Annual spending plan must keep sights on long-term issues such as climate change

SINGAPORE’S businesses and households may all be hoping for some near-term relief in Budget 2024; but the government’s annual spending plan should also address longer-term threats such as climate change, competition for foreign investment, and social inequality.

This could involve reassessing policies from earlier Budgets, such as planned carbon tax increases.

Climate change is an existential issue for Singapore. Last week, the Centre for Climate Research Singapore said that the mean daily temperature in the city-state could rise 5 degrees Celsius by the end of this century, if greenhouse gas emissions are not sufficiently mitigated.

Erratic weather patterns and mounting natural disasters also underscore the need for decisive action, alongside repeated warnings from scientists.

Singapore may need to reconsider the value of the carbon tax it levies on large emitters.

In 2019, the Republic introduced a carbon tax of S$5 per tonne of greenhouse emissions. In Budget 2022, it was announced that the per-tonne rate would be raised to S$25 for 2024 and 2025; then to S$45 for 2026 and 2027. From 2028, the rate will rise further – between S$50 and S$80 by 2030.

Is that enough? In November, former central banker Ravi Menon told a panel at the United Nations Climate Change Conference in Dubai that Singapore’s carbon tax “needs to go even higher” to accelerate efforts to address global warming.

Consider, too, that state investor Temasek’s internal carbon pricing – used in its investment evaluations – is set at US$50, with the aim to increase to US$100 by 2030.

The International Monetary Fund said the rate should be at least US$75 by 2030. Currently, 15 countries have a higher carbon tax than Singapore’s, with Sweden among the forerunners at 1,180 Swedish kronor (S$153).

By 2030, Norway plans to raise its tax to 2,000 kroner (S$256); and Canada, to 170 Canadian dollars (S$170).

Keeping up with these wealthy nations may be a politically unpopular move, but the added revenue could be used for climate mitigation or distributed as incentives to encourage companies and consumers to go green.

At the same time, to make sure companies do not exploit climate-anxious consumers, Budget 2024 could introduce clearer penalties for greenwashing. At this critical juncture, when more climate action is needed, it would be a major setback if greenwashing causes consumers to feel jaded.

Preparing for the impact of tax changes

Another long-term challenge for Singapore is how to stay attractive to foreign investors and multinationals.

In 2024, countries that have agreed to the Base Erosion and Profit Shifting 2.0 initiative are set to implement a global minimum tax of 15 per cent under “Pillar Two”. Several countries in Europe and Canada have put up either draft or final legislation for this.

Singapore intends to do so next year. When it does, corporate income tax revenue will rise; but the country’s allure as a business hub may be eroded.

Analysts have previously told The Business Times that the Republic’s non-tax strengths could help it stay competitive.

Still, the risk remains that Singapore could lose some of its shine – and Budget 2024 is an opportunity to address this.

In the run-up to Budget 2024, some professional services firms have suggested new BEPS 2.0-compliant tax-related incentives that can help Singapore maintain its edge.

Additional revenues, meanwhile, can be funnelled towards schemes that help small and medium enterprises become more effective at supporting multinationals; or that develop talent for new industries that are likely to draw investment.

From conversation to action

Finally, Budget 2024 would do well to address the issue of social inequality – a challenge that confronts many countries and has the potential to tear societies apart.

The government’s Forward Singapore report released in October set out seven key policy shifts, drawn up after a mass engagement exercise in which Singaporeans said they wanted a society that is more inclusive and fair.

At the time, the government said it had already started implementing some of these shifts. More such moves were to be announced in the coming months and at Budget 2024.

One policy change that is certain to make it into Budget 2024 is support for the involuntarily unemployed.

Other less-certain but well-foreshadowed moves include a top-up of the SkillsFuture Credit for individuals’ learning needs; support for parents of infants; and enhancements to schemes for retirement adequacy, such as the Silver Support Scheme.

These specific policy changes all paint a bigger picture of a redistributive shift that should be embraced in the upcoming Budget and others to come.

Last year’s Budget was described by some watchers as taking a “Robin Hood” approach: higher taxes affecting the well-to-do – on high-end property and cars – delivered additional revenue to support initiatives for the more vulnerable groups.

This characterisation has been rejected by Deputy Prime Minister Lawrence Wong, who has nevertheless said Singapore’s wealthy should “do their part, pay their dues and give back to society”.

This means going beyond short-term support for cost-of-living pressures and introducing new policies or reforming existing ones to actively give disadvantaged parties a leg up.

At the launch of the Forward Singapore report, Wong said the refreshed Singapore Dream is less about the individual and more about the community: “It is recognising that we are not left to fend for ourselves, but that we are all in this together.”

This pledge will mean little unless operationalised in fiscal form, with the well-off called upon to contribute more to the nation’s coffers.