“Covid-19 is really just a dress rehearsal for the bigger emergency that is to come, which is climate change,” said Singapore’s Minister of Finance Lawrence Wong.
A resilient economy will have to be a green one. Investing in a more sustainable economy will be one of Singapore’s first orders of business post-Covid.
Wong shared Singapore’s spending priorities as it contends with climate change and public debt after the pandemic at the recent CNBC Evolve Global Summit.
Building a green economy
Singapore launched its Green Plan early this year to chart its sustainable development plans until 2030. It aims to plant a million more trees and quadruple its solar power capabilities by the end of this decade, among other targets, its official website wrote.
The city-state will prioritise investing in green measures, such as renewable energy and carbon capture, Wong shared. It also plans to become a regional hub for green finance.
Investors will need to be careful not to channel their funds to ‘green-washed’ projects, however. Companies sometimes pass their initiatives off as being more environmentally friendly than they really are to attract more investors.
The Monetary Authority of Singapore, the nation’s central bank, has “a whole range of metrics” to ensure that it is investing in truly green projects, Wong said. These include whether the project uses energy efficiently, and how much carbon it produces. Singapore also participates in wider forums to develop clearer standards.
Singapore may increase its carbon tax as well, he shared. It imposed a carbon tax in 2019 – the first in Southeast Asia – to encourage companies to reduce emissions.
The price currently stands at S$5 per tonne. The International Monetary Fund recommends a minimum of S$99 per tonne by 2030, a Member of Parliament told The Straits Times.
Recovering from Covid-19
The pandemic has put a sizeable dent into many countries’ reserves. “I dare say that public debt will reach levels not seen since the end of the Second World War around the world,” Wong said.
Singapore has drawn S$50 billion (US$ 37 billion) on its national reserves, he noted. Spending will likely rise, as the nation works to meet healthcare demands and support an ageing population.
It is considering a tax increase to tide the country through, shared Wong. But challenges abound.
“In many developed countries with rapidly ageing populations, they find it hard to impose taxes on their population, because the young will end up with a disproportionately high fiscal burden,” he pointed out. “At the same time, they find it difficult to tax corporates, because the corporate tax base is increasingly mobile in this globalised world.”
Global tax raises
This has translated to “increased pressures” on international tax systems, Wong said. The G7, a forum of the world’s seven most advanced economies, recently proposed a global minimum tax on international companies.
Companies will no longer be able “to dodge their tax obligations by booking their profits in lowest-tax countries,” German Finance Minister, Olaf Scholz, told the BBC. But new tax rules may discourage businesses from investing and innovating, cautioned Wong. The G20, a wider group of countries, has yet to support this proposal, reported the BBC.
“The new rules cannot be set by the G7 countries alone,” Wong said. Global leaders will need to work towards a consensus to reach a fair decision. Singapore is “certainly” prepared to adjust its tax systems once the new rules are in place, he said.
Major economies such as China and the UK are developing their own cryptocurrency, reported The Wall Street Journal and CNBC. Singapore, a key financial hub in Asia, is keen to explore this as well, Wong shared.
It has embarked on a project to use digital currencies to settle payments within banks. This would speed up cross-border payments and lower costs while keeping them secure, he explained.
Singapore is “not in a hurry” to bring cryptocurrencies to shoppers, however, noted Wong. Citizens and businesses can already pay digitally with their mobile phones, so introducing a bitcoin alternative might not add any convenience.
Supply chains and trade
Singapore is “particularly concerned about supply chains and trade”, Wong noted. The tiny nation relies on imports for much of its food and fuel. It saw minimal disruptions to its supply chains last year, but has been able to adjust, he added.
It will change its strategy from ‘just in time’ to ‘just in case’ when it comes to the supply chain, shared Wong. It will move beyond gathering just the minimum amount of resources to prepare for the long term.
The world is a different place after Covid-19. Not only has there been an unprecedented global health crisis, but a new set of challenges await. As governments struggle to recover from the pandemic, they must be cautious about where they invest their funds and time.