We Need to Tax “Lazy Wealth”

 

One of the highlights of the Bloomberg New Economy Gala, which was held in Singapore on 17 November 2021, was an interview given by our Prime Minister, Mr. Lee Hsien Loong to John Micklethwait, Editor-in-Chief of Bloomberg News. The entire crux of that interview was the fact that Mr. Lee made the point that it would not be easy to implement a wealth tax and that our tax system needed to be progressive and fair. More on the interview can be found at:

https://www.businesstimes.com.sg/government-economy/singapore-wealth-tax-not-so-easy-to-implement-pm-lee

 

Taken from the Business Times – Copyright – Ministry of Communications and Information

For a nation that has spent the last two decades being all about “Attracting Wealth,” it was a something of a revolutionary step for our Prime Minister to even mention the topic of a “wealth tax” at a forum aimed at pleasing the international business community.

One has to ask what was going on and most likely answer was the fact that this was an idea brought up by Dr. Jamus Lim, Member of Parliament for Sengkang GRC. Around two weeks before the Prime Minister gave the interview with Bloomberg, Dr. Lim proposed imposing a wealth tax on the richest in Singapore. Whilst Dr. Lim may be a member of the opposition Worker’s Party, he is also a highly respected economist, having worked at both the World Bank and Abu Dhabi Investment Authority. So, it was impossible to tar Dr. Lim with the label of being a stary eyed socialist and the idea is now in open discussion. More of Dr. Lim’s proposal can be found at:

https://www.straitstimes.com/singapore/politics/parliament-wp-mp-jamus-lim-proposes-wealth-tax-of-05-to-2-per-cent-on-the-richest

I will leave the merits of a “wealth tax” to the more qualified. I will however, touch on the fact that Singapore has been a fairly unequal society and the problem we face is not so much a question of attracting wealth but the type of wealth we are attracting.

Whilst the government has tried its best to present Singapore as having a wonderful forward-looking economy based on innovation, the truth is much of the thinking behind Singapore’s economic structure remains stuck in the 1960s when it was essential to have a manufacturing base and our competitive edge was about being cheaper than the Western world (which Japan is included) and having a work force that would do as it was told. Our economy back then was based on the premise that we attracted rich outsiders who would give us the good things in life.

Whilst the industries have changed, the thought process behind our economic development remains the same. This line of thinking has been programmed into the governing DNA. Whatever you talk about, the official answer will always revert back to this line of thinking. Why must we have casinos? Because rich foreigners will gamble their money here and give us jobs? Why must you have an open-door immigration policy? Because you need the foreigners to create jobs for the locals. Why must you house construction workers in tight, cramped and unsanitary conditions? Because the heavy industry that employs most of us needs cheap labour to be competitive.

Nearly every pertinent question raised in the public sphere has been met with this line of thinking and the same goes for the issue of making the rich pay more tax. – Standard answer is that Singapore needs low taxes to make it attractive to the rich who will create a demand for all sorts of things which will create great things for the locals.

Whilst this line of argument has had its merits, particularly during the boom years of the 80s, one has to ask if its relevant today. If you look at the wealth that we’re attracting, you’ll find it is doing what the local wealth has been doing for years – plonking it into very expensive real estate. Whilst I am not against investing in property per se, but if you look at Singapore (and Hong Kong), most of national wealth is tied up in property rather than in the stuff that creates jobs.

If you look at the companies that make up the Straits Times Industrial Index, you’ll find that around a third of those companies are landlords. If you look at the Forbes list of richest Singaporeans, you’ll find that the “home-grown” are essentially landlords.

Again, there is nothing wrong with being a landlord from a business perspective. However, from the socio-political-macroeconomic perspective, something is very wrong if landlords have a disproportionate hold of things and get to dictate national policy as has been seen with the dormitory owners.

Think about it, Sir James Dyson’s biggest headline grabbing move was to buy an expensive piece of property in Singapore. This was hailed as “investment.” To be fair, Sir. James did move his headquarters to Singapore and there is a technology centre in Singapore, which will hopefully generate some of the “brain” work for the locals. Then, there is the example of Eduardo Saverin, a co-founder of Facebook who is famous for legal action against the main man at Facebook (Mark Zuckerberg). As well as buying property, Mr. Saverin has set up a venture capital fund. He has, however, done little in the way of skills transferring or getting involved in business himself.

So, what have our foreign investors actually done? What have our local billionaires actually done for us?

I’m not advocating a China style forced redistribution. However, what one should look at is making the tax system encourage genuine wealth creation rather than just making it easy for the world’s wealthy to plonk their money into stuff that doesn’t actually do much for the economy. This is where Mr. Lee and his team need to put on their thinking caps. Sure, we need to attract wealth but we need to see to it that wealth does not become lazy and goes into things that actually benefit the economy as a whole. If we need to “wealth tax” we should tax “lazy wealth.”