Financing Singapore’s future
Singapore’s reserves are a precious resource to safeguard for generations to come.
Just as any family would want to save up for a rainy day and provide for their children, Singapore plans for the long term and seeks to secure a better future for coming generations. The Government does this, even as it focuses on shorter term concerns, especially during these uncertain times.
This year’s Budget announced the S$1.6 billion Care and Support Package to help Singaporean families manage their expenses, against the backdrop of the COVID-19 outbreak and ongoing economic concerns. Workers and businesses will benefit from the S$4 billion Stabilisation and Support Package.
Meanwhile Singapore’s long-term national expenditure is forecast to increase. Healthcare spending, for instance, will go up, due to an ageing population. Expenditure in other priority areas including education and security are also rising.
This has necessitated an increase in the Goods and Services Tax from 7 to 9 per cent. GST will remain at 7 per cent in 2021, but when the increase – expected by 2025 – is implemented, a S$6-billion Assurance Package for Singaporeans will be introduced.
CONTRIBUTION FROM THE RESERVES
It’s clear that this country faces spending challenges on various fronts, both in the short and long-term. But the impact on the Singapore Budget is lessened through regular contributions from the national reserves.
The Net Investment Returns Contribution (NIRC) in fiscal year 2019 amounted to S$17 billion, or 18 per cent of that year’s budget. The largest single source of government revenue, more than any single tax, the NIRC helps to keep the overall tax burden on Singaporean families and businesses low.
The NIRC comprises up to 50 per cent of the Net Investment Returns on the net assets invested by GIC, the Monetary Authority of Singapore, and Temasek Holdings, and up to 50 per cent of the Net Investment Income derived from past reserves from the remaining assets.
The ability of Singapore to tap on the national reserves in a sustainable manner provides a significant financial advantage for all Singaporeans. Many other countries have to service their debt and other liabilities from their annual budgets through taxation or borrowing.
In Singapore, a country without any natural resources, the Government is able instead to take in funds from investment returns to supplement the annual Budget.
CONTINUING OUR FOREFATHERS’ LEGACY
The origins of the national reserves run parallel to the story of Singapore’s Pioneer Generation, who struggled to provide opportunities for their families, often through significant hardship.
As Deputy Prime Minister and Finance Minister Heng Swee Keat said in Parliament during the 2020 Budget Debate: “The reserves are our nest egg, borne of hard work and discipline.”
He noted: “During the earlier years of economic catch-up, Singapore experienced fast growth and had a young working population. Our founding fathers made the decision to save Singapore’s surpluses and invest it for the long term to build up Singapore’s nest egg.”
“They could have just spent it to gain immediate political advantage. But they were principled and had the long-term interests of our people and our nation at heart,” Mr Heng added.
As Singapore prospered over the decades, a prudent strategy led to the “two-key system” of protecting past reserves. The Government held one key and the elected President the other, to prevent any misuse of the past reserves. This was codified in the Constitution of the Republic of Singapore (Amendment No. 3) Bill, passed in 1991.
Recent decades have seen more economic volatility. In 2008-2009, the country was hit by the global financial crisis, which saw severe pressures on the Singapore economy.
The Government responded with financial measures such as the S$20.5 billion Resilience Package in 2009, intended to mitigate the effects of the global financial crisis. To fund it, and in a bid to save jobs and stimulate bank lending, presidential approval was sought for a total of S$4.9 billion to be drawn from past reserves to fund the Jobs Credit Scheme and Special Risk-Sharing Initiative.
The total amount drawn eventually was S$4 billion, less than expected, as the recession was milder than feared. After the economy recovered, the Government returned the amount in February 2011 as a sign of financial discipline.
During the global financial crisis, Singapore’s reserves also enabled the Government to guarantee every dollar deposited in banks here, calming depositors and helping to instill investor confidence.
CARING FOR THE NEXT GENERATION
Singapore’s national reserves serve as a financial buffer against crises, help to maintain confidence in Singapore’s economy, and provide a stream of investment income to finance annual expenditure.
Just as Singaporean families continue to work hard to provide for their children, Singapore must likewise ensure that the reserves remain a vital strategic asset for the nation, as well as a valuable legacy for future generations to maintain and draw on when needed.
Visit the Budget 2020 page to find out more about the Singapore Budget.