Singapore — The über wealthy have for many years made Singapore the home for their money, and now, increasingly, also for themselves.
The pandemic has been nudging a rising number of ultra-high net worth individuals to settle here. Not just millionaires, but also billionaires.
So when Prime Minister Lee Hsien Loong was interviewed by Bloomberg’s editor-in-chief John Micklethwait at the Bloomberg New Economy Forum, held from Nov 17 to 19, it seemed inevitable that there would be a question on whether a wealth tax could address the country’s widening gap between rich and poor.
PM Lee said that this would be challenging.
He underlined that Singapore’s taxation system must be one that is progressive and that people accept as fair.
One of the earliest prominent and wealthy business people to go public on settling in Singapore was Jim Rogers, an American investor who co-founded the Quantum Fund and Soros Fund Management with George Soros. He and his wife Paige Parker settled in Singapore in 2007. Forbes estimates his net worth to be in the region of US$121 billion.
Earlier this year, the world’s ninth-richest person, Google co-founder Sergey Brin, opened a family office branch in Singapore to manage his wealth. Mr Brin has a net worth of US$86.5 billion (S$115 billion), making him the world’s ninth-richest person, according to the Bloomberg Billionaires Index.
The list of billionaires who have relocated to Singapore includes Mr Eduardo Saverin, one of the co-founders of social media giant Facebook. Mr Saverin moved to Singapore in 2009 and renounced his American citizenship two years later, avoiding an estimated S$932 million (US$700 million) in capital gains taxes in the US.
Hedge fund billionaire Roy Dalio, the founder of Bridgewater Associates, was also opening a family office in Singapore, Bloomberg reported in November 2020.
Apart from Singapore’s low taxes, low crime and good security, the country offers generous incentives for family offices, which manage the wealth of the super-rich.
In October 2020, Senior Minister Tharman Shanmugaratnam estimated that there were about 200 single-family offices in Singapore managing assets in excess of $100 million. Then at the start of 2021, the Family Capital website reported that 200 family offices had registered in Singapore since 2020.
Singapore’s Global Investors Programme has sweetened the deal for many of the ultra-wealthy, who, given their ability to invest S$2.5 million in local firms or funds or establish a family office with at least S$200 million in assets, are fast-tracked to permanent residency.
The country’s personal tax rates, capped at 22 per cent, are another reason why Singapore is so attractive. In the US and the UK, taxes can go as high as 37 and 45 per cent respectively.
Some of this is offset with other levies, however. Owning a car, for example, can be very expensive indeed. A Honda Civic that can be bought for about $20,000 in some countries bears a final price tag in Singapore of more than $100,000 due to six additional fees, including a registration fee of at least 100 per cent of the vehicle’s cost.
However, a growing inequality gap is a problem in Singapore today. So what should Singapore do? And what would be fair?
PM Lee defined fair as “everybody need(ing) to pay some, but if you’re able to pay more, well you should bear a larger burden.
“And if you’re less well-off, you should enjoy a greater amount of the government’s support schemes and benefits.
“You tax consumption, you tax income, you tax savings.
And you should tax wealth, whether wealth in the form of property, ideally wealth in other forms.”
Taxes have been raised on property and cars in Singapore in the past years, but as PM Lee pointed out, alternative ways to tax wealth are “not so easy to implement”.
And there is always the concern that foreigners considering settling in Singapore would be driven to friendlier financial shores should taxes rise, he acknowledged.
Workers’ Party MP Jamus Lim (Sengkang GRC), who teaches economics at ESSEC Business School, called on Nov 1 the wealth tax “an idea whose time has come”.
In a motion in Parliament, he proposed a wealth tax of between 0.5 per cent and 2 per cent to be imposed upon individuals whose net wealth is in excess of $10 million.
Associate Professor Lim argued that a wealth tax would result in a decrease in income and wealth inequality, as well as diversify sources of revenue for the country.
He said the goods and services tax (GST) had a disproportionately large impact on lower-middle and middle-income families, and asked Members of Parliament not to be “content that the system happens to be progressive overall”.
He argued that “inequality is a real and pressing issue” in Singapore, adding that “our nation’s effort at redistribution” of wealth “has been far more restrained than in other advanced economies, including that of our immediate neighbours.
“We can do more to address our inequality problem,” he added.
At the time, Second Minister for Finance Indranee Rajah responded to Prof Lim’s motion, saying that authorities will continue to review imposing a wealth tax.
The government is consistently looking for ways to supplement its revenue, she said, but it endeavours to do so in a way that strikes the right balance.
“We have to tax in a way that is competitive, and allows people and companies to generate revenue in order to encourage them to stay here, and that revenue can be used and allocated and redistributed.”
In 2019, academic Donald Low called the absence of the debate on wealth taxes in Parliament “not just curious,” but “also unhealthy”.
He explained why, naming a few factors to consider. The first is Singapore’s ageing population.
The second is the possibility of a slowdown in economic growth. These two factors in play will only intensify wealth inequality and put further demand on social spending. For him, this is why taxing the wealthy in Singapore should be taken into consideration. /TISG
Read also: Jamus Lim: Wealth tax is an idea whose time has come