March 18, 2021

In a commentary in The Business Times responding to increased petrol duty rates and the Goods and Services Tax (GST) on online-bought small-ticket items mentioned in the Singapore Budget 2021 (“Is it time to raise taxes on the rich?”), Professor Sumit Agarwal (NUS Economics; NUS Business School, Department of Economics, Finance and Real Estate) proposes that government tax revenue could instead be increased via higher taxes on the rich, specifically those in the top 20% of the income bracket in Singapore.

Prof Agarwal begins his argument by depicting the traditional counterpoint; many argue that increasing taxes on the rich would decrease their spending, thus decreasing overall Gross Domestic Product (GDP) for the country. However, this perspective is untenable as Prof Agarwal explains that his research has shown that the income tax sensitivity of the rich was found to be close to zero. The rich, he added, did not incur debt to sustain their high-spending practices, but instead dipped into their savings.

Another argument against raising taxes for the rich is the downward pressure on innovation and entrepreneurship, which is what traditionally turns leaders away from such a fiscal policy. Prof Agarwal cites his research that indicates that the supposed effect on innovation and entrepreneurship is minimal. By increasing taxes on the rich by a simple two percentage points, the government could net an additional $1 billion of income tax revenue which could contribute greatly to national reserves or redistributive policies.

Prof Agarwal concludes by acknowledging that the government would likely have considered all options for balancing the increase in revenue and social welfare, but remains staunch on his opinion that increasing taxes on the rich should be given more consideration as an alternative form of fiscal policy.

Read the article here.