The following is an essay I wrote a few years ago in an application for a scholarship, with the prompt being: ‘The Singapore You Wish to See in 15 Years’. Or something of that persuasion. I’d already put in the effort and it’s not like I’d be getting any further use out of it, so why not post it on the Internet for the world to critique my flawed thinking and socialist policies.
The Singapore of today is a far-cry from our humble beginnings, and our leaders have taken nigh prescient steps along the way to get us here. Our governmental policies have been practical and necessary but there is an argument that those policies had unintended side effects that we need to consider. The following essay will not be exploring any groundbreaking issues that the Singapore government have not considered, nor will it provide a silver bullet to the problems raised. Yet to achieve the Singapore I hope to see in 15 years, I believe that it is important to raise these issues from my perspective.
Income Inequality
Singapore has long had a reputation as a playground for the rich, even more so recently with movies like Crazy Rich Asians glorifying the extravagant lifestyles lead by some on our shores. Underlying the glitz and glamor of the Marina Bay Sands and Sentosa however, Singapore is quite different from other similar states like Monaco or Qatar.
For one thing, Singapore has performed very respectably on inequality charts, with the Organization for Economic Cooperation and Development’s (OECD) Gini coefficient rating Singapore’s inequality at 0.43 in 2018, dropping to 0.37 after including government transfer and taxes. This ranks us similarly to other developed countries like Japan and Canada after accounting for taxes and transfers, showing the wealth redistributing efforts of the government. Despite the impressive efforts by the Singapore government, there can always be room for improvement. One way to improve our position is to look further up the table, at the Scandinavian countries oft lauded for their equality. This is not a new concept, and a common rebuttal is that these Nordic states have natural resources that Singapore does not, or that there is no one-size-fits-all solution.
While these arguments do hold merit, it cannot be said that Singapore’s sovereign wealth fund is incomparable to that of Norway’s, or that Sweden (another Nordic nation frequently topping equality charts) has an abundance of natural resources. Further, it would be incongruent to suggest that we cannot look to other countries’ systems as a sample, even if an identical policy would not work perfectly for us.
TAXES
To wit, taxes. Singapore’s low tax rates hinders the government’s ability to create a level playing field for its citizens and to check wealth accumulation by high net-worth individuals (HNIs). Singapore’s 22% top tax bracket is one of the lowest in the developed world, and our corporate tax rate of 17% is far below the worldwide average of 24.18%, which has led to some calling Singapore a tax haven for the rich.
Yet our Goods and Services Tax (GST) is set to increase to 9% by 2025, which creates problems as a Value-added Tax (VAT) like GST is a regressive tax that hurts the middle class far more than the wealthy.
While the government has pledged to increase support for lower income households through GST vouchers and other programs, middle income households with incomes above the cutoff don’t get the same help.
MIDDLE CLASS SQUEEZE
So, if we can assume that the HNIs are undertaxed while the lower income households should hopefully see no net change, that logically places the increased tax burden on the middle class. This is a problem, as the middle class is the growth engine of our economy and levying increased taxes on them reduces their disposable income and retards their ability to move up the socioeconomic ladder.
With education being the key to improving social mobility, the Singapore government has done an admirable job in promoting said educational progress. The Ministry of Social and Family Development’s (MSF) 2018 paper found positive signs, with students from disadvantaged backgrounds performing consistently better in Math and Science. However, we should also look at equality of opportunity, where wealthier families have a powerful advantage.
EQUALITY OF OPPORTUNITY
As is natural with all people, we want to provide our children with the best possible opportunities in their life. This is far easier done by HNIs who have the capability to provide support for the education and careers of their offspring than the average Singaporean who may struggle to provide the same opportunities. The larger the gap between the rich and everyone else, the easier it is for everyone else to be left behind.
Over time, the Singaporeans who are advantaged at birth will grow up to form families of their own, likely using their inherited wealth and advantages to protect the interests of their own children. This creates a system where the people who have money keep it easily, creating generational wealth that can lead to social stratification.
MERITOCRACY
Another example of advantages from birth can be seen from our system of meritocracy, especially one based on academic merit. Students from higher socio-economic backgrounds are more likely to do better at their studies due to more conducive home environments than the students who are forced to take on part time jobs to supplement family income. Other factors like access to private tutors have undeniable impacts on a student’s ability to perform well during tests and exams, while alumni and affiliation programs privilege those with previous advantages for entry into elite schools.
This is not to say that students in neighborhood schools are doomed to a lifetime of mediocrity, nor should we suggest that appropriate steps have not been taken. RI’s principle Mr. Chan has admitted that a change is necessary, while MOE has set aside 20% of Secondary 1 places for non-affiliated entrants in affiliated schools, a concrete policy improvement.
Yet, there is clearly a gap to be closed, as mentioned by late MM Lee Kuan Yew in 2011, pointing out that 60% of RI students had parents who were both graduates. This is indicative of the profile of students that make it to elite schools, where they mingle amidst other students of the same profile.
ELITISM AND SOCIAL SEGREGATION
One sharp indicator of our social divide can be seen from the IPS Study on Social Capital, where Singaporeans living in public housing have less than one friend in private housing. Singaporeans from non-elite schools also are far less likely to have friends from elite schools. This presents troubling implications, where social mixing practically never occurs between Singaporeans of different classes, creating a stark social divide. The problems with this are listed within the report, where having only friends who are the same as yourself creates groupthink and encourages thinking only about your group and interests.
This is compounded by the problems stated above of generational wealth and inequality of opportunities. As a smaller class of wealthy citizens help their children to get better education and opportunities, this grows the divide between those who have advantages and those who do not. This is not even including the effects of the social networks built during schooling years that can be incredibly career-valuable for those in elite schools. The last thing we want is for two classes of Singaporeans to grow up, with wildly differing futures, and who never meet or interact.
Proposed Solutions
It is easy to point out the flaws in the current system, we as Singaporeans have a propensity to complain first and think later. The following proposed solutions have undoubtedly been considered and studied in greater depth by entire departments of economists, and there are probably good reasons why they have not been implemented. However, I would like to raise these issues from my point of view and attempt to explain why they should be reconsidered into the conversation.
PROGRESSIVE TAXES
My argument above was about the regressive nature of GST as a tax, and the obvious answer would be to point to numerous countries that have made the VAT work. Those same Nordic countries mentioned previously for their equality have a VAT far higher than our GST. However, they also have several progressive taxes that we do not, which help to level the playing field amongst their citizens.
VAT has been argued as a simple tax that is levied equally and is hard to dodge paying for businesses and HNIs. We can take advantage of those benefits by implementing a progressive VAT, where necessary household items like rice and salt are GST-exempt. This helps to alleviate living costs for low-income families (who use the largest percentage of their income on such items).
The top-end version of this is of course a luxury tax, where goods deemed as luxury items like branded handbags have a higher VAT rate. A Louis Vuitton handbag costing $11,000 rather than $10,000 is far less of an existential threat than a bag of rice costing a dollar more to their respective customers. We have precedent for this with the COE system, where cars are considered luxury goods, taxed only onto those willing and able to pay.
Capital gains and inheritance taxes are both harder to enforce but necessary as they are even more progressive. Singapore currently only charges professional traders a business income tax, but HNIs are unlikely to be doing their trading themselves. Capital gains is in fact one of the key factors separating the rich from everyone else, with access to high-value financial instruments and capital that allows them to grow their wealth exponentially faster than those trying to make do with a savings account. Further, it targets the right type of income, as genuine upper-class families rarely have their wealth derived from a monthly salary, rendering higher income taxes ineffective.
Inheritance taxes are a smaller revenue stream but the most targeted towards generational wealth and can be considered the fairest. Entrepreneurs who do well and earn fortunes are not punished for their success, only those who inherited their wealth. Even then, they have their parents’ business connections, excellent educational opportunities and numerous advantages even without inherited wealth to assist them.
WHY IT WOULD WORK
The argument against progressive taxes on the wealthy has always been capital flight. With the ease of emigration, especially for the wealthy, Singapore may suffer greatly from the losses of HNIs who seek more fertile fields abroad to accumulate wealth. France’s attempt at a wealth tax resulted in $125 billion fleeing the country, something we can ill afford, with Singapore being so dependent on foreign investment.
However, we should still recognize the draw Singapore has for HNIs, such that high profile foreigners like Jet Li and Eduardo Saverin have chosen to take up Singaporean citizenship. The previously mentioned world-class education system is one reason, while our stable government and low crime rates are prime draws. The factor of safety, where Singapore is the only Asian country to be in the top 10 of GPI charts, means that Singapore is a prime location for HNIs who are intent on living in the region. Further, Singapore’s proximity to China, business-friendly ecosystem and strong, stable economy means that there are plenty of reasons for HNIs to live here besides low taxes. Raising the taxes on richer individuals may not necessarily trigger ruinous capital flight, due to the lack of genuine alternatives in the region. Of the major financial capitals in the area, Hong Kong and Taiwan are both tenuously connected to China and the CCP, while Japan and South Korea are both largely homogenous and not suited to the typical image of an English speaking foreign HNI. The unique combination of Singapore’s numerous factors listed above can be argued as factors that may keep HNIs here, even with marginally higher tax burdens.
CONCLUSION
Singapore has made tremendous progress based on our forward-thinking policies, and our tax-friendly policies have been essential in attracting foreign investment and talent. It would be hard to argue even that the government isn’t doing enough for the low-income families, with the numerous grants and subsidies being given out. Quoting PM Lee Hsien Loong, ‘We cannot rest on our laurels’. Our government has well planned policies for the lower-income, but we should look further up the socioeconomic ladder to help the average Singaporean as well.
Now that we have come this far as a nation on the back of critical foreign investment, it is time to reap the rewards of our leaders’ forethought. While certainly we should not follow the example of the sans-culottes and strip the rich of their assets, I believe we have created a financial environment that can afford to put a little more burden on the wealthier members and let the middle class grow again. While it is important to have a class of successful, wealthy citizens, it is also not unreasonable to ask that they pay a little more to enjoy the unique basket of benefits Singapore offers, especially considering they can well afford to.
A stronger middle class ensures more parity between individual Singaporeans, slowing the inevitable slide towards social stratification. The Singapore of 15 years in the future that I hope to see is one of equality and meritocracy, where the circumstances of your birth are inconsequential compared to your talent and hard work.