SINGAPORE: The use of Singapore’s reserves should not be taken lightly as there are “severe implications” if the country does not have sufficient reserves as buffer, said Minister in the Prime Minister’s Office Chan Chun Sing on Saturday (Feb 24).
Apart from the need to grow the reserves for the increasing needs of the next generation, Mr Chan said Singapore’s fiscal policy impacts the strength of its currency as well.
“How much we spend and how much we save will also signal to the currency markets what they can expect the strength of the Sing dollar to be,” said Mr Chan at a Chinese New Year dinner attended by grassroots advisers and residents of Tanjong Pagar and Radin Mas constituencies.
“If the world thinks we are running an irresponsible or unsustainable fiscal policy, you can well imagine what they will do to the Sing dollar,” he added.
“There are severe implications on what it means to not have a strong Sing dollar or not have sufficient reserves as our buffer.”
Mr Chan’s comments come after the Finance Minister’s Budget 2018 speech on Monday, when it was announced that the goods and services tax (GST) will be raised from 7 to 9 per cent sometime between 2021 and 2025. It is to help fund growing expenditure in areas like security, healthcare and other social spending.
Finance Minister Heng Swee Keat had explained in his Budget speech why the Government will not tap more of the reserves, a point reiterated by Senior Minister of State for Finance and Law Indranee Rajah at a dialogue on the Budget earlier this week.
Said Mr Chan: “The budget surplus (last year) was not a structural surplus but largely attributed to currency fluctuation ... hence, very much like our approach to restructure the economy for long-term growth, we too can’t afford to be short-sighted in the way we manage our finances. We have to be prepared for the long term.”
CHALLENGE OF KEEPING HEALTHCARE COSTS AFFORDABLE
One of the most challenging issues for Singapore’s budget in the coming years is how to keep the healthcare system affordable, sustainable and fair, said Mr Chan who is also labour chief.
"Schemes that promise us no co-payment may end up causing us a situation whereby today's claims become tomorrow's premiums and the price escalation goes up very quickly," he noted.
On the other hand, schemes that promise higher and longer payouts “must realistically be funded through longer upfront pre-funding”, Mr Chan said, adding that schemes with more affordable premiums will involve wider risk-pooling.
He cited the example of Singapore’s ElderShield scheme, which covers people with severe disabilities.
Currently, all Singaporeans and permanent residents with Medisave accounts are automatically enrolled in ElderShield at the age of 40 – unless they opt out – and pay premiums until they are 65 years old.
But there may soon be changes to the scheme. A review committee had recommended last month that ElderShield coverage start from age 30 and be made compulsory.
“With a lower age limit and more policyholders starting contributions earlier, premiums for this severe disability insurance scheme can become more affordable, if we can have the entire population to risk pool together,” said Mr Chan on Saturday.
“We will discuss these complex issues more in the coming year to help Singaporeans understand the challenges and options that we have.”