Transcript of Deputy Prime Minister and Minister for Finance Lawrence Wong's Interview with Bloomberg News Editor-in-Chief John Micklethwait

Panel:
1. Deputy Prime Minister and Minister for Finance Lawrence Wong
2. Bloomberg News Editor-in-Chief John Micklethwaitlaunch

Micklethwait: Deputy Prime Minister Wong, thank you for talking to Bloomberg. Just to set the stage for, particularly, the international audience, the last time I was here, I talked to Prime Minister Lee about succession. I joked – he seemed to find it mildly funny that there was a sort of Squid Game competition – you seem to have won that competition. I suppose that you are now the designated successor, but I have tried to work out the timing on that. When do you think you are likely to take over? Prime Minister Lee, I think, said that he would see Singapore through the COVID-19 process, but you seem to have done quite well in that, so when do you expect to take over?

DPM: First of all, it was never a matter of competition, certainly not the Squid Game. We had a very thorough and deliberate process to think about what we might do with succession planning. The plans were disrupted because of COVID-19. Then we had to come back together, and we wanted a process that would allow us to choose a leader while strengthening the sense of team within the Cabinet, and we have done that. I have emerged as the candidate my colleagues have chosen to lead the team, I am honoured by their choice, and we are now in the process of deliberating exactly when would that transition be for me to take over from Prime Minister Lee.

Micklethwait: Would you expect it to happen before the General Elections in 2025?

DPM: It is not later than 2025 – it could be earlier. As we have discussed before, and we have mentioned this in the last press conference, it could take place before the General Elections, in which case I would take over as Prime Minister and I would clearly lead the PAP and the 4G team in the elections. Or it could be that PM continues as PM now and he leads the PAP in the elections, and then after the elections, if the PAP wins, I take over from him as PM. These are the options, but we have still yet to make a decision on the actual timing. My priority for now is really to start thinking about organising the team, how we might want to go about dealing with our immediate priorities and really take this time to settle in to my new expanded responsibilities and portfolios. In due course we will make a decision on this important matter.

Micklethwait: You are very good at the diplomatic answer. Let us begin with foreign policy, then we will come back to the economy, especially inflation, I would assume. Singapore sits in the middle of so many things to do with America and China and the Prime Minister warned last week that miscalculations can only make things worse. Was Nancy Pelosi’s visit to Taiwan, was that just such a miscalculation? Or was China's extremely angry response to her visit, was that more of a miscalculation?

DPM: Clearly, the relationship is moving in a direction that we worry about and entering more dangerous territory. It is a very consequential bilateral relationship, and although both sides say they do not want to go to war, they do not want conflict or confrontation, I think we are seeing an adversarial relationship between the two superpowers which is likely to stay for quite some time. I think that dynamic is not helped by domestic politics. That makes it difficult for either side to concede any ground, especially during this period, when the US has its midterms and China has its party congress to take into consideration. With how things are unfolding now, we worry that there may be near misses, accidents, miscalculations, and things can get worse.

Micklethwait: In this particular case, Pelosi was going purely for domestic political points of view and that ended up being a miscalculation.

DPM: I will not comment on America’s or China’s decisions. They all have their own considerations and calculations to make. As I have said, I do believe that domestic politics factors into these considerations as well. That creates another dynamic of its own which makes it more complex. But broadly speaking, if we look at the trajectory of the relationship, I think it is very worrying.

Micklethwait: From that point of view, do you feel that Singapore is an ally of America? Do you feel reassured? Do you think that Pelosi’s visit; there are more congress people there in Taiwan this week; do you think that that provided you with reassurance about America's resolve to back its allies or did it increase the danger?

DPM: We are not an ally to America – we conduct our own foreign policy based on our own vital and core interests in a principled manner. We have always upheld our one China policy and we oppose Taiwanese independence, as well as any unilateral –

Micklethwait: Do you feel more insecure because of what happened? Because of Pelosi going there?

DPM: Certainly what has happened in recent weeks, setting aside the visit, but what you see, the events that have taken place, after the Ukraine war, the relations have become more strained and following the visit, tensions have gone up one notch and that is the risk that can happen, that we are starting to see a series of decisions being taken by both countries that will lead us into more and more dangerous territory. You could easily have near misses or accidents happening around Taiwan Strait or on the South China Sea. It has happened before. Remember the last incident with the US spy plane – that was many years ago when US-China relations were in a much better situation than today. If an accident were to happen today, the consequences may be more difficult to manage, and so we worry about these sorts of near misses and accidents and miscalculations, and we certainly hope that the leadership on both sides can continue to engage one another, especially at the highest level, and that sensible and rational decisions can be made to prevent things from worsening or deteriorating further.

Micklethwait: The biggest worry, of course, is a Chinese invasion of Taiwan. How likely do you think that is? Just to give you a piece of context, the former head of the US Indo Pacific Command just told Congress that it could happen before 2027. Is that the kind of timing that Singapore is worried about?

DPM: It is hard to say especially now where things are getting more and more uncertain, but I think Taiwan is certainly one flashpoint. It can easily become very dangerous, as we have seen in recent events, and can even escalate quite quickly, not because either party deliberately wants this to happen, because as I said, both sides understand the consequences and really do not want to go into conflict. The leadership on both sides understand this. But as they say, no one deliberately wants to go into battle, but we sleepwalk into conflict, and that is the biggest problem and danger.

Micklethwait: Isn’t there a danger – to be more specific – China thinks of Taiwan as part of China, and so it wants to have it back, and as long as that exists, there will always be the danger. That is the fundamental core of this.

DPM: Both America and China have an understanding on one-China. There is an understanding of what this is supposed to be, and that understanding has enabled both sides to maintain peace in the Taiwan Strait for many decades. But obviously the situation is starting to change, and it is partly because of the broader dynamics between US and China and the relationship between the two superpowers. The concern that America has on one hand, that China is rising up and going to take over its place; on the other hand, from China's point of view, the concern that America is trying to contain China's rise. This is the broader dynamic, and Taiwan is a flashpoint.

Micklethwait: On the subject of containing China's rise, has America got it all wrong here? I am referring a bit to your day job – what Singapore and other Asian countries really want America to do to provide for them – a trade pact. I know you think the Indo Pacific Economic Framework is better than nothing. That is a very low bar, one we both know but it is pretty close to meaningless.

DPM: I would not put it like that.

Micklethwait: I am sure very politely, but if Nancy Pelosi really wanted to stand up to China, if she really wanted to get emerging Asian countries like yourself, on the side of America, surely the way to come to this region is to come up with a trade pact, not with what should precede it.

DPM: While we have been encouraging America to do more in the region, and that has been our consistent message, we also understand America's domestic politics and its constraints. In that sense, we encourage America to do as much as it can, as much as its domestic politics allow. From that point of view, we welcome the Indo Pacific Economic Framework, and it is good that many ASEAN countries have also come forward to be part of this framework at its launch, but as we have repeatedly told the Americans, the launch is only the beginning.

Micklethwait: Do you think people in the United States understand the predicament of countries like yourselves, like Malaysia, Indonesia, all these different countries have with China that does want to have trade pacts, and America that does not.

DPM: I think in every country, it is very hard to have the external perspective. Even in Singapore, such a small island, people tend to be focused on their domestic concerns, let alone large countries like America and China where naturally their concerns will be more domestic in nature. So I fully understand that Americans and Chinese people will have more domestic pressing concerns to deal with. But we continue to engage the American leadership and we hope that they will do what they can to help ensure that America continues to have a strong leadership role in engaging the region. America has many friends in this part of the world, as we consistently tell our friends in America. We are grateful for America's role post World War Two - America expended blood and treasure to ensure peace and stability in the region and to ensure progress for the region. We certainly look forward to America continuing that and doing more in Southeast Asia.

Micklethwait: There are very few signs of Joe Biden wanting to expend either blood or treasure. Trade pacts are hardly a small version of treasure, but he will not even go that far. Surely people like you, people like Prime Minister Lee, expected a warmer approach to this region, to be unlike Donald Trump, and do you not feel disappointed by that?

DPM: Like I said, there are domestic politics involved – we understand that. It is not easy at all, across all countries, especially as we deal with a more uncertain environment with COVID-19, economic slowdown and inflation. These are pressing challenges for countries everywhere, for Governments everywhere, so we just have to deal with these realities. But from our engagements with the administration and people in the US administration, they do understand the strategic importance of  engaging this part of the world, and I am sure they will do everything they can to strengthen and enhance that engagement. From Singapore's point of view, we look at it this way – we want to create a framework in the Asia Pacific, particularly in Southeast Asia, where all the major powers have stakes in the region, both the US and China. We think that will contribute to a more stable configuration, an overlapping circle of friendships, where everyone has stakes here and hopefully that will increase interdependencies and help make this a more stable configuration.

Micklethwait: What about interdependencies within that Southeast Asian region? We talked about America not necessarily being the ambassador for free trade that it once was. You look at things like the export bans that your trading partners are doing – chickens from Malaysia, and things like this. Do you worry about protectionism being on the rise in this region?

DPM: We do. In a way, the broader concern is that the world is at a turning point. We have, for decades, thrived on a multilateral system that was rules-based, that allowed countries, even though we may not be bosom friends, we may not agree on everything, but we can do business with one another. And that framework of trade and investments has brought about unparalleled economic transformation for the world. It has benefited many countries, especially poor countries, and lifted hundreds of millions out of poverty. But I think this is changing. We are entering a new scenario, a new world order where increasingly, trade, economics, finance are being used as instruments of geopolitical contest. The old logic used to be that with more trade, we can damp down geopolitical rivalries. I think now there is another logic at play, which is geopolitics can undermine trade, and we worry about that because this will lead us to a more divided and dangerous world.

Micklethwait: Do you sometimes feel that perhaps with one or two North Europeans, as like the last free trader left? The US as we have discussed is not exactly an ambassador for that. Britain, except for Boris Johnson, does not believe in the Britain first policy. The EU is not doing much in this state. You are one of the places that thrive on free trade but it is a lonely position for Singapore now.

DPM: Well, we will continue to fly the flag and do whatever we can. The outcomes at the World Trade Organisation Ministerial Conference were not bad. Quite encouraging so do not give up hope. There is a lot at stake. In fact, if the multilateral system were to be weakened, and countries move to a different system altogether, where it is about friend-shoring, where it is about doing business with certain countries and not the entire world, I think the global economy will be badly impacted and the poorest countries in particular will be much worse off. So people talked about decoupling as though it is something very easy to do. But even if it were to be done on a selective basis, I think it will have tremendous damage on the global economy.

Micklethwait: What is the single biggest sort of effect you have seen in decoupling in the Singaporean economy?

DPM: For now, not so much. But let us see. I mean, we have not really seen businesses reconfiguring their operations yet, but it may yet happen. For now, what you hear a lot is that people are trying to reconfigure supply chains to become more resilient. That is not necessarily a bad thing if it is about diversifying options – paying a slightly higher price for greater resilience. If it stops there, and it is about more resilient supply chains, I think we will be fine.

Micklethwait: So in a strange way, have you not been a gainer from this because Hong Kong, particularly with China's version of decoupling and the growth of the authoritarian side of China and Hong Kong, that has pushed businesses and people to look at Singapore as a more straightforward Asian hub? The yuan, in a strange way, despite suffering from the decoupling from the US-China conflict you have in a strange way, been a winner.

DPM: We will always want Singapore to be the bastion of stability and opportunity even in an uncertain and dangerous world. We take no joy when places around us suffer negative consequences. That is not the point. We want to see the world prosper and we want to see stability around the world. We want to see the economy functioning in a rules-based multilateral system.

Micklethwait: You talked about Singapore being open to the world. As you know, the main problem for international companies and for that matter, domestic companies here are laws restricting foreign workers and the number coming in various sectors like healthcare, construction and so on. I know you are moving to a point-based system next year. There are continual complaints from just about every foreign company here that they cannot get people in. I wonder is there anything new that you can tell us about that? Is there any sense of acceleration?

DPM: We are labour-short but we are not the only country that is labour-short. It is everywhere around the world and people forget that more than 6.4 million people have died from COVID-19, and possibly more. Quite a large number have decided that they want to have different priorities in life. It is no wonder that we are labour-short around the world. The reason why companies in Singapore are saying we need more workers is not because of a tightening of labour rules. At the employment pass level, we have not tightened at all. We understand that companies are facing labour shortages in different areas. That is in part earlier on because of the border measures but since then, restrictions have lifted and now they are still finding difficulties bringing in workers from different countries because these countries also face labour shortages. Look at our non-resident workforce today – it is still not back at pre-COVID-19 levels. There is still head room in terms of quotas, in terms of allowances, companies can still bring in more workers. But the reason why they are unable to do that is not because of policies. It is because they cannot find the workers from different sources. That is the fundamental reason. But we hope that the situation might ease in some of the source countries and with free travel that more and more companies will be able to get workers from different places and then we will see some of these pressures on the labour market easing in the coming months.

Micklethwait: Another issue with foreign companies. Nancy Pelosi did bring up Singapore's section 377A which is the one which criminalises sex between men. When is that rule going to go?

DPM: That is something for Singapore and for Singaporeans to decide. It is something that we have been discussing. It is one of those issues that is has to be managed and dealt with carefully and sensitively, because it pertains to our social values and norms and we have been doing this for a range of different issues. Whether it is race or religion, or whether it is regarding sexuality, we know that these are issues where different segments of society hold deep views and sometimes opposing views. Our way of addressing these sorts of issues is really to engage the different groups and see if we can work out some common understanding, some way of having mutual accommodation and compromise without causing deep polarisations and divisions in our society or deeper polarisations and divisions. That is the process that we are undertaking right now.

Micklethwait: Personally, you are a modern man. You have studied abroad, you have studied at Harvard, you are cosmopolitan. It must be very embarrassing having a law like that when you are trying to bring people to come to Singapore.

DPM: We all understand the history and the reason why this role was in place. It is not something that the Government in Singapore introduced. It was a legacy. We know that over the years, many Asian countries which had this legacy as former British colonies have repealed the law. But we also know that in Singapore, there are many segments who feel that it is not just about the law, but the law is a marker for other things. Things that they care about – about society, societal values, about family, and about marriage – so it is not about the law per se but about these other things. And that is why as I mentioned just now, we are having this conversation even right now, engaging different groups and considering how best we might move forward in a way that will not cause deeper divisions in our society.

Micklethwait: So, it would be fair to put that into another way, you personally seem in favour of the law or you think you need to bring Singapore in to do it?

DPM: We will explain all that in due course. As I said just now, it is a live issue for us because we are in the midst of discussing and engaging different parties on this.

Micklethwait: One of the challenges which I know comes up a lot with foreign companies, but also anybody trying to hire people in Singapore, is this point about visas for same-sex spouses. Somebody is married to someone legally in most of the world, their spouse then cannot come to Singapore under the same visa. That is an area where Hong Kong is more progressive than you are. Can you give any reassurances on that being changed?

DPM: We have seen some of that feedback, for people who have faced difficulties with partners. I think we have been able to deal with some of that on a case-by-case basis, but the broader issue, as I mentioned just now, the broader issue is not about 377A; it is about how we organise ourselves as a society, whether or not values around family, around marriage will be changed, and those are the concerns that the larger segment of Singaporeans is concerned about. That is why this engagement and this conversation that we are having now with these different segments of society are important.

Micklethwait: Do you have any evidence that the most Singaporeans are against getting rid of the law or is it or is it just a substantial minority is against?

DPM: As I have highlighted, the two issues – the law is one matter. Views on the law and criminalisation of homosexual behaviour certainly has evolved, has changed, but there are also views around family and marriage, which is different from the first matter, which I have highlighted. People do feel strongly about the latter, on family values and marriage. And as I mentioned just now, we will have to engage them and consider how best to move forward on this matter, recognising that people in Singapore hold very strong views, and sometimes these are opposing views.

Micklethwait: Inflation. Currently 6.7%, with core inflation 4.4%, which is to put it mildly, not as bad as many other places, but it is a political issue here. Most people expect inflation to get worse, before it gets better. Singapore has targeted subsidies at the most vulnerable, which again, because people think it is a wise thing. But I wonder, given the fact that it is not getting better, is there more you can do on that?

DPM: We continue to monitor this very closely. The Monetary Authority of Singapore has already moved four times in the last nine months with regards to monetary policy to dampen reported inflation. And on top of that, we have all the various multiple packages of help that we have extended, focused on the lower income and vulnerable groups because they are the ones who will be disproportionately impacted by higher prices. Some of the measures we have announced are still being rolled out in the coming months. We will continue to monitor the situation, and the assurance we give to everyone in Singapore is that if the inflation situation were to worsen, we will certainly be able to provide more assistance. For now, we expect inflation to probably peak at about the fourth quarter of this year toward the end of the year, and it will start to ease thereafter. But the big uncertainty is what is the extent of easing and where will the new inflation rates stabilise then. I think it is more likely that they will not stabilise at the rates that we were all used to over the last decade or so – zero, one per cent inflation. In fact, that in itself was a historical anomaly because inflation rates never used to be so low. So it may very well settle at a higher rate, especially considering the geopolitical environment, the supply chain issues that we will have to deal with, and the green transition that we are all talking about. We will just have to pay that little bit more in order to be greener, in order to have more resilient supply chains, so we have to be prepared for that new equilibrium where inflation is concerned.

Micklethwait: Do you have a rough idea on your mind on for what inflation might be next year, if you have to guess, especially core inflation?

DPM: Not right now, but the economists are all looking at it and they will put out the figures in due course. But as I said, we expect the trajectory to start to ease from the highs of what we are seeing now by the end of this year, and then it will come to a new level next year. We will put out the estimates for next year in due course, but I should also say that we do worry about the risk for growth next year. It is not just an inflation risk; the growth risks are starting to increase as well for next year. That is something that we are watching carefully too.

Micklethwait: You have talked about growth risk, you have talked about the difficulty of making sure that particularly the least privileged, the poorest in Singapore, will get to get things next year, famously you are going to increase consumption tax from 7% to 8%, are you still fully committed to doing that?

DPM: We have to because of the revenue shortage that we face. We want the Government to do more in Singapore. Everyone wants the Government to do more in Singapore, and we have already spent a lot more in the last two years, and we expect spending to continue to rise in the longer term with a rapidly ageing population and the increase in healthcare costs. We have to do what is right and spend more, but also in a way that is sustainable and responsible and does not leave behind a bigger hole for the next generation, and that means increasing revenues. But as I had explained in the Budget this year, we are doing so in a way that is fair and that is progressive. Even in the way we design our GST system, the GST increase will not hurt the low income because we are providing more than sufficient offsets so that it will not have any impact on the lower income households. The higher income will pay the bulk of GST.

Micklethwait: That brings me on to my other question. You had to pay for all this money, which is spent, and as you have pointed out, probably rightly needs to be spent delivering services and that brings us back to the rich and inequality, a subject on which I think, especially you, probably have made more fuss than other politicians about. But I suppose the question for you is are you planning to introduce new forms of wealth taxes, like dividends and capital gains or even an inheritance tax?

DPM: This must be Bloomberg’s favourite question for me.

Micklethwait: It is, that is why it is one of my many questions.

DPM: You must have asked me this three or four times already. We always look at updating our tax and transfer system. It is a system that is fair and progressive, and it is a system that must underpin a society where we ensure that growth is inclusive and everyone benefits from the nation's progress. That is our fundamental objective. If we look at the last 10 years, we have not done too badly, we have had broad based income growth, we have got relatively high levels of social mobility, and our income gap, our income inequality based on the Gini coefficient has been narrowing. But we feel that we will have to still keep an eye on this very closely and probably the Government would have to lean some more in the direction of more inclusive growth because if you look around the world…

Micklethwait: Lean more heavily in favour of taxing the rich, surely? Singapore has become this magnet for rich people, you have a lot of investment coming in here. We have mentioned Hong Kong's problems which led to another lot of rich people coming in, surely that is the correct target for you to aim for?

DPM: It will have to be a system that is fair, and when we talk about a fair and progressive system in Singapore, it means everybody does their part, everybody pays some form of taxes, but certainly the ones with greater means, the rich, the higher income, will have to pay more. And it is not only done through the taxation system, but we also can do it through transfers and spending and make sure that spending is targeted at the lower income and those with greater needs. So when you combine taxes and transfers together, we have in Singapore a very progressive system, as I stated in the Budget. For every dollar of tax that is paid, for the lower income, they get $4 of benefits, for the middle income it is $2 of benefits, but for the rich, it is only 30 cents of benefits. That is the system we have but we are continuing to see how it can be enhanced, improved and be fit for purpose, increasingly, in a world that is going to be more uncertain and where there will be more forces that will stretch incomes and wealth.

Micklethwait: Sounds as if you have slightly greater emphasis on inequality than the present Government thus had. I wondered whether you see yourself, as I was listening to you, as more of a technocrat or a progressive?

DPM: A bit of both, I suppose.

Micklethwait: Is this possible, you think? On the subject of progression, the Government is drafting a new racial harmony law, which from the outside seems to reflect some of the successes Singapore’s had had, and the extent that your racial harmony involves people having to apologise to each other and going on courses and re-education and things like that. Can you just quickly explain the logic behind that and what role you think that plays in the next stage of Singapore?

DPM: This was prompted particularly in 2020 when we had COVID-19 and we saw a sharp spike in racial incidents, and we were very concerned. We monitor this every year, very closely, and at the height of the pandemic, we saw an increase in racially motivated incidents and we were concerned because racial harmony is something that is critical to Singapore's existence. Once we start to have internal strife, we are finished because we are such a small city, and so we cannot afford to have divisions amongst ourselves. That is why we have continued to engage the different groups, try to understand the concerns, and we think that having such a law will help to remind everyone the importance of racial harmony.  We can have a range of actions to take when you see somebody undertaking an action that is not right, that is offensive or that creates a problem to other communities, so there is a range of actions, it does not have to be punitive at the start, but we do want to put in place something that reminds people that this is critical and even existential for Singapore's future.

Micklethwait: On that, do you think that the real test of whether Singapore has come a long way is whether it will be able to have a leader who is not ethnically Chinese?

DPM: I have made my views very clear on that. I would certainly welcome a leader in the future, who is not from the majority community. We choose our leaders on the basis of merit and if there is a leader that emerges down the road who is not Chinese, I would certainly welcome that person.

Micklethwait: Thank you very much for speaking to Bloomberg.

DPM: Thank you.