3 challenges that will affect fiscal strategy: Inequality, ageing society and emissions

A study by the Ministry of Finance in 2015 found that of the children in Singapore born from 1978 to 1982 to parents who were at the bottom one-fifth of the income stakes, 14.3 per cent moved to the top one-fifth among their peers in their 30s. This was higher than corresponding figures for other countries in Northern America and Europe.

The data was recently updated for children born from 1985 to 1989, and the percentage was 14 per cent - slightly lower than before, but still much better than many other places, Finance Minister Lawrence Wong said.

The minister cited these figures to illustrate the important role education has played in addressing inequality and enabling Singapore to make good progress on social mobility over the decades.

Investments in schools, the Institute of Technical Education, polytechnics and universities over the decades have given children many more opportunities and choices than their parents, and more pathways to success, he said yesterday.

And there is still more work to be done to continue to reduce inequality and promote greater social mobility among all segments of society, and throughout their working lives, he added, as Singapore seeks to avoid the angst and frustration seen in societies that have become more stratified.

This is why efforts to expand the Progressive Wage Model and enhance the Workfare Income Supplement for lower-wage workers, give extra targeted support to their children from pre-school, and help adults improve their job prospects through SkillsFuture are under way, he said.

He was speaking at the Singapore Economic Roundtable organised by the Institute of Policy Studies, where he touched on three key challenges or curves that will determine the trajectory of Singapore's fiscal strategy in the years ahead - inequality, demographics and emissions.

Like other countries, Singapore will need more fiscal resources to tackle these challenges effectively, said Mr Wong, adding it has to re-examine its strategies.

The goal, he added, is to build a society that is even fairer and more just - where every child can achieve his dreams and every worker can stand tall, and where every person can be accepted regardless of social background or age, race or religion.

"But how can we ensure sufficient resources without placing an undue burden on our current or future generations? That is a question that keeps many finance ministers awake at night," he said.

"We must be alive to the immense responsibility the Government has as steward of our resources. What we have inherited from yesterday, we must wisely guard; what we have been entrusted with today, we must responsibly utilise.

"With that, we can then continuously strengthen our social compact, and provide an ever-stronger architecture of security and opportunity for all Singaporeans," he added.

On the demographic challenge, Mr Wong noted that Singapore is one of the fastest ageing societies, with one-quarter of Singaporeans projected to be 65 and above by 2030. This can place significant strain on society, he added.

The Republic's healthcare spending has already tripled in dollar terms over the past decade, and is now at 2.2 per cent of gross domestic product (GDP). This expenditure is set to increase further to 3 per cent of GDP by 2030.

"The revenue from the increase in GST will go towards supporting our healthcare expenditure. But this revenue will not be enough to cover the additional healthcare spending," he said. "And we can expect healthcare spending to keep rising even beyond 2030, while the decline in the working-age citizen population will shrink our income tax base.

"These are difficult problems, and there are no easy solutions."

With shrinking labour force growth, productivity will be key, added Mr Wong. This means helping businesses to transform and shift away from manual processes, and equipping people with new skills.

It also means growing the silver economy, raising the retirement and re-employment ages, and providing wage top-ups and grants to incentivise companies to employ senior workers.

"The demographic curve may be inevitable, but it is a window of opportunity too," he added.

"We must shift mindsets to embrace productive longevity and view our seniors as assets. We must make sure our seniors can all look forward to a fulfilling life, be it in retirement or in a new job, and have a sense of security in their golden years."

On the emissions curve, he said Singapore is committed to this global effort, and is taking proactive steps to decarbonise its economy.

This will not be an easy transition because the country is at a double disadvantage - a lack of land space and natural resources which makes it very challenging to scale up renewable energy, and significant flood risks as a low-lying island.

But Singapore's economic story has always been one where it defied the odds, he said.

"So we are seriously considering the import of green electricity, and findings ways to overcome the high cost, and technical and security challenges."

He noted that Singapore is also actively pursuing new opportunities to grow as a sustainable finance hub, and investing in research and development on new technologies such as hydrogen and carbon capture.

"These will take time to bear fruit, but they can put us in good stead in the longer term," he said.

Mr Wong added that the three challenges of inequality, demographics and emissions are interlinked. "For example, an ageing population can exacerbate inequality, while inequality can make the lower-income more susceptible to the effects of climate change. We will tackle these challenges comprehensively, to arrive at a fairer, greener and more inclusive society," he said.

A version of this article appeared in the print edition of The Straits Times on October 16, 2021, with the headline '3 challenges that will affect fiscal strategy: Inequality, ageing society and emissions'. Subscribe