Keeping half of Singapore’s earnings from its reserves is important as it signals to currency markets the strength of the Singapore dollar, Minister in the Prime Minister’s Office Chan Chun Sing has said.
Mr Chan cited this as an “important reason” the Government does not spend more than half of returns from past reserves.
His defence of the Government’s position came at the end of a week when some calls were made to raise the 50 per cent spending cap, so as to reduce the need to hike taxes – after it was announced that the goods and services tax (GST) will go up from 7 per cent to 9 per cent sometime between 2021 and 2025.
Under the Net Investment Returns Contribution framework, the Government is allowed to spend on current needs up to 50 per cent of actual income and long-term expected returns from past reserves. This contributed $14.6 billion to last year’s Budget – about 16 per cent of total revenue.
Speaking last night at a Chinese New Year dinner for Tanjong Pagar GRC and Radin Mas SMC, Mr Chan drew a link between beefing up the reserves and the strength of the currency – noting that this had implications for the present generation.
“If the world thinks that we are running an irresponsible or unsustainable fiscal policy, you can well imagine what they will do to the Singdollar,” he said, before pointing out the reverse: “If the world does not believe in the strength and stability of the Singdollar, you can also well imagine what will happen to our savings and our reserves.”
This is why Singaporeans should not take the use of reserves lightly, said Mr Chan, who is also leader of the labour movement.
Cost of spending more from national reserves
Spending more from the national reserves may provide short-term gratification, “but what you deprive yourself of is interest income in perpetuity,” said Minister for Education (Higher Education and Skills) Ong Ye Kung.
In a video shared on Facebook on Friday, Mr Ong explained the need for an upcoming goods and services tax (GST) hike, which was announced by Finance Minister Heng Swee Keat in his Budget speech on Monday.
GST is set to rise from 7 per cent to 9 per cent sometime from 2021 to 2025. This prompted some to ask if there are other ways to raise revenue for spending needs, such as by using more than 50 per cent of the returns from investing the reserves.
Citing a Chinese idiom, Mr Ong urged Singaporeans to opt for a longer-term good, rather than short-term gratification. He said: “The previous generation plants the tree for the next generation to enjoy its shade.
“The income stream today was planted by the previous generation.”
Noting that Singapore has a greying society, he said annual healthcare expenditure has ballooned.
While it was around $4 billion in 2011, it grew to $10 billion in 2016. By 2030, he added, one in four Singaporeans will be aged 65 and older, compared to one in seven currently.
The fiscal system should allow the country to support an ageing society, he said, adding that this is why the GST hike, among other measures, has to be taken. “We know the numbers,” he said. “This is inevitable, and we have to be ready for it.”
Seow Bei Yi
He noted the present benefits of a strong currency: Singaporeans today enjoy more affordable imported goods and cheaper holidays.
This was one of two arguments he made to explain the 50 per cent cap.
The other argument stressed the importance of setting aside money for future generations, especially as the population is ageing.
Though the full size of Singapore’s reserves is not revealed to the public – to protect the country from currency attacks – it is estimated at more than $1 trillion.
In a wide-ranging 25-minute speech, Mr Chan also spoke on other long-term Budget priorities: productivity growth, education and infrastructure projects.
On raising productivity, he noted the importance of the task, given that Singapore cannot rely solely on manpower growth, as a larger foreign workforce will come with social integration issues.
Singapore’s productivity strategy involves helping firms expand overseas, while concurrently improving domestic-oriented industries, especially manpower-intensive ones such as healthcare, offline retail, food and beverage and construction.
“As our ageing population grows, we must find ways to take care of our elderly without committing a disproportionate part of our workforce to the care sector alone.”
On education, he stressed lifelong learning and investments in early childhood education to level up less-privileged pupils.
“Even as economics and human nature threaten to make society more unequal over time, we must redouble our efforts to ensure that every Singaporean child has the best chance in life to fulfil his or her potential in different and multiple dimensions,” he said.
On infrastructure investment, he said this will make Singapore attractive to companies, and will create “good jobs for our people”.
Singapore is building for the next 100 years, “with investments in an underground electricity distribution network to replace the ageing electricity network left for us by the British”, he said.
He also cited the Deep Tunnel Sewerage System, noting that it helps ensure as much water is recycled as possible, so that the nation will have adequate water “before the (2061) expiry of the second water agreement with Malaysia”.
Beyond the 2050s, Singapore will also look to redevelop Housing Board towns, to overcome the current situation of some estates having a higher proportion of older residents.
“Tonight, as in previous Lunar New Year dinners, I have chosen to speak frankly with all of you about our challenges,” he said.
“We have strong fundamentals. But we must make sure that we maintain such fundamentals and maintain our discipline, so that we can continuously provide our people with the best opportunities.
“So long as we stay united, be clear-eyed about our challenges, and face them squarely together, there is absolutely no reason why we cannot celebrate SG100 with even greater pride and confidence.”