SINGAPORE: Due to continued prudence, Singapore did not have to draw on past reserves as it ramped up fiscal support in Budget 2020 for its economy and people amid the COVID-19 outbreak.
“But if the situation deteriorates significantly and calls for us to tap on our past reserves, I will make a case to the President to seek her approval to do so,” said Deputy Prime Minister Heng Swee Keat on Friday (Feb 28) in his wrap-up speech for the debate on the Budget statement.
He was addressing questions that have been raised over Singapore’s reserves and suggestions that it should be used to fund the country’s needs, instead of raising the Goods and Services Tax (GST).
During the Budget debate on Thursday, Workers' Party Non-Constituency Member of Parliament Leon Perera had asked if the growth rate of the reserves could be slowed down to release more funds to invest in people and companies.
In his speech, Mr Heng described the reserves as Singapore’s “nest egg” – one that is “borne of hard work and discipline” by the country’s founding fathers.
He said for the financial year 2019, the Net Investment Returns Contribution (NIRC) was the largest single contributor to the Budget at S$17 billion, or 3.3 per cent of gross domestic product (GDP).
This is a “highly unusual and very fortunate position”, said Mr Heng, who noted that this was not the case in most advanced countries that pay about 2 per cent of their GDP in debt servicing of accumulated debt.
On the other hand in Singapore, the reserves have generated substantial returns, which help to keep taxes low.
“Today, the NIRC at S$17 billion is more than personal income tax collections at S$12 billion, and GST collections at S$11 billion.
“If we did not have the NIRC, even doubling personal income tax, or doubling the GST rate to 14 per cent, would still not be enough,” said Mr Heng.
“Tell me in which other country are citizens able to reap the benefits of past savings in this way?” he added.
“So let us never forget that what we have inherited is very unusual and very precious. Let us be responsible and steward these properly for our future generations.”
The reserves have also given Singapore, a small country with no natural resources, the confidence to deal with the ups and downs in the world, said Mr Heng.
This is why the country has a “robust set of rules to safeguard and manage the use of reserves”.
“The President plays a critical role in guarding against profligate spending, and to ensure proper use of our past reserves to safeguard Singapore’s interest when needed,” he said.
Mr Heng raised the example of how former President S R Nathan approved the provision of S$150 billion from past reserves to guarantee bank deposits in Singapore from October 2008 to December 2010 during the global financial crisis.
“That calmed our depositors,” he said.
“We did not have a single bank run. The S$150 billion remained untouched and returned to past reserves. Singaporeans’ money was safe,” added Mr Heng, who was the managing director of the Monetary Authority of Singapore then.
In 2009, then-President Nathan approved a draw of S$4.9 billion from the past reserves to fund the Resilience Package. A year later after the economy rebounded sharply, the Government decided to return the money used to the past reserves.
“It did not have to, but did so, to maintain the discipline that has allowed this unusual move in the first place,” said Mr Heng.
Emphasising the need to be disciplined in the use of the country’s reserves, he continued: “Now, we can do the easy thing and avoid the pain for ourselves today. We can decide not to raise GST to pay for our own spending, but to tap on our reserves and its investment returns instead.
“But by doing so, we will soon deprive future generations of the benefits that we enjoy today. What would that, then, say about us?” he said.
“Let us continue to keep the discipline, and keep the faith and promise to future generations of Singaporeans, by stewarding our reserves well in our time.”