The Monetary Authority of Singapore (MAS) will announce next month enhancements to recognise single-family offices’ voluntary contributions to charity, alongside their normal business spending, when granting tax incentives.
Single-family offices will also be recognised for contributing to blended finance solutions, particularly concessional capital and grants; along with investments made towards climate change solutions both here and abroad, says Senior Minister and MAS chairman Tharman Shanmugaratnam.
Speaking at the Association of Banks in Singapore (ABS) 50th anniversary dinner on June 23, Tharman says single-family offices are a significant pool of capital that is growing faster than most other sources of wealth. “Overall, what we have to do is to strengthen the whole ecosystem of capital, expertise and compassion.”
This will help address what Tharman calls “the triple-headed crisis” of global warming, loss of biodiversity and a global water crisis.
There is no lack of capital or wealth in the global system, but we need to incentivise and catalyse it, says Tharman in response to a separate question by moderator Vikram Khanna, associate editor and economics columnist at The Straits Times. “We need higher levels of investment over a long period of time to solve the world’s largest challenges, as well as national challenges everywhere in the world.”
‘Intellectual failure’
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The world has reached the end of “the old era” of cheap carbon energy, cheap labour and global sourcing, says Tharman — “an era where globalisation was a source of not just improved prosperity, but [was] keeping costs down all over the world”.
Trouble is brewing among the world’s central banks, which have been the principal agencies globally for tackling inflation and keeping inflation low, adds Tharman. “They succeeded for 30 years but something has gone wrong.”
While supply-side shocks like the outbreak of the Russia-Ukraine war have been blamed for the spike in inflation, Tharman points to “intellectual failure” among financial policymakers. “Central banks in particular, but also fiscal policymakers, have been operating with a paradigm that is no longer relevant.”
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There has been too much reliance on monetary policy to solve economic problems that are of a much more complex nature, says Tharman. “We’ve had… more than 10 years of excess liquidity as a result of repeated waves of quantitative easing, together with close to zero interest rates or negative real interest rates. This is a very long period.”
Financial models had predicted that any inflation that could arise would be transitory, but this did not turn out to be the case, he adds. Instead, asset prices soared. “Even today, after all the corrections we’ve seen, we clearly have overvalued asset prices, particularly US equities, but I would say more broadly across the system.”
Over a decade, excessively low interest rates and excess liquidity have led to entire business models being founded on “cheap or virtually zero-cost money”, says Tharman.
Now, overvalued financial assets, business models and even banking models that were reliant on cheap money will have to be unwound, he adds. “Unwinding is never a smooth process; it’s never pretty. [It] doesn’t mean catastrophe, but somewhere in the neighbourhood, some cards are going to start falling.”
The world has moved from a model that was broadly stable with economic cycles to a world that is now inherently unstable, says Tharman.
If that is the case, financial policymakers’ task during “peacetime” is to build up buffers, he adds. “We did the opposite, globally; fiscal policymakers overdid it and monetary policymakers removed all the buffers they have by taking interest rates down to zero and by flooding the system with liquidity.”
The world must now assume that shocks are normal, and recognise that there are limits to traditional macroeconomic policy, says Tharman.
He stresses the need to focus on reigniting private investment, “which has been on a downtrend for a long time globally”, and using public policy to help to catalyse private investment through various forms of public-private partnerships.
“Stimulate private investment, stimulate innovation, try to get productivity growth going again through innovation and investment,” says Tharman. “That shift has to be made in the major economies as well as all of us globally.”
