Singapore Grapples With Keeping the Rich Happy — and Taxing Them Too

Growing fears about inequality are pushing the government to reconsider its policies.

By BLOOMBERG

To much of the outside world, Singapore is a capitalist utopia of low taxes and prosperity for all. In reality, the city-state is starting to have serious doubts about its widely admired model.

A growing fear among locals that social mobility has slowed is pushing the government to re-examine some of the policies that have made it one of the wealthiest nations in the world.

Workers from overseas were among the first to get caught in the cross hairs. Hiring criteria got tighter after competition for jobs became a theme of the 2020 election, with the ruling People’s Action Party suffering the worst parliamentary results since taking office in 1965.

Now the rich may be next in line. 

The government is exploring expanding its wealth tax system — in addition to existing levies on property and cars — as establishment figures including the central bank chief and the finance minister publicly sound the alarm about disparities. Prime Minister Lee Hsien Loong has signaled tax changes are likely to be announced in the city-state’s annual budget on Feb. 18.

The cracks in Singapore’s economic model — widening wealth inequality and challenges in buying inexpensive housing — have appeared in many large cities around the world. Covid-19 has only compounded those problems, decimating livelihoods everywhere and pushing as many as 150 million people globally into extreme poverty, according to World Bank estimates. Meanwhile, the collective fortune of the world’s 500 richest people surged by more than $1 trillion.

“Income inequality is rising but wealth inequality is probably more glaring, largely because asset values have increased over time,” said Ho Kwon Ping, a local tycoon and former journalist who is regarded as one of Singapore’s public intellectuals.

“Meritocracy in Singapore is clearly not a slogan which the power elites only pay lip service to, but social mobility is less than before,” he said. “The government realizes that we need to improve the system.” 

Signs of Luxury

Singapore’s considerable wealth has been built on its status as a stable, open, technologically advanced economy with low taxes. Inheritance, dividends, investment income and capital gains are all untaxed. 

That’s made it a hub for the world’s richest, from Facebook Inc. co-founder Eduardo Saverin to gaming billionaire Forrest Li. It’s also spawned a local boom in private banking, family offices and asset management. 

Signs of luxury are everywhere. Sales of high-end bungalows — the city’s equivalent of mansions — tripled in 2021, according to Knight Frank Singapore. Golf memberships have jumped 40% from pre-pandemic rates, costing as much as S$350,000 ($262,000) for locals and more for expats. 

But in 2020, Singapore’s overall median household income fell for the first time in a decade, with the poorest tenth of the population hardest hit. Real incomes declined 6.1% to a median S$560 a month, although those incomes rebounded by 4.7% in 2021. 

Low-income workers are left struggling to make ends meet. In one recent case, a pest-control technician was jailed after refusing to take a Covid test. He was afraid of having to isolate and lose a S$100 monthly work attendance allowance. The incident prompted Singapore’s President Halimah Yacob — whose position is largely ceremonial — to call for better pay at the lower end of the scale. 

And while the wealthiest amass multiple properties, the poorest residents are often crammed into tiny public housing units. 

Jalinah Jamaludin lives with her husband and 10 children — aged between eight and 21 — in a two-room government rental apartment measuring 410 square feet. The 45-year-old is full-time caregiver to her husband, who is medically unfit to work, so their only income is government assistance of S$1,900 per month. That barely covers their basic needs, she said.

“My husband and I eat once a day so our kids can have more,” she said. She wishes the government would place larger families in bigger rental units.

“I stressed to my children that education is very important, that they need to study hard so that they can have good jobs and support the family,” she added. “I can just hope for the best.”

Climbing the Ladder

Since independence in 1965, Singapore’s mantra has been: Work hard and you’ll rise up the ladder. Education and home ownership are seen as the key enablers of class mobility. While the country’s social compact is anchored to individual and family responsibility — a reflection of Confucian values among a population that is mostly ethnically Chinese — the government will assist those struggling.

Rags-to-riches stories are abundant, historically speaking. Billionaire Goh Cheng Liang, who is 94 years old and one of Singapore’s richest people, started out selling fishing nets and low-quality paint. Education Minister Chan Chung Sing, one of the frontrunners to succeed the prime minister, was raised by a single mother who worked two jobs. 

For many, the climb seems slower now. 

Meritocracy “did work when Singapore was still a developing nation,” said Nydia Ngiow, Singapore-based managing director at strategic policy advisory firm Bower Group Asia. “But successes are now few and far between, and the field has become more uneven.”

Education has become more widely accessible over time, but also more stratified. Elite schools are located in expensive neighborhoods, and children who live nearby or whose parents are alumni get preferential access. The state’s top scholarships, which lead to guaranteed jobs on graduation, still often go to students from the best schools, although government efforts have helped to diversify the pipeline in recent years. 

Housing is even more central to financial security. Close to 80% of the population live in government-built flats, which in general are well-maintained, and buying a state-subsidized apartment is a common way into the property market. After a few years, owners can sell at a profit and move into a more valuable home. A government flat “is not just a shelter but also a key investment asset,” as Prime Minister Lee put it in 2010.  

But skyrocketing prices mean the average private property now costs about 15 times median household earnings, according to DBS Group Research published in October. Middle-class buyers are getting squeezed out, and prices are expected to keep rising.

“Rising prices have pushed some potential, cash-poor buyers into the rental market,” said Jennifer Chia, a partner at TSMP Law Corp. who heads the firm’s corporate real estate, banking and finance practices. Soaring inflation also makes it difficult for would-be homeowners to save, she added. 

Divisive Faultline

Inequality was a hot-button issue even before the pandemic. 

study published in 2017 by the Institute of Policy Studies, a local think-tank, suggested that Singapore’s sharpest social divisions were defined by class rather than race or religion. The following year, research commissioned by OnePeople.sg — the national body promoting harmony — also identified class as the nation’s most divisive faultline. 

Once the pandemic erupted in 2020, the impact on livelihoods was clear. Median household income among applicants seeking financial assistance from local charity Beyond Social Services plunged 69% between April and September 2020, from S$1,600 a month to S$500. 

Singapore is not without protections for poorer residents. The government spends more than 30% of the annual state budget on affordable education, healthcare and housing. Efforts to make the best schools more accessible include upping the number of places for children with no ties to the schools and abolishing grouping students based on grades. Meanwhile households in one- or two-room government units receive more state assistance than those in larger apartments. 

But Singapore has several weaknesses that make tackling inequality particularly difficult, said Ng Kok Hoe, a senior research fellow at the Lee Kuan Yew School of Public Policy. 

Public financial assistance, for example, has stringent eligibility criteria and is not enough to meet most people’s basic needs, Ng said. 

“Support tends to be ungenerous and strictly targeted. In other words: too little, too late,” he added. He sees “considerable room” to increase taxation at the top end.

Hard to Track

Establishment figures have called for more action. 

“Those who are more affluent should pay their fair share of taxes,” Finance Minister Lawrence Wong said in October, adding that the government was studying wealth-tax options. Central bank chief Ravi Menon has suggested the country shift away from taxing income and towards taxing wealth, highlighting property and inheritance as potential avenues. 

Even among the city’s wealthiest residents, there are some who are in favor.   

“Wealth taxes globally are very necessary, because it’s not income but wealth inequality which is the most glaring divide between the super rich and the rest of the world,” said tycoon Ho, whose Banyan Tree Holdings Ltd. runs luxury hotels and resorts in 28 countries. 

“The problem is that our economic policy is based partly on attracting the super-wealthy,” he added. “The challenge is how to extract more from them without scaring them away.”

Prime Minister Lee has also pointed out that wealth is harder to track than income. 

“It’s amorphous, you can squeeze it here and it pops up in different forms elsewhere,” he said at the Bloomberg New Economy Forum in November. 

“We need to find a system of taxation which is progressive and which people will accept as fair,” Lee said. “Fair means everybody needs to pay some. But if you’re able to pay more, well, you should bear a larger burden.”

The government hasn’t endorsed measures like a minimum wage, which is supported by the main opposition Workers’ Party. Instead, it favors what it calls a “progressive wage model,” which targets sectors like the cleaning industry and allows workers to earn higher salaries as they upgrade skills.

How to Tax Wealth

Opinions differ on how Singapore might tax wealth. 

Ideas floated in recent months include duties on inheritance or a luxury home tax similar to the one proposed in the U.K. Jamus Lim, a Workers’ Party member who is also an economist at the Essec Business School near Paris, has proposed a tax of 0.5% on net wealth in excess of $10 million, rising to 2% for wealth above $1 billion. 

Wealth taxes tend not to contribute significantly to state coffers, though. Switzerland’s version only generates about 3.5% of government revenue — the highest proportion among countries in the Organization for Economic Co-operation and Development. 

A similar tax rate in Singapore would generate about S$2.7 billion in government revenue — roughly one-seventh of the corporate income tax receipts expected in fiscal year 2021, said Christopher Gee, senior research fellow at the Institute of Policy Studies where he leads the governance and economy department.

Nonetheless, a similar tax in Singapore could still fund spending in key areas such as climate change mitigation or supporting an ageing populace, Gee said. 

It would also signal a willingness to narrow the wealth gap, said Donald Low, a former senior civil servant in Singapore who is now a professor at the Institute of Public Policy of the Hong Kong University of Science and Technology.

“Raising revenue is not the main objective of having wealth taxes — at least not in Singapore’s case,” he said. “Rather, it is to signal a commitment to social equity.” 

Even with higher taxes, Singapore has a lot to offer wealthy people, especially from other parts of Asia. Political turmoil and harsh Covid restrictions are drastically reducing the appeal of Hong Kong, Singapore’s key regional rival for talent and capital. Meanwhile China’s “common prosperity” drive is making wealthy businesspeople uneasy. 

“Introducing low and simple wealth taxes will hardly dent Singapore’s value proposition to the global elite,” Low said. “On the contrary, not doing so is to leave money on the table. We’re giving too much away to attract rich people to Singapore.”