Singapore—In a commentary for The Business Times (BT), Dr Sumit Agarwal, the Low Tuck Kwong Distinguished Professor of Finance, Economics and Real Estate at the National University of Singapore (NUS) Business School, asks if it’s time that taxes were raised on Singapore’s wealthiest citizens.
BT clarified that the opinions in the commentary are the author’s own and do not represent the university’s stand.
Dr Agarwal, who wrote Kiasunomics and Kiasunomics 2, says that while the upcoming increase in the Goods and Services Tax (GST) will bring in additional revenue, another way to raise more funds for government spending is to raise the taxes on the wealthy.
He wrote, “Taxing the rich will increase government revenue that can go back into redistributive policies,” which would further reduce Singapore’s income inequality.
As to the argument that higher taxes result in reduced spending, Dr Agarwal asserts that an increase of a few percentage points does not equal less spending.
“My co-researchers and I found that the 2017 tax increase of two percentage points on wealthy Singaporeans had minimal impact on their consumption because their sensitivity to an income tax change is close to zero,” he wrote.
When more funds are needed, the wealthy do not borrow more, but instead use their savings, the professor added.
Furthermore, the tax increase on the wealthy resulted in the redistribution of more funds, with lower income groups having more to spend. “This had a positive impact on the gross domestic product (GDP),” he added.
But Dr Agarwal noted that leaders are not always in favour of raising taxes on the wealthy.
He also clarified that he is not advocating taxing the rich to the same extent as in the US and parts of Europe, specifically in Scandinavian countries, where taxes can amount to more than half one’s income.
The increase he is arguing for is only “about three to four percentage points for those in the top 20 per cent of the income bracket”, which he says would significantly impact “tax revenue, strategic reserves, and redistributive policies” in Singapore.
Citing the two percentage point tax increase on the wealthy in 2017, which increased Singapore’s revenue by S$400 million annually, he said that a similar two-point increase in tax for each of the top two income tax brackets would mean S$1 billion raised. This would “go a long way in building our reserves for the next crisis or for redistribution to benefit those badly hit by the pandemic”, he added.
Dr Agarwal also outlined how the economic fallout of the pandemic has been particularly hard on lower- and middle-income groups.
“Many lost or saw their incomes dwindle. Meanwhile, the high-income group has jobs that allow it to work from home. They save more as their travel expenses became non-existent. With more disposable income invested in the stock market, they became richer as the bourse ran up the charts.”
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