Comparing NZ and Singapore’s Taxation Regimes

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Saturday, January 31st, 2015
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Having spent a lot of time on work related matters in Singapore and New Zealand, it is fascinating to see how uncompetitive Australia is on the taxation front when compared to its neighbours and how this translates into lack of housing affordability and higher construction costs.

Australia’s current highest marginal tax on income is 47 per cent [1,2]. A great many business people also pay a two per cent Medicare levy and a 1.5 per cent Medicare levy surcharge [2].  New Zealand’s highest marginal tax rate is 33 per cent [3]. Singapore’s highest marginal tax rate is 20 per cent [4]. Hong Kong’s tax rate is likewise very low.

Stamp duty on property purchases in Australia is high depending upon the state or territory. Stamp duty in Singapore is also high while stamp duty in New Zealand is zero [5]

Capital gains tax in Australia is 25 per cent. In New Zealand, unless one is in the business of property development, it is zero [6]. So the combination of entry and exit taxes on non-principal places of domicile property transactions is in real terms about 30 per cent.

Defenders of the high tax system say you need high taxes to provide all of the social welfare infrastructure and state supported benefits. Is this really true, though?

The Singapore government provides a $50,000 deposit to Singaporean citizens who are first home buyers [7]. Plus they support a heavily discounted mortgage loan that tracts at about one per cent so nigh all Singapore citizens are home owners [8]. Note also that Singapore, unlike Australia and New Zealand, has no natural resources but is booming with an annual rate of about $35 billion worth of construction going forward. When Lee Kuan Yew pledged to all Singaporeans by the end of his tenure “no Singaporeans would have mud on their shoes”, the father of the nation meant it.

In Australia, one is only eligible for an old age pension if the means test dictates that you are so financially challenged that you do not have an alternative source of income [9]. Not so in New Zealand. Be you a billionaire or a pauper, you qualify for the pension at age 65 regardless of your pecuniosity. Further, unlike Australia where once you start to draw on super, you pretty much have to retire, the Kiwis can still keep on working. Clearly, the contention that high taxes are required to generate human support infrastructure, when one does a comparative analysis, is not persuasive.

New Zealand is experiencing huge immigration inflows; the New Zealand population increased 1.5 per cent last year on account of immigration alone [10]. Asians in particular find the Australia’s taxation regime unpalatable.

There are calls for taxation reform in Australia and they should to be heeded because the status quo could before terribly long place Australia in a very uncompetitive situation. Hong Kong and Singapore seem to be attracted to the model where there is low tax but because of the flood of property investment in large parts given by offshore investors, the tax base is much broader so the aggregate tax take home is higher. I’m no economist, but there seems to be logic in that proposition. It is all food for thought for our Australian policymakers.

[1] https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-individuals/Temporary-Budget-Repair-lev
[2] http://atotaxrates.info/individual-tax-rates-resident/ato-tax-rates-2015/
[3] https://www.newzealandnow.govt.nz/living-in-nz/money-tax/nz-tax-system
[4] http://www.guidemesingapore.com/taxation/topics/singapore-tax-rates
[5] http://www.kpmg.com/Global/en/services/Tax/regional-tax-centers/asia-pacific-tax-centre/Documents/CountryProfiles/NewZealand.pdf
[6] http://business.financialpost.com/2014/11/06/its-time-to-drop-the-capital-gains-tax-in-canada/
[7] http://newamerica.net/publications/policy/singapores_central_provident_fund
[8] http://www.bloomberg.com/news/2012-06-26/singapore-homes-most-affordable-as-rents-climb-mortgages.html
[9] http://www.humanservices.gov.au/customer/services/centrelink/age-pension
[10] http://www.stats.govt.nz/browse_for_stats/population/estimates_and_projections.aspx

 

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