Strike social balance by taxing the billionaires

Recent comments by the Prime Minister reignited a debate of some of the most divisive issues facing Singapore today - its growth strategy, openness towards foreigners, and the yawning income gap.

If he could persuade another 10 billionaires to move here, Prime Minister Lee Hsien Loong told his well-heeled audience at a bank forum last week, he would, even if that led to higher income inequality.

His reasons: these billionaires would bring business and opportunities, open new doors and create new jobs. He also made the point that prosperity and economic gains, when broadly shared, can do much good for society.

In that vein, he pledged that the less successful will remain on the Government's radar and it will continue to give them a leg up through subsidies and other ways.

Singapore's openness towards foreigners has not wavered for decades, and PM Lee's comments are not a departure from the rational and pragmatic approach that has guided political leaders over the years.

But the strong reaction they have generated, both online and offline, show that with Singapore having reached a certain level of economic prosperity, there are sections of society who are increasingly uncomfortable with the welcome mat being laid out for rich foreigners.

Their ostentatious lifestyles - luxury cars, Dom Perignon champagne and the other trappings of high society - make the divide even harder to stomach.

Even Foreign Minister K. Shanmugam, while driving in the evening recently, found himself cut off first by the driver of a Ferrari, and then a Porsche.

Singapore's income gap has become "extremely obvious", said Mr Shanmugam, who is also Law Minister, in a Financial Times article on Sunday.

The excesses of the rich need to be regulated in some way, argued Lee Kuan Yew School of Public Policy senior fellow Donald Low in a Facebook post in response to PM Lee's comments.

The moral hazard of the rich imposes far greater costs on society than the "supposed fecklessness of the poor", Mr Low added.

A moral hazard is where one party has no incentive to behave in a socially responsible way, since the consequences of his actions are borne by others rather than just himself.

This was a central reason for the cause of the 2008 financial crisis, Nottingham University Business School professor Kevin Dowd argued in a paper in the Cato Journal.

Banks and the wealthy, through complex financial instruments such as credit default swaps, became more willing to take risks as others were bearing the consequences.

In his Facebook post, Mr Low added that society cannot be presumed to benefit from the presence of rich individuals, for it depends on factors like how their income was obtained and whether they are properly regulated.

His point - that the Government has to regulate against the excesses of wealth by maximising the benefits and mitigating the downside - is hard to implement in practice.

Perhaps the best example of the Government's struggle to strike a balance between tapping the economic gains and tempering the social ills are the casinos in Singapore.

On the one hand, the two integrated resorts create thousands of jobs, generate millions in revenue and related tourism spin-offs, and have put Singapore on the world map.

But they are also a social ill, in the sense that gambling addiction can hurt families and individuals.

To curb this, entry levies have been imposed on Singaporeans since the casinos opened a few years ago and recently, the Government imposed limits on how many times the financially vulnerable can visit them.

When it comes to attracting rich foreigners, can a similar balance between rationality and social justice be struck? Higher taxes on the super-rich, which countries grappling with income inequality such as the United States are also exploring, is one option.

Last year, a United Nations report went so far as to suggest a tax on billionaires to help raise money for development projects in poor countries.

Placing a 1 per cent levy on individual wealth holdings of at least US$1 billion (S$1.3 billion) could raise as much as US$50 billion, according to its World Economic and Social Survey.

After paying the tax, the average billionaire would own US$3.7 billion, the report calculated.

"If that billionaire spent $1,000 per day, it would take him or her over 10,000 years to spend all his or her wealth. Would this hurt them?" the report said.

Could something similar be tried in Singapore? In recent months, PM Lee has regularly touched on how the better-off should give back to society, and do more to help the less well-off.

A specific and pragmatic way would be to mandate that rich foreigners beyond a certain net worth place a minimum sum annually into a fund.

This money would then be disbursed to, say, the bottom 10 per cent of society through specific vouchers so that the money is spent on items like household essentials or education for the children of these families.

The fund, administered by the Government, can be used to supplement the state's current handouts and health-care and education subsidies to lower-income families and help curb income inequality.

And if the donors are willing to be identified, along with how much they have given, it could go some way to placating Singaporeans uneasy with the rich flaunting their wealth while the lower rungs struggle to get by.

Some might criticise this suggestion as xenophobic. But it would not be so, if viewed through the lens of the state maintaining its open-door policy to high net-worth foreigners, yet ensuring that they do some social good.

Would this also lead to Singapore being less attractive as a destination? Possibly. But when foreigners consider the country's rule of law, overall tax rates, security, education and transport links relative to other First World countries, Singapore will likely still remain high in the league of top destinations.

The way this economy is structured means it has to remain open to global talent as they are one of the reasons for Singapore's dynamic transformation over the decades. But it is time these high net-worth individuals contribute back to society in a targeted and visible manner.

limze@sph.com.sg

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