In today’s
world, borderlines of nations have become increasingly undefined 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 erosion, and even
widening income gap. This essay would pertain specifically to the problem of
widening income gap, with particular focus on Singapore’s society and its
current tax policy.
The rise of
globalisation has accelerated the formation of Multinational Companies (MNCs),
which are companies with a worldwide approach to markets and productions (Globalisation, 2013). MNCs often adopt the
policy of production outsourcing, which indirectly leads to income inequality
between the skilled workers and the unskilled (or less-skilled) workers. Both
were hired in large numbers as a result of the policy, however the former is
more valued and favoured, receiving a 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 the 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 from the University of Birmingham have
shown that income disparity has a correlation with health and social problems,
where greater inequality leads to greater status anxiety as “it places people
in a hierarchy that increases status competition and causes stress, which leads
to poor health and other negative outcomes” (Rowlingson, 2011). 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 public
awareness on this issue in order to prevent these problems from arising.
Singapore, as a fairly
developed country, has also been affected by the waves of globalisation. Looking
at the Gini Coefficient, a calculated figure ranging from 0 to 1 determining
the extent of income gap within a country, Singapore has a high ratio 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 has been
implementing various policies to ease the problem of widening income gap, such
as the progressive tax policy. Under this policy, 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 assist them in meeting 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 workforce and at the
same time retain its own talents. 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 (IRAS: Income tax
rates, 2013). The problem with this policy is that it ultimately
benefits the people at 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 United States and Canada’s earned income tax credit (EITC), a
refundable tax credit for low- and medium-income individuals and couples (Earned income tax credit, 2013), to further
balance the income gap.
Besides, faced
with the grim reality of globalisation, the policy to exclude taxes on capital
gains in Singapore has 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 are categorised under the capital
income, which is separated from the taxable revenue 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 remain 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 to avoid tax, 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 broadening gaps. By considering
reinstatement of tax policies with 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.
References:
Earned income tax
credit. (2013). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Earned_income_tax_credit
Globalisation. (2013). Retrieved
from Wikipedia: http://en.wikipedia.org/wiki/Globalization
Income Tax in
Singpore. (2013). Retrieved from Wikipedia:
http://en.wikipedia.org/wiki/Income_tax_in_Singapore
IRAS: Income tax
rates. (2013). Retrieved from Inland Revenue Authority of Singapore :
https://www.iras.gov.sg/irashome/page04.aspx?id=1190
Rowlingson, K.
(2011). Does Income Inequality Cause Health and Social Problems? Joseph
Rowntree Foundation.
