I followed the Budget debate on a wealth tax with interest.
Workers' Party MP Jamus Lim suggested that the Government impose a wealth tax of 0.5 per cent to 2 per cent on wealthy residents in Singapore.
While wealth tax is a simple and effective solution to increase government revenues, it is associated with many issues.
The Organisation for Economic Cooperation and Development (OECD) issued a report on its study on wealth tax.
There are many technical issues in implementing a wealth tax, as all assets of individuals, including bank savings, bonds, shares, properties, cars and even luxury watches, are included to calculate one's wealth.
Many items, like privately owned companies, used cars and used jewellery, can be hard to value in dollars and cents.
The rich who are resourceful will also find ways to evade the tax. In some countries where art pieces and antiques are exempted from wealth tax (due to the difficulty in valuating them), these items are snapped up by the rich to lower their wealth. Other rich people also form foundations and trusts to avoid the wealth tax.
In addition, the rich may decide to spend their wealth on enjoyment and leisure activities, rather than on investments, when they know the fruits of the investment will be taxed additionally. But it is investments that will create more jobs and better spur the economy.
Many countries have also discovered that the actual additional tax collected under a wealth tax is insufficient to justify the high cost of implementing and collecting it.
According to OECD data, the number of countries that collected wealth tax dropped from 12 in 1996 to just five in 2020. This suggests wealth tax is not as good an idea after all.
Wealth can be taxed in a targeted manner, in the forms of additional property tax, income tax and vehicle tax.
I am glad that Minister for Finance Lawrence Wong decided in this year's Budget not to implement a wealth tax.
While robust debate on ways and means to raise government revenue in Parliament is healthy, members of the public must also do their own research to discern the good from the bad suggestions.
Desmond Wai (Dr)