government to effectively supplement the wages and pension funds of the lowest-paid workers, and the progressive wage model, in which the government works with companies to raise the wages of workers, will be expanded. And the government will also direct funds to retrain mid-career employees.
The grassroots movement towards distributing the wealth of wealthier members of society to support the lives and livelihoods of less wealthy and more vulnerable groups makes a lot of sense.
At a time when Covid-19 restrictions have disrupted swaths of the local and global economy, but have also inflated the assets of the mega rich, some measures are needed to at least limit the gap.
However, it should be noted that Singapore has not moved to impose some sort of capital gains tax that would charge a fee on the money the wealthy take from their investments.
Thus, currently, only wages and wealth derived from property will be subject to increased taxes.
In reality, most of the wealth drawn by the ultra-rich comes from stocks and dividends which remain tax-free. Thus, Singapore will remain an attractive place for the world’s wealthy to resettle.
In the end, it’s a delicate balance. Singapore has benefited from the influx of wealth into the country. This wealth has brought with it investment and created jobs in Singapore’s economy.
On the other hand, the concentration of wealth among the ultra-rich in Singapore is now such that it threatens to distort the economy and may even endanger social stability, so the measures are definitely timely.
The budget signals that the Singapore government is ready to tackle the problem of growing wealth disparities head-on, albeit gradually, even if it makes the country a little less attractive to wealthy individuals.
This is quite an important step.
*This is the columnist’s personal opinion.