Last year, the Budget statement was made about a week before Russia invaded Ukraine. The statement was about preparing ourselves to get out of the Covid-19 morass to recover economically. Very little was said about global conditions except for a line about how the rivalry between the United States and China will affect the world.
Finance Minister Lawrence Wong added then: “We have entered a new era of greater contestation for influence between countries and blocs, which may erode the rules-based multilateral system that has been so crucial to Singapore’s success.’’
This year, he pronounced a more sobering alert: “Countries are thinking less about mutual benefit and interdependence, and more about national gain and security. An era of zero-sum thinking has begun. It will be a world that is less hospitable to small economies like Singapore, which have long thrived on an open, rules-based multilateral system.’’
It’s natural for any individual to look at the annual Budget exercise and ask: “What’s in it for me?’’. In my view, it is such a generous budget that it makes me wonder how far gone we are on the welfare path with a S$9.6 billion Assurance package and one-off cost-of-living grants.
At the risk of sounding like a nag, I think we should start reflecting on the global backdrop as we tote up the cost and benefits of the Budget to ourselves.
A shorter waiting time for a BTO flat is a big deal to young married couples, but there would be no flat if the country as a whole cannot afford it.
I saw Mr Wong’s speech as a cross between assuring Singaporeans that all will be well, and warning them of more dangerous times ahead.
After the economic shock of the pandemic comes the impact of the Ukraine war. Oil and gas prices are not likely to come down as European countries try to secure their own supplies. While China’s re-opening might provide a boost worldwide, its demand for oil and gas will only raise prices further.
“The reality is that even after the current inflation surge moderates, inflation may stabilise at a higher trend level globally, and in Singapore, than what we were used to in the last few decades,’’ said Mr Wong. So goodbye, S$1 kopi.
Singapore expects a core inflation rate of between 3.5% and 4.5% this year, with headline inflation coming in at between 5.5% and 6.5%. Last year, which Mr Wong described as a “brutal year for inflation worldwide’’, core inflation averaged 4.1% while headline inflation averaged 6.1%.
At times like these, you see words like “uptick’’, “ease’’, “tighten’’, “stabilise’’ and “moderate’’ — they are essentially descriptions of movements that are not designed to alarm. But more important than a possibly temporary surge in oil and gas prices is the overall mood of the world.
“The era of untrammelled globalisation that kept goods at highly competitive prices all over the world is over,’’ said Mr Wong.
Countries are now relooking and adjusting their supply chains. Instead of buying from the cheapest, they are prepared to accept lower efficiency and higher costs to prioritise diversification and strategic resilience. These trends are pushing up inflation everywhere, including Singapore.
Economic advantage matters less than political security. Instead of tanks and missiles, trade and investment flows are the new weapons. It is no longer true that economic linkages are the forces that bind countries together or that everyone benefits from paying less for goods and services.
The US has moved from partisan rows over the most-favoured nation status it grants China in trade to a solid bipartisan response to nip China’s progress with bans on technology exports. In Europe, the Ukraine war disrupted oil and gas supplies causing a frantic search for other sources to keep powering the economy.
So why not just be self-sufficient? Better to pay a higher price for something than not get anything at all.
The world seems to be harking back to the days of economic nationalism. But it’s not about appeasing domestic audiences who want jobs to stay home and keep local prices low. It’s about the increasing need for national defence against economic attacks.
Singapore is affected in two ways — both as a consumer and a business. The consumer part is more apparent given our small size and our need to buy nearly everything from abroad. Hence, the 30/30 project to have 30% of our food needs fulfilled by 2030 is important.
Our neighbour, Malaysia, knows this too, which was why its prime minister offered the Republic cooperation in food security with Malaysia as the heartland.
This is not likely to go down well with Singaporeans with longer memories who will recall the rows we got into with Malaysia whenever it threatened to cut off water supply. We “pivoted’’ and came up with NEWater.
Source: Wikipedia
The “insurance’’ is, therefore, our national reserves. I don’t know how Singapore got the Covid-19 vaccines so quickly, but we probably paid a bomb to get them early. It’s good to have so much savings in the bank for the proverbial rainy day.
Economic nationalism on the part of other countries also means that besides safeguarding our reserves, we have to “stockpile’’ or have “additional redundancies and safety buffers’’ as Mr Wong put it. (Recall how the lack of masks was one reason for the “no need to mask up’’ in the early days of the pandemic.)
The need to build in redundancies actually goes against the Singapore DNA for efficiency. The buffer is usually the first to go in any cost-cutting exercise. But like other countries, we too cannot depend on just one source for essential materials, or we’d be kept hostage to the whims and fancies of foreign administrations with changing national priorities.
That means buying not just from the cheapest source, but also from more expensive importers as part of diversification. That means paying more.
During the flap over the ban on fresh chicken from Malaysia, Singapore still had supplies of frozen chicken, Mr Wong noted. They came from as far away as Paraguay. When the world scrambled for gas in the wake of the Ukraine war, Singapore activated a standby LNG station.
I wish I knew more about the Contingencies Funds he talked about. This was raised from $3 billion to $16 billion in 2020 to meet unexpected and urgent cash flow needs arising from the pandemic. Mr Wong said that legislation would be passed to reduce the balance to $6 billion. He did not say how much was spent or where the money would be channelled.
It says much about our fiscal prudence that we actually need legislation, including a constitutional amendment, to reduce the balance.
While our reserves can tide us over unfortunate circumstances, it isn’t a bottomless pit, even if we don’t really know how much is in it. How would the zero-sum thinking of today affect Singapore as a place to trade and do business?
Singapore has benefited from the open global commerce system, successfully wooing multinationals to sink money and create jobs here. We’ve been at the forefront of every dialogue to promote free trade. We have our advantages: the infrastructure, the tax system, and the educated workforce.
Taken together, we would probably be among the most cost-efficient configurations for global multinationals. Will this still hold?
As Mr Wong put it, things have changed. “More and more MNEs are looking to re-shore, on-shore, or near-shore – that is, relocating factories and offices to places where they are less likely to get caught up in geo-strategic crossfires.’’
As a country, we’re probably not in anyone’s crosshairs, but what about our neighbourhood?
On the national front, governments are stumping out more aggressive support, in the form of tax breaks and subsidies, to anchor “strategic” industries, Mr Wong noted.
Another wrinkle is the Base Erosion and Profit Shifting initiative, or BEPS 2.0, which will give Singapore less scope to use tax incentives to attract new investments. This puts a global minimum effective tax rate of 15% for large multinationals valued at more than S$1 billion. This means that Singapore’s corporate tax structure needs to be reworked to meet this baseline, or other jurisdictions would be collecting the difference up to 15%.
Doing mathematics is probably well within the abilities of our bureaucrats, but it does mean fewer perks available in the courtship ritual for investments.
Mr Wong said that given the changes, “we, therefore, cannot assume that we can continue to be successful by doing the same things as we have in the past’’.
We will need to adjust to this new era, reposition our economy, and refresh our social compact for the future.’
The trouble is, I am not sure we are doing anything “new’’ besides putting in more money to help businesses succeed and exhorting people to work smarter. Current grants were either “extended’’ for a longer period or had their sums “enhanced’’.
There is a new Enterprise Innovation Scheme. The National Productivity Fund gets a S$4 billion top-up to support investment promotion activities as well.
Are we banking on some sectors to succeed? Should we develop a different type of expertise besides being “flexible’’? Should more emphasis be given to going regional? Is there anything more we can offer to draw investments from elsewhere?
What’s more eye-catching is the emphasis on the “social compact’’, with every single financial move to help different household types subsumed under this label. I am grateful for these moves. They are progressive and equitable, and demonstrate concern for the difficulties ordinary households face.
Source: MOF on Facebook
Mr Wong seems to be banking on trust, solidarity and unity as the foundation for success, even invoking the late Lee Kuan Yew’s message of confidence in the post-independence days of Singapore. Mr Wong added:
Indeed, there are very few problems we cannot overcome when we apply ourselves as one people. It is up to us to overcome the problems we face, to improve on what we have today, and to build the Singapore we want for tomorrow.
I don’t deny that people power is the key, but someone will have to show us the way.
Bertha Henson, ex-journalist and media trainer, is a social media commentator on local news. She blogs at Bertha Harian.
Featured image by MS News.
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