Singapore SWOT Analysis

by Jeffrey Smith

Summary

The story of Singapore – which developed rapidly from poverty to an industrial society – is much like that of its more famous counterpart, Hong Kong. Both were British colonies founded over a century and a half ago and both retained their land in the public sphere – Hong Kong 100% and Singapore 80%. Most importantly, both recovered sizeable amounts of land rent, and kept taxes low. As did Hong Kong, Singapore averaged 6% growth per year over three decades in the latter part of the twentieth century. Today, the two are among the world’s busiest ports, are centers of industry and finance, and enjoy budget surpluses, unique among governments anywhere.

Singapore’s four million people live on 650 square kilometers hemmed in by water and near a much larger land mass. Because population density is high relative to the amount of land in Singapore its price of access is at a high premium. Hence locals and some outsiders do make many speculative investments in real estate but due to zoning and land lease payments they can not so easily keep sites out of use while anticipating a rise in site value. However, given the money to be made from buildings, speculative investors can profit without resorting to being “a dog in the manger” and keeping lots vacant.

During its formative years, Singapore was a pure “single-tax” enclave meaning that its only source of public revenue was from land, aside from “sin taxes” on opium and liquor. The ideal did not last; eventually, government began to tax the income of workers and business enterprise, albeit at rates lower than in the rest of the developed world.

Now nearly 200 years old, in 1959 Singapore gained its independence from Great Britain and from Malaysia in 1965. However, much of the city’s legal and administrative system remains British and tolerates very little corruption. As is done in the UK, they assess real estate as a unit. They tax commercial property at 12%, which is higher than most rates around the world.

If government were to ignore the value of improvements and assess and charge for only the value of the location, that would be much more efficient for assessors and fair for builders, building owners, and residents. Assessors would not need to tally up every minor improvement and its age (its depreciation). Builders would not have to budget for the tax and reduce construction quality. Owners would not be maintaining their tax liability by maintaining their building’s quality. And residents could live in homes and neighborhoods that harmonized with the natural environment.

In environmental circles, Singapore is famous for pioneering a kind of land tax. This tax does not fall on permanent occupants of land in buildings but on temporary occupants of land in cars; that is, Singapore taxes traffic, one’s short-time displacement of all other vehicles from a moving spot on a public roadway. Along with other disincentives to drive, Singapore started pricing for road usage in 1975. The policy has worked well as drivers rarely encounter any traffic jams.

Singapore’s traffic tax is a major revenue raiser. It collected $$4.2 billion in 1994, almost half as much as their leasing of land, $$8.7 billion, which was a bit more than their income tax (personal and corporate) revenue at $$8.3. Since 1968, the government has enjoyed a surplus every year and so has lowered income tax rates. Logically, they could even eliminate that tax and just recover more site rent.

To shelter the populace from high land prices, Singapore builds numerous mass-produced apartments and now 86% of the population lives in public housing that they lease from the government at a subsidized rate for 99 years. An alternative would have been for government to collect all the land rent – high as it would have been – and paid residents a housing voucher or dividend. When spending that extra income on housing, local people could have had more say in determining the construction – the location, the building’s appearance, the “bones” (its internal quality), the esthetics, and other amenities, so that architecture could have flourished as an art instead of having been a public works project.

Strengths

The main strength of Singapore is not contemporary but historical. At its inception it thrived for a decade as a land value capture only system of public finance. It grew, it prospered, and it proved to the world that the ideal can be real.

Another major strength of Singapore is that it is a tropical city, crowded with people, yet they do not suffer tropical diseases that so debilitate populations elsewhere around the equator. Singapore is an orderly society with a functional and representative government that provides the basic infrastructure for its people plus extra programs beyond mere roads; that is, both public health and public housing are world class.

Singapore, while still leaving lots of land rent on the table, recovers much more than most other developed nations. In other countries, the contribution to the pubic treasury of the property tax – the nearest proxy for a land tax – is a mere fraction of what it once was. In Singapore, public leasing of urban land raises more money than any tax, supplying funds for two-fifths of the government’s budget.

Each year, Singapore has a budgetary surplus! The surplus, as is also true of Hong Kong, is indeed impressive in this era of budget shortfalls and enormous public debt all over the planet. That surplus could be even fatter if the government were to take a bigger portion of the rent for the land it owns.

As with Hong Kong, Singapore ranks at the top of lists that rate nations for both prosperity and freedom.

Weaknesses

Since its history parallels that of Hong Kong, Singapore shares some similar SWOTs. Its very existence as an example of land value capture is somewhat of an historical accident rather than a clearly thought out and intentional approach to public finance. Accidents, of course, are hard to replicate elsewhere. And perhaps few people want to see or acknowledge a good idea that was initiated during a time of imperialism and colonialism.

Another weakness is that after successfully beginning with land rent only for public revenue the government started to tax businesses and residents. It failed to recover all the rent for the people as a whole.

Further, the government does not assess and charge for use of locations exclusively but bundles up the value of the building and other improvements into its final assessment. While an easier approach conceptually, it’s actually less efficient and lacks any moral basis. The public generates the value of the location and can rightfully Claim the full land rent. But the owner generates the value of the building; his of her neighbors have not a just claim on that value.

Opportunities

Singapore’s policy is to recover all the land it once lost and again become purely a public land jurisdiction like its sibling city-state, Hong Kong. Complete public ownership of all land may make it easier to raise the rates and recover more rent, while at the same time diminishing taxes on income.

There may be an opportunity to improve Singapore’s assessments so that they separate the values of location and improvement. Because the city-state prospers, it attracts a lot of immigrants – as does Hong Kong. With the constant influx of new residents, there is a constant need to erect new housing. Perhaps architects and builders would relish the opportunity to put their best foot forward and deliver society the best designs and structures, uninhibited by a tax on buildings.

Further, as places like Vietnam – also where all land is public – eventually catch up, then to compete Singapore may have to appeal to business even more and shift taxes off income while raising the rates in its leases for valuable commercial and industrial sites.

Because Singapore enjoys a surplus, it could experiment with paying its citizens a dividend. Receiving an extra income, residents could afford to get by comfortably with less support from the state. With a state that’s less involved in every aspect of people’s lives, then people could enjoy more freedom. Instead of being obedient, people may just behave responsibly, since the dividend would reinforce their sense of belonging to their larger community.

Because of its geo-political location, Singapore is Chinese and capitalistic but also close to the Muslim world. Because Singapore had no resources yet developed, perhaps it can serve as a model to Muslim governments that are seeking ways to develop before their oil runs out. If Singapore is to be a model, it’d be best if it also achieved a bit more personal freedom for its citizens and adjusted its economic policy accordingly

Threats

Singapore’s public collection of land rent seems to be less threatened than that system is in other parts of the world where still in use. The city-state is committed to acquiring all the land that previously had been sold off to individuals.

However, because there is so little understanding anywhere of both the morality and the practicality of land value capture – of recovering and sharing land rent in lieu of taxing people’s efforts and wealth – there is always the danger of backsliding.

It is conceivable that Singapore could reduce its terms in its leases for locations. It could impose new taxes. It could kill the goose that laid the golden egg. At this time here is no indigenous movement to protect and further the benefits of the land value capture approach to public finance. The academics do not know what they have and how well it works. The moral and religious leaders are likewise marching to a different drum.

There is a great need for the citizens of Singapore to understand this important basis for an economic system that furthers both freedom and fairness in wealth generation.




This SWOT analysis was written by Jeffery Smith, founder of the Geonomics Society, for use by the UN Habitat Global Land Tool Network’s program on land rights and land value capture. Information was gleaned from the Singapore section of the book Land Value Taxation Around the World, an anthology compiled by Robert Andelson and available from the Robert Schalkenbach Foundation.