ASEAN KEY DESTINATIONS
Should Singapore spend more of its investment returns? MPs urge prudence during Budget debate
Weighing in on a debate that reignited after last week’s announcement of a GST hike, several MPs cautioned against using more of Singapore's reserves to fund future spending needs.
The question of whether the net investment returns (NIR) framework should be adjusted to allow Singapore to tap more of the earnings from its significant reserves was one of the key topics touched upon by Members of Parliament (MPs) on the first day of debate on Budget 2018.
Among those who spoke about the topic on Tuesday (Feb 27), a majority called for the limit on the NIR framework to be kept at 50 per cent.
Under the current framework, the Government is allowed to spend up to half of its expected long-term real returns from the assets managed by the Monetary Authority of Singapore (MAS), state investment firm Temasek Holdings and the GIC.
For Mr Liang Eng Hwa, MP of Holland-Bukit Timah GRC, this 50-50 split is "a fair balance" between current and future generations.
"Rather than use more of the returns for current spending, we should let the power of compounding returns do the work by re-investing the other 50 per cent so as to grow the principal amount of the reserves and contribute to (the) bigger value of the NIRC (NIR contributions) in the future," he said.
"It is always tempting to go for the short-term painless solution. Our forefathers were resolute in not taking this easy path and so should we," added Mr Liang, who is also chairman of the Government Parliamentary Committee (GPC) for Finance and Trade.
"Going forward, we need bigger NIRC to keep our tax system competitive and importantly, progressive as well."
Echoing similar views, Nee Soon GRC MP Henry Kwek stressed the importance of continuing to grow Singapore's reserves as the economy develops.
Describing Singapore as a “small boat in a large ocean”, he cited the example of how the country's reserves served as "an anchor" that provided "much needed stability” during the global financial crisis in 2008.
Amid lingering risk factors, "the only certainty is that bigger and larger financial storms will eventually come to our shores", Mr Kwek added.
"If our reserves fail to keep up with our growing economy, maybe not at the next crisis but a few crises down the road, our reserves may not be of a sufficient size to anchor the bigger Singapore economy then," he said.
"We must be wary of dipping more into our reserve income."
INVESTMENT RETURNS CAN BE VOLATILE
Referring to how the NIRC is now the largest contributor to Singapore's revenues, West Coast GRC MP Foo Mee Har cautioned that this high dependency on investment returns represents a “significant vulnerability” for Singapore given the volatility that comes with any investment portfolio.
According to Finance Minister Heng Swee Keat in his Budget statement last Monday, the NIRC has more than doubled from S$7 billion in FY2009 to an estimated S$15.9 billion in FY2018, making it the largest contributor to the Government's coffers, above any single tax.
"To ensure a sustainable fiscal position, there may be a need to consider a limit upon which Government spending can tap NIRC to avoid over-dependency," Ms Foo said.
She added that the Government's consideration of providing guarantees for long-term borrowings made by statutory boards and government-owned companies to build critical national infrastructure is a "much better way" to tap on the strength of the country’s reserves without having to draw directly on them.
Marine Parade GRC MP Seah Kian Peng said that there could be room for tweaks to the percentage in the NIR framework, but stressed that it must only be done to help Singaporeans who fall through the cracks.
"We must recognise that even relatively well-off people can have a legitimate experience of relative deprivation, when compared to the very wealthy. At the same time, we must see the need to allocate resources more urgently to men (who are most vulnerable).
"It is only when we do not have enough to cater to men (like these) that I feel we should consider raising the percentage – not as a means of populist hot air balloon for everyone who demands a specious equality with their neighbour," said Mr Seah.
USE A PORTION OF REVENUE FROM LAND SALES: PRITAM SINGH
Meanwhile, Aljunied GRC MP Pritam Singh cited suggestions from observers and members of the public about how the NIR framework’s 50 per cent limit could be raised to stave off a GST hike.
The increase can also be a temporary one to fund non-recurrent, lumpy infrastructure investments, such as the High-Speed Rail between Singapore and Kuala Lumpur. When these projects are completed, the framework could be adjusted back to its original level of 50 per cent, while revenue earned could be returned to the reserves, according to the opposition MP.
"Such proposals leave more scope for the Government to hold back from increasing regressive taxes, like the GST," said Mr Singh.
Citing estimates in media reports that put Singapore's reserves at in excess of a trillion dollars, he said: "How much of it do we need to protect the Singapore dollar from currency speculators is a valid question given that the yearly revenue from land sales alone ensures that our reserves continue to grow in size."
As such, he raised a point on using a portion of the revenue from land sales for budgetary spending, and said allowing this will not stop the reserves from growing.
Mr Singh also said that exploring the use of land sales revenue will give the Government of the day more flexibility in ensuring that the needs of its current generation of elderly Singaporeans in areas such as healthcare are "adequately budgeted for".
But in response to that, Sembawang GRC MP Vikram Nair said “it is wrong in principle to sell land and spend that capital up front”.
He added that while that is done by other countries, there is no reason for Singapore to follow suit.
"I think it's more responsible for us to put the revenue from land sales or anything we get into the reserves and use any income we have from that," Mr Nair said, describing land as Singapore’s “most finite asset".
"So the best we can do is treat it as an asset even after it's sold and if there's income, we can use that as part of the NIR framework. So in that sense, all this goes towards having a financially sustainable budget."
FY2017 BUMPER SURPLUS UNSUSTAINABLE
But MPs agreed that the surprise boost in the overall budget surplus for the financial year 2017 is most likely an anomaly and should not be used to plan long-term expenditure needs.
Singapore is expecting a hefty surplus of S$9.6 billion – more than five times of what was expected – for the year ending March 31, thanks largely to a significant ramp-up in contributions from statutory boards and stamp duty collections.
For the former, “strongly positive” currency translation effects led to the surge in contribution from the Monetary Authority of Singapore (MAS) to the Government’s coffers over the past financial year, while higher gains from the sale of assets also boosted JTC Corporation’s input.
Describing the handsome surplus as a "welcome surprise" from currency fluctuations that had “gone unexpectedly in MAS’s favour", Nominated MP Randolph Tan cautioned that "market movements which present large upside surprises in one year also contain the potential to do the opposite".
While the chances of a downside surprise can be minimised through sufficient diversification and vigilance, it cannot be totally eliminated, added the economist. Hence, the surprise budget surplus will not be "a reliable recipe for funding long-term national commitments".
Ang Mo Kio MP Daryl David also described the projected surplus as "exceptional" and warned against expecting the recurrence of a surplus of this quantum.
Given the need to spend more in areas like healthcare, transport, security and infrastructure, he emphasised the need for a fiscally sustainable and prudent budget so as to ensure that Singapore does not overly burden its future generation.
"Having said that, it important that the government also remembers to temper any future tax increases with the appropriate measures and schemes to help those who need assistance and help,” Mr David added.
On that, Mr Liang is hoping for the Government to continue the redistribution of budget surpluses as a means to help the less well-off in Singapore.
He was referring to Mr Heng’s announcement of an "SG Bonus", where part of the expected FY2017 budget surplus will be “shared” with Singaporeans aged 21 years and above in 2018, as well as the topping up of the permanent GST Voucher Fund.
"I hope the finance minister can affirm this surplus re-distribution arrangement as part of our social compact," he noted. "Besides helping to mitigate the impact of GST and rising costs, it can also to help manage the income disparity that we see widening in our society."
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