Budget 2022: What are the policy challenges in a post-pandemic Singapore?

One thing that set Budget 2022 apart from previous ones was its broad outline of a vision for the reconstruction of post-pandemic Singapore, even if Minister for Finance Lawrence Wong did not express this in such grandiose terms.

Taxes and their impact on corporates featured prominently, underscoring the Government’s keen eye on global developments.

The proactive exploration of a top-up in corporate tax of multinational corporations to conform to global anti-base erosion rules puts our ecosystem in good stead, ahead of a looming global minimum tax rate which will begin to take shape next year.

Raising the country’s carbon tax rate to between S$50 and S$80 per tonne of emissions by 2030, up from the initial estimate of between S$10 to S$15 per tonne, aligns Singapore more closely with the International Monetary Fund’s recommended rate of US$75 per tonne.

Budget 2022’s tweaking of manpower policies has also thematically built on initiatives that have been introduced in recent years, including Tech.Pass, which was established to attract leading technology experts and entrepreneurs globally, as well as the Nongsa Digital Park initiative, which effectively secures a talent hinterland for Singapore.

The policy direction here has leaned towards nurturing an ecosystem of tech elites while tightening the supply of foreign workers at the lower end of the wage spectrum.

This calibrated response to manpower should also be seen in the context of the Government’s social investments in both upskilling and redistributive policies, signalling a recognition that the country’s transition towards a higher-value, innovation-led economy could lead to greater stratification without the appropriate fiscal support.

The sum of these and other policy initiatives announced as part of Budget 2022 signals an intent to evolve from a system that has been caricatured as low-tax and foreigner-reliant, into one that is aligned with international developments, supported by a higher value-added economy, and is more egalitarian in its redistributive measures.

As policymakers put in place the structures that will enable post-pandemic Singapore to flourish, key political and policy challenges remain that need to be considered. 

SUSTAINING AN AGEING POPULATION

First, the stark inexorability of our demographics and our ability to fiscally sustain an ageing population.

Last year, for the first time since 1970, citizen and resident numbers registered a year-on-year decrease, while the share of citizens aged 65 and above increased at a pace faster than before.

Complicating the public financing this requires is the fact that our sovereign funds today operate in a low-yield environment, challenging the sustainability of high returns even with their long-term mandates.

This is compounded by how the low-hanging economic fruits of population growth for its own sake have already been plucked.

What are other means of raising government revenue now available to us?

The ownership of land and the invention of new technologies have been great drivers of wealth over the past decades, and both intersect in the wild west of the metaverse without the countervailing balance of digital unions and governments.

Regulators have faced difficulties converging on globally standardised tax treatments due to issues such as categorisation, valuation, and pseudo-anonymity.

India, for example, has imposed a 30 per cent tax on profits on cryptocurrency investments, conferring regulatory legitimacy to the asset as a taxable class, while controversially placing it in the same tax tier as online betting.

As clarity over the appropriate regulatory treatment of digital assets develops over time, the future of digital assets as a taxable good could also contribute towards public spending. 

MAINTAINING OUR CONNECTIVITY

Secondly, Singapore cannot avoid being deeply connected and integrated to global trade for the vitality of its economy.

But Singapore the proverbial canary in the coal mine is also home to a plethora of very diverse views.

These can range from concerns over competition with foreign talent, the type of concessions we should include in trade agreements, and even the kind of diplomatic relations we should seek to establish or maintain with regional neighbours.

These feature as key themes in conversations I’ve had with corporates and global investors as part of my work.

The durability of supply chains and their conformity with established environmental, social and governance standards, the macro environment around post-pandemic reopening, and broadly, how to value assets according to policy headwinds and tailwinds are but some of the many concerns economic stakeholders have when thinking about whether to invest in this country.

In the years to come, policymakers will need to navigate an increasingly thin political tightrope characterised by the need to maintain its open, connected economy, whilst catering to nativist sentiments exacerbated by the uneven impact of Covid-19 across different parts of the population.

A SENSE OF ROOTEDNESS

Thirdly, linked to Singapore’s ability to attract and then retain the globe’s best and brightest in a policy environment with a global minimum tax rate, is the need to further develop our non-financial incentives.

Our good standing as a global connectivity hub, underpinned by several trade deals and physical infrastructure, robust industry-tertiary ties, and supported by an efficient and transparent legal system, is not in dispute.

But as the country fulfils its global city ambitions and becomes a hub for global talent, a debate over democratic participation in our commons will need to happen.

These are the “soft” matters which imbue a sense of rootedness for a place.

Policymakers will increasingly have to arbitrate, for example, between censorship and artistic licence, or being cosmopolitan without being subject to foreign influence.

They will have to allow technology to enable conversations without unduly privileging the views of digital influencers or worse, isolate non-digital segments of an increasingly plural society’s residents.

Budget 2022 has hinted at a vision for a post-pandemic Singapore that is globally connected and abreast of international policy developments.

The next steps in the construction of this vision involve navigating difficult policy choices around economic competitiveness, social protections and democratic development which if done well, will provide for a healthy economy, polity and society.   

ABOUT THE AUTHOR:

Andrew Yeo is Asia Practice Lead and Head of Singapore for Global Counsel, a public policy advisory firm.