KEEPING THE TAX BURDEN ON SINGAPOREANS LOW WHILE MITIGATING INCOME INEQUALITY

There are some countries that, in fact, achieve a very large reduction in their Gini coefficients, through taxes and transfers. 

The classic cases are the Scandinavian economies, and to some extent several other European economies. 

But we must recognise that the reduction in their Gini coefficients goes hand in hand with a very heavy burden of taxation on their populations. 

Denmark collects about 49% of GDP in taxes, Finland about 44%. In our case it’s about 16%. We get some investment income from our reserves, but our tax revenues total just about 16% of GDP.

It's not just about taxing the rich, it's the broad middle class in these societies that pay very high consumption and income taxes, to generate the tax revenues which the state uses for redistribution.

The average worker in Denmark pays an income tax of about 36%, consumption taxes about 25%. 

In Finland somewhat similar consumption tax, about 24%. Even if we look at their discounted VAT tiers – for instance in Finland it’s about 14% for food – the average worker pays a lot of taxes.

So that’s the basic trade-off. 

Our approach in Singapore is to keep the overall tax burden low, certainly low by international standards, but within the tax revenues that we have, we ensure that we use it in a fair and progressive way by targeting support for the low and middle-income group where it helps them most.

Excerpt:
The Economic Society of Singapore SG50 Distinguished Lecture by Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam
14 August 2015