Four Budgets may help avert 5 percentage point output loss

Singapore

SINGAPORE'S four Budgets this year may help it avoid an annual average output loss of five percentage points or S$23.4 billion, over 2020 and 2021, Deputy Prime Minister and Finance Minister Heng Swee Keat said in Parliament on Friday.

"Our strong response is projected to stabilise economic activity during this difficult period, and position Singapore for recovery," he said. The estimate is from a recent study by the Monetary Authority of Singapore.

In a wrap-up speech for the debate on the Fortitude Budget, Mr Heng spoke on how the four Budgets respond to the crisis and position Singapore to emerge stronger, while noting the importance of the reserves and Singapore's fiscal strategy in enabling such a swift, decisive response.

Including almost S$100 billion in response to Covid-19, the four Budgets total S$193 billion, more than double the size of annual Budgets in preceding years. There is also S$13 billion set aside in the Contingencies Funds, reflecting "both the unprecedented levels of severity, as well as uncertainty, of this crisis", said Mr Heng.

As designed, this fund can be drawn upon if there is a need to do so, and no specific purposes have been designated for it, he said in response to Member of Parliament Liang Eng Hwa, who had asked for an indication of how the funds might be used.

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"In sizing it, we have run some 'what if' scenarios, including the possibility that we may experience a setback in our fight against Covid-19, or the global economy does much worse than currently expected," he said.

With S$52 billion being drawn from the past reserves to fund the Budgets, Mr Heng noted that the ability to depend on national reserves allows Singapore to deal with the crisis from a position of strength.

This is in contrast to most countries, where borrowing is the only way to fund their large stimulus packages, he said. "This increases the risk of unsustainable debt financing, which has severe consequences for the economy in the long run."

To repay the debt or interest accrued, future generations may face higher taxes, higher inflation, or lower returns on retirement assets. There is also less fiscal room to invest in human capital or infrastructure. "The 'Lockdown Generation' in these countries will end up paying for this crisis a long way down the road," Mr Heng cautioned.

Having reserves is a strategic advantage in the current environment, he added. First, it assures citizens that Singapore has the means to deal with challenges. Second, it fosters confidence in global investors. Third, it protects Singapore from the danger of having its economy and currency attacked by speculators.

The reserves were not built up by chance, but with policies that discourage waste and public services that are run based on outcomes, not on size of spending, said Mr Heng.

Singapore retains its principle of fiscal discipline, and its rule of running a balanced budget for each term of government, he added.

Replying to MP Saktiandi Supaat, who had asked if Singapore should take advantage of lower interest rates now to borrow more to fund expenditure, Mr Heng said there is no certainty of being able to repay accumulated debt obligations in the future.

Still, while Singapore has good reasons not to borrow for current expenditure, the government is already using debt to generate long-term returns, he noted. This includes issuing debt securities domestically, and guaranteeing Changi Airport Group's borrowing for the development of Changi East. The government is also considering borrowing for major long-term infrastructure needs, which benefit many generations.

With significant fiscal outlays still needed for medium- to long-term structural needs - healthcare, education and training, and infrastructure - Singapore must "deploy the right mix of fiscal instruments that meets our principles of prudence and equitable spending", he said.

While long-term infrastructure might be funded by borrowing, thus sharing costs across the generations that benefit, recurrent spending should be met with recurrent revenues, he said. The Goods and Services Tax hike, postponed from its original 2021 date, cannot be put off indefinitely and will still be needed by 2025.

"With this differentiated and principled fiscal strategy, each generation rightly pays for the benefits that they enjoy, and we do not saddle future generations with our bills. This is an equitable approach, and will continue to be the cornerstone of fiscal sustainability for Singapore," he concluded.

On Friday, the Health Ministry reported 261 new Covid-19 cases - the lowest in nearly two months - to take Singapore's total to 37,183. There were 11 new community cases, with work permit holders residing in foreign worker dormitories accounting for the rest.