In his closing speech during the Budget debate, Deputy Prime Minister and Finance Minister Lawrence Wong outline why three revenue stream suggestions offered by the Opposition might not work.
In light of the ongoing GST increases, this is a reminder of why Singapore requires a mix of taxes in order to finance our burgeoning expenditure needs.
Below are abridged excerpts taken from his speech which was delivered on Feb 24, 2023.
1. A net wealth tax is very hard to implement effectively
As many members noted, we already tax wealth in Singapore through property tax, stamp duty and motor vehicle-related taxes. And the taxes were raised in this and the last Budget.
The net wealth tax which the Workers’ Party (WP) had previously suggested, is a specific form of wealth tax that taxes the net wealth of individuals.
On paper, it sounds attractive, but in practice, it is very hard to implement effectively. Many jurisdictions have tried, but no one has done it well.
This is why many countries have done away with net wealth taxes over the years.
Even in Switzerland, which is often cited as a model, the reality is that the net wealth tax does not only target the very wealthy who are able to avoid the tax through tax planning. In the end, it’s the middle income and upper middle income groups who end up paying the net wealth tax.
The Swiss collect about two per cent of GDP in revenues through wealth taxes. This is comparable to what we collect in wealth taxes from property tax and stamp duties.
2. A heavy corporate tax might make us uncompetitive
The reality is, countries are now rolling out vast subsidies to strengthen their competitive advantage over other countries and to re-shore and on-shore activities.
The U.S. passed the CHIPS and Science Act and the Inflation Reduction Act last year, and the EU is now responding with its own scheme the Green Deal Industrial Plan, so competition for global investments will only get tougher.
MNEs based here are mobile and they have options and they will certainly have more options when they decide where to locate their next investment project within the region.
There are many other places where land and electricity are cheaper and wages are lower.
This is not a hypothetical worry.
The MNEs are already making clear to us in our consultation sessions with them.
Because of the Base Erosion and Profit Shifting (BEPS) Project (which aims to combat tax avoidance by multinational enterprises), they will no longer enjoy the same tax advantages in Singapore. Meanwhile, other countries in the region are cheaper. while their home countries are offering very generous incentive packages.
So they ask us, “What else can Singapore offer to stay competitive?”
So when Mr Louis Chua (Workers’s Party) and Ms Hazel Poa (Progress Singapore Party) talk about raising taxes for MNEs, my response is: “Please be very careful.”
We cannot afford to price ourselves out of the competition, or else Singapore and Singaporeans will end up the biggest loser.
3. We can get more revenue when we invest land sales proceeds
Ms Hazel Poa (Progress Singapore Party) suggested that we spend from land sales proceeds by treating it as revenue divided over the period of the lease.
In other words, if you have a 99-year parcel of land, we will get about one per cent of the proceeds each year.
In fact, this alternative is not likely to generate more revenue than what we are already getting today from land sales over a period of time.
Currently, when the State sells land, the financial proceeds goes in past reserves, and they are invested to generate a stream of income into our budget through the NIRC (Net Investment Returns Contribution).
The effect is that we will be able to spend more than one per cent of the proceeds each year because the reserves are being prudently invested. And they generate long term returns — half of which we get to spend as revenue.
We believe this is a more sustainable way of deriving value from the land we own through the NIRC that benefits us now and in the future.
Not a matter of choosing between GST and any of these alternatives.
The fact remains that it is very hard for any of them to replace the GST.
And given our growing needs. It’s not a matter of choosing between GST and any of these alternatives.
Contrary to what the Workers’ Party believes, we will need all of them. And a mix of taxes on income, consumption, and assets provide sound and stable public finances in Singapore.
Top image: Swapnil Bapat on Unsplash