Building for a post-pandemic future

ROUNDTABLE PANELLISTS

• Lawrence Wong, Minister for Finance
• Ng Chee Meng, Secretary-General, National Trades Union Congress
• Sumit Agarwal, professor of finance, economics and real estate, National University of Singapore
• Suan Teck Kin, head of research, UOB
• Moderator: Vikram Khanna, associate editor, The Straits Times

The following is an edited excerpt of the roundtable.

Vikram Khanna: The title of the Budget is 'Charting our new way forward'. To what extent is this Budget a departure from the past?

Lawrence Wong: Every Budget builds on the ones that came before it, but this year is different because we have been fighting a generational crisis for the past 2 years. Now there is a clearer sense of the post-pandemic future, and it will be quite different from the past.

Number one, our population is ageing rapidly; number two, we'll have to make decisive moves to decarbonise and tackle climate change; thirdly, we are increasingly seeing an unpredictable, volatile and dangerous world.

With all of these changes, the government will have to do more to support Singaporeans, and find ways to raise more revenues.

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This Budget is really the first in a series of moves that we would like to make to strengthen our social compact and build a fairer, greener and more inclusive Singapore.

Suan Teck Kin: Because of the pandemic, some parts of society are able to do well, but some parts have fallen behind. (Tackling) this strengthening of the social compact is very important because that will ensure social stability.

Khanna: Before we get into the details of the Budget, what is your assessment of the likely impact of the war in Ukraine, as well as the sanctions, on the Singapore economy?

Wong: It's something that's still highly uncertain... Best case scenario, there is a path towards de-escalation on both sides. But you cannot rule out the fact that this can go the other way, either.

In fact, we already anticipated the impact when we were working on the Budget. At that time, there was not yet an invasion, but tensions were already rising.

That's why in developing the packages in the Budget, we have put in a lot more resources and funding to help households cope with the possibility of rising prices.

Our direct links with Russia and Ukraine are very limited. It's really the broader impact on the global economy: global energy markets, maybe to some extent the global food supply and supply chains.

So we are monitoring each of these very carefully... And if things were to worsen, we will not hesitate to put out additional measures, and we have the means to do so.

Khanna: Do you think it's possible that there could even be another recession globally?

Suan: It's still early days to assess whether there will be a recession down the road and when would that happen. But what is certain right now is the impact on inflation. . . How high is this inflation going to go and at what point it's going to eat into the consumer budget, at what point it's going to eat into companies' budgets - that's where the uncertainty is.

Prof Sumit Agarwal: I think inflation in Singapore is there because of many other factors: supply chain issues, labour issues, the pandemic. Now they may have gone up because of the war - or it's also possible that merchants are now taking advantage of this.

Wong: I think that's a fair comment that we need to watch against price gouging, but the direct impact on many businesses, I think, will come through energy prices.

Ng Chee Meng: Whether it's caused by the war or the pandemic or our own internal supply issues, the pressures on the ground are very real. On the NTUC side, we'll do our little bit to help. Our supermarkets are putting in discounts.

I ask employment partners, the government to work with us to upgrade our workers as well, because ultimately whatever assistance we can provide is a stopgap measure - 6 months, 1 year, whatever it may be - but a sustainable way really is to keep our workers in tandem with the changing world.

Khanna: What alternatives were considered before you decided to raise the GST (goods and services tax)?

Wong: Let's look at the broader perspective. We are currently spending about 18 per cent of GDP, and we expect that this will increase to 20 per cent or more by 2030.

Two per cent of GDP sounds like a very small figure, (but it) is S$10 billion a year in today's GDP. The GST increase only yields us S$3.5 billion a year.

I think that this whole debate about 'Maybe there are alternatives to GST' misses the point, because it's not GST or something else, it's GST and other tax changes, because the gap is that large.

How about no GST, but replace it with something else? If you were to put it all on income tax, be it personal or corporate income tax, I think it will be unbearable.

First of all, there will be a huge impact on our overall competitiveness. For personal income tax, it's very unlikely that you can have a small group of people just bearing the entire load; it will mean that the middle or upper middle income groups will have to pay more too.

Khanna: Our threshold for when GST can be charged by companies is a turnover of S$1 million per year. Could we not lower the threshold to broaden the tax base?

Wong: Well, it's always a judgment call: balancing between revenue needs as well as compliance. With all the changes that are happening already - the cost increases, the impact of supply chains, the cost of raw materials - the smaller businesses are the ones that are hurting the most. So if we were to impose this on them, they are the ones who will suffer too.

Ng: This is only the collection part of taxes, but actually sometimes we should talk about the distribution part. For every dollar that is collected in taxes, S$4 goes to the lowest income in Singapore.

If we were to have 2 parts of the story, of the overall taxation and distribution of wealth... having these 2 views in conversation together would complete the story.

Khanna: Higher property taxes on expensive properties bring in revenue, but will not tame wealth inequalities. What can we do to reduce wealth inequalities further?

Wong: The property tax regime that we have today is not intended to cool the property market... because we have other tools for that.

Ideally, we would like to tax wealth directly in the form of a net wealth tax. But that is in practice very hard to implement. The point is that wealth is mobile and if there are differences across jurisdictions, wealth can and will move.

The same challenge (with) net wealth taxes applies to estate duties. Our experience with estate duties was, in the end, the disproportionate part of the burden was borne by the middle and upper middle income groups, whereas the very top end could tax plan estate duties away.

When we looked at other places with a net wealth tax, the burden falls also on the middle income because they don't have the ability to move their monies around, whereas the top end do.

Khanna: Unemployment figures and retrenchments have gone down. But the ratio of job vacancies to the unemployed has risen. What does this reflect?

Ng: If we recall 12, 18 months ago, we were at the edge of the waterfall in terms of employment. The National Jobs Council created different levels of job switching, job upskilling, and government funding for people in transition to avoid an unemployment situation that can shoot through the roof.

So it's a pretty happy problem compared to 18 months ago. One good thing is that Singaporeans are getting back into the market, and I'm glad to see wages increasing even as the cost of living goes up.

What we must do is to ensure government support in tandem to help companies start moving to a post-Covid restructuring.

Khanna: Could the increase in the minimum qualifying salaries for Employment Pass holders and S Pass holders lead to wage inflation in the short term?

Wong: I think the short-term impact on pushing up wages can be mitigated with the phased implementation. What's more important is that... we are able to bring in people with the right calibre.

Ng: If we do not have a reasonable minimal qualifying salary... it means that the Singaporeans with the skill sets may not be employed. The key principle is to have a fair system where Singaporeans can see that it's a level playing field.

I'm glad MOM proposed the Compass system to have a more transparent way of levelling the playing field. It's fair to the employer, helping the employer see beyond the short term into a sustainable system, and also fair to Singaporean PMEs that have the skill sets (and are) willing to upgrade, that they be given a fair chance.

Khanna: With the NIRC, 50 per cent of expected real returns long-term goes to the budget. Could we have more flexibility in this?

Wong: The idea that there is an opportunity cost in building up the reserves, I think it's something we need to ask ourselves, certainly. But are we unnecessarily holding back the economy today because we are putting more monies into the reserves? The answer is no. We are not growing below potential.

Second, are we accumulating reserves at a rate that is more than necessary? I would say the answer is no too. The reserves may be growing, but the size of our economy, the complexity of our needs and the challenges we face in the future are growing faster, much faster.

I think a lot of the temptation would be the other way: that everyone thinks there is this big pot of money lying around somewhere. 'Let's just tweak some of the parameters a little bit, what harm can it possibly do?'

But eventually, it will all add up. And that's why virtually all cultures around the world have variants of the same saying, which is that wealth does not last 3 generations.

And we are determined in Singapore not to let that happen to us but to keep on building something better for our children. The reserves rules ensure that we do that.

Khanna: Climate activists have welcomed the increase in the carbon tax. But is there a concern that companies may relocate some operations to avoid this?

Wong: In the near term, that concern is real because if you look around the region, not many countries have a carbon tax to begin with.

And so the risk of carbon leakage can happen, which is why we will have to put in place a transition framework.

But in fact, all the companies that we have spoken to understand the importance of decarbonising.

All of them already apply a shadow carbon price or an internal carbon price for their own projects, and they also have plans to get to net zero by 2050 or thereabouts.

So I think the direction is aligned, and we should be able to move forward on the carbon tax without too much of an impact on our overall competitiveness.

In fact, moving early offers us the first mover advantage to seize the many, many opportunities that are out there with regard to the new green economy.

Prof Agarwal: Having carbon tax on the corporation is one thing, but... imagine if we could create a carbon scorecard for individuals.

Wong: It's something we continue to study, to see how we can really bring it down to the individual consumption level.

If you think about what you've just proposed - carrots and sticks, fees and rebates - we do that for electric cars. So you could think about extending something similar in other areas.

The other aspect is regulatory standards. Eventually, we will phase out internal combustion engine vehicles, and you can apply that for energy inefficient home appliances.

With a combination of these different tools, taxes, incentives and standards, we can achieve our net- zero ambitions.

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