August 17, 2022
SINGAPORE – Inflation in Singapore is expected to peak in the next two to four months and will start to ease thereafter, said Deputy Prime Minister Lawrence Wong.
But Mr Wong, who is also Finance Minister, added that the extent of this easing towards the year end and where the new inflation rates will stabilise at are big uncertainties.
Inflation rates here may very well settle at a higher rate given the geopolitical environment, supply chain issues and how economies are transitioning towards becoming more sustainable, said Mr Wong.
He noted that they are not likely to return to the rates Singapore had been used to over the last decade or so, as zero to 1 per cent inflation was a historical anomaly and never used to be so low.
“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,” said Mr Wong.
He was speaking to Bloomberg editor-in-chief John Micklethwait on Monday (Aug 15), who had asked during an interview about inflation here, and if more could be done to help the city state’s most vulnerable people.
Noting that the Monetary Authority of Singapore (MAS) has already tightened monetary policy four times in the last nine months to dampen inflation, Mr Wong said the Government continues to monitor the situation very closely.
Additionally, targeted measures to help the most vulnerable deal with rising prices have also been put in place, including a $1.5 billion support package announced in June to provide immediate relief.
“Some of the measures we have announced are still being rolled out in the coming months,” he said.
“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.”
Asked if he had in mind what inflation could look like next year, Mr Wong said that economists are looking at this and will put out figures in due course. The MAS’ next monetary policy statement is scheduled for October.
Beyond inflation, Mr Wong said the Government is concerned about the increasing risks for economic growth next year too.
“That is something that we are watching carefully too,” he said.
Last week, the Ministry of Trade and Industry (MTI) narrowed its range for Singapore’s gross domestic product growth this year to 3 per cent to 4 per cent, from an earlier projection of 3 per cent to 5 per cent.
MTI said the external demand outlook for Singapore’s economy had weakened compared with three months ago, while downside risks to the global economy remain significant from the war in Ukraine, inflation and geopolitical tensions in the region.
When asked about the impending hike in goods and services tax (GST) – from 7 per cent to 8 per cent in 2023 and then to 9 per cent in 2024 – Mr Wong said that Singapore is committed to this move because of the revenue shortage it faces.
Given Singapore’s rapidly ageing population and the increase in healthcare costs, Singapore has to do what is right and spend more, but also in a way that is responsible and which will not leave behind a bigger hole for the next generation.
This means increasing revenues, but in a way that is fair and progressive, said Mr Wong.
He stressed that the GST increase will not hurt lower-income households because they will be provided with more than sufficient offsets. These include the $6.6 billion Assurance Package that was first announced in 2020.
“The higher income will pay the bulk of GST,” said Mr Wong.
Mr Wong was also asked by Mr Micklethwait if Singapore is planning to introduce new forms of wealth taxes to raise needed revenues.
Mr Wong said the Republic always looks at updating its tax and transfer system while ensuring that it stays fair and progressive.
“It is a system that must underpin a society where we ensure that growth is inclusive and everyone benefits from the nation’s progress,” he said. “That is our fundamental objective.”
Singapore has not done too badly if one looks at the last decade, where the country saw broad-based income growth, relatively high levels of social mobility, and a narrowing of income inequality, he said.
But the Government will have to keep a close eye on the situation and probably “have to lean some more in the direction of more inclusive growth”, he added.
He said Singapore sees a fair and progressive system as one where everyone pays some form of taxes, but that those with greater means pay more.
“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 need,” he said.