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The curious case of missing wealth taxes in Singapore

It should come as no surprise to anyone that the Budget Statement of 2019 did not introduce any new taxes on wealth in Singapore nor raise the rates of the few existing wealth taxes.

The curious case of missing wealth taxes in Singapore

Yachts are moored at a marina next to luxury apartment at the man-made island resort of Sentosa Cove in Singapore, April 25, 2015. The missing debate on wealth taxes is not just curious, it is also unhealthy, says the author.

It should come as no surprise to anyone that the Budget Statement of 2019 did not introduce any new taxes on wealth in Singapore nor raise the rates of the few existing wealth taxes.

We should also not be surprised if no Member of Parliament suggests raising taxes on wealth in the budget debate to follow. This is an indication of how dominant or hegemonic Singapore's pro-capital stance is — that even in a Budget that is presented as a socially progressive one, no one is likely to question the low taxes on wealth.

The missing debate on wealth taxes is not just curious, it is also unhealthy.

As Singapore ages and if economic growth slows, wealth inequality will become more pronounced even as the demands on social spending rise. It is therefore important to consider whether and how wealth in Singapore should be taxed.


As the Paris School of Economics’ Thomas Piketty has explained, differences in wealth is a greater source of inequality than differences in labour income.

Wealth comes from the ownership of capital, i.e. financial and physical assets. As ownership of capital is far more unequally distributed than labour, the former is a bigger determinant of inequality.


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In Capital in the 21st Century, Professor Piketty also observed that except in times of war and depression, the annual rate of return on capital has averaged nearly 5 per cent.

In mature economies, labour incomes are increasing at a much slower rate mainly because growth in these economies is well below 5 per cent.

Inequality, Professor Piketty posits, rises when the rate of return on capital exceeds the growth rate of the economy.

Singapore is now growing at below 5 per cent, even as we expect the return on capital to be close to its historical average of 4-5 per cent. If we care about rising inequality at all, we should be taxing wealth — and therefore capital income — more.

Second, the ratio of capital income — that is, capital gains, dividends, interest and rental income — to labour income increases exponentially as one gets closer to the super-rich (e.g. the top 1 per cent) in the income distribution.

In Singapore, capital is taxed very lightly: 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.

Given that the rich derive a significantly larger share of their income from capital, the very low taxes on capital in Singapore means that capital owners may be paying a lower effective tax rate than the (upper) middle class whose main (if not only) source of income is their labour. 


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Admittedly, income taxes in Singapore are not high either and most wage-earners in Singapore pay very little income taxes. Most of them also own some capital in the form of their public flats.

But the fact remains that capital income in Singapore is mostly not taxed, whereas labour income and consumption are. This makes the overall tax system less equitable than it should be.

The third argument for wealth taxes is the fact that in an economy that would be constantly disrupted by new technologies, we should expect inequality to increase.

This is because automation, artificial intelligence and other digital technologies are likely to disrupt labour-intensive activities more so than capital- or knowledge-intensive ones.

The productivity gains from these disruptions will also accrue more to capital owners than to labourers, even if these disruptions create more jobs than they destroy.

This is also why we hear arguments, by technologists such as Bill Gates, for governments to impose a tax on robots, a form of capital.


The good news for Singapore is that taxes on wealth or capital income can be quite easily introduced without creating perverse incentives.

Singapore could start with a low tax (say 5-10 per cent) on capital gains, as well as treat dividend and interest income as taxable once again.

Dividends and interest income were exempt from tax in the early 2000s as part of the government’s effort to lower income taxes to attract talent and capital to the country.

This was during the era of hyper-globalisation, when it was widely believed that governments had to reduce income and capital taxes and shrink social safety nets to compete for talent and investments.

After the global financial crisis of 2008-2009, much of this neoliberal ideology has been discredited.

Globalisation is also slowing; a recent issue of the Economist magazine was headlined “Slowbalisation” and showed how across several metrics the cross-border flows of goods, services and money are growing more slowly (or not at all).

In such a world, our stance of not taxing capital income would probably not make much difference in drawing foreign capital to our shores.

Meanwhile, the state is giving up a potentially valuable source of revenue, which may necessitate higher taxes elsewhere to finance higher social expenditures.

At low levels, taxes on capital income will not reduce savings and investment. And because ownership of capital is much more unevenly distributed than labour income, such taxes increase the overall progressiveness of the tax system.

In short, low and simple wealth taxes are efficient and equitable.

There is also a case for taxing inheritances. The estate duty was abolished in 2008 to make Singapore a more attractive place for building up wealth.

Although unpopular, taxes on inheritances are the least distorting. Unlike income taxes, they do not reduce incentives to work. And unlike taxes on consumption (such as Goods and Services Tax), they are progressive.

Even opponents of taxation in general should support taxing inheritances if revenues have to be raised somehow.

Nonetheless, the former estate duty did not raise much revenue. Its high exemption level meant that almost all estates were exempt from it.

The solution would be to treat inheritances above a certain threshold as taxable income — and to tax them at our marginal tax rates. Since Singapore’s personal income tax regime is already low and progressive, taxing inheritances this way would deliver similar benefits.

Taxing wealth should be popular since most of us aren’t wealthy enough to pay these taxes. But because of naive optimism, many of us may believe that we would eventually be wealthy.

This “false consciousness” may result in the middle class aligning themselves with the rich who, understandably, are against such taxes.

And if the middle class are opposed to wealth taxes — even though it is in their interests — we would also expect wealth to continue being taxed very lightly in Singapore, to the detriment of society.



Donald Low is Professor of Practice and Director (Leadership and Public Policy) at the Institute of Public Policy, Hong Kong University of Science and Technology. He was previously associate dean of executive education and research at the Lee Kuan Yew School of Public Policy and had also served over a decade in the Singapore Administrative Service, including as director of fiscal policy at the Ministry of Finance.

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