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Was Workers’ Party right in asking to relook cap on spending from the returns of reserves? Ex-LKY school dean’s post suggest they were




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Former associate dean at the Lee Kuan Yew School of Public Policy said “when the PM explained why HDB leases have to be 99 years (so that land can be recycled and sold again after 99 years), he confirmed what all of us should know but probably don’t: that land in Singapore is a renewable fiscal resource.”

He said that since land is a renewable resource, the Ministry of Finance was on “very weak grounds when it rejected suggestions during the Budget debate this year to use more of the Net Investment Returns (NIR) from reserves or use (part of) the revenue from land sales (which are currently wholly locked up as reserves).”

In May, the Workers’ Party called on the Government to relook the 50 per cent cap on spending from the returns of the reserves, last debated in 2016. In responding to the Workers’ party, Minister Lawrence Wong chided them saying: “What does it say about us and our mindsets… if the minute we need the money, the first thing we do is to relax the rules? Surely, that would be ill-disciplined, imprudent and unwise.”

“If land is a renewable fiscal resource – that is, land reverts to the state after 99 years, which it can then sell again – the major implication is that in the stable state (i.e. in equilibrium), all of the revenue received each year from selling 99-year leasehold land can be used in the current budget,” he said.

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Adding: “There’s no need to lock up any land revenues in reserves (except for revenue from sales of freehold and 999-year leasehold land). It’s certainly not the case, as the Minister for Finance then said, that at most 1/99 of the revenue from land sales each year can be used. This is because in equilibrium, the state would be recycling and re-selling “only” 1/99 of its land holdings each year.”

He said using all of the revenue from the sale of 99-year leasehold land is the very definition of sustainability, in that one can only use what is earned each year, in perpetuity.

In responding to a comment that his views does not seem correct from an accounting point of view; in that “if a 99 year old leasehold asset is sold, it’s like collecting all the rent upfront and that accountants will still want u to recognise the revenue year by year. As in over 99 years,” Mr Low said:

“Thought more about what you’re saying and realised that what I propose amounts to the same thing – once we adjust for price volatility. Let me explain. So let’s do what accountants say we must do: record only 1/99 of the revenue of the land sales each year in every one of the subsequent 99 years. In the long-run, the revenue booked for each year would be the summation of 1/99 of the value of EVERY piece of 99-year leasehold lands sold, this year and in all previous 98 years. Assuming that the state disposes land evenly (i.e. it sells approximately 1/99 of its stock of land holdings each year), this means that the actual revenue received each year in land sales would not differ too much from the method you propose.
Now, I recognise of course that this is a simplifying assumption. The reality is that revenues from land sales are volatile so to use the actual revenues received year-to-year may create too much volatility. Furthermore, the amount of land sold may vary a lot from year-to-year. Again, this creates too much volatility if the state only recorded what is received each year. So doing what you propose is perfectly fine, that is the state recognises not just 1/99 of the revenue from land sales in that year, but also 1/99 of land sales revenues from EACH of the previous years.”

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