SINGAPORE – The lives of Singaporeans and that of their children will become progressively better, and nobody – and no group – will stagnate or feel excluded from the benefits of growth, said Finance Minister Lawrence Wong on Friday (Oct 15).
Investments in these efforts to mitigate inequality and improve social mobility entail regular spending, and in order to cope with rising spending needs, Singapore will have to strengthen the resilience of its revenue base, he added.
“We must continue to reduce inequality and promote greater social mobility among all segments of society and throughout their working lives… All these efforts will require more recurrent funding.
“But these are areas that the Ministry of Finance (MOF) will not hesitate to spend on – to invest in the progress and wellbeing of our people, to temper inequality and improve social mobility, and to counter the tendency for a mature society to stratify.
“These are fundamental tenets of our commitment to Singaporeans.”
He gave this assurance to all Singaporeans, as he outlined Singapore’s fiscal strategies and thinking behind them, at the 35th Singapore Economic Roundtable organised by the Institute of Policy Studies.
The roundtable gathers senior private sector economists, academics, business leaders and policy makers to discuss key macroeconomic policy issues facing Singapore.
Mr Wong said that Singapore has succeeded so far in running a prudent and effective fiscal policy. But the task at hand will only become harder, given three key challenges or “curves” that will determine the trajectory of the country’s fiscal strategy.
These are: widening faultlines, and the threat to social cohesion when there is accumulated advantage by a small group of people; a rapidly ageing population, which means a shrinking labour force and an ever greater need for healthcare and aged care; and climate change – an existential challenge that calls for urgent action today, even if its worst effects will only be felt decades from now.
Like other countries, Singapore will need more fiscal resources to tackle these challenges of inequality, demographics and emissions effectively, he said.
The goal is to build a society that is even more fair and just – where every child can achieve his or her dreams and every worker can stand tall, and where every person can be accepted regardless of social background or age, race or religion.
“But how can we ensure sufficient resources without placing an undue burden on our current or future generations? That is a question that keeps many Finance Ministers awake at night.
“That means we must be alive to the immense responsibility the Government has as steward of our resources. What we have inherited from yesterday, we must wisely guard; what we have been entrusted with today, we must responsibly utilise.”
He pointed out that Singapore has made good progress on social mobility. A 2015 study by MOF found that of the children born from 1978 to 1982 to parents who were at the bottom one-fifth of the income stakes, 14.3 per cent moved to the top fifth among their peers in their 30s – higher than corresponding figures for other countries in Northern America and Europe.
This data was recently updated for children born from 1985 to 1989, and the percentage was 14 per cent – slightly lower than before, but still much better than many other places, he said.
He noted that it is not enough to tackle inequality through initiatives such as SkillsFuture, the progressive wage approach and top-ups to the Workfare Income Supplement scheme for lower-wage workers.
Singapore, too, is one of the fastest ageing societies, with one-quarter of Singaporeans projected to be 65 and above by 2030. This can place significant strain on society, he said.
The Republic’s healthcare spending has already tripled in dollar terms over the past decade, and is now at 2.2 per cent of GDP. This expenditure is expected to increase further to 3 per cent of GDP by 2030.
“I have said before that the revenue from the increase in GST will go towards supporting our healthcare expenditure. But this revenue will not be enough to cover the additional healthcare spending.
“And we can expect healthcare spending to keep rising even beyond 2030, while the decline in the working age citizen population will shrink our income tax base. These are difficult problems, and there are no easy solutions.”
With shrinking labour force growth, productivity will be key, added Mr Wong. This means helping businesses to transform and shift away from manual processes, and equipping people with new skills.
It also means growing the silver economy, raising the retirement and re-employment ages, and providing wage top-ups and grants to incentivise companies to employ senior workers.
On the emissions curve, he said that Singapore is committed to this global effort, and is taking proactive steps to decarbonise its economy.
This will not be an easy transition because the country is at a double disadvantage – a lack of land space and natural resources which makes it very challenging to scale up renewable energy; and significant flood risks as a low-lying island.
But Singapore’s economic story has always been one where it defied the odds, he said. “So we are seriously considering the import of green electricity, and findings ways to overcome the high cost, and technical and security challenges.”
Singapore is also actively pursuing new opportunities to grow as a sustainable finance hub, and investing in R&D on new technologies like hydrogen and carbon capture.
To arrive at a fairer, greener, and more inclusive society, Singapore must re-examine its fiscal strategies so that its tools can meet the tasks at hand, said Mr Wong.
It must ensure that its programmes and investments are funded in a fiscally efficient manner that preserves inter-generational equity.
Singapore has gone beyond just awarding grants to businesses, to using loans and equity to support companies. This will allow it to recycle its fiscal resources in the long run.
It also risk-shares with banks, and provides support or invests with private sector partners such as Clifford Capital and Heliconia.
“In this way, we borrow their commercial lens in the selection of companies to groom into local champions. These expanded ways of investing in our economy and viable companies are crucial in stretching the public dollar,” he added.
Singapore also strengthens inter-generational equity between the present and future, by making use of borrowing to finance long-term infrastructure projects.
The Significant Infrastructure Government Loan Act, or SINGA, allows the Government to issue bonds to fund nationally significant infrastructure with high upfront costs but large long-term benefits.
Some think that borrowing will create more fiscal space, and so Singapore should borrow more.
But the Minister cautioned that borrowing is not a panacea to fiscal challenges, as what is borrowed today has to be paid back tomorrow, and borrowing simply shifts the burden to the future generation.
That is why Singapore is limiting its borrowing to long-term projects, where it makes sense to share the costs equitably between present and future generations, he explained.
“We should never seek to make our own lives easier at the expense of future generations. That would not be responsible. Instead, we should always seek to pass on a Singapore in good shape to our future generations.
“This has been a cornerstone of our fiscal philosophy since independence, and we will continue to uphold this.”
Strengthening revenue resilience is also crucial, he said, adding that compared to other countries, Singapore is in a strong fiscal position.
It has its reserves as an endowment, from which it draws a stream of resources to spend every year. Most advanced countries pay 2 to 3 per cent of GDP each year just to service their debts, he said.
In Singapore’s case, its Net Investment Return Contributions (NIRC) give an additional revenue of around 3 per cent GDP on average, which has helped keep the overall tax burden low.
Some want Singapore to spend even more from its endowment.
But this idea should not be tossed about “flippantly”, said Mr Wong, as returns from the NIRC already face significant headwinds in a more challenging global investment environment, and one must never underestimate the kinds of shocks that may plague Singapore in the future.
Just for Covid-19 alone, the Government has planned to use more than $50 billion from the reserves – more than 10 times the amount it had drawn for the 2009 global financial crisis, he added.
He concluded that Singapore’s long-term outlook and prudence have put it in a stable place fiscally, and enabled it tostrengthen its social compact over the years.
In the end, he said, the country’s fiscal system must sustain a more fair and just society.
“This is our vision, and this is what our fiscal strategies have been built on. We will wisely steward our resources and never stop thinking about tomorrow, so we can have an ever fairer, greener, and more inclusive Singapore.”
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