SINGAPORE (Reuters) - Singapore is known as a tropical refuge for the world’s wealthy, endowed with exclusive residential enclaves, a marina for super-yachts, two casinos and an annual Formula One race that brings in the global jet-set.
But as the orderly city-state comes within a whisper of overtaking Switzerland as the world’s largest offshore wealth hub, a growing public backlash is forcing the government to tone down its policies catering to the rich.
The government’s budget on Friday could raise levies on high-end cars and purchases of multiple properties, along with a possible widening of the top income-tax rate, say economists. It would build on measures announced last year that cooled Singapore’s red-hot property market and targeted mostly rich homeowners.
With maximum income tax rates of 20 percent and no capital gains tax, Singapore has long been synonymous with affluence, boasting the world’s highest concentration of millionaires. Daimler’s Mercedes was the top selling car brand last year, followed by BMW, government data shows.
Businesses that service the wealthy say their clients fear the new policies could mark the start of a trend as the long-standing ruling party, under pressure since its worst-ever election showing in 2011, tries to ease the burden in a country where the average monthly wage is $3,705 ($2,315).
“There are a lot of people who don’t know what’s next,” said Juliet Poh, owner of SG Vehicles, which sells car brands Ferrari, Rolls-Royce, Aston Martin and Lamborghini.
Cars in Singapore are already expensive by most global standards owing to the cost of a government 10-year license that must be purchased with each new vehicle.
But in last year’s budget, the government introduced a new tiered tax system targeting luxury cars. The first S$20,000 ($15,900) of a car’s open market value is taxed at 100 percent, the next S$30,000 at 140 percent, and anything above S$50,000 at 180 percent. As a result, sales of luxury cars fell more than 80 percent in the second half of 2013, official data shows.
In measures partly aimed at buyers of multiple homes, the government also tightened property curbs last year, including a rise in stamp duties. Sales of private homes to the wealthiest 15 percent of the population have tumbled in the past few months.
“A lot of people are affected by the property curb. It is like an indirect curb on cars,” said Poh, whose dealership saw car sales drop around 50 percent in 2013.
“A lot of people can’t buy-and-sell properties and do not make money. Thus, they don’t have the cash flow to buy the cars.”
Public anger at the rich-poor divide and new taxes aimed at the ultra rich has been bubbling in fiscally stretched large Western economies since the 2008 global financial crisis. The changes in Singapore illustrate how that is spreading to countries usually seen as low-tax enclaves for the wealthy.
Ten years ago Singapore courted the world’s wealthy, offering permanent residency to people with personal assets of at least S$20 million, as long as they parked a certain amount here. That scheme was scrapped two years ago amid criticism over the number of wealthy immigrants. Switzerland is now seeing a similar debate.
Canada’s government this month ended a program that effectively allowed rich Chinese nationals to buy permanent residency. Critics said it allowed wealthy foreigners to buy their way into the country without long-term benefits.
“All these very established cities for high net worth individuals are feeling the strain,” said Tan Choon Leng, head of the private wealth practice group at legal practice RHTLaw Taylor Wessing LLP in Singapore.
Singapore income inequality, measured by the Gini coefficient, is the biggest after Hong Kong among advanced economies, based on its 2012 reading of 0.478. The level eased in 2013 to 0.463, according to government figures.
The budget is likely to play well with an electorate increasingly hostile towards ostentatious displays of wealth, a mood that was highlighted last month when an expatriate wealth manager fled to Australia following uproar over his complaints on social media about “poor people” riding public transport while his Porsche was in for repairs.
While average wages in Singapore rose last year by 6.5 percent, the wealth of Singapore’s high net worth individuals raced ahead 11.5 percent, the 2013 World Wealth Report by Capgemini and RBC Wealth Management shows.
Wealthy foreign residents include Eduardo Saverin, the co-founder of Facebook, who has called Singapore home since 2009. Brazilian-born Saverin, who renounced his U.S. citizenship in 2011, was ranked 7th on a Singapore’s rich list published by Forbes Magazine with an estimated net worth of $2.65 billion.
Locals who made fortunes in real estate, finance and trading figured prominently but the list also included New Zealand-born investor Richard Chandler with $2.8 billion, ranked 6, and China-born property developer Zhong Sheng Jian with $1.35 billion, ranked 16.
The changes follow pressure on the Prime Minister Lee Hsien Loong to respond to signs of growing disquiet over the vision of the country set forth by the People’s Action Party (PAP), which has ruled for five decades.
Founded by Lee Kuan Yew, father of the current prime minister, the PAP is credited with transforming Singapore from a colonial outpost in the 1960s into a global business centre. Part of that success is built on cheap foreign labor and a consumer class full of wealthy expatriates.
But stung in 2011 by its worst election showing in history, when 40 percent of voters went against the PAP, the government has become more open to seeking input from citizens and factoring their views into policymaking ahead of the next election in 2016.
“I would understand if the wealthy people might be angry, but this is for the future,” Khairul Adzmie, 39, a coffee shop manager, said of the new measures, echoing a comment heard in other areas of the island of 5.3 million people. “With all these taxes, Singapore can build a better future with better financial security.”
($1=1.26 Singapore dollars)
Reporting by Brian Leonal; Writing by Rachel Armstrong; Editing by Jason Szep and Neil Fullick