The pursuit of economic growth in an environment of rising costs
Transformation and productivity can help firms tackle manpower woes and maintain Singapore’s competitiveness.
Elysia Tan
EVEN as he acknowledged cost pressures faced by households and companies, Finance Minister Lawrence Wong reiterated the importance of growth “as a means of advancing the well-being of everyone in Singapore”, at a post-Budget roundtable organised by The Straits Times (ST) and The Business Times.
“Growth remains paramount, because if we do not grow the economy, and we have a shrinking pie, things will be much more difficult for Singapore,” said Wong, who is also Deputy Prime Minister.
UOB was the presenting sponsor for the roundtable, held as the Budget and Committee of Supply debates drew to a close on Monday (Mar 6). The hour-long session covered a range of topics such as housing prices and concerns about the soaring costs of doing business.
Alongside fellow panellists UOB senior economist Alvin Liew and National Trades Union Congress (NTUC) vice-president K Thanaletchimi, Wong discussed how transformation and productivity can help firms tackle manpower woes and maintain Singapore’s competitiveness.
Moderated by ST’s associate editor Vikram Khanna, the roundtable also looked at how to keep fiscal policy prudent and fair, even as spending needs rise and new revenue sources become necessary.
Angst over housing prices
On the hot topic of housing, Khanna noted that prices have been climbing even as Singapore’s economic growth slows, in a phenomenon unseen elsewhere in the world.
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To that, Wong reiterated his explanation that the root of the issue is a pandemic-era supply disruption, coupled with unabated demand – a “very exceptional and unusual circumstance”.
When the Covid-19 pandemic stalled construction of Build-To-Order flats, queues grew, stoking anxieties and causing even more to join the queues, said Wong. “Those who couldn’t get their flats on time decided to go to the resale market, and that pushed up prices.”
In the private property market, buyer demand has risen as people seek greater space or a home of their own. Rental demand, meanwhile, has been driven by Singaporeans waiting for their flats to be completed, as well as the return or arrival of non-residents.
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Supply is being increased to solve the issue, said Wong. Combined with cooling measures, the market will eventually stabilise – though it takes time for sentiments to change, he explained.
Liew noted that the property market is cyclical and prices will slow. But even though the hot market is not permanent, elevated rents are adding to business costs. “The problem is it can be quite acute in the near-term,” he said.
To that, Wong said that government agencies are “watching the rental market very carefully” and looking at how to ramp up supply to mitigate cost pressures, particularly for employers in essential areas.
Drawing investments despite high costs
Attracting investments is a key strategy for growth – yet on top of higher rents, business costs are rising due to both inflation and policy measures, such as increased Central Provident Fund contributions announced in the Budget.
This begs the question, as asked by Khanna: “Is Singapore still a good place to do business from the cost point of view?”
While high costs are a concern, Liew shared that Singapore also offers many other factors for industries to relocate here or to invest here. These include the business environment, legal structure and availability of skilled workers.
Wong said that while Singapore cannot compete on costs, the country must also not “price (itself) out of the competition”. While maintaining cost competitiveness, the country must redouble its efforts “on differentiating ourselves in terms of quality and value”, he added.
Though the level of foreign investment in Singapore has been “doing well” in past decades, it cannot be assumed “that investments will just automatically come to Singapore”, he added. This is particularly as more countries are talking about reshoring, onshoring or nearshoring, rolling out subsidies and schemes to bring their companies back home.
Economic imperative of productivity
For Singapore to offer a unique value proposition to investors, productivity and innovation are key, said Wong.
This is also an “economic imperative” for continued growth. As Singapore’s labour force growth will inevitably slow, productivity growth is essential.
Technological change is relatively straightforward in manufacturing but less so in services, said Liew. Budget moves to encourage upskilling and reskilling will help, including the new Jobs-Skills Integrators, he added.
Reskilling can help to close the skill set gap that is the cause of Singapore’s high job vacancies, said NTUC’s Thanaletchimi. But for training to be effective, it should be coupled with placement, and be integrated into businesses’ transformation plans. She added: “What is essential is for employers to be part of this.”
This is what the Jobs-Skills Integrator initiative aims to achieve, said Wong. “The employer must know how their business is changing, what’s their future business model, what are higher-value activities that they are pursuing, and what are the skill sets that they need,” he said.
Training providers then work with employers to design courses, and workers are brought onboard. “There will always be a process of churn in the economy,” noted Wong. Some jobs will become obsolete, and workers must get help to move to better jobs.
Financial support for such workers is in the works. The aim of such unemployment – or rather, re-employment – support “is really not to demotivate or disincentivise workers from looking for a job”, said Thanaletchimi, adding that it could be made contingent on a job search.
Such support will give workers more time to train for a suitable job, said Wong. “When someone is displaced, it may not be optimal for the person to get the first job available,” he said.
Raising revenue
The roundtable also discussed possible new revenue sources as spending needs rise, with Liew seeing the possibility of a further goods and services tax increase. By 2030, the rate could rise “at least” another percentage point (to 10 per cent), he said.
Personal income tax rates, which are low compared to other advanced countries, could also go up by a few percentage points – but there is “limited room” for that, he added. That leaves corporate tax, but that revenue could be affected by changes to global tax rules.
Even as the government maintains fiscal discipline, it may need to explore additional revenue sources to balance the Budget in the medium term, said Wong. “But in all of these options, we will always make sure that the fiscal system remains one that is fair and progressive.”
It is not quite right to characterise the government’s approach as akin to Robin Hood, who was known to take from the rich and give to the poor. Wong said: “We want everyone to do their part in nation-building. Rich or poor, everyone contributes.”
But those with greater means will contribute more. Similarly, while everyone benefits from government spending, those with greater needs will benefit more.
“That is, I think, a more accurate description of our philosophy – one that we believe is fair, progressive and inclusive. That is the direction (in which) we will continue to move forward in this new era,” said Wong.
Watch the panel discussion and read our coverage of Budget 2023 at bt.sg/budget23
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