CNBC Transcript: Singapore Minister of Finance Lawrence Wong Speaks with Martin Soong from the CNBC Evolve Global Summit
The following is the unofficial transcript of a CNBC interview with Singapore Minister of Finance Lawrence Wong from the CNBC Evolve Global Summit, which took place today, Wednesday, June 16th.
Video from the interview will be available at cnbc.com/evolve.
All references must be sourced to the CNBC Evolve Global Summit.
MARTIN SOONG: Minister, welcome. Great to see you again and always appreciate your time. We'll get to your turf - your responsibility - the little red dot that is Singapore in just a bit. But first though, I want you to walk us through how you see the rest of the neighbourhood.
You know, Singapore being a very open global city is that the rest of the neighbourhood actually literally means the rest of the world. It seems as though in the developed world, especially the US, things are normalising - they're out of recession, out of recovery. They're actually expanding. This must be good news.
LAWRENCE WONG: Yes, it is. We are watching the developments around the world very closely because as you said, Martin, it certainly has an impact on us.
We are particularly concerned about supply chains and trade. I think for the most part, the system has been resilient throughout this pandemic. There was some impact - there were some localised disruptions last year. More recently we've seen, with the surge in demand, some supply bottlenecks as well. But for the most part, I think the system has been intact, and has been able to adjust and cope.
I think over time, there will be some change in the supply chain - it will evolve from 'just in time' to 'just in case', and that means we will no longer be optimizing just for minimum inventories and costs, but there will be a move towards greater resilience and also reliability. That may mean an increase in transportation costs. It may feed into inflationary pressures, which we are watching very closely. But I think generally we should be able to manage this risk.
I am somewhat less sanguine about the prospects for air travel. I think as you said just now, the region is still facing rolling waves of infection. And vaccination rates for many countries in the region are still not high enough. So I don't think we will be able to see open and free travel in the region in particular anytime soon. Perhaps amongst the countries with low and stable infections, we may have some travel arrangements. Perhaps for vaccinated travellers, there may be some benefits in terms of shorter quarantine times. But for the most part, all of that is not going to add up to what we used to have pre-COVID. So air travel, I'm afraid, will take some time to recover.
MARTIN SOONG: Going by the most recent data in terms of cases, infections, et cetera - how do things look? I mean, back in May several weeks ago, we had a surprise and very acute spike in cases. That led to certain restrictions being imposed. Come the 21st - which will be Monday if my calendar is correct - if all goes well, some of those restrictions are set to be eased, but all again, depends on the cases. How do things look in your view? You've seen the data.
LAWRENCE WONG: Well, it's something we continue to monitor every day. With this virus, you can never tell what happens in the next few days, because there will always be surprises. It's a very tricky virus. Each time you think you have it under control, it pops up in a new direction. For the most part, I think our safeguards and all the measures we have taken to contain the last outbreak in May have been working, and we have been able to see a general decline in infection rates. So that gave us confidence to start the reopening process. But we are not restarting everything all at once. We are doing it in a controlled manner, in a calibrated manner. And we also want to reach, at some point, a stage where our vaccination rates continue to ramp up. Hopefully by around August, we will have at least 50% of the people in Singapore fully vaccinated. I think that will give us more confidence to ease up on restrictions further.
MARTIN SOONG: The idea of an air travel bubble. What more can you tell us? How close is Singapore to setting up an air travel bubble and with which localities?
LAWRENCE WONG: Well, I try to refrain from talking about bubbles, Martin, because each time we talk about it, it gets burst and then we all start getting disappointed. But I think suffice to say we continue to talk with all countries and like I said, amongst countries where the infection rates are low and stable - and there are quite a number in the region - there is a lot of interest amongst these countries, including Singapore, to establish safe travel lanes for two-way travel. So these discussions are continuing with our counterparts around the region, and as and when we are ready to announce, we will do so.
MARTIN SOONG: Let's focus on your bailiwick as finance minister, the money man as it were in Singapore. Through it all, Singapore has of course put in a heck of a lot of effort - technology, but especially capital, money - to work to try and offset the negative impact of the coronavirus. Update us if you could: At last count just how much has Singapore spent?
LAWRENCE WONG: Well, we are monitoring this very carefully. I think as the economy recovers that will help us put our fiscal position in a better position. Basically, if you look around the world, almost all countries will emerge from COVID-19 with massive increases in public debt and public spending. In fact, I dare say that public debt will reach levels not seen since the end of the Second World War around the world.
Singapore is an exception. We are fortunate because we have built up, accumulated reserves over the past years, and we have been able to draw on these reserves to tide through the crisis. We've drawn about S$50 billion so far on the reserves. But we are continuing to run deficits. And we also expect our spending to rise in the coming years, especially to take care of the ageing population and to meet growing healthcare and social needs. So we will have to find ways to get back to a balanced budget position soon. That's why we're thinking about ways to raise revenues to cover the increased spending, and do so in a way that's fair and equitable.
MARTIN SOONG: Minister, I have to ask you, does that inevitably mean higher taxes in Singapore? Also, let me piggyback with another question: A huge conversation going on globally right now is for a global minimum corporate tax rate. Singapore is known, at least in Asia, as having one of the lowest tax rates in this part of the world. But inevitably, are they going to have to go up as well?
LAWRENCE WONG: Certainly, when you talk about increased revenues, then tax increases will have to be amongst the options that is considered. We are studying the different options for tax increases in order to raise revenues. And we will, like I said, ensure that in doing so, we continue to have a tax system that's fair and progressive and equitable to everyone.
Basically, those with means should pay their fair share of taxes. I think this debate is not just happening within Singapore, it's happening around the world, because as I said just now, countries everywhere will end up with increased spending, increased levels of debt. How do you cover and how do you finance all of that? The only way is through some form of revenue increase or tax increase. But 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. At the same time, they find it difficult to tax corporates, because the corporate tax base is increasingly mobile in this globalized world.
And that's why you're seeing now, increased pressures on international taxation systems, and the call for deeper international cooperation to synchronize our taxation systems around the world. I understand where this is coming from. But the new rules cannot be set by the G-7 countries alone. It really needs a multilateral consensus amongst all countries big and small, and to ensure a level playing field across all jurisdictions. So when these new rules are in place, Singapore will certainly adjust our tax systems accordingly to be in line with the global consensus, and also in consultation with businesses here.
MARTIN SOONG: Do you think minimum 15% is just right, too low, too high?
LAWRENCE WONG: It's a judgement call. It's a judgement call. I understand, as I said, why countries would like to see higher taxation, and therefore the idea of a minimum across the board. But we also have to be careful that this new threshold doesn't end up being a maximum rate that, you know, ends up not allowing countries to generate more revenues than they would desire to.
Also, we have to be careful that any new rules that are in place do not inadvertently lead to reduced incentives for businesses to invest and innovate. Because if we were to do so, I think it will just shrink the pie for everyone and we'll be then scrambling for our share of a smaller pie. I don't think that will be in anyone's interest. We will all be worse off.
MARTIN SOONG: No, I understand. I mean, Singapore needs to remain competitive. I get that. Minister if we could spin forward now, past getting out of the debt hole that a lot of countries have dug themselves in, and think about and talk to us about money that can be used to literally reinvent, reshape, transform, help to evolve Singapore. I mean, you're one of these guys with a very unusual background: You've held several different portfolios in government, not just finance - education, national development as well, plus being one of the co-chairs of the virus Task Force in Singapore.
If it were up to you - and obviously it isn't - but just personally, how would you spend money? Where would it go best to make Singapore much more of a digital or digitized economy and ready, therefore, for the future?
LAWRENCE WONG: Well, there are many areas that we are going to prioritize spending. Digital transformation is just one aspect of it. And with digital transformation, we are talking about something that cuts across all sectors, not just any single sector - it can be finance, it can be transport, it can be building. So across the whole economy, we are putting in place significant investments to improve our digital infrastructure, our connectivity. That's one of the reasons - one of the, I think, imperatives for us, especially with the international movement on taxation, which I think underscores the point that our competitiveness cannot be based on taxation alone. That's been our belief as well. And I think the recent move just underscores that, and just motivates us to do even more to double down and to work even harder to strengthen our competitiveness in this area.
Besides digital transformation, I think we are also going to invest a lot more in building a new green economy. So in the whole field of sustainability, and there are many opportunities, this is an existential threat because of the climate emergency we face. But there are also many new opportunities in this area. We are investing in renewable energy, we are investing in decarbonization technologies like hydrogen, carbon capture. And we are also looking at building Singapore as a hub for the region when it comes to green finance.
MARTIN SOONG: My question to you is, since there don't yet seem to be - not that I've seen - global standards to determine what is truly a green investment as opposed to a 'green-washed' one. What sort of criteria does the government use, does the MAS use, to invest national reserves in green investments?
LAWRENCE WONG: Well that's a very important question, Martin. I think it's something that's still a work-in-progress. There are many forums where these discussions are underway to develop stricter, more rigorous standards when it comes to definitions of 'green'. And so we are participating in these forums. In the meantime, we make use of a whole range of different measurements and criteria for our own purposes. We can look at things like carbon intensity, the efficiency of use of energy - a whole range of metrics that will allow us to ensure that the investments we are putting in are bonafide green investments.
MARTIN SOONG: In terms of finance and also technology, Singapore historically always has been an Asian financial hub. Now, it's latching on to FinTech and also blockchain technologies. I have to ask you - crypto though, does that have a role in Singapore's future? I mean, is the government even considering, as many countries are, developing their own cryptocurrency?
LAWRENCE WONG: Well we do know that many central banks around the world are studying the use of central bank digital currencies, or CBDCs. We have a project underway where we are looking at digital currencies for settlement of payments within the banking system. That's really at the wholesale level - it's to make our cross-border payments faster, cheaper, while remaining secure. So that's something that we are working on.
Where it comes to CBDCs at the retail level, meaning for the public to use as fiat currency - I think that's something that we are still studying carefully. We are not in a hurry to do this. Firstly, because households and firms within Singapore can already engage in digital payment transactions seamlessly; they are fast, they are secure. And also, if we want to further improve our payment system within Singapore, we really do not need retail CBDCs. On top of that, we are carefully monitoring the potential downsides - or we are carefully studying the potential downsides - which is the possibility that something like this can lead to more impact on monetary and financial stability. For example, it could have an impact on banks' deposit base, or it could also lead to more volatile capital flows. So these are all issues that we are looking at. We are, like I said, weighing the potential benefits and costs very carefully before we make a decision on whether to proceed.
MARTIN SOONG: Minister, if we could come full circle, and if you could talk to us about Singapore's population, its society - it is ageing, it is greying. That is a fact statistically, right.
One of the things I've been wondering is - let's say with regards to climate change - an even greener Singapore in the future: can Singapore have its cake and eat it? Because many people are looking at, let's say, China, one of the biggest polluters in the world, but also ironically one of the leaders in terms of green tech - they may have a very hard choice to make. You know, they've come out with very aggressive and ambitious climate targets. Yet with growth slowing, they may have to make a pretty tough choice. Singapore obviously doesn't have coal-fired power plants - it's mostly natural gas, I know.
But is Singapore ever going to have to make that kind of choice: whether to grow and create jobs or to be greener? Or can both happen at the same time?
LAWRENCE WONG: It is indeed a very difficult trade-off, and I think that trade-off and the decisions to make have to be made not just by Singapore, but by countries everywhere. The reality is that the world is facing a climate emergency. Perhaps all that we are seeing now with COVID-19 is really just a dress rehearsal for the bigger emergency that is to come, which is climate change. There will be costs associated with trying to at least mitigate the impact of climate change or even adapt and prepare for it. There will be costs. Someone has to pay for it.
For a start, the carbon price around the world has to be much higher than what it is today. And that really translates into higher prices that people have to bear. So I think those are difficult and painful decisions which the world has to take, and Singapore will do our part too. We will have to make these adjustments, painful though they may be. We've already started with a carbon tax and we potentially will review the quantum of carbon tax going forward to adjust it higher - in accordance with our plans to lower emissions and to achieve greener growth.
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