Touted as the second freest economy in the world behind Hong Kong in 2014, Singapore enjoys an exceptionally high standard of living with one of the world’s strongest economies. A GDP (PPP) per capita of $95,000 in 2017 – over twice that of the UK, GDP growth has averaged 7% since 1970 – far exceeding that of the UK which saw an average of 3% during the same period. The latter may be an unfair comparison, given that Britain was more developed by the 1970s, however, Singapore’s much greater GDP per capita cannot be understated. Such growth in prosperity can be attributed to the growth-inducing, successful fiscal policies implemented by the PAP, the party that has governed Singapore since the late 1950s. Low job-killing taxes, the elimination of bureaucratic regulations, a focus on crime deterrence and high educational standards; these factors have spurred the unrivalled prosperity and success of the Singaporean economy that has catapulted living standards to remarkable levels.
Singapore’s remarkable economic growth and prosperity
A low crime environment is essential for business confidence and investment. If a firm believes its store will be looted by thugs and worthless animals, investment is highly unlikely. Firms will opt to not set up shop in the first place. Singapore resorted to tough measures to ensure that the nation isn’t a haven for criminals and agitators, instituting the death penalty and severe punishment for ‘minor’ crimes. In 2018, a total of 13 people were executed for murder and drug-related crimes. The death penalty, coupled with a tough on crime agenda has worked effectively, ensuring that businesses and companies have the confidence that their stores will be safe from looters and other undesirable animals. By executing those who consume / traffic drugs, lawlessness is heavily discouraged and eliminated throughout society.
Unsurprisingly, Singapore ranks as one of the safest countries in the world, ranked in 2016 only second to South Korea. Meanwhile, the UK lagged pathetically in 56th place, falling behind Latvia and Belarus. Weak on crime policies, If the Conservative government want to promote a favourable business environment with reduced crime and lawlessness, following Singapore’s example with tough crime measures for criminals would be a step in the right direction.
The governing PAP has focused on improving educational standards for decades. Long term efficiencies within the education sector have been crucial for the current success of the Singaporean economy. Between 1980 and 1999, spending on education as a percentage of GDP increased in Singapore, whereas this fell in most Western nations – including the UK and US. In 2017, the average spending per child on education from primary school to undergraduate level reached $71,000 in Singapore. The sum in the UK pales in comparison at a measly $25,000. As a result, growth in productivity in Singapore has outpaced that of the UK for decades. These productivity increases, thanks to the focus on high educational standards, have been a driving factor for the growth in prosperity experienced in Singapore.
Singapore’s business-friendly environment has largely to do with its pro-growth tax policies, eliminating useless taxes that stifle business growth and investment. Just 15% of government tax revenue comes from income tax in Singapore, compared to 25% in the UK. A resident earning the equivalent of £150,000 in Singapore takes home £130,000; by comparison, a citizen earning the same amount in the UK keeps only £90,000. This system places little burden on the individual, incentivising them to innovate and engage in economic activity, reducing the burden on productive behaviour. Self-reliance is also created through low-income taxes whilst giving citizens the economic freedom to choose how to spend their money.
Singapore partly makes up for the loss in income tax revenue through property taxes. Marginal tax brackets apply to properties depending on their value. Property owners have to pay these taxes on an annual basis. Whereas the UK has seen house-price inflation since 2010, Singapore has had house prices largely under control. This can be attributed to the property taxes, disincentivizing individuals from purchasing multiple homes due to the high tax levies that apply to each.
Corporate tax in Singapore is also remarkably low, encouraging businesses to establish their services in the country. Taxes are levied on profits instead of revenue at a headline rate of 17%, with many exemptions in place. Neither dividends nor capital gains are taxed, increasing the retained profit of businesses, allowing them to invest more in the economy. Such a favourable business environment hasn’t impacted tax revenues, with corporate tax revenue as a percentage of total tax revenue increasing in the years following the corporate tax cut in 2007. In the year aforementioned, this figure was at 19%, however, it had increased to 21% by 2017. This is because businesses were able to keep more of their money following these tax reductions spurring a tide of investment and economic prosperity.
Establishing a welfare state that supports the population whilst encouraging self-reliance is crucial for a prosperous nation. Ensuring that individuals are given a hand-up as a posed to a handout incentivises work. Employees are forced to save a certain percentage of their income (5-20%) with employers contributing an additional 6-16% to what is known as the ‘Central Provident Fund.’ This comprises of 3 accounts: Ordinary, Special and Medisave. The first is for education and housing purposes, second for retirement and third for healthcare. In this way, Singaporeans have no dedicated social security account for old age with this being the responsibility of the individual. Such a system ensures that people are financially adept and aware whilst allowing individuals to choose how much to set aside for retirement. Due to this comprehensive savings system, Singapore has one of the highest savings rates in the world, averaging 51% of income in the past decade. By comparison, the UK savings rate has averaged 7% in the same period. This system in Singapore ensures that all civilians are well prepared for any sudden financial difficulties that arise.
Unlike in most Western nations today, welfare entitlements in Singapore are reserved for the truly poor and needy. Rather than handing out benefits to everyone, Singapore aids those who deserve it and not those who can progress without government help. In 2015, only 3,000 families qualified for Government aid. All other unemployed workers were integrated into ‘workfares’ or training schemes – both of which prepare them for future jobs.
“The first [priority] is to keep government subsidies targeted at those who most need them, rather than commit to benefits for all. Universal benefits are ‘wasteful and inequitable,’ and hard to take away once given.”Singaporean Finance minister – Tharman Shanmugaratnam
Singapore’s remarkable economic growth has been unparalleled. Living costs under control, entitlements that help those truly in need – these are just some of the successes that can be witnessed in Singapore. A low crime environment, high education standards, low taxes and a comprehensive welfare system have all facilitated this, setting a good example for its Asian neighbours.