As I mentioned in a previous post, the elections in Singapore will likely boil down to 5 topics, (1) CPF, (2) income inequality, (3) healthcare, (4) childcare and education and (5) immigration. In my previous post I covered some of the likely arguments from each party on their views on CPF, concluding that all sides have really lost the plot on the purpose of CPF and why it was created in the first place and why it needs to evolve to continue to achieve those very goals. In this post I’ll focus on a slightly more touchy, and in fact global subject that is income inequality.
Income inequality is a phenomenon that is occurring all over the globe and in particular it is happening in developed countries, which had thought they had countered that issue through a progressive tax policy and generous social welfare expenditure. Of course the problem that most policy makers and liberal lobbyist failed to consider was already entrenched wealth and the fact that not all income is treated equally. Their narrow focus on this issue and the “need” for social just has led them to the point that we find ourselves at today. In Singapore our problem was and is a little different, or some would say a unique challenge. Singapore hasn’t really faced income inequality for the longest time largely because the majority of Singaporeans were still working jobs and there hadn’t been a sufficient amount of capital being built up to create the exponential income that usually leads to income inequality.
The opposition parties in Singapore would like you to believe that income inequality can be battled through the same old and tried tactics that liberals all over the world have been using such as higher income taxes and more government transfers. While that does have some impact that benefits aren’t necessarily accrued to the local economy in the long-term. For trade reliant economies like Singapore any (or most) of government transfers are spent and that money finds its ways overseas. Progressive income taxes tax the working population heavier and harder and don’t take into consideration the inherent wealth position of the individuals that they are taxing. What you end up with is people with low starting wealth paying the same tax rates as people with high starting wealth.
What you won’t hear this election cycle, because the problem is harder to address and even harder to pinpoint, is the remarkable power of wealth and the sustained wealth through multiple generations. Now a lot of liberals would argue that a death tax would be the best option to redistribute wealth though that seems to be a rather grotesque and unfair practice whereby a person is taxed in life on his earnings and then taxed again on those accumulated earnings in death. Not even companies get treated like that.
However the only way you are going to see effective change and control of income inequality levels in the world is if you are able to differentiate where the income comes from and tax income from finance and other non-labour work at a higher rate. Right now we have shockingly low capital gains and dividend income tax, and you won’t hear the opposition talking about it because they are in all respects pretty clueless about a number of functions of the economy and the government. The incumbent party won’t talk about it because they believe that any increase in the capital gains or other non-labour tax rates would incentivise rich people and “job” creators to leave the country. What they don’t already realise is that a lot of them are already leaving the country due to the tight labour market and small domestic market which limits the sort of business they can do here.
As a citizenry we are somewhat stuck between the clueless and the fearful and we are only worse off with all the “choices” available to us.