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Minister Lawrence Wong's Opening Speech at The 35th Singapore Economic Roundtable on 15 October 2021

15 Oct 2021


1. I am happy to join you today to share more about our fiscal strategies and our thinking behind them.

2. Governments everywhere strive to improve the lives of their people.

a. Fiscal resources are crucial to achieving this goal.

b. Governments need to decide what they are going to spend on, and how much; how much revenue they will raise, and from whom; and how they will strike a balance among competing priorities.

c. In Singapore, the Government decided early on that we must spend within our means, and not incur high debts for future generations to bear. Neither did we want to impose a heavy tax burden on our people, such that they cannot enjoy the fruits of their labour.

d. All this, while growing our economy, and improving the standard of living for all. 

3. We have succeeded so far in running a prudent and effective fiscal policy, but the task at hand will only become harder. Consider briefly the challenges before us:

a. Widening faultlines, and the threat to social cohesion when there is accumulated advantage by a small group of people;

b. A rapidly ageing population, which means a shrinking labour force and an ever greater need for healthcare and aged care;

c. And climate change – an existential challenge that calls for urgent action today, even if its worst effects will only be felt decades from now. 

4. Like other countries, we will need more fiscal resources to tackle these challenges effectively.  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.

a. I took on the role of the Minister for Finance in May this year.

b. And over the past months, I have been asked many times about our tax system: will we impose a wealth tax? Do we really need to raise GST? Are we going to raise our carbon taxes? And how will new global rules affect our corporate taxes?

c. These are important questions.  I will try, today, to explain how the Government is thinking about them. 

Our Long-Term Orientation and the Singapore Today

5. Let me start with where we are today.

a. Our island-city-state is liveable, vibrant and sustainable.
b. Our public infrastructure is comprehensive and well-maintained.

c. Our economy started out as a manufacturing hub, and today it is a modern knowledge economy.

d. These are the results of years of investments in our future.  

6. Since the 1990s, we have maintained our long-term development spending at a high and stable share of our annual expenditure across time – about 25% annually. This is higher than the OECD average.

7. And for our recurrent needs, like housing and healthcare, we have achieved good value-for-money outcomes. We have kept education, healthcare, public transport, public housing affordable, accessible, and of good and high quality.

8. Crucially, household incomes have risen across the board. 

a. Over the past decade, real income growth averaged 3.2% per annum for both our lower- and middle-income households.   

b. Indeed, we have done better than the other Asian tigers in achieving inclusive growth – and better than almost all OECD countries. 

9. This did not happen by chance. We achieved this because we always think long-term about our finances.  

a. We strive to live within our means and to get the best outcome from every dollar.

b. We invest in infrastructure, education, healthcare, all of which have large spillover effects. 

c. And we prioritise the long-term capabilities and the productive capacities of our people and our economy over short-term consumption.

10. But our work is not finished.  For we want to build a society that is even more fair and just.  

a. We want to sustain a Singapore where every child can achieve his or her dreams, where every worker can stand tall, and where every person can be accepted, regardless of social background or age, regardless of race or religion.

b. 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.

c. With that, we can then continuously strengthen our social compact, and provide an ever-stronger architecture of security and opportunity for all Singaporeans.

Tackling our Challenges 

11. Achieving these goals will require us to deal squarely with several key challenges. 

12. During this pandemic, we have talked a lot about flattening the infection curve.

13. But there are other curves that we must likewise contend with – not just to manage their repercussions, but also to turn them into opportunities. So let me speak about three of these curves, which together, will determine the trajectory of our fiscal strategy.

The Inequality Curve

14. First is the inequality curve.

a. Over the last half century, income inequality has worsened in almost all advanced economies. The problem is most acute in large cities because they tend to be where a country’s wealth is created and concentrated.

b. As a city-state, Singapore’s Gini coefficient is higher than that of other advanced nations.  But it is not higher than other large metropolitan centres like Hong Kong, New York, London, or Tokyo. 

15. In fact, Singapore’s Gini coefficient, before taxes and transfers, has been on a steady decline since 2007, for nearly 15 years now.  

a. That is the result of deliberate Government measures to stop the gap from widening.

b. And after taking into account the redistributive effects of our taxes and transfers, the Gini coefficient has been further reduced every year.  

16. And we continue to intervene swiftly when the risk of income disparity is heightened.

a. Take for example what happened when COVID-19 hit us.

b. We mounted a quick and strong response to the crisis, rolling out relief measures that were tilted towards helping the lower-income and vulnerable.

c. As a result, our Gini coefficient is now at its lowest. 

17. We monitor this closely, because we understand the threat that inequality poses to our social fabric.

a. If people perceive society to be unfair, that society will surely fracture. A Singapore where some people feel that the odds are stacked against them – where they cannot reach the top no matter how hard they try; where their children will never do better than them – that would be a splintered, weak, and disheartening place.

b. Unfortunately, we have seen this happen in other advanced economies; they have become more stratified and more unequal.  The political upheavals of recent years – from Brexit in the UK to the divisive Trump presidency in the US – these were in large part, the result of substantial sections of these societies feeling that their incomes had stagnated, and their lives had not improved. The growth of far-right political parties in many European countries is derived from that same angst and frustration. 

c. So, we are determined to resist these socio-economic forces. That is why we will continue to spend our efforts to tackle inequality and promote social mobility in Singapore. 

18. It is not just about redistribution. Fundamentally, we want every Singaporean, regardless of background, to have the opportunity to progress and succeed based on his or her own effort and talents. 

19. So far, we have made good progress.

a. The Ministry of Finance did a study in 2015 and we 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% moved to the top fifth among their peers in their 30s. This percentage was higher than corresponding figures for other countries in Northern America and Europe.    

b. We recently updated this study for children born from 1985 to 1989, and the percentage was 14% - slightly lower than before, but still much better than many other places.

c. These trends reflect the important role that education has played in our society’s progress.

i. Over the decades, we have improved our schools, created and invested heavily in ITE, and set up more polytechnics and universities.

ii. Because of this, our children have had many more opportunities and choices than their parents. They have more pathways to success.

20. So when you look at the situation today, compared to say 10 or 20 years ago, we have made considerable progress.  But there is still more to be done.  We must continue to reduce inequality and promote greater social mobility among all segments of society and throughout their working lives.  

a. This is why we decided to expand the progressive wage approach to cover the vast majority of lower-wage workers – this will narrow the pre-tax wage gap.

b. At the same time, we are enhancing the Workfare Income Supplement scheme to top up the cash earnings and retirement savings of lower-wage workers.  

c. We know that social mobility needs to start young. So we are doing more upstream – from the preschool level, to provide additional targeted support for children from low-income families.  

d. And through SkillsFuture, we are helping working adults stay relevant and learn throughout life, so they can continuously improve their job prospects.

21. All these efforts will require more funding. But these are areas that 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.

22. We give this assurance to all Singaporeans: Your life – and the life of your children – will become progressively better. Nobody, and no group, will stagnate or feel excluded from the benefits of growth. The prolonged stagnation of the middle-class seen in other countries is something we have avoided in Singapore for the last 60 years.  And we will do our utmost to ensure it never happens here.  

The Demographic Curve

23. Tackling inequality alone is not enough. We must also be aware of other underlying trends that can strain our social compact.

24. And that brings me to the second curve, the demographic curve.

25. Today, we are one of the fastest ageing countries in the world. 

a. In 2010, 9% of our population were aged 65 and above.

b. Last year, it was 15%. 

c. By 2030, we expect Singapore to join the ranks of Japan and some European countries as what people call a super-aged society – that means 25% of Singaporeans, one in four, will be 65 and above.

26. Greater longevity is something we should celebrate, but ageing can also place significant strain on our society.

a. Our healthcare spending has already tripled in dollar terms over the past decade, and it is now at 2.2% of GDP.

b. By 2030, this expenditure is expected to increase further to 3% of our GDP.

c. I have said before that the revenue from the increase in GST which we are planning will, go towards supporting our healthcare expenditure.  But this revenue will not be enough to cover the additional healthcare spending.   

d. 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.  

27. These are difficult problems, and there are no easy solutions 

a. With shrinking labour force growth, productivity will be key.  And that is why we are helping businesses to transform and shift away from manual processes. We are equipping our people with new skills, so that our economy can do more with less.

b. We are also growing the silver economy, so businesses can innovate to tailor goods and services for the elderly.

c. And at the same time, we are raising the retirement and re-employment ages, and providing wage top-ups and grants to incentivise companies to employ senior workers. We do this, so that those who wish to, can continue to work.

28. The demographic curve may be inevitable, but it is a window of opportunity too. It is on us to find the silver lining. 

a. We must shift mindsets to embrace productive longevity and view our seniors as assets. 

b. We must make sure our seniors can all look forward to a fulfilling life, be it in retirement or in a new job, and have a sense of security in their golden years. 

The Emissions Curve

29. Now, the third curve is one less visible yet far more dire: the emissions curve.

a. If the emissions curve continues to rise, a climate catastrophe may occur by the end of the century, or earlier.

b. The good news is that there is a renewed sense of urgency to the climate agenda. 

30. Singapore, too, is committed to this global effort, and we are taking proactive steps to decarbonise our economy.  

31. This will not be an easy transition, because we are at a double disadvantage.

a. First, our lack of land space and other natural resources makes it very challenging to deploy renewable energy at scale. 

b. Second, as a low-lying island, we are at significant risks of coastal inundation and inland flooding.

32. But our economic story has always been one where we defied the odds. 

a. So we are seriously considering the import of green electricity, and findings ways to overcome the high cost, and technical and security challenges.

b. To protect our coastlines against sea level rises, we expect and are prepared to spend up to $100 billion. 

c. And we are diversifying our water supply in case of dry spells.

d. In a way, we are worried about too much water, and not enough water, at the same time.

33. We are also pressing ahead with the green transition of our economy. 

a. We are actively pursuing new opportunities to grow as a sustainable finance hub, and to spur the development of green urban solutions that can be exported to markets overseas.

b. And we are investing in R&D on new technologies like hydrogen and carbon capture. These will take time to bear fruit, but they can put us in good stead in the longer-term.

34. One of the key levers for this green transition is the carbon price.

a. Our carbon price today is too low. 

b. This is why we are reviewing the level and trajectory of our carbon tax.  We will ensure that it reflects the cost of carbon, and influences investment decisions effectively. 

c. We are mindful that businesses will need predictability and time to adjust – so we will announce at Budget next year the revised carbon tax rate for 2024. And we will also indicate what we can expect up to 2030.  

35. Climate change will be a costly affair for Singapore. But it is a cost we cannot afford to skimp on, for it affects our very survival, and the Singapore that our children will live in. So the Government is prepared to make bold moves to transition and future-proof our economy and our way of life. 

Our Fiscal Strategies 

36. I have outlined the three key challenges that the Government faces today: inequality, ageing, and climate change.

a. They are interlinked, and we will need to tackle all of them comprehensively. 

b. For example, an ageing population can exacerbate inequality, while inequality can make the lower-income more susceptible to the effects of climate change. 

37. We will tackle these challenges comprehensively, to arrive at a fairer, greener, and more inclusive society. 

a. To get there, we must re-examine our fiscal strategies, so that our tools can meet the task at hand.

b. Let me highlight three key priorities that underpin our fiscal moves.  

Ensuring Efficiency and Equity 

38. First, we ensure that our programmes and investments are funded in a fiscally efficient manner that preserves inter-generational equity.

a. We have gone beyond just awarding grants to businesses, to using loans and equity to support companies.  This will allow us to recycle our fiscal resources in the long run.

b. We also risk-share with banks, and provide support or invest with private sector partners like Clifford Capital and Heliconia. This way, we borrow their commercial lens in the selection of companies to groom into local champions.
c. These expanded ways of investing in our economy and viable companies are crucial in stretching the public dollar. 

39. In addition, we strengthen inter-generational equity between the present and future by making use of borrowing to finance our long-term infrastructure projects.

a. This year, we introduced the Significant Infrastructure Government Loan Act, or SINGA in short. It allows the Government to issue bonds to fund nationally significant infrastructure, with high upfront costs but large long-term benefits.

b. This is not the first time we are borrowing. We borrowed in the 70s and 80s to finance the hump in our development expenditure, so we could build Changi Airport and our first MRT lines.

c. We will soon face another hump in our development expenditure arising from new needs to expand our infrastructure network and adapt to climate change.

40. Some think that borrowing will create more fiscal space, so we should borrow more. 

a. But borrowing is not a panacea to our fiscal challenges.

b. Whatever we borrow today has to be paid back tomorrow.  Borrowing simply shifts the burden to the future generation. 

c. That is why we are limiting our borrowing to long-term projects, where it makes sense to share the costs equitably between present and future generations.  

d. But where it comes to current spending needs, we should resist the temptation to borrow from the future.

e. 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.

f. This has been a cornerstone of our fiscal philosophy since independence, and we will continue to uphold this. 

Strengthening our Revenue Resilience

41. To cope with rising spending needs, we will have to strengthen the resilience of our revenue base. This is our second priority.

42. Compared to other countries, Singapore is fortunately in a strong fiscal position. We have our reserves as an endowment, from which we draw a stream of resources to spend every year.

a. Most advanced countries pay 2-3% of GDP each year just to service their debts.

b. In Singapore’s case, our Net Investment Return Contributions, or NIRC, give us additional revenue of around 3% GDP on average. 

43. This has helped keep our overall tax burden low. 

a. Of course, some say, well, we have the NIRC, let us spend even more from our endowment.

b. But let’s not toss this idea about flippantly. Our returns from the NIRC are already facing significant headwinds in a more challenging global investment environment. 

c. Our current 50/50 structure where we put 50% back into the reserves to preserve growth, reflects our equal emphasis on both the present and the future.

d. And the more we spend from our reserves, the less we will have for future needs.  And we must never underestimate the kinds of shocks that may plague us in the future.

i. Just for COVID-19 alone, we are planning to use more than $50 billion from the reserves. That is more than 10 times the amount we had drawn for the 2009 Global Financial Crisis.

ii. And there may well be future pandemics, or geo-political tensions, or climate impact – all of which will again require quick and nimble action from the Government.

44. So, the sustainable and responsible way to fund our recurrent expenditures is to raise tax revenue.

a. As mentioned earlier, healthcare alone will demand an additional 3% of GDP in spending over the next 10 years. 

b. That, plus our investments to reduce emissions, provide quality education, maintain security, and so on – totaled up, our needs are significant, and growing.

c. Some of this can be borne through income taxes. But, with rapid ageing, it will not be sustainable and will make it hard for our working population.  

d. So this is key to understanding why we are looking to increase our Goods and Service Tax or the GST. It is a tax on final consumption, and it helps to smoothen the burden of taxation across the entire population young and old, and including tourists and foreigners when they spend money here.

e. We are not alone in this – the GST or Value Added Tax is now central to tax systems around the world, and most jurisdictions have much higher GST or VAT rates than us.

Upholding A Fair and Progressive Tax System

45. As we consider different ways to raise more revenues, we must continue to uphold a fair and progressive system of tax.

46. Some people object to certain tax increases because they say it is regressive, and they disproportionately impact the lower-income. But these concerns are not so applicable in Singapore’s context. Why is that so?

47. First, we work very hard to mitigate the impact of specific tax components, especially for our vulnerable.

a. For example, our GST is tied to a permanent GST Voucher scheme to defray the tax burden for lower- and middle-income households.  When we raise the GST rate, we will also enhance these permanent GST Voucher scheme.

b. And as we introduce higher carbon taxes, we will also enhance U-save rebates, to help lower- and middle-income households with the transition.

48. Second, what is more important is not to look at individual tax items, but to consider the taxes and transfers system as a whole.

a. We have always maintained a high level of transfers to the lowest income households.

b. Households in the bottom 20% income bracket receive about $4 in benefits for every dollar of tax paid. For middle-income households, the ratio is around 1:2. Whereas for households in the top 20% of income, for every dollar of tax paid, they receive 30 cents in benefits. 

c. Our taxes and transfers system today is progressive, and we will keep it that way.

d. For the middle-income, we maintain a low tax burden so that they can enjoy the rewards of their hard work and have the freedom of choice in their expenditures.

i. Many European countries with more extensive welfare systems incur more than 30% of GDP in public spending. And to fund this, they impose hefty income taxes on the middle-class, typically more than 30%, as well as VAT rates that range from 20 to 25%.  

ii. We have avoided this, and have kept our public expenditure lean yet effective. That is why half of our working population do not have to pay personal income taxes, and GST rates are where they are today. 

iii. So going forward, we will need to raise revenue to fund our additional expenditure. But we will move forward carefully, to make sure that overall public spending remains effective, and that taxes remain as low as possible for the middle-class.

49. Another element of progressivity is to consider not just a person’s income, but his wealth.  

a. Indeed, those who are more affluent should pay their fair share of taxes.

b. Now one thing is clear: We already tax wealth in Singapore.

c. We do so in various forms – through property tax and stamp duties on residential properties, and through the additional registration fees on motor vehicles.

50. In Singapore, we have also been able to mitigate some of the divergence in wealth seen in other places through our home ownership policy.

a. Heavy public housing subsidies have allowed a whole spectrum of homeowners, including the lower-income, to gain from the appreciation in home prices and equity.

b. Our policies should continue to promote broad-based wealth accumulation amongst Singaporeans.  But just as we have tempered income inequality over the years, we also need to guard against rising wealth inequality.

c. That is why we continue to study options to expand our system of wealth taxes – in ways that are effective and add to our revenue resilience without undermining our overall competitiveness,

Enhancing International Tax Cooperation  

51. This brings me to my final point. For many governments, the fundamental challenge in addressing the revenue challenge is that the tax base is increasingly mobile.

52. The key way to address this challenge is through deeper international cooperation. 

a. And such international cooperation is already happening. For example, the Inclusive Forum on the Base Erosion and Profit Shifting, or BEPS 2.0 project, is an attempt to address harmful tax practices.

b. International discussions are also taking place around carbon taxes and ways to ensure uniform standards for carbon pricing.

c. Ideally, every country should be free to set its own tax rate.  But with the mobility of capital and talent, taxes are no longer purely domestic issues.

53. And this is why there is a need for enhanced international coordination on tax matters, as well as international tax standards.

a. In the past, MOF’s work was more domestically oriented.

b. These days, we are much more actively involved in international forums like the G20 and OECD.  

c. It is important for us to have a seat at the table, and to do our part to shape the evolving rules on international taxation.


54. Let me conclude.

55. I have shared about the key fiscal challenges we will face in the future. These challenges are not unique to Singapore.

56. But here, our long-term outlook and prudence have put us in a stable place fiscally, and allowed us to respond readily to emerging challenges. This is what has given us our competitive advantage, and this is how we have strengthened our social compact over the years.

57. In the end, our fiscal system must sustain a more fair and just society. We must and we will continue to invest in our people, our society, and our city.

58. 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. 

59. Thank you.