SINGAPORE: The Budget for 2015 has been characterized as a Robin Hood Budget because it increased taxes on the highest 5 per cent of income-earners.
Private Banks generally sub-divides rich individuals into three categories: the High Net Worth Individuals (HNWI) are those with US$1 million (S$1.4 million) in liquid assets; the Very High Net Worth Individuals (VHNWI) with US$5 million; and the Ultra High Net Worth Individuals (UHNWI) with US$30 million.
Under these classifications, a salary of $160,000, where income tax upward adjustments start, does not even come close.
As for the top income bracket of $320,000, some of these individuals, if canny investors, may attain the status of HNWI, or even VHNWI. But they are extremely unlikely to be the truly rich – the UHNWI with US$30 million of liquid assets or more.
A report on March 5 forecast that this class of the super rich is set to grow by 1,700 in Singapore by 2024, the highest in 108 cities.
Singapore already has the third largest number of UHNWI in the world, behind Tokyo and London, with 3,575 persons.
The report also predicts that we will have 1,177 persons with net worth of US$100 million or more, and 36 billionaires, by 2024. Already, for a small city, we already have an impressive 24 billionaires, the ninth highest in the world.
The thing about the truly rich is that, by and large, they will not be affected by the increase in income taxes for one simple reason – the wealthy do not make their money from earned income, but through investments.
One can make money from investments through capital gains or dividends, both of which are not taxed. Singapore does not tax capital gains. It has a tax regime where income is taxed once at the source. Since the corporations already pay corporate tax, the dividends given out are not taxed.
This means that wealthy individuals – the truly wealthy rather than the high-income earners – pay very little tax on the money they make every year.
So even though the Budget has made a step in the right direction in increasing taxes on high-income earners, many of these individuals paying higher income taxes are not the truly wealthy.
Controversial as it may seem, people on $160,000 a year incomes may be in the top 5 per cent of income earners, but I suspect that they will not even come close to being in the top quarter in terms of wealth.
Although income inequality is high in Singapore, wealth inequality is higher. Credit Suisse’s private bank for example estimates that Singapore’s wealthiest 1 per cent hold a quarter of the country’s private household wealth.
