Singapore Budget 2019: Taxes

A recent article in the Today Paper, “The curious case of missing wealth taxes in Singapore”, questioned why there had been no discussion on the increasing taxes on the wealthy in Singapore as a way of ameliorating the issues of income inequality and as a way of raising taxes. Now as readers of this blog might know, I’ve brought up this issue before in a previous post. I had at that point advocated for the increase in wealth taxes – primarily taxes related to dividend income and capital gains. What I found rather odd about this article is that only a liberal would ask a question about taxation during a year when the government had made a surplus, and a pretty decent surplus of SGD$2.1 billion at that.

Where I disagree

I disagree with Prof Low on a couple of things.

  1. Estate Taxes
  2. Ease of increasing wealth tax
  3. “naïve optimism” of the middle class

Estate Taxes while a tool for many on the left/socialist (to be honest I’m not sure the political designations anymore), is an abhorrent tool. It is in effect a tool that says that indicates that the government has failed to appropriately tax the person in his lifetime allowing him to accumulate large amounts of money and we are now taxing him in death to reduce the social implications. That seems, in my humble opinion, to be a rather stupid thing. If you must tax, you should tax a person based on the actions he has made. Consumption, production, savings or investment actions are actions that should be taxed because they are actions that a person gets to choose. Nobody gets to choose when they die.

Today we have taxes on 2:

  • Consumption – Goods and Service Tax
  • Production – Either income tax or corporate tax

Savings and investment are not taxed in Singapore. In the past they were, but these taxes have since been rescinded.

Ease of increasing wealth tax

Prof Low alludes to the ease of imposing a “a low tax (say 5-10 per cent) on capital gains, as well as treat dividend and interest income as taxable once again”. While the he was the Director of Fiscal Policy in the Ministry of Finance, he should be aware or have been aware that you can only tax what you have in your dominion, and people that have high wealth can easily move their monies to other dominions (and nearby too, HK as an example) to avoid any sort of taxes that the government sought to impose. At the end of the day, these taxes would not fall on the wealthy as he describes but on again on the middle class who would not have access nor make sufficiently large capital related income to afford tax avoidance measures.

Again I can only assume that Prof Low is speaking to an ideological audience and not a pragmatic one. The only real way to have a proper implementation of such a tax policy if it was coordinated with other financial centres that conduct wealth management operations as a significant part of their economy, such as Switzerland, Hong Kong, Luxembourg and UK (London) . If all the major wealth management centres agree to a proportionate increase in taxes will such a plan work, otherwise, it’ll just be rich people hiring smart people to move their money around.

Naïve Optimism

Prof Low alludes to the field of behavioural economics where people end up choosing outcomes that are poorer for them because of preconceived notions. Again I disagree with the argument that people are too stupid or unaware to make such decisions. I would argue that it is in fact the opposite. By and large the original wealth makers of Singapore are only just dying out and their second and third generations of their families are taking over. This is quite different from the generational wealth that Piketty references where wealth has been held or transferred over a much longer time period. Singaporeans in general I would say look up to these wealth creators because they were able to make the most of Singapore’s unique situation, navigate around the government, and not be crowded out by foreign entities. Eventually this adoration will fade, and it would eventually become more palatable to tax wealth more heavily when generations after the first we will start to see that those that inherit the wealth do not have the same zeal or ability as those that created it. 

In Summary:

  1. Wealth Taxes are good for any economy that has incredible growth rates
  2. Timing and introduction of such taxes are important
  3. Coordination with other international jurisdictions are key
  4. Naïveté can apparently also manifest in experts and professors, who attempt to push ideology rather than explain complex trade-offs


P.S. Prof Low, if you do read this, while I disagree with your position and timing I do not disagree with your desire for a more fair and equitable tax system for Singapore.