Will taxing the rich more really help the poor?

This year’s Budget announced an intention to spend more on the poor – but also to collect more from the rich.

In raising “wealth” taxes on those buying investment properties and conspicuous consumption items such as luxury cars, while in turn promising more social spending, Deputy Prime Minister Tharman Shanmugaratnam seemed to some to be playing Robin Hood – which has drawn a polarised reaction.

While some hailed it as fair redistribution, others worried that it marked the start of a chipping away of Singapore’s capitalistic, competitive environment.

In any case, the latest “wealth tax” hikes are more symbolic than revenue-generating, because they bring in measly amounts compared to the broad-based taxes like the Goods and Services Tax (GST) or income tax, say experts and observers.

The tax hike for investment properties will bring in $72 million more a year, while that for luxury cars is about $150 million.

This is a fraction of the $6.9 billion collected in income tax last year, says Ms Jill Lim, tax partner at Deloitte Singapore.

Ernst Young transaction tax partner Russell Aubrey notes: “It’s really more of a social measure about equality than a revenue measure.”

But to further tax the rich to fund social spending in the years to come might be a political and economic battle that the Government may not have the stomach for.

The Budget debate last month gave a glimpse of how divisive the issue is, and battle lines ran not just along party lines, but through the ruling People’s Action Party (PAP).

Workers’ Party (WP) chairman Sylvia Lim (Aljunied GRC) called for higher taxes on those earning more than $1 million a year, pointing to a study of 54 countries that linked greater progressivity in tax systems to a higher subjective well-being among citizens.

Separately, PAP MP Denise Phua (Moulmein-Kallang GRC) suggested a “Do Good” tax of 1 per cent more for every $500,000 earned above an annual income of $500,000.

PAP backbenchers on the other side of the issue quickly fired back, with Sembawang GRC MP Ong Teng Koon cautioning against slaying the goose that lays the golden egg: Raising income tax rates may drive mobile global talent away, thereby shrinking the tax pie overall, he said.

However, while Singapore has a low income tax environment now, it is no stranger to high income taxes.

In 1980, its highest earners were taxed at a top rate of 55 per cent.

Nominated MP Laurence Lien points out that Hong Kong’s corresponding top tier then was 15 per cent: “I don’t think we lost many expatriates to Hong Kong,” he says. “We should be more confident about Singapore.”

He notes that in the 2012 Mercer Quality of Living survey, Singapore came 25th for liveability – Hong Kong was 70th.

Will taxing the rich more really help the poor?