Singapore’s ‘tight’ fiscal position makes growth crucial for redistribution: DPM Wong

SINGAPORE’S tight fiscal position means the Republic must focus on “growing the economic pie” in order to have enough resources, even as the external environment becomes more challenging, Finance Minister Lawrence Wong said in his Budget debate round-up speech on Friday (Feb 24).

Contrary to the views of some Members of Parliament, Singapore has no “fiscal slack”, said Wong, who is also Deputy Prime Minister.

He noted that public spending is set to rise to 20 per cent of gross domestic product (GDP) by 2030, having already risen three percentage points from 2016 to 2020, to about 18 per cent.

“On the revenue side, without the GST (goods and services tax) increase and other tax moves we made in last year’s and this year’s Budgets, the projections clearly indicate that we would not have sufficient revenues to cover the increases in spending,” he told the House.

These projections do not take into account additional spending from new policy moves, some of which are being contemplated under the Forward Singapore exercise, he added. “The bottom line is that our tight fiscal position is very much a reality over the medium term.”

Turning to MPs’ suggestions to raise revenue, Wong said that a net wealth tax may fall mostly on the middle and upper-middle-income, as the wealthy can avoid it through tax planning.

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He also rejected Progress Singapore Party (PSP) Non-Constituency MP Hazel Poa’s suggestion to treat land sales proceeds as revenue. The current system of putting proceeds into past reserves, which are then invested, is a more sustainable way of deriving value from land, he said.

As for corporate tax changes, Wong cautioned that competition for global investments will only get tougher. Countries are rolling out “vast subsidies” to strengthen their competitive advantage, even as Pillar Two of Base Erosion and Profit Shifting (BEPS 2.0) rules will set a global minimum effective tax rate.

Multinational enterprises (MNEs), he noted, are “not stuck with us permanently” – they are mobile and have options on where to site their investments.

“This is not just a hypothetical worry,” said Wong. “The MNEs are already making this clear to us in our consultation sessions with them” by pointing out that their home countries are offering “very generous incentive packages” and that other countries in the region are cheaper, he added.

Noting suggestions by Workers’ Party MP Louis Chua (Sengkang GRC) and PSP’s Poa to raise taxes for MNEs, Wong said: “My response is: please be very careful. We cannot afford to price ourselves out of the competition, or else Singapore and Singaporeans will end up the biggest loser.”

Wong also addressed the business community’s concerns that the government has shifted from a “pro-growth” to a “pro-redistribution” approach. The government is committed to “growing the economic pie”, he said, as only then would Singapore have the resources to “redistribute, strengthen its social compact and progress”.

While the government was previously accused of pursuing “growth at all costs”, some now worry that it is “not sufficiently focused on growth”, he noted. “That if we are faced with a shrinking pie, contentious disputes over how to distribute limited resources will be inevitable, which can be very socially divisive, as we have seen in many other countries.”

But the government has always taken a balanced approach, aiming to grow the economy “as means to improving the well-being and lives” of Singaporeans, he pointed out.

To stay competitive, Singapore is working to bring more high-quality investments here, as well as growing and nurturing local firms, especially small and medium-sized enterprises (SMEs).

Responding to MPs who highlighted SMEs’ woes, Wong said that Budget 2023 includes short-term support measures, but added that the focus is on “helping those who are prepared to take steps themselves” to transform for the better.

Workers, too, are getting help to transform. In a dynamic and vibrant economy, unproductive jobs will become obsolete and replaced by better ones, said Wong. These new jobs could be in the same companies and sectors, or in different ones that are growing “to take the place of the declining ones”.

“This churn is an integral part of healthy economic growth, but it does create uncertainty for workers,” he said. “Because workers will need to reskill and upskill themselves, to stay relevant and take on new roles, be it in the same company, or in a different company, or even in a different industry altogether.”

This is why, he said, the government is investing significantly in skills and human capital to help workers progress in their careers and earn better wages.

The new Jobs-Skills Integrators will be the government’s next move to strengthen the training and placement ecosystem for workers, following the SkillsFuture movement in 2015.

Such integrator roles have already been played by bodies such as trade associations, but perhaps on an ad hoc basis, he noted. The Jobs-Skills Integrator role will be better resourced, with details to come in the Ministry of Education’s Committee of Supply debate.

On the proposal of financial support for unemployed workers, Wong said that he agreed with MPs who raised the challenges that mature workers face in such a situation.

“Younger workers in their 20s will often be able to get back to work quickly, particularly in the current tight labour market, where there are still high vacancy rates and job openings,” he explained. “But if you are in your 40s and 50s and are displaced or retrenched, it is harder to find a job.”

The government is studying how to better support displaced mature workers, and provide some cushion while they train for new roles that better fit their abilities, he said. “I hope members appreciate that we have to think through and design these moves most carefully. We have to ensure that whatever we do does not erode the incentive to work.”