Singapore government not accumulating more reserves than necessary: Wong

THE risks for Singapore's reserves are tilted to the downside and the government is not looking to accumulate more reserves than necessary, said Finance Minister Lawrence Wong in Parliament on Wednesday (Mar 2).

"We have already drawn about S$37 billion in reserves over the past 2 years and are continuing to draw down this year to keep up our public health expenses," he said in a speech to round up the 3-day debate on the Budget Statement.

Wong also took issue with Workers' Party (WP) Member of Parliament He Ting Ru's suggestion that "by saving for the future, we are discounting the needs of the current generation".

"Our fiscal policy, including our reserves protection framework keeps faith with all generations - current and future," he said.

He also rebutted the WP's suggestion that the Net Investment Returns Contribution (NIRC) be tweaked.

"If we were to just have 20 per cent less NIRC than today's levels ... our Goods & Services Tax would now need to increase to 11 per cent instead of 9 per cent to make up for the funding gap," he said. "Drawing more on (the) NIRC now means that our children and the next generation will end up paying more taxes."

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Wong said that while Singapore's reserves are growing, "the size of our economy, the challenges we face and the complexity of needs are growing even faster".

The government expects the NIRC stream to continue to keep pace with economic growth, but "even to achieve that is by no means a sure thing", he added.

In his speech in Parliament, Wong also tackled suggestions regarding land sales proceeds.

"Both the Workers' Party and Progress Singapore Party have suggested different ways to spend from our land sales proceeds," noted Wong. "These are variations on what they have put out before and they still do not recognise that land is a scarce asset that is protected as past reserves."

"When we sell land, we are not creating new wealth. We are merely converting the land from a physical to a financial asset. Therefore, we invest the land sale proceeds back with the rest of the reserves and we spend 50 per cent of the expected long term real return through the NIR framework," he said. (see amendment note)

"In this way, our land sale proceeds provide a stable and sustainable stream of income for our budget over time."

This avoids potential pitfalls that would be faced if spending was more directly linked to land sales proceeds.

"We know for a fact that property market cycles will not be static ... We do not want government revenues to fluctuate with the property market because it makes government spending itself pro-cyclical, and creates too much uncertainty for the government to plan long-term," he said.

And once a government gets used to relying on land sales to fund spending, Wong said it will have a vested interest to keep land prices high to maximise revenues. This will ultimately hurt both the economy and Singaporeans, he said.

Amendment note: A previous version of this article stated that the government spends 50 per cent of expected long term real return of its land sale proceeds through the NIRC framework. It is in fact the NIR framework.