Reply to Parliamentary Question on adjustments of the Singapore dollar policy band to mitigate imported inflation
QUESTIONS NO 2981, 3005, 3022, 3026, 3042, 3051, 3070, 3090, 3112
NOTICE PAPERs 1183, 1194, 1198, 1200, 1202, 1206, 1210 OF 2022
FOR ORAL ANSWER
Date: For Parliament Sitting on 4 July 2022
Name and Constituency of Member of Parliament
Q 2981. Mr Yip Hon Weng, MP for Yio Chu Kang SMC
Q 3005. Ms Jessica Tan Soon Neo, MP for East Coast GRC
Q 3022. Ms Foo Mee Har, MP for West Coast GRC
Q 3026. Mr Liang Eng Hwa, MP for Bukit Panjang SMC
Q 3042. Mr Saktiandi Supaat, MP for Bishan-Toa Payoh GRC
Q 3051. Ms Mariam Jaafar, MP for Sembawang GRC
Q 3070. Mr Liang Eng Hwa, MP for Bukit Panjang SMC
Q 3090. Mr Melvin Yong Yik Chye, MP for Radin Mas SMC
Q 3112. Mr Alex Yam Ziming, MP for Marsiling-Yew Tee GRC
Q 2981. To ask the Deputy Prime Minister and Minister for Finance with the current sharp downturn in the global financial markets given soaring inflation, falling US consumer confidence and higher interest rates affecting Singapore, whether the Government will consider (i) postponing the impending GST hike in 2023 and (ii) introducing additional subsidies to help households and affected businesses that are struggling with rising inflation.
Q 3005. To ask the Deputy Prime Minister and Minister for Finance with regard to the global supply chain disruptions and countries imposing export restrictions, causing the prices of food to increase continually and putting further pressure on the cost of living for consumers (a) whether the Government will provide further relief for consumers facing eroding spending power, especially basic food necessities; and (b) what measures will be taken to manage the heightened inflationary risks.
Q 3022. To ask the Deputy Prime Minister and Minister for Finance (a) what tracking indicators have been used to determine the latest $1.5 billion support package to help Singaporeans cope with inflation; and (b) whether the Government will consider temporarily enhancing the GST offset package for the lower- and middle-income groups if inflationary pressures continue unabated with the impending GST hikes.
Q 3026. To ask the Deputy Prime Minister and Minister for Finance (a) what are the key considerations in the sizing and distribution of the latest $1.5 billion support package; (b) whether the various cost pressures faced by different segments of Singaporeans can be further mitigated; and (c) whether the Government will have the fiscal space to introduce further assistance measures in this financial year.
Q 3042. To ask the Deputy Prime Minister and Minister for Finance (a) whether the $1.5 billion support package announced recently and the Assurance Package will continue to offset the five to 10 years of additional GST expenses for Singaporean households; (b) what are the quantitative or qualitative thresholds that will trigger another support package; (c) whether there are any updates on non-fiscal and exchange rate policy measures to address rising prices driven by supply side factors; and (d) what are the risks of a wage-price spiral emerging in Singapore over the next year.
Q 3051. To ask the Deputy Prime Minister and Minister for Finance what are the considerations in determining the size, scope and duration of the support measures in the $1.5 billion support package, including the assumptions on inflation beyond September 2022.
Q 3070. To ask the Prime Minister (a) to what extent has the recent adjustments of the Singapore dollar policy band by MAS helped to mitigate imported inflation; and (b) whether the use of a stronger Singapore dollar will continue to be the main policy tool to counter further imported inflation.
Q 3090. To ask the Deputy Prime Minister and Minister for Finance (a) whether the Government expects inflationary pressures to abate and, if so, when; and (b) how does the Government intend to mitigate the risk of stagflation in the event that “higher-for-longer” inflation persists.
Q 3112. To ask the Deputy Prime Minister and Minister for Finance (a) what lessons can be drawn from the results of the recent survey conducted by Blackbox Research which indicate that cost of living and inflation issues raised in 59% of polled respondents are the two biggest threats Singapore is facing today; and (b) whether the Ministry has avenues of recourse for citizens faced with the challenge of rising costs amidst unprecedented global disruptions.
Answer by Mr Lawrence Wong, Deputy Prime Minister and Minister for Finance and Deputy Chairman of MAS:
1. Mr Speaker, may I have your permission to take the next eight questions on today’s Order Paper together, as these questions pertain to the holistic set of Government support amid inflationary pressures. My response today will also cover similar Parliamentary Questions filed by several members for subsequent sittings, and if members are satisfied with the response, they may wish to withdraw their questions after this session.
2. First, let me in my capacity as Deputy Chairman of MAS explain how monetary policy helps to mitigate imported inflation and manage heightened inflationary risks. The MAS aims to keep inflation low over the medium term through its exchange rate-centred monetary policy. When inflationary pressures build up, MAS allows the trade-weighted exchange rate to appreciate faster, thereby helping to directly reduce imported inflation.
3. MAS has been pre-emptive in tightening monetary policy in response to rising inflationary pressures. MAS has raised the appreciation path of the Singapore dollar nominal effective exchange rate (S$NEER) policy band three times in the past nine months – in October last year, in January and in April this year. In April, MAS also re-centred the mid-point of the exchange rate policy band upwards.
4. The stronger exchange rate has helped dampen imported inflationary pressures. For instance, while global food prices increased by 20.3% year-on-year in Q1 this year, non-cooked food prices in Singapore rose by a more modest 3.0%. More recently over April and May, while global food commodity prices increased by an average of 21.7% year-on-year, domestic food prices increased by an average of 4.5% y-o-y. Meanwhile, energy-related components in Singapore’s consumer price index, which includes the cost of electricity, gas and petrol, increased by 13.6% from January to May, even as global energy prices went up by a more significant 27.5%.
5. The effects of MAS’ successive monetary policy tightening moves are still working their way through the economy, and will continue to moderate some of the externally-induced price increases.
6. We are also monitoring closely the labour market situation. For now, we assess that the risk of a wage price spiral remains contained. We have relaxed our border restrictions, and the continued inflow of foreign workers should help to ease labour market tightness, and moderate labour cost pressures.
7. Next, I will touch on fiscal measures. Our approach is to provide short-term relief, and to support longer-term economic restructuring. That means our fiscal support must continue to ensure the right incentives for businesses to build their capabilities, and become more energy efficient and productive.
8. We had anticipated the higher prices earlier this year, and therefore had rolled out more support for Singaporeans in Budget 2022. This included the Household Support Package for Singaporean families, as well as the Small Business Recovery Grant for SMEs affected by COVID-19 restrictions. In my April Ministerial Statement, I brought forward the implementation of some of these measures, including the CDC Vouchers to May, and the Small Business Recovery Grant to June.
9. Last month, I announced a $1.5 billion support package in response to the more challenging global inflation environment in recent months, especially the sharp increases in energy and food prices.
10. In formulating this latest support package, we have taken into consideration the latest economic and inflation outlook. For now, we expect prices to pick up further in the coming months, before it stabilises towards the end of the year, in line with the likely trajectory of global prices. At the same time, we continue to expect healthy growth across many sectors of the economy this year. The labour market is very tight, and our overall unemployment rate is lower than pre-Covid levels. On the whole, the economy is operating at slightly above potential.
11. Under such circumstances, we had to consider carefully the size of any additional support measures by the Government – because excessive fiscal injections at this juncture can exacerbate inflationary pressures and become counter-productive. Hence, we had designed the package to provide more targeted relief for the lower-income and vulnerable groups who are disproportionately impacted by the effects of higher prices.
12. When you combine the additional measures in the latest package with the previously announced Budget measures, we are, in fact, providing comprehensive support for households and businesses throughout the year.
13. For example, after putting together all the measures, about 1.5 million lower- to middle-income Singaporeans, including retirees, will receive a GSTV – Cash and Special Payment of up to $700 in August this year. All Singaporean households received $100 in CDC Vouchers in May, and will receive another two tranches of $200 each in CDC Vouchers over the next two years. Households living in 4-room HDB flats will receive a total of about five months’ worth of rebates on their utility bills for the whole of FY2022; while those in 3-room HDB flats will receive about seven months’ worth of rebates.
14. More importantly, I hope everyone understands that the challenges before us are not just about coping with higher prices. We must also adjust to major structural changes in our operating environment, including the threat of climate change as well as greater geo-political contestation between the major powers. All this means that we are entering a more bifurcated, unpredictable and dangerous world.
15. We will therefore have to accelerate our efforts to restructure and transform ourselves for this new environment. In particular, we must decarbonise the economy, learn to manage with fewer manpower resources as our population ages, and strive for more inclusive growth in the years ahead.
16. When designed well, the short-term relief we provide can also help us manage these structural issues. For example, as part of the $1.5 billion support package, I enhanced the Government’s co-funding share for this year under the Progressive Wage Credit Scheme. This means that the Government will pay up to 75% of the wage increase of our lower-wage workers this year. In this way, we are able to secure real wage growth for lower-wage workers, while cushioning the cost impact for businesses.
17. Crucially, we must always ensure that we have sufficient resources to tackle our longer-term challenges, and do so in a fiscally responsible and sustainable manner.
18. This is why the Government will need to go ahead with the GST increase as announced at Budget 2022. We had already anticipated the higher inflation outlook earlier this year. Hence, instead of a 2%-point increase this year, I had decided to delay and stagger the GST increase over two steps, by 1%-point from January 2023, and 1%-point from January 2024.
19. We should not push back the GST increase any further, as we will need the funds urgently to take better care of our growing number of seniors, and to meet our rising healthcare expenditures.
20. That said, we have already set aside the $6.6 billion Assurance Package to cushion all Singaporean households from the impact of the GST increase. As I had shared in the Budget, the majority of Singaporean households will not feel the impact of the GST increase for at least five years. For lower-income households, the impact of the GST increase is delayed by about 10 years.
21. Let me be clear. Taking into account the latest inflation, this assurance still holds today. This is because we had designed the package with a buffer in case of higher inflation. We will continue to assess the adequacy of the Assurance Package as the inflationary outlook evolves. If need be, we will further enhance the Assurance Package to uphold the commitment.
22. The Assurance Package and $1.5 billion package are two examples of how we are monitoring the global and domestic developments carefully, and ensuring our support measures, whether already announced or new ones, are adequate and fit for purpose. You have my word – if the situation worsens significantly, we will be prepared to do more, especially to provide targeted help for the lower-income groups. We will continue to do so while living within our means, and upholding prudence and responsibility in fiscal management.
23. We must brace ourselves for a bumpy road ahead of us. We are confronting multiple crises. Governments and citizens around the people are facing the same problems – of rising food and energy prices, or uncertainties navigating economic challenges.
24. In Singapore, we have used a combination of monetary, fiscal and other policies to cushion our people from the extremes of global inflation, target help to those who need it most, and help businesses adjust to higher prices, not just for today but for the medium-term. With careful fiscal planning, we are able to mount further support, if the situation warrants it.
25. By continuing with sound policies and earning our people’s trust, we will turn challenges into opportunities. We will take care of those with less and support the vulnerable, while keeping our eye on the medium- and longer-term. This is how we will get through this together, and come out stronger as one Singapore.