Redistributing wealth a better way

Mr Edmund Khoo Kim Hock believes that redistributive taxation will weaken business initiative and make workers lazy (Taxing the rich more is not the solution to income divide; Forum Online, Jan 5).

He implies that lower taxes will cause firms' profits to "trickle down" through investment, raising the living standards of low-income individuals.

"Trickle-down economics" does not work. Places where such policies have been implemented (for example, the United States, Chile and Hong Kong) have seen massive social inequality, poor infrastructure and public services, and economic stagnation.

In fact, according to economists, the US economy performs better and more equitably under more redistributive Democrat administrations than under the laissez-faire Republicans.

It is true that excessive taxes are bad for business. Yet, nobody is suggesting that Singapore impose draconian tax rates.

Singapore already has one of the lowest tax regimes in the world, with a top rate of around 20 per cent.

A small to medium increase in redistributive taxes will not make Singapore less economically competitive.

As long as we maintain our tax rate below that of our competitors, non-economic factors such as good education and political stability will keep investors in Singapore.

Weaker consumption among the rich is also unlikely to damage Singapore's economy.

Singapore's population is small, meaning that domestic consumption is not a strong driver of its economic growth. A reduction in spending from such a small section of its population is unlikely to affect economic performance significantly.

Moreover, lower-income consumers have a higher marginal propensity to spend than high-income consumers, rendering them a more significant engine of consumption-led growth. Redistribution would thus strengthen rather than weaken consumption-led growth.

It is also untrue that redistributing wealth will result in lazy workers who are unwilling to retrain.

Many of the most productive workforces in the world, such as Switzerland, Germany and the Nordic states, levy much higher taxes than Singapore, which has faced challenges in raising productivity.

Redistribution schemes such as universal basic income can actually encourage workers to retrain, as they enable workers to support themselves during the retraining process.

Income inequality undermines meritocracy and social cohesion. The failure of political leaders to remedy this situation explains the election of populist politicians by resentful low-income voters worldwide. Singapore must arrest this situation rapidly via redistribution to prevent a descent into populism.

Ng Qi Siang

A version of this article appeared in the print edition of The Straits Times on January 09, 2018, with the headline 'Redistributing wealth a better way'. Print Edition | Subscribe