SINGAPORE: Tax policies can be designed to help countries drive innovation and at the same time promote inclusive growth, said Deputy Prime Minister Tharman Shanmugaratnam at a conference held on Saturday (Jul 23) on the sidelines of a G20 meeting in Chengdu, China.
Mr Tharman, who is also Coordinating Minister for Economic and Social Policies, said growing the incomes of low-wage workers should be a key priority when countries come up with tax and fiscal policies to promote inclusive economic growth.
"It's not just an economic priority, but a broader, strategic priority: including everyone in the formal labour market and giving them a real chance to improve their skills and incomes, (as well as) to feel they can earn their own success."
To achieve this, Mr Tharman noted that some countries have put in place policies such as negative income taxes for low-wage workers. He added that this not only promotes equity, but does so in a growth-friendly way.
Mr Tharman also said countries can tap on property taxes, which is the least damaging to income growth. This is an approach that Singapore has adopted; for instance, by putting in place taxes on property transactions, such as stamp duties.
This is to distinguish properties purchased for people to own and live in from those that are bought for investment.
Mr Tharman stressed that property taxes are a better way to collect tax than income taxes.
"(There is) less harm to growth and (property taxes) are more likely to promote an economic culture conducive to innovation and entrepreneurship," he said.
Mr Tharman said that part of a country's fiscal policies should include giving fair subsidies for public service and this should be targeted at those who need it the most. He pointed out that in many countries, most of the subsidies do not go to the poor.
This happens when governments subsidise healthcare for everyone, rather than based on needs. As such, taxes will rise to support spending.
Mr Tharman said such an approach is not sustainable. He emphasised that giving fair and targeted subsidies would not just ensure social equity, but also help countries to have sustainable fiscal budgets.