In
today’s world, borderlines of nations have become much less easier to define
due to the characteristics of globalisation. It has largely impacted the way of
international interactions, and the mobility of globalisation has created
various problems, including environmental destruction, media and cultural
influences, and even widening income gap. This essay would pertain specifically
to the problem of widening income gap, with particular focus on the Singapore
society and its current tax policy that relates to the problem.
The rise of
globalisation has accelerated the formation of Multinational Companies (MNCs),
which are companies with a worldwide approach to markets and productions[1]. MNCs
often adopt the policy of production outsourcing, which basically means to purchase
goods or services from an outside vendor rather than producing in-house[2]. This
in turn leads to income inequality between the skilled workers and the unskilled
(or less-skilled) workers – both were hired in large numbers indeed as a result
of the policy, however the former is more valued and favoured, receiving much higher
salary as compared to the latter. Therefore it becomes a problem, which is
particularly common in the developed countries, as the gap between the skilled
and unskilled workforce is even greater than developing countries. On the
surface, it seems that income inequality is not a serious problem as it only
shows the difference between the higher and lower end income within a country,
indeed a certain extent of inequality actually encourages investment and
maintains the country’s economic competitiveness. However, studies have shown
that income disparity has a correlation with health and social problems, where
greater inequality leads to “higher levels of psychosocial stress and status
anxiety which can lead to depression, chemical dependency, less community life,
parenting problems and stress-related diseases[3]”.
There is also a potential risk of increasing crime rates and decomposition of social
cohesion due to psychological anxiety. Therefore it is important to raise
awareness of this issue in order to prevent these problems from arising.
Singapore,
as a fairly developed country, is one of the nations that have been affected by
the waves of globalisation. It has a high Gini Coefficient of 0.437, which is
not very far away from the world’s highest value of 0.7. Thus the Singapore
government places much attention on this issue, and have been implementing
various policies to alleviate the problem. The most known policy would be the progressive
tax policy, where tax rates are determined based on different amounts of income
earned by each individual. Households
whose income is below a certain amount are allowed to be exempted from paying
taxes, and simultaneously receive government subsidies to help them meet financial
demands. This policy is effective in equalising the income gap by placing a
greater responsibility on the high earners, thus lessening the wealth disparity
after the reduction of tax payments. However in recent years, personal income
tax rates were readjusted in an attempt to attract foreign professional
workforces and at the same time retaining its own talents in Singapore. Marginal
tax rates were modified, ranging from the lowest end of 2% to the highest end
of 20% in 2012, as compared to the range of 4% to 22% in 2005[4]. The
problem with this policy is that it ultimately benefits the people on the
higher end much more than the lower end, which leads to an even greater income
gap. To improve the situation, the government can re-establish the tax rates on
the higher income categories, which proved to be more effective in the previous
years by comparing the Gini Coefficient. They can also refer to the U.S and
Canada’s earned income tax credit (EITC), a refundable tax credit for low- and
medium-income individuals and couples[5], to
further balance the income gap. Although the feasibility of these policies is still
unknown without experimentation, the notion is that Singapore could pick up some
ideas from foreign countries’ policies such as the U.S, which handled the
inequality issue slightly better than Singapore.
Besides,
the policy of not posing any taxes on capital gains has indirectly exacerbated
the wealth disparity as well. Capital gain is the income generated from selling
assets, including buildings, equipment and shares of a corporation. These incomes
were categorised under the capital income, which is separated from the taxable
revenue income and considered as non-taxable income. However those who possess
these capital assets are usually affluent or high-net-worth individuals, by
selling capital assets they gained even greater wealth. Without taxing the
capital gain, the high earners are getting richer, while the low and middle
earners remains relatively the same. As
such, the government should revise their policy and impose a taxation model
similar to the progressive tax system on capital gain. Although this might lead
to attempts in tax avoidance, after all it is still a way to garner budgets in
assisting the poor and balancing the unequal wealth distribution.
In
conclusion, globalisation has worsened the problem of income inequality which
can lead to severe social and economic consequences. However in Singapore, the existing
policies are insufficient in countering the ever-accelerating gaps. By
considering reinstatement of tax policies in the aim of shifting the financial
burden from the less affluent to the more capable high-net-worth individuals,
the situation can be largely improved, creating a more stable and prosperous
society.
[1] Wikipedia (2013). “Globalisation.” Retrieved 10th
October 2013.
[2] Kenneth Boyd (2013). “To Outsource or Not to Outsource: a Cost
Accounting Decision”. Retrieved 10th October 2013. http://www.dummies.com/how-to/content/to-outsource-or-not-to-outsource-a-cost-accounting.html
[3] Wikipedia (2013). “Economic Inequality.” Retrieved 16th October
2013.
[4] Inland Revenue Authority of Singapore (3rd June 2013). “IRAS:
Income tax rates.” Retrieved 16th October 2013.
[5] Wikipedia (2013). “Earned income tax credit.” Retrieved 16th
October 2013.
