SINGAPORE: The Government is prepared to ask President Halimah Yacob for approval to draw further on the country’s past reserves if necessary, Deputy Prime Minister Heng Swee Keat said in Parliament on Thursday (Oct 15).
Rounding up a two-day debate on the Government's strategy to emerge stronger from the COVID-19 crisis, Mr Heng said there is “profound uncertainty” on the trajectory of the coronavirus pandemic and its economic impact.
"We must act early and decisively to support our workers and businesses when needed, so I am prepared to propose to the President a further draw on our past reserves should it be necessary for us to do so,” said Mr Heng in response to a question by Bukit Panjang MP Liang Eng Hwa.
The Government has drawn an unprecedented S$52 billion from the reserves as part of the almost S$100 billion it has committed to COVID-19 support measures this year.
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In the medium to longer term, Singapore's approach is to “adapt and find new ways to generate growth”, said Mr Heng, who is also the Finance Minister and Coordinating Minister for Economic Policies.
“We must work hard to get ourselves back in a position where our economy is growing and we can build up reserves for the future again,” he said, describing this as the “sustainable and prudent” way forward.
Even as the Government works to support residents through this difficult period, Mr Heng said it needs to be more circumspect when it comes to using more reserves due to the greater uncertainties ahead.
“First, the global economy and financial system will be more volatile. The build-up of debt globally introduces instability in the financial system, which can lead to or exacerbate crises,” he said.
Mr Heng also pointed to the increasing risk of geopolitical conflicts and deglobalisation, as well as the risk of another possible serious international epidemic.
“I am sure we all want Singapore to be here for the long haul. As long as Singapore continues to exist, the question is not whether there will be an externally induced crisis, but when,” he said.
“If we spend more or even all the returns from our reserves annually, future generations will likely have a smaller buffer in a world of greater uncertainty,” he added.
“We must therefore ensure that we continue to spend within our means and hand over to our children more than what we inherited from our previous generations.”
STRENGTHENING SINGAPORE’S FISCAL TOOLKIT
Mr Heng noted that the latest support package is being funded entirely by budget reallocation, with the Government doing an "extensive scan" of each ministry’s budget to identify possible deferments or reductions in expenditure.
Some expenditure - such as those for MRT lines or upgrading of Housing Board estates - were deferred because of delays due to “circuit breaker” measures and the need to ensure that the construction sector reopens safely. Other expenditures were lower than projected due to COVID-19 and safe distancing measures, he said.
However, most of this is merely delayed spending, which will still be incurred in the future, the Deputy Prime Minister said, adding that Singapore will push ahead with critical projects.
“These projects are needed to raise Singaporeans’ standard of living and our economic development. We will push ahead when the conditions allow,” he said.
Singapore’s fiscal situation will get tighter, with revenues likely to be subdued and uncertain in the medium term, Mr Heng warned.
He pointed to a global economic growth that is likely to remain weakened in the coming years, as well as an intensified global competition for tax revenue.
“Many advanced economies have accumulated more debt to fund their COVID-19 responses, which they will need to repay,” he said.
“There is added impetus globally to push for 're-allocation' of taxing rights under the Base Erosion and Profit Shifting project, or BEPS in short,” he said, referring to the initiative by the Organization for Economic Cooperation and Development and the G20 to revamp international corporate taxation.
“Even as we contend with these revenue challenges, we cannot lose sight of our goal to secure the long-term needs of Singapore,” he said, pointing to the expected increased spending on healthcare and pre-school education in the future.
Singapore is studying how to strengthen its “fiscal toolkit” to ensure its financial security, he said.
“Even before COVID-19 struck, we have explained that we are looking into borrowing for major long-term infrastructure. This will help to spread out the hefty upfront costs equitably across current and future generations who will benefit from such investments,” he said, describing Singapore’s approach as “principled and prudent”.
The country will only borrow for infrastructure that will benefit multiple generations, and ensure that its debt level and future repayments are sustainable, he explained.
“We will not borrow just to make up for revenue shortfalls or be opportunistic in timing the market,” he said.
GST INCREASE CANNOT BE INDEFINITELY DEFERRED
For recurrent spending like healthcare and education that benefits the current generations, "the responsible way is to pay for them using what we earn", through recurrent revenues like taxes, said Mr Heng.
"This discipline ensures that every generation earns and pays its share,” he added.
Noting that several MPs had asked about the planned increase in the GST rate to 9 per cent, Mr Heng said he had announced earlier this year that the GST will remain at 7 per cent in 2021.
The increase, however, cannot be deferred indefinitely, he said, pointing to the need to support future needs in healthcare and pre-school education.
“We will continue to study the timing of increasing the GST rate carefully, taking into account the pace of our economic recovery, our revenue outlook and how much spending we can defer to later years, without jeopardising our long-term needs,” he said.
GST collections this year are projected to be down by 14 per cent from initial estimations before the start of the year, he said, adding this is due to travel disruptions and the impact of the circuit breaker period.
“We expect collections to continue to be lower than usual until international travel recovers fully, which we expect to be at least a couple of years away.”
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The Government remains committed to helping people manage the impact of the GST rate increase, Mr Heng said, pointing to the S$6 billion Assurance Package aimed at cushioning the impact of the increase.
Responding to Non-Constituency MP Leong Mun Wai's suggestion to shelve the increase indefinitely, Mr Heng noted that more than 60 per cent of the net GST comes from foreigners living here, tourists and the top 20 per cent of resident households.
Any indefinite shelving of the GST increase would mean losing additional revenue from these groups that could be used to improve the lives of Singaporeans, Mr Heng said.
He also responded to Sengkang GRC MP Louis Chua, who had asked how the draw on reserves would impact the Net Investment Returns Contribution (NIRC).
“Yes, there will be some impact to NIRC but the design of the NIR (Net Investment Returns) framework is to provide a stable, sustainable source of income to our budget, smoothed out over market cycles,” he said, in response to the Workers' Party (WP) MP.
“This means that when the projected returns and value of the net asset base goes down, we do not see an immediate proportionate decrease in NIRC," said Mr Heng.
In the same way, in periods of sharp spikes in the market and asset values go up, we do not see an immediate increase and overspend.”
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COVID-19 CRISIS NOT OVER
In cases where a firm’s potential failure due to the COVID-19 crisis would significantly impact Singapore’s competitiveness or national security, Mr Heng said he could not rule out the possibility of the Government taking action to ensure such “strategic capabilities” are preserved.
“The exact form of support will depend on the circumstances. But the bar for any Government action will be high. The Government will also exercise prudence and ensure public funds are well used,” he said.
Responding to a question from WP's Aljunied GRC MP Gerald Giam on whether the Government plans to return the money drawn from the reserves, Mr Heng noted there is no legal obligation for the Government to do so under the Constitution.
“Rather, it is about having the moral obligation and sense of duty to current and future generations, and the recognition that we are stewards of our reserves which have not come by easily,” he said.
“It is not possible for me to be definitive on how long it will take for us to build up sufficient surpluses to make up the S$52 billion,” he added.
“I would like to remind everyone that the COVID-19 crisis is not over. The scars it will leave on our economy and the global economy are still unknown. But I can say that it will not be two years, and I certainly hope it will not take us 50 years.
“How long it will take also depends on the choices we make as a country and Government – whether we continue to manage our resources prudently. We remain committed to running a broadly balanced budget over each term of Government, and we will assess the viability of returning the amount drawn, depending on our fiscal position.”