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During his interview with Bloomberg's editor-in-chief John Micklethwait, Deputy Prime Minister Lawrence Wong outlined Singapore's approach to rising inflation, and reiterated the "fundamental objective" of the government to ensure everyone benefits from Singapore's success.

If inflation was to worsen, Singapore government will provide more assistance

Micklethwait pointed out that while Singapore's core inflation of 4.4 per cent and overall 6.7 per cent is "not as bad" as many other countries, it remains a political issue. He acknowledged that Singapore has introduced targeted subsidies for the most vulnerable in society, but asked if there is more the government can do.

Wong, who is also the Finance Minister, replied that the government is looking at inflation very closely, with the Monetary Authority of Singapore (responsible for monetary policy) having already moved four times in the last nine months to dampen inflation.

He mentioned that some subsidies are still being rolled out, and gave an assurance that the government will be able to do more.

"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."

While he thinks that it is unlikely inflation will stabilise at rates we have seen in recent years, at one or zero per cent, it may settle at a new equilibrium where everyone will pay a bit more, but in return for greener industry and more resilient supply chains.

Micklethwait pressed Wong on a guess for inflation rates next year, but Wong didn't give a specific figure.

Instead, he said the government expects the trajectory to start to ease from the highs by the end of 2022, and come to a new level in 2023. He added:

"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."

GST increase to go ahead

Micklethwait then moved on to the Goods and Services Tax (GST), and asked if Wong is still "fully committed" to raising what he called the consumption tax from 7 per cent to 8 per cent in 2023.

During Budget 2022, Wong announced that the government will proceed with raising the GST in a staggered fashion, to 8 per cent in 2023 and 9 per cent in 2024.

Wong said that the GST raise is necessary due to a shortage of revenue, but said that the government wants to do more, and the public wants the government to do more.

He pointed to rising healthcare costs and a rapidly-ageing population as reasons for increased revenue demand.

"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," he said.

However, as he previously explained, this will be done in a fair and progressive way.

"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," he said.

"Bloomberg's favourite question"

Micklethwait then asked Wong if he planned to introduce new forms of wealth taxes to increase revenue, such as capital gains, dividends or an inheritance tax.

Wong remarked that this seemed to be Bloomberg's "favourite question" for him, to which Micklethwait agreed. Wong responded:

"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."

Wong added that if one looked at the past 10 years, Singapore has not done "too badly", with broad-based income growth, relatively high levels of social mobility and narrowing income inequality. However, the government will continue to look at this closely and perhaps "lean some more" in the direction of more inclusive growth, given the current global mood.

Singapore's fair and progressive tax system

Micklethwait asked if this meant taxing the rich more, and added, "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?"

Wong replied:

"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 S$4 of benefits, for the middle income it is S$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 remarked that it seems as though Wong had a slightly greater emphasis on inequality than the previous government had. He asked if Wong was more of a technocrat or progressive.

"A bit of both, I suppose," Wong said.

Top image from Lawrence Wong's Facebook page.