ESTATE DUTY (INCREASE OF RATES) BILL

Order for Second Reading read.

The Financial Secretary (Mr T. M. Hart): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The object of this Bill is to substitute a new scale of estate duty for the scale contained in the Second Schedule to the Estate Duty Ordinance, Chapter 227, as amended by the Estate Duties (Increase of Rates) Ordinance, 1946.

I have already explained the reasons why it is considered desirable to introduce this new scale, and I do not think that I need say anything further in this connection.

There are three main points about the new scale to which I invite attention. It exempts estates of under $10,000 from duty. It makes use of a new method of calculating duty, and of course, it increases the rate of duty on estates of over $10,000. Hitherto, only estates of under $1,000 have been exempted from payment of duty. This level of exemption is low. A considerable number of estates fall within the limits of $1,000 to $10,000, perhaps rather more than a third of all estates assessed for duty in a normal year. On the other hand, the amount of duty collected from these estates is small, and in no way commensurate with the time and labour involved in collecting it. For example, the 400 estates within these limits, which were assessed in 1954 yielded no more than $23,000. The staff of the Estate Duty Office is not large, and clearly the time and labour spent on assessing these small estates could, with much greater advantage, be devoted to larger estates. In the circumstances, it has been decided to raise the level of exemption to $10,000.

The same form of graduated scale as is used in income tax has been adopted. This gives a smooth curve in the progression in the graduations of duty, avoids steps and obviates the need for special provisions for marginal relief. The first two characteristics will be seen from an examination of the comparative table attached to the Bill. Examples will illustrate the third characteristic. The existing rate of duty on an estate of exactly $1 million is 23 per cent. The rate of duty on an estate exceeding $1 million but less than $1.2 million is 25 per cent. Duty on an estate of exactly $1 million is $230,000. Duty on an estate of $1,000,001 is $250,000.25. In other words, one dollar makes a difference of $20,000 in duty. Therefore, in this particular section of the existing scale, it is well worthwhile to surrender estate up to about $26,000 in order to retain the lower rate of duty. For example, the duty on an estate of $1,025,000 at 25 per cent is $256,250. If the executor decides to surrender estate, he can pay 23 per cent on $1 million, which is $230,000, surrender $25,000 and still be better off by about $1,000 than he would have been if he had accepted taxation at 25 per cent. On the other hand, if the estate is $1,030,000, it pays to pay tax at 25 per cent. The new form of graduated scale avoids all these anomalies. The rate of tax rises smoothly without sudden jumps. For example, the duty on an estate of $1 million is $328,250. The duty on an estate of $1,000,001 is $328,250.50 and so on.

The rates of duty proposed are generally higher than the existing rates. In this connection, attention is invited not to the Schedule but to the comparative table attached for information to the Bill. This table shows the effective rates under the new scale by comparison with the existing rates. The effective rate is the rate obtained after allowing for exemption on the first $10,000. For example, on an estate of $25,000 the first $10,000 would be exempt from tax and the next $15,000 would be taxed at 5 per cent. This would yield $750. The effect in rate of tax on this estate is therefore $750 over $25,000 multiplied by 100 equals 3 per cent. It will be seen that the effective rate of the new scale diverges increasingly from the existing scale until, on estates of $5 millions, there is a difference of about 10 per cent.

Sir, I beg to move.

Question proposed.

Mr G. A. P. Sutherland (Nominated): Mr Speaker, Sir, in the second paragraph of the explanatory note it is stated:

"In effect under the proposed new scale the graduations rise on a large number of small steps in place of a smaller number of large steps under the old scale."

Now, Sir, I have here the Estate Duties (Increase of Rates) Ordinance, 1946, which includes a schedule of rates effective from the 4th day of July, 1941. The scale of duty rises in 27 steps, covering one per cent on $5,000 to 40 per cent on $5 millions. In the new Bill the scale starts on estates at $10,000 and ends at 60 per cent on that part of an estate exceeding $4 millions in 14 stages. It would seem, therefore, that the last sentence of paragraph two of the explanatory note should read:

"In effect under the proposed new scale the graduations rise on a smaller number of larger steps in place of a larger number of smaller steps under the old scale."

The proposal to exempt estates of less than $10,000 appears to be a step in the right direction, but hon. Members may be interested to know that in the United Kingdom exemption limits since the war have been steadily increased until in the last Budget the figure was raised to £3,000, that is approximately $26,000. Moreover, the effective rate of duty on estates of $130,000 and under will now be higher than the rate of duty in the United Kingdom. That is just as a point of interest. But then there is a slight anomaly, to my mind, with regard to the new Schedule. For example, under the old scale an estate of $1,000 paid duty at one cent. Now supposing it were $1,001, the duty paid would be $10.01.

We will take it a step further. Under the new scale an estate of $10,001 will be liable for duty at five per cent on one dollar only, because the first $10,000 is exempt from duty. Well, assuming that the basic cost of a collection, for example, in a straightforward estate is perhaps $30 - I do not know, but just call it $30 - it would seem economical to exempt estates not exceeding, say, $10,599 with the proviso that for estates in excess of this figure the duty shall be exigible on any sum in excess of $10,000, so that, in fact, the proposed scale still operates.

Mr Lee Kuan Yew (Tanjong Pagar): Mr Speaker, Sir, here again the Labour Front is on very solid ground. Even the hon. Mr Sutherland feels that the move to increase estate duty is a move in the right direction, although he feels that estate duty should be exempted up to the amount the Conservative Government of Britain allowed last year. On estates not exceeding £3,000, no estate duty is paid. But then Mr Sutherland did not tell the House that in England duty on estates of about £1 million goes up to 80 per cent, of three-quarters to £1 million 75 per cent, of half a million to three-quarter million pounds 70 per cent, and so it tapers down to one per cent between £3,000 and £4,000.

Sir, I hesitate to give the Hon. the Minister for Transport a lecture on egalitarian societies because obviously he believes such ideas to be old-fashioned. He believes that we should all be equal in a Socialist democracy but that some people should be more equal than others. Perhaps that is the way it ought to be.

But even he will agree with us that estate duty is one of those forms of taxation which can be used deliberately to counter-balance the unjust distribution of wealth and prevent its perpetuation. The primary purpose of a Socialist taxation policy is to bring about a redistribution of wealth. You take the money from the "haves" and then you spend it on your education, on your public services, and on your social welfare, and thereby give it to the have-nots. You have this added advantage in that you really do not hurt anybody because you have really taken it from no one. All you have taken away from the sons and heirs and successors is not money, but just the hope of a succeeding to money. That might be painful for a week or two after the will has been read and duties have to be paid, but it is certainly less painful than if we were to impose a capital levy while the man who has made his millions is still alive.

Sir, while we commend the increase which the Labour Front Government has imposed, a step taken independently of the Federation, and while we are confident that the Federation will be following suit in the very near future, we feel that the Labour Front Government should compare these tables with those obtaining in other Commonwealth countries. These places have Conservative governments, not dedicated to the Socialist principle, but dedicated to the principle of what they now call a property-owning democracy: in other words, we will each have a bit of property, but if my father has a lot of property, than I will have a lot more than you have. If a comparative table were made of estate duties in all the Commonwealth countries, where there are Conservative governments, I think the Labour Front will find that their increases are modest and moderate. The next time they are facing a danger of a deficit in their Budget, they should consider pushing the rate of estate duty up to the limits obtaining in the most conservative of capitalist societies.

Mr Hart rose -

Mr Speaker: Mr Hart, in reply?

Mr Hart: In reply, Sir. I think that the point raised by my friend Mr Sutherland is answered in my opening address to the effect that the incorporation of the income tax method of calculating duty gives smooth curves and does away with steps in the scale.

I am glad that my friend the Member for Tanjong Pagar approves the step we have taken to increase estate duty, and I agree heartily with him that it is a most equitable means of distributing wealth. Certainly our rates are lower than those in the United Kingdom in the higher ranges of estate, but I think I should say that our new rates are still considerably higher than those obtaining in our nearest Commonwealth neighbours, Ceylon and Hongkong. I have the rates for these territories here. I will give them to him if he will come and see me.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time.