Singapore raises taxes on rich to fund rising social spending

Singapore on Monday announced income tax rises for the top five percent of the population to fund rising social spending targeted at the poor and elderly in the rapidly ageing city-state.

The marginal personal income tax rate for those earning above Sg$320,000 ($256,000) a year will rise to 22 percent next year from the current 20 percent, Finance Minister Tharman Shanmugaratnam told parliament as he unveiled the 2015 budget.

The increase is expected to raise an additional Sg$400 million to the government's current revenues of Sg$61.35 billion.

"While everyone contributes something for a better Singapore, those who are better off should contribute more," said Tharman.

In 2007 the government introduced a form of negative income tax for low wage earners, and in his speech Monday Tharman announced a new aid package for poor elderly citizens worth Sg$350 million annually.

"It is fair that this enhanced support for those with low incomes should come chiefly from revenues contributed by the high-income group," Tharman said.

"Those with higher incomes have also been seeing stronger growth in incomes than the average Singaporean in recent years," he added.

Political observers said the move aims to address rising discontent among Singaporeans at a widening income gap.

The top ten percent of households had an average monthly income of Sg$31,142 in 2014 compared with Sg$1,775 for the bottom 10 percent, according to government data.

"It is very clear that this is a concrete step by the government to address the issues of income inequality and the wealth gap which have constituted a significant political issue," political analyst Derek da Cunha told AFP.

Eugene Tan, an associate law professor at Singapore Management University, said the tax rise was a "targeted response" to growing calls for increased redistribution of wealth.

Tan said Sg$320,000 "is certainly a high threshold, and this high-income group would have benefited tremendously over the years from Singapore's advanced infrastructure and stable system".

The tax rise follows a Sg$9.0 billion package announced during last year's budget to provide lifelong healthcare subsidies for elderly citizens.

In his speech, Tharman also said policies aimed at reducing reliance on foreign labour had seen the inflow of foreign workers excluding maids drop from 60,000 in 2011 to just over 16,000 in 2014.

The long-ruling People's Action Party has tightened immigration in recent years amid complaints among an increasingly vocal electorate of foreigners competing with them for jobs, housing, schools, medical care and space on public transport.

Tharman said the government forecasts an overall budget deficit of Sg$6.7 billion this fiscal year, or 1.7 percent of gross domestic product.

Total government spending is expected to rise to Sg$68.22 billion in 2015 from Sg57.20 billion last year.

The surge is attributed largely to cash set aside for future investments, including an initial Sg$3.0 billion fund for a new terminal to double the capacity of Changi Airport.