Singapore Budget is 'Robin Hood Tax': PwC

Is taxing the rich a smart move?

Lennon Lee, a partner at PwC Services said the Singapore Budget 2013 is a "'Robin Hood' like budget - taxing the rich through increased property tax and ARF, and redistributing to the poor, disabled and needy."

According to PwC's Budget Commentary Singapore titled "Striking the Balance," this year’s Budget was labelled a Budget for “quality growth” by Deputy Prime Minister and Minister for Finance, Mr Tharman Shanmugaratnam, but in a brave step, it also recognised that quality growth may come at the expense of some parts of the economy.

Here's more from PwC:

Whilst many may have expected the foreign workforce to be impacted again this year as Singapore seeks to reduce its reliance on them, few may have predicted the Minister would also have a tough message for some Singaporeans.

When outlining his measures to press on with the continued drive for productivity and innovation, the Minister stated the government does so in full knowledge of the difficulties this will cause for some companies and industries.

By increasing levies on foreign workers, particularly on those less skilled, and also by reducing dependency ratio ceilings, the Minister hopes to slow the growth of the foreign workforce and compel companies and industries to innovate.

To support this, his speech highlighted that Singapore’s overall productivity is only 70% of that of global productivity leaders like the USA and Japan, and that this must change with increased global competition in a number of sectors.

He claimed this evolution may ultimately force some companies to downsize, change industries, or even move abroad but this, he said, is how productivity and profitability improves.

There was particular recognition of the impact this would have on small and medium Singapore enterprises, with the Minister saying he wanted a dynamic and revitalised small and medium sized enterprise (SME) scene. The message was clear; shape up or ship out, Singapore does not need inefficient business.

The message was also clear that the government does not simply wish to replace foreign workers with local ones in its drive to move Singapore’s economy forward.

However, some commentators were left questioning how all this reduction in workforce growth reconciles with the recent Population White Paper, and the 6.9 million people projected by 2030 to achieve Singapore’s economic growth targets.

There were noticeably few mentions of the Paper and how the government intends to balance the social impact of its contents with its economic goals. Perhaps this was a wise move given the public attention the Paper has received.

Some may argue that quality growth may also come at the expense of the wealthy, as a result of measures aimed at taxing high-end residential properties and expensive cars.

Property tax rates for high-end residential properties are now set to increase where their annual value exceeds $30,000. As a result, high-end property such as a landed property in the central area with an annual value of $150,000 or more will see an increase in property tax of at least $9,000 per year.

Additional registration fees (ARFs) for cars will be tiered so that luxury cars with an open market value of $74,000 will see a 42% increase in the ARFs.

To call these “Robin Hood” measures may be overstating their effect, but compared to the alternative of increasing mainstream personal income tax rates, these may indeed prove to be more popular with some sectors of Singapore.

Other sectors however, may simply view this as taxation by stealth, or even the start of a trend towards a higher personal income tax burden. For now, the Minister’s description of “progressive” measures may appear adequate.

Of course there were still some winners in this Budget. The Minister’s commendable focus on the elderly, ill and low income groups is targeted at ensuring those worst positioned to take advantage of “quality growth”, will not be left behind.

Measures designed to reinforce social safety nets included a review of healthcare financing and improvements to social service delivery. There were also direct measures to assist with the increasing cost of living such as a personal income tax rebate for all (increased for those aged 60 and above) and a one-off Goods and Services Tax (GST) voucher special payment to add to last year’s permanent GST voucher scheme for lower and middle-income households.

Whilst perhaps short on headline grabbing announcements, few would argue that this Budget did not contain brave and honest recognition of at least some of the challenges Singapore faces if it is to meet the social demands of the population and its economic growth targets. In particular, the tough message for SMEs may prove difficult for some businesses to swallow.

As such, many may be watching cautiously to see whether or not this actually proves to be a brave step in the right direction. 

Click here to read PwC's Striking the Balance: Budget Commentary Singapore.