The Wealth Tax is a Populist Measure

Any tax on a legal person’s assets is known as a wealth tax, a capital tax, or an equity tax.  They include the total value of assets, including cash, bank deposits, real estate, insurance policies and retirement plans, ownership of unincorporated businesses, financial securities, and personal revocable trusts.  They exclude liabilities, including mortgages and loans, making it a net wealth tax.  Wealth taxes are populist measures to address income inequality, but they do not actually address the problem, and create other problems.  What is needed is a more adaptable consumption tax, not a tax on wealth. 

A wealth tax punishes savings, and promotes spending.  This is suitable for an economy that grows based on leveraged spending, in a cycle of boom and bust, but is not meant for a society that values savings.  This also influences the type of investments the wealthy would put their funds in, increasing the risk tolerance since if they do not “use” that wealth, they will lose it to the state.  In Singapore, CPF investments, long-term bonds, and sovereign bonds, even property becomes less attractive.  This would mean a decrease in capital stock, affecting the market negatively over the long term. 

In a Singapore context, our stock market does not have the depth of places such as London and New York, and the secondary market is anaemic.  We cannot afford a wealth tax.  It would lead to capital flight.  Singapore is attractive because of our low tax environment.  A wealth tax diminishes that advantage. 

Another problem with implementing a capital tax is valuation.  Assets are nominally valued.  We do not know the true value of our assets until we put them on the market.  This is especially so for assets held through trusts and companies.  Unlike individuals, natural persons, companies and other entities are distinct legal entities who have the option of diminishing the value of holdings through assumed depreciation, amortisation, and other forms of valuation   In effect, valuations can be manipulated, and a wealth tax would be ineffective anyway.