FEB 20 — Last Friday, Finance Minister Lawrence Wong delivered Singapore’s annual Budget.
Now as the basic statement of the government’s financial position and its intentions — including taxes, and government spending for the next year — the Budget is always significant. Its provisions touch the lives of every person who lives and works in Singapore.
This year’s Budget is particularly significant.
As it prepares to adjust to a post-Covid19 world, there appears to have been a shift in the government’s spending and revenue priorities.
In Budget 2022, there is a visible shift towards taxing the wealth — particularly the wealth of the wealthiest members of society. As of 2020, the wealthiest 1 per cent of Singaporeans were estimated to hold a 34 per cent share of national wealth.
This is among the highest wealth concentrations in any developed nation. And it may also be an underestimate as Singapore is home to many high net worth individuals whose fortunes are based overseas.
Singapore has long been reluctant to impose high taxes on wealth, preferring to attract high net-worth individuals to the island nation. But this year with costs and inflation rising globally, putting pressure on lower income earners and with the government’s own revenue position impacted by expenditure over 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 incomes will increase. Income over S$500,000 (RM1.5 million) per annum will now be taxed at a rate of 23 per cent and income over S$1 million will be taxed at a rate of 24 per cent. Previously the highest rate of income tax was 22 per cent.
These aren’t globally high income tax rates but for Singapore which has long been something of a tax haven, these increases are significant.
High end property will also see increased taxes. By 2024, the top rate of tax on Investment properties/second homes will be 36 per cent of the value of the properties’ annual rental yield, the current maximum tax levied on real estate is 20 per cent.
Tax rates for owner occupied properties will also increase with the top rate of tax increasing from just 16 per cent currently to 32 per cent by 2024, though this will apply only to very high value properties.
These are relatively major cooling measures. Buying investment properties in Singapore will now be considerably less attractive.
While Singapore has long benefitted from the appreciation of its real estate prices, foreign investors are now snapping up Singapore property at such rates many Singaporeans risk being priced out of their own housing market. Particularly the condo and detached home market; these measures should alleviate this somewhat.
Higher fees will also be imposed on luxury cars. A new additional registration fee will be charged at a rate of 220 per cent for the portion of a car’s open market value in excess of S$80,000. So if a car is worth S$100,000 in the open market, $20,000 will be subject to 220 per cent tax.
This will significantly drive up the cost of super luxury cars of which there seems to be an ever-increasing number on Singapore’s roads. The sight of this sort of wealth irritates ordinary Singaporeans who in many cases struggle to own any kind of car — so again it makes sense to nudge the ultrawealthy to tone down some of the excess.
Overall these measures seem sensible and the government has pledged to use the funds generated to increase spending on the local core and on under-privileged groups.
The Workfare Scheme which allows the government to effectively top up the salaries and retirement funds of lower paid workers and the Progressive Wage Model where the government works with businesses to increase worker salaries will be expanded. And the government will also direct funds to retrain mid-career employees.
The basic move towards distributing wealth from society’s wealthiest members to support the lives and livelihoods of less wealthy and more vulnerable groups is very sensible.
In an era where Covid-19 restrictions have disrupted swathes of the local and global economy but also inflated the assets of the mega wealthy, some steps are needed to at least keep a lid on the gap.
However, it must be noted that Singapore has not moved to impose any sort of Capital Gains Tax which would charge fees on the money the wealthy make from investments.
So currently only salaries and wealth derived from property will be subject to increased taxes.
In reality, most of the wealth derived by the ultra wealthy comes from stocks and dividends which remain tax free. So Singapore will remain an attractive place for the world’s wealthy to resettle.
Ultimately it’s a delicate balance. Singapore has benefitted from allowing wealth to flow into the country. This wealth has brought with it investments and contributed jobs to Singapore’s economy.
On the other hand, the concentration of wealth among the ultrawealthy in Singapore is now such that it threatens to warp the economy and may even endanger social stability so the moves are definitely timely.
The Budget indicates that the Singapore government is willing to tackle the problem of growing wealth disparities head on, albeit incrementally, even if it makes the country somewhat less attractive to high net worth individuals.
That’s quite a major step.
*This is the personal opinion of the columnist.