The following is the transcript of a CNBC First On interview with Lawrence Wong, Singapore Minister of Finance, addressing the release of the Budget 2022.
Should you choose to use anything, all references must be attributed to CNBC and Martin Soong.
MARTIN SOONG: Thank you for your time. I know you’re very busy man, we will lift the hood and take a closer look at your budget in just a while. But – we were talking offline a few minutes ago – It’s been a pretty brutal time, the last two and a half –
LAWRENCE WONG: Right? For the last two years.
MARTIN SOONG: Absolutely. So how are you, first of all?
LAWRENCE WONG: I’m doing well, coping as best as I can. Busy on many fronts – fighting COVID, preparing for the budget. But all things told, I’m doing okay.
MARTIN SOONG: That’s good to hear. So COVID, before we get to anything else – update us on the situation there, because Singapore’s vaccination rate, nearly 88% fully vaccinated, is among the highest in the world. That’s the good news. Omicron though, the variant – infections just a couple of days ago hit almost 20,000. How is Singapore doing?
LAWRENCE WONG: Well, we are quietly confident in dealing with this Omicron wave. The infection numbers are at all-time high, and it may even go beyond 20,000. But because of our very high vaccination rate and boosters, the vast majority of infected persons have milder symptoms. So they do not need oxygen and ICU care. In fact, the situation with our hospitals, with regard to ICU and oxygen wards, is under control.
So, if this situation continues like that, we believe that we should be able to take some decisive steps towards easing, once we have passed this present peak of the Omicron wave.
MARTIN SOONG: I need to ask you, there’s a concerning variant now, BA.2 – sounds like a credit rating, but I mean, this is no laughing matter – prevalent in South Africa. Any indication, any signs it’s arrived here or not yet?
LAWRENCE WONG: Well, there are variants and mutations all the time. So we are constantly and continually monitoring this. We don’t have any indications yet for that particular variant that you refer to.
But I am quite sure, before too long, there will be a new mutation. And it will come into Singapore. It may not be now but maybe six months later, but we’ll have to prepare for that. Hopefully, when that new mutation appears in the world, it will be milder than Omicron. And I think that will give us confidence that we are seeing the end of the pandemic. But we can never rule out the fact that it may be a more dangerous or deadly variant. So we just have to be prepared for that.
And the strategy is still vaccinations, boosters, and therapeutics as well. I think the strategies remain sound and we have a clear path towards getting back to life as normal.
MARTIN SOONG: Is Singapore planning for a fourth shot? Or it could be a pill, the next thing? I don’t know.
LAWRENCE WONG: We are studying these options with our scientists now.
MARTIN SOONG: Okay, fair enough. But I mean, the good news is right now, the healthcare system is not under stress or strain, because under some new rules, recently unveiled, people who do test positive are encouraged to basically isolate and recuperate at home.
LAWRENCE WONG: And the vast majority of them are able to do so. I mean, just rest for a few days, and you’ll get better. The hospitals are busy. I mean, I should not trivialize that. Because there are people who still need care, the doctors, the GPs are quite busy.
But the good news is that the people needing ICU care, the serious cases, are not high. They are well within the limits that we have provided for and within the capacity that we have today.
MARTIN SOONG: Okay, that’s good to know. Now, what we’ve been through the last two and a half, three years – absolutely brutal. It’s forced a lot of governments including Singapore to spend and spend big to offset the impact of the coronavirus.
This latest budget which you unveiled just days ago – would it be fair to say that, you know, money is not free, it’s got to come from somewhere. Unprecedented spending in the previous budget, now it’s time to make at least some of that back?
LAWRENCE WONG: Yes, it is. We do want to ensure that our finances get back on a sound and sustainable footing. But at the same time, we also have to moderate the pace at which we taper some of the support, because there are still some segments of the economy that are facing difficulties. And that’s why in this budget, we have still planned for a deficit this year.
It’s expansionary in order to support the economy, as well as to support Singaporeans, but overall, the deficit this year is smaller than in previous years, and we have put in place revenue measures that will put our public finances on a more sustainable footing in the coming years.
MARTIN SOONG: All right, so let’s talk about one of the measures, which is the goods and services tax, or GST, now 7%, but to go up by a percentage point to eight next year, and then another percentage point to nine, the year after, 2024. Some people might say, why not delay it further? Could it not be done?
LAWRENCE WONG: Well, we do look at the options very carefully. Our revenue needs are indeed very pressing – as you highlighted, we spent a lot of money in the last two years throughout the pandemic. So the revenue needs are indeed very pressing. In fact, on that alone, we would have to raise GST in one shot from 7 to 9%, and sooner – this year.
But it was precisely because of the concerns that many people had about having the GST rates go up at the time of rising prices, that I decided – having looked at the overall situation, looking at the inflation outlook and the state of the economy – that we can find a balance by delaying the GST and staggering it over two years, which is what we eventually announced in the budget.
MARTIN SOONG: The GST Goods and Services Tax is one of three legs – sort of a tripod – main pillars behind government revenue, about a fifth or so. The other fifth would be corporate tax, the other fifth remaining fifth – excuse me, third, would be personal or individual tax.
Corporate tax. People tried to look in the budget, and you mentioned a top-up – if a company ends up paying less than 15%, the other jurisdictions where the company is actually domiciled have the ability to pick up the slack and make that back. This is all towards a global minimum tax. Details of that: is that going to make Singapore any less competitive? And if so, how do you offset that?
LAWRENCE WONG: This is part of the global movement toward minimum corporate tax rate of 15%. This move, if indeed it happens and the world moves towards a level playing field, and these large MNCs or MNEs are taxed at a minimum of 15% – it will reduce the scope for tax competition. In that sense, it will impact Singapore.
But we have never relied only on taxes to compete for investments. What it means for us is that we have to redouble our efforts to strengthen our non-tax competitive factors.
That includes our infrastructure, the capabilities of our workforce, and continuing to strengthen and make our overall business environment more attractive and conducive. So we are studying all that, and we are determined to make sure that Singapore remains one of the best places in the world for business.
MARTIN SOONG: Individual tax, personal tax, the top tier just got bumped up. And perhaps that’s fair, it’s progressive, those who make more should be liable or responsible for paying more of their share.
There’s been some discussion also of capital gains tax, perhaps on dividends as well. How far has that conversation gone, with yourself, in the government? Because it would be material, I think, to a lot of people, because Singapore is a very significant wealth management center.
LAWRENCE WONG: If you look at taxes, you can think about taxes for consumption, income, and wealth. So we really want to have a balanced tax structure, taxing all three elements. Capital gains and dividends will fall into the wealth category. We look at wealth taxes – the broad range of wealth taxes very closely. Besides capital gains and dividends, you also have the possibility of a net-wealth tax directly on individuals.
But the challenge with these sorts of wealth taxes is that wealth and financial flows are highly mobile. And if we were to move, but other jurisdictions do not have similar taxes, it is very easy for wealth to move away from Singapore to another location. So there is that consideration.
And on top of that, putting in place these sorts of wealth taxes, particularly a net wealth tax, can be a very complex exercise to estimate the wealth of the individual. So we continue to study these options. We don’t rule anything out in that sense. But I think we also have to be practical. And that’s why in the budget, we decided to impose wealth taxes principally through the existing means, which means property and luxury cars.
MARTIN SOONG: Indeed, yes, I think at least some people will be a little bit upset about that. But anyway, back to a point you made a few minutes ago. Basically, Singapore’s idea is not to compete on cost competitiveness alone.
LAWRENCE WONG: Absolutely.
MARTIN SOONG: It can’t be the value proposition, there’s a lot more than makes it –
LAWRENCE WONG: It’s not sustainable for us to compete on cost alone. Because as our society and economy progresses, wages have to go up. And if we are keeping costs artificially low, it means we are keeping wages low as well.
But as wages rise, then we have to compete on the basis of capabilities, productivity, innovation. That’s why the more sustainable solution going forward, is to invest in capabilities for our businesses and our workers. And we have a whole range of measures that we have announced in the budget to enable this.
MARTIN SOONG: Indeed, and as I was combing through the budget, it seemed to me that the budget is not just a make-up budget or payback budget, it’s also using itself as an opportunity to create or reshape the social contract or compact with Singapore’s people.
Part of that is, workers probably should be paid more, right? More locals or Singaporeans should probably be hired. Hopefully, that will lower the income disparity or wealth gap. And honestly speaking, some people were saying that will probably also lower the discontent ahead of elections, which are meant to be called by 2025.
LAWRENCE WONG: Well, this has always been a priority for us, Martin. If you look at the decade before now – in fact, after the global financial crisis of 2008 – we recognized that the world was shifting in a different direction, greater uncertainties, wages were getting pulled in different directions. And workers were feeling more anxious about their prospects in the workplace.
We’ve already started taking steps to reduce wealth, income inequalities. And that’s why, in the last decade, wages of the lower income grew faster than median wages in Singapore. And that has helped to reduce income inequalities – as measured by the Gini coefficient, which has been steadily improving.
In this budget, we are planning for the next decade. So we have what we call progressive wage model, which is effectively a wage floor but also a wage ladder for low-wage workers to get higher wages as they improve their skills. We have Workfare, which is a wage supplementation scheme, effectively a negative income tax – rather than taxing low-wage workers, I top up their salaries. With both combined together – and the government is investing something close to $9 billion over the next five years for both schemes, a very significant amount – we are confident that we can ensure the incomes of low-wage workers continue to rise faster than median wages in Singapore over the coming decade.
MARTIN SOONG: Would it be fair to say that long term, the vision would be a not just more equitable but also flatter, very much a middle – an even more middle-income society?
LAWRENCE WONG: Very much so. We are not against people doing better, earning more and accumulating wealth, by no means. These are good things.
But as part of our renewed and strengthened social compact, we do want everyone to pay, contribute taxes, contribute their share of taxes, and those with greater means should contribute a larger share. That’s the basis for how we are thinking about some of the revenue changes that we have put in place. It’s fair, it’s progressive, and I think it will help to hold our society together, even as we enter a new era of a post-pandemic future, which will be more uncertain, more volatile, and will be faced with more disruptions in the future.
MARTIN SOONG: Minister let’s talk about some of the uncertainty and volatility in the immediate term. Singapore, if I’m not mistaken, is still forecasting 3 to 5% growth for this year.
The risks though – and there are many – let’s start with, everybody’s watching the U.S. and the Fed. They’re trying to manage an exit from ultra-accommodative monetary policy – soft land their economy without tipping it into, obviously, recession. Inflation is a huge issue as well, which is almost forcing the Fed’s hand.
For a country, an island-state like Singapore, which depends almost entirely on the outside world for everything that it needs, inflation is a significant concern.
LAWRENCE WONG: Certainly.
MARTIN SOONG: With Russia and Ukraine, that’s something we’ve been watching as well. If conflict breaks out, commodity prices, oil, gas, could spike as well. What is Singapore’s contingency plan or Plan B, should that happen?
LAWRENCE WONG: Well, as you said, there are so many different downside risks. Our baseline projection is three to 5%. But the risks are tilted on the downside, for both growth and inflation, for all the reasons that you highlighted. A conflict and potential tensions in the Ukraine, inflation, supply chain disruptions, or even for that matter, pandemic-related risk. We can’t rule that out. So we watch and monitor these very closely.
And should the situation take a turn for the worse, we stand ready to respond, we will not hesitate to use the full measure of our fiscal firepower to keep the economy going, to preserve jobs for locals, and to minimize any long-term economic scarring.
MARTIN SOONG: This is probably an unfair question for you as Finance Minister. But let me try it anyway. The level of the SGD, the Singapore dollar – we’ve seen an off-meeting intervention already suggesting that inflation is a concern, and it’s probably more of a worry than any sort of back-up in growth. Is that fair?
LAWRENCE WONG: I’m not sure why you said it’s an unfair question, but I have a different hat: I’m also the Deputy Chairman of the Monetary Authority of Singapore. So it’s an entirely fair question to ask. But as I said just now, there are risks on both growth and inflation. So fiscal policy can respond to downside risk on growth.
But where there are risks on inflation, that’s really for monetary policy to respond. And indeed, the MAS has been proactive in watching over this, and taking steps to dampen inflationary pressures, and they will continue to watch over this very carefully.
MARTIN SOONG: Are you comfortable with the level of the SGD now?
LAWRENCE WONG: That may not be such a fair question.
MARTIN SOONG: I had to try, though. Okay.
LAWRENCE WONG: But as I said, the MAS monitors this very closely. Everyone knows that we have an exchange rate-centered monetary policy. So we work through exchange rates, monitor, and if need be make adjustments on a periodic basis as we do from time to time – sometimes even off-cycle, as we had the last two rounds.
But we will continue to monitor this very closely and make adjustments and take steps to ensure our objective of stable prices over the medium term.
MARTIN SOONG: I know that during our conversation, you were very keen to talk about digitalization, as well as 6G coming down the road for Singapore. I understand the government has earmarked about $200 million over the next few years.
Where’s that money going to go? And how towards further digitalization?
LAWRENCE WONG: The $200 million is really meant to help build up digital capabilities amongst businesses and workers. And we have different schemes for training for companies to go digital and adopt more digitalization and automation solutions.
But on top of that, we are also investing in our infrastructure, upping our broadband speeds, thinking beyond 5G to even 6G solutions. So whether it’s the capabilities of firms or workers, or getting our overall digital infrastructure right, we are sparing no effort to make sure that we are ahead of the game.
MARTIN SOONG: Innovation, research and development. I know you think that local companies need to do a lot more of that: I assume that some of the money is going towards that as well. I know you believe that a lot of this should start at the schools level, at Singapore’s polytechnics and ITEs – institutes of technical education, correct?
LAWRENCE WONG: Well, that’s partly because the polytechnics and ITEs already have these centers that look at research innovation, specifically with industry in mind, because the polytechnics and the ITE are schools that train students for industry. And these centers can provide, we think, very useful platforms, working with companies, offering them innovative R&D solutions suited to the needs of the industry. It’s win-win that the companies benefit, but the students get to do projects too, and then the students, having done these projects, can continue on when they graduate in the industry. So we think that’s a good way to tie up and link up companies, especially our smaller micro-enterprises and smaller enterprises, with the polytechnics and the ITEs.
For the companies that are larger in scale and doing more cutting-edge research, then perhaps they will link up more with the universities where we have cutting-edge research, and then they can pair up and work together on research laboratories for example, or corporate laboratories within the university setting. So they are different. It’s a broad ecosystem, and we are facilitating more of these collaborations.
MARTIN SOONG: You talked about Singapore having a window of opportunity in the next few years to gain competitive advantage in selective niche sectors in technology. Agri-tech is one I know, food tech is another, fin-tech as well?
LAWRENCE WONG: That’s right. Basically, when we look at this budget, it goes beyond addressing immediate concerns, whether it’s growth this year, or inflation. It’s a budget that lays the foundation and the basis for Singapore to adapt and thrive in a post-pandemic future. And that’s why we are using this time to make bold moves to better prepare Singapore, to take advantage of the opportunities in the coming years in these different areas, whether it’s fin-tech, green, agri-tech.
We are investing in new capabilities, and we are also decarbonizing our economy. I think these are important steps that we can take now, to get ready for this new future ahead. And we welcome businesses, talent, ideas, investments from all over the world to join us in this endeavor to form the best teams in Singapore and create value together.
MARTIN SOONG: Decarbonization, picking up on something you’ve just mentioned – climate change, et cetera, the fight against it, is a huge theme for Singapore as well. You’ve become a little bit more aggressive in terms of your targets hitting carbon neutral, right?
The carbon tax, five bucks now, is set to go up by 10 times eventually, correct? The bulk of that is going to fall on only about 40 companies in Singapore, correct?
LAWRENCE WONG: That may sound like only a small group of companies but in fact, we have one of the most comprehensive carbon taxes in the world, because these are the largest emitters in Singapore. So our carbon tax regime today covers something more than 80% of carbon emissions.
And when we tax these large companies, including the power companies that generate electricity, then the carbon price percolates through the rest of the economy – for example, through electricity prices. So don’t let the 40 figure mislead you. Our carbon tax regime is in fact very comprehensive.
MARTIN SOONG: Okay, it would include of course, utilities, but also big oil MNCs, energy MNCs who’ve been here for decades, right?
LAWRENCE WONG: Yes. That’s why we are mindful that they are existing investments. People who have already been in Singapore for a long time. And to be fair, we have to give them early warning and advance in preparation for them to make the adjustments.
All of them incidentally are also very committed to move towards a path of decarbonization and net zero, so it’s consistent with their own plans. Many of them already are thinking about a shadow carbon price within their own companies anyway. So we are giving them a lead time to get ready and to start preparing now.
And we are also thinking, as I said in the budget speech, of a transition framework – that will give them some allowances in the interim, but that framework will be tied to that decarbonization solutions, as well as their efficiency targets.
MARTIN SOONG: Minister, we don’t have that much time left, can you give us more details on plans for green bond issuance?
LAWRENCE WONG: There will be more to come.
MARTIN SOONG: There’ll be more to come?
LAWRENCE WONG: Many more, much more, because we are embarking on this journey of decarbonization for our own economy, and there are also tremendous needs around the region. So we do see many more projects that need to be financed – renewable energy projects, decarbonization projects, low carbon projects. And all of these projects can be financed through green bonds.
To the extent that these are government projects or public sector projects, we will take the lead in the government to issue these green bonds.
MARTIN SOONG: Would it be fair to say that – I mean, some models out there, green bonds that have been issued, work like this: you offer a price in yield and also a carbon target for yourself or rather to investors. If the issuer is not able to hit that target, well, too bad you got to pay investors more. Will it work along those lines, roughly?
LAWRENCE WONG: We are very mindful about the concern of greenwashing and making sure that the projects meet their targets. And part of this framework will require a system of verification that truly these are green projects. We are working through the details now and we will put them out when we are ready.
MARTIN SOONG: And I’m looking forward to hearing it. Minister. We need to go, thank you so much for spending so much time with us.
LAWRENCE WONG: Thank you, Martin.
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