Source: The Sunday Times, Feb 16, 2014
How is the Government to find money for increased social spending? It is time the rich stepped up
By Willie Cheng For The Straits Times
ONE wintry night some five years ago, I found myself having dinner in Oslo with Mr Robert Steen, a senior executive of Schibsted, Norway’s largest media group. The two of us talked about many things that night, but at one stage, the conversation drifted to personal income tax.
”What is Norway’s top income tax rate?” I asked him, reckoning that he would easily be in that tax bracket.
”44.8 per cent.”
”Isn’t that rather high?”
”Well, it was 60 per cent before.”
I pressed on with my Singaporean logic: ”Even then, doesn’t that level of taxes destroy the incentive for people like you to work?”
”No,” he replied quite emphatically. ”Otherwise, who is going to pay for all this?” he asked, referring to Norway’s extensive infrastructure and social services.
That evening was an epiphany for me. For the first time, I had met a person who wholeheartedly embraced the high taxes he was paying.
In Singapore, I had been brought up to believe that every person needs to provide for himself, to work hard and to earn his keep. High taxes destroy the work ethic, and a generous welfare system can cripple the country.
Singaporeans pride ourselves on having a tax system which is among the lowest and most competitive in the world. Our top marginal personal income tax rate is 20 per cent, and about two thirds of Singaporeans do not need to pay income tax at all.
Our corporate tax rate is a low 17 per cent. Some corporate income tax exemptions put us right at the margin of being classified as a tax haven.
However, the reduction in income tax rates and burden over the years has been balanced with new and higher consumption taxes such as the goods and services tax, motor vehicle taxes and stamp duty. And this was done even though many economists consider consumption tax to be regressive, meaning it hits lowincome earners harder.
Indeed, Singapore has an economy and tax system that tends to favour the well-off. Apart from low personal income taxes, there is no capital gains tax or estate duty (the latter was abolished in 2008). Even the state’s generous 21/2 times tax deductions for charitable donations ultimately favour those earning more, with those in the top tax bracket effectively getting a rebate of 50 per cent on their donations.
I have since learnt that Mr Steen is not an exception. There are many wealthy people who believe they should pay high levels of taxes. One of the most prominent advocates is multibillionaire investor Warren Buffett.
In 2001, he and 120 other wealthy Americans lobbied Congress not to repeal taxes on estates and gifts as proposed by the Bush government. They feared the billions of dollars lost in government revenue would inevitably result in either tax increases for those less able to pay, or cutting social security and other government programmes ”so important to our nation’s continued well-being”.
Mr Buffett further argued that repealing estate duty would be the equivalent of ”choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”.
In a 2011 New York Times article (”Stop coddling the super- rich”), he griped that his personal income tax bill came to only 17.4 per cent of his taxable income, while the staff in his office paid 33 per cent to 41 per cent.
He asked the ”billionaire- friendly Congress” to raise federal tax rates on taxable income (including dividends and capital gains) in excess of US$1 million (S$1.3 million).
Mr Buffett’s position reflects a wider movement for a just economy through taxes.
Responsible Wealth, for example, is a network of 700 business leaders and wealthy individuals in the top 5 per cent of wealth or income in the US who actively advocate fairer taxes and corporate accountability.
They campaign to limit excessive compensation for chief executives, remove tax loopholes and close the wage gap. Ironically, these are some of the very policies that made their members rich in the first place.
In Britain, a global campaign for a ”Robin Hood tax” was launched in 2010 by a coalition of 50 charities. The idea is to tax financial transactions such as the sale and purchase of stocks, bonds, commodities and financial derivatives. Part of the motivation is to make financial institutions and players pay for their role in the global financial crisis, and to channel the billions of dollars raised into fighting poverty and improving society.
The Robin Hood campaign has legs. A proposal from the European Commission for a European Union- wide set of financial transaction taxes was approved by the Council of the European Union last year, and is expected to be implemented later this year.
That icy evening as I was educated on the successful Norwegian economy, I responded by giving examples of countries with generous welfare systems that were not doing well.
Mr Steen concluded that it was about trust. ”If taxpayers do not trust the government to deliver the goods and spend their money wisely, then the system of high taxes breaks down. In Norway, we trust our government.”
That should not be a problem for Singapore either. According to public relations firm Edelman, trust is a measurable asset which it tracks globally with its Edelman Trust Barometer. Its survey last year showed that Singaporeans’ trust in the Government ranked third-highest in the world.
Prime Minister Lee Hsien Loong has said that as the Government steps up social spending, taxes here must rise. Just recently, he reminded Singaporeans that ”all good things must be paid for”.
There is speculation as to whether the money to fund the bundle of health-care, housing and infrastructure initiatives that the Prime Minister announced in the last National Day Rally will come from higher income taxes or consumption taxes when Budget 2014 is unveiled.
Given our low income tax structure, the big gap between rich and poor and our greater responsibility to the less well-off in our society, perhaps it is time the many well-off people in Singapore should be saying to the Government: ”Go ahead and tax our income more. It is only fair.”
The writer is a former managing partner of Accenture and chairman of the Singapore Institute of Directors. He currently sits on the boards of several commercial and non-profit organisations.