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Singapore Budget 2018: Lack of data on Singapore's reserves limits discussion on its use

Idea offered at forum: Split reserves into two, and reveal the size of the part used to generate investment returns

From left: OCBC economist Selena Ling, Maybank Kim Eng economist Chua Hak Bin, forum moderator Han Fook Kwang (a senior fellow at the S Rajaratnam School of International Studies and Straits Times' editor-at-large), NTU Asst Prof of economics Giovanni Ko and SUSS economist Walter Theseira.


IT IS difficult to say whether Singapore should tap more of the earnings from its significant reserves - simply because the size of those reserves is not publicly disclosed, panellists at a post-Budget forum said.

To give Singaporeans a clearer idea of the sums involved, one panellist suggested setting aside a portion of the reserves as a base for generating contributions to the Budget, and publicly disclosing this amount while keeping the size of the other portion secret.

The forum, organised by the Economic Society of Singapore on Thursday, comes after Finance Minister Heng Swee Keat announced in his Budget speech that the goods and services tax (GST) will go up from 7 per cent to 9 per cent between 2021 and 2025.

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Though widely expected, the announcement has sparked questions about the necessity of a GST hike, given Singapore's significant reserves.

The full size of these reserves has never been revealed for strategic reasons, but it is estimated at more than S$1 trillion.

Under the net investment returns  (NIR) framework, the government can spend up to half the long-term expected real returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities that manage and invest the reserves.

Some commentators called for this percentage to be increased, given Singapore's growing spending needs.

But in the absence of public information about parameters such as the size of the reserves and the rate of return on investing them, "any quite meaningless", said OCBC economist Selena Ling, who was on the panel.

She acknowledged that "we don't want to tell the world how much we have in the reserves", and suggested splitting the reserves into two parts - one portion to be used as a base for generating the net investment returns contribution, and which can be publicly disclosed.

The remaining portion can be kept secret to deter currency speculators from attacking the Singapore dollar.

"We can then have a meaningful discussion about the right rate of drawdown," she noted.

Fellow panellist Chua Hak Bin, senior economist at Maybank Kim Eng, pointed to signs that indicate the reserves have been growing significantly in recent times.

For instance, proceeds from government land sales, which go into the reserves, came up to S$12.9 billion in the 2017 financial year, higher than an earlier forecast of S$8.2 billion. Government assets and investments also increased substantially over the year, he noted.

Another panellist, Singapore University of Social Sciences (SUSS) economist Walter Theseira, noted that the question of tapping the reserves in a bigger way ultimately boils down to how resources should be transferred between current and future generations of Singaporeans - that is, "who pays and who benefits".

While Singapore has long maintained that its policies are based on principles of self-reliance - meaning that individuals should pay for their own needs and not rely on transfers from others - "in practice, these policies have been moderated by practical reality".

For instance, "the reason why we have a rapidly rising healthcare operational budget must be because most patients don't have enough to pay for their own healthcare expenses".

This means the question of "who pays and who benefits" goes beyond weighing up a GST hike against tapping more on the reserves; policymakers also need to plug gaps in schemes like Medisave, he noted.

The panellists at the event held at the Mandarin Orchard also discussed the political and economic implications of the upcoming GST hike.

There might be public pressure to introduce GST exemptions on certain types of goods, including necessities like fresh food, but Singapore policymakers must resist this "at all costs", said Giovanni Ko, assistant professor of economics at the Nanyang Technological University (NTU).

While such exemptions might seem politically attractive, they also tend to be administratively costly, he added.

 Clarification note: An earlier version of this article referred to the net investment returns contribution (NIRC) framework. The Ministry of Finance has since clarified that the correct term is the net investment returns framework. The article above has been revised to reflect this.


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