The world is facing huge new challenges and countries urgently need fiscal reforms to meet them — this was the no-nonsense message conveyed by Singapore President Tharman Shanmugaratnam during his panel talk at the World Economic Forum (WEF) meet in Davos on January 19, 2024.
The “real challenge”, he said, was “political”, because “it is unpopular to raise any taxes”. Therefore, in order to make higher taxes — translating to higher government revenues — palatable to the public, he said, “You have to design taxes together with subsidies, so as to make it acceptable and fair. And that’s the task of finance ministers; and we’ve got to co-ordinate this as much as possible, globally, so there are no leakages.”
Towards the beginning of his panel talk, Tharman explained why higher state revenues were needed. “Governments are going to have to invest significantly more than they have invested before,” he said. “We want the private sector to fund most of the transition, but about a third of the investment is going to have to come from government, because of externalities and other reasons.”
Tharman, who has a Bachelor’s degree in Economics from the London School of Economics and was chairman of the Monetary Authority of Singapore (MAS) for more than 12 years, did not mince words when he said, “It has to be funded. It has to be funded. There’s no magical thinking here — funding requires taxes of one form or another.”
He pointed out that when countries tried to fund their new and higher expenditure without new tax revenues, they went on building up debt until it became unmanageable. “The alternative [to taxes] is more and more borrowing, which… is not sustainable.”
Telling his WEF audience, “So let’s not duck the issue”, the Singapore president went straight to the issue of political will to make it happen.
Finance ministers, he said, should initiate the necessary fiscal reforms — taxes and subsidies together — in such a way that the result would be fair for “ordinary people”.
“We have the opportunity of shaping growth strategies that are sustainable”
Looking at ways to get ahead in a world reeling under manmade climate change, Tharman said, “We have the opportunity of growing green energy-powered industry in parts of the world that have lots of sun and wind. We have the opportunity of shaping growth strategies that are sustainable. But it’s going to require investment.”
Replacing unsustainable debt with sustainable growth backed by investment required the support of the developed world for the developing nations, said the Singapore president.
It also needed “a much enhanced role” of international financial institutions, he said, including the International Monetary Fund (IMF), whose former managing director Christine Lagarde was part of the panel discussion.
The Straits Times reported that Tharman was emphatic in his opinion of a need for “a globally co-ordinated system of carbon taxes”. The newspaper also reported: “The IMF has estimated that about US$1.3 trillion is spent each year on fuel subsidies worldwide, which is about five times more than the amount of subsidies that go into green technologies and green energy.”
In conclusion, Tharman said, “Our political antennae have gotten too short.” Politics, he said, needed to look beyond elections, in order to avoid “much more pain in future”.