Opinion | Why Hong Kong and Singapore should tax wealth more
- Neither needs the money; both need to address rising inequality
Hong Kong and Singapore were very much part of the international consensus in the late 1990s and early 2000s that viewed lower taxes on capital as necessary for attracting wealthy individuals and investments. In both places, capital was (and still is) taxed very lightly. The estate duty was abolished in Hong Kong in 2006; Singapore followed suit in 2008. Capital gains, interest and dividend income are exempt from taxation in both jurisdictions. Only property and rental income are taxed.
Since the global financial crisis, there have been growing calls in the developed world for higher taxes on wealth to mitigate rising inequality and shore up tax bases. But Hong Kong and Singapore are in the fortuitous position of not requiring additional sources of revenue (at least not in the short term). Nonetheless, it is worth asking whether both places should consider having low and simple taxes on capital on the grounds of social equity.
The impetus for this comes partly from the seminal work of the French economist, Thomas Piketty. As Piketty explains in Capital in the 21st Century, differences in wealth are a far greater source of inequality than differences in labour income. Wealth, which arises from the ownership of capital, is much more unevenly distributed than labour.
Piketty also observes that except in times of war and depression, the rate of return on capital has averaged nearly 5 per cent. In mature economies, labour incomes are increasing at a much slower rate. Inequality, Piketty posits, rises when the rate of return on capital exceeds the growth rate of the economy.