No one can be sure what amount is ‘enough’ when it comes to Singapore’s reserves: PM Lee

IT IS a misconception to think there is an amount of national reserves which would be “enough”, said Prime Minister Lee Hsien Loong in Parliament on Wednesday (Feb 7).

“We can never say for sure how much is enough, because we don’t know what kind of crises we will face in the future or how our investments will fare,” he said, citing the Covid-19 pandemic and possibilities such as war.

He was speaking in the debate on a motion filed by the Progress Singapore Party (PSP) on Singapore’s reserves and budget policies.

In the motion, Non-constituency Members of Parliament (MP) Leong Mun Wai and Hazel Poa called on the government to “review its current budget and reserve accumulation policies”, to reduce financial burdens and improve the quality of life for Singaporeans today, while saving for future generations.

The original motion was supported by MPs from the Workers’ Party. But People’s Action Party MP Liang Eng Hwa proposed four amendments, removing the call for the policies to be reviewed.

The amended motion called on the government to “ensure its budget and reserve accumulation policies would always stay fiscally responsible and sustainable”, and replaced “saving” for future generations with “planning and providing”.

The motion was eventually passed with all four proposed amendments, though PSP and WP MPs objected to the amended version.

In his opening speech, Leong argued that the government’s focus on accumulating the reserves could mean that the funds were not being used to sufficiently meet present-day needs.

“The cost of accumulating reserves was tolerable when our economy and incomes were growing rapidly,” he said. “However, as economic fundamentals change, there comes a point when the welfare of present-day Singaporeans will be hurt if we continue accumulating the reserves at the same rate, as we are doing now.”

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He proposed growing the reserves more slowly, and allocating more of the net investment returns to the annual Budget.

But Second Minister for Finance Indranee Rajah replied that PSP was wrong to think that Singapore had plenty of excess fiscal space.

Occasional upsides to government revenue have not meant that Singapore has excess funds, she added. “The right way to assess our fiscal position is not based on year-to-year changes, but on broader medium-term trends.”

In addition to providing emergency funding, the reserves have helped maintain economic stability, said Nominated MP Neil Parekh. Changing current policies could risk Singapore’s long-term economic stability, he added.

Liang said that having strong reserves has enabled Singapore to borrow at the lowest risk-free rate. It has also kept the Singapore dollar strong, and reinforced investor confidence.

Alternative revenue sources, greater transparency

In the debate, PSP and WP revived proposals for alternative sources of government revenue, such as land-sales proceeds.

To this, Indranee reiterated the government’s stance that selling land did not generate new wealth, but merely converted a physical asset to a financial one, and was thus revenue-neutral.

PSP also reiterated its call – made during a debate on affordable housing last year – to waive the land cost for public housing.

Leader of the Opposition Pritam Singh urged the government not to close off the prospect of reviewing the Net Investment Returns Contribution or NIRC formula, “to lessen the financial burden on Singaporeans and to explore policies that can improve social outcomes for Singaporeans”.

“The 50 per cent figure is not a sacrosanct number,” he said, adding that WP is calling for an increase in the utilisation of the NIRC beyond 50 per cent when needed. “In our view, such a move would not jeopardise the growth of the reserves,” he said.

Opposition MPs also repeated requests for the government to reveal the size and performance of the reserves, for greater transparency and accountability.

Leong said that such clarity would facilitate proper discussions on taxation and spending.

WP MP Gerald Giam proposed that the figures be shared confidentially with MPs or to a cross-party select committee monitoring the health of government finances.

But PAP MPs argued that Singapore would be vulnerable to currency speculation if the limits of the reserves are known.

Original principles

Responding to the suggestion of reviewing current policy, PM Lee gave an overview of how Singapore arrived at today’s approach to the reserves.

Concerned that the reserves could be “frittered away by a profligate government”, founding prime minister Lee Kuan Yew proposed the principle that the government must raise money – by taxes or investments – if it wants to spend, rather than draw down on past reserves.

“A whole system” was designed to protect the reserves, with the president playing a custodial role, said PM Lee.

And while Singapore once spent 100 per cent of its net investment income, this was relooked, leading to the current framework. Under this, the government can spend only up to half (50 per cent) of the net investment returns. The rest goes back to the reserves.

“Taking a long-term view of the reserves, striking the right balance between present and future needs – these are vital responsibilities of any Singapore government,” said PM Lee.