Singapore is home to one of the world’s freest economies. That home is about to be a bit sweeter, thanks to a new budget that includes cuts in personal income taxes.
Prime Minister Lee Hsien Loong announced Friday that the upcoming Singapore budget will have a provision that cuts the top personal income tax rate to 20 percent over two years. The rate is currently 22 percent.
The current 22 percent rate is certainly not punitive. But 20 percent is an improvement, not only in moral terms — people get to keep more of what is theirs — but also in terms of how the tax cut will spur even more investment in the city-state.
Although too many lawmakers in the U.S. Congress don’t believe it, increased investment that is driven by tax cuts is a boost for an economy: more jobs, higher wages and an upsurge in consumer spending.
Despite the proven success of supply-side economic policy, cutting taxes in this country is no easy task. Consider the hurdles President Bush had to leap over to get his tax cuts into law that lowered the top rate to a still relatively punitive 35 percent. Contrast that with Singapore, where Lee took some flak for his cuts being too “conservative.” That’s right: too conservative! Remember the outcry from those who shrieked that Bush's cuts were draconian, and would benefit only the rich?
But despite Bush’s tax cuts, the U.S. has, for the first, time fallen out of the Top 10 of the Heritage Foundation’s Index of Economic Freedom. And because of Singapore’s tax cuts, the city-state might give Hong Kong some competition for first place in the next edition of the Index.
As more and more Western economies look to the East and tremble, they may want to ask why some of those countries are doing so well. For Singapore, it’s because the government has learned the open secret of economic growth.