PSP Public Finances Debate: Review Singapore’s Fiscal and Reserves Accumulation Policies

Mr Speaker, Sir,

I beg to move, “That this House calls on the Government to review its current budget and reserve accumulation policies in order to help present-day Singaporeans reduce their financial burdens and improve their quality of life, while continuing to save for future generations of Singaporeans.”

 Last November, during the debate on the cost of living Motion raised by the Workers’ Party (WP), I attributed a large part of the rising cost of living problem to the policies of the People’s Action Party (PAP) Government.

 Today, I will delve deeper into the Government’s budget and reserve accumulation policies to justify what I have said.

 The Singapore Government have put in place a good reserve accumulation system, started by the late Dr Goh Keng Swee, to facilitate the accumulation of the huge reserves we have today. However, because our reserves are not accumulated from natural resources, there is a cost to accumulating our reserves which comes from the sacrifices of the Singaporeans.

 For example, much of the land reserves came from the acquisitions of land from Singaporeans at below market price during the 1970s and 1980s, while the financial reserves are accumulated through the investment of land sales proceeds, Government surpluses and the Central Provident Board (CPF) balances of Singaporeans. Whatever the Government has accumulated in surpluses and reserves, these are the people’s money, not the Government’s money.

 The cost of accumulating reserves is tolerable when our economy and incomes were growing rapidly. However, as our economic fundamentals change, there comes a point when the welfare of present-day Singaporeans will be hurt if we continue accumulating reserves at the same rate as we are doing now. We are of the view that the Singapore of today has gone past that point.

 The cost of living crisis that we are facing now, in addition to growing social inequality, increasing mental health issues and declining total fertility rate are examples of social ills that have resulted from our economic policies.

 Today, it is not unreasonable for Singaporeans to expect the Government to focus less on accumulating reserves and do more with our financial resources to address these social ills.

However, over the years, when it comes to reserves, the PAP Government’s approach has been to tell Singaporeans that: one, there is no such thing as too much reserves; two, that the reserves can only be used in absolute emergencies; and three, that Singaporeans cannot be told how much reserves we have accumulated because of national security reasons.

 Progress Singapore Party (PSP) believes that this approach does not do justice to the fact that the reserves are accumulated from the blood and sweat of Singaporeans. There is a cost to accumulating reserves. Singaporeans deserve to have a greater say over how much we are accumulating in the reserves, how we are using the reserves today and how much we are living behind for future generations of Singaporeans.

 In today’s debate, we will first discuss the size of our past reserves and why it need not be a secret. Then, we will examine how we can moderate the rate of reserve accumulation marginally to care for and motivate present-day Singaporeans, while continuing to accumulate more reserves for future generations of Singaporeans.

 It will be befitting for me to emphasise again at this point that PSP is making proposals with neither intention to nor the effect of raiding our reserves. That has never been our approach and mindset towards this issue and neither do our proposals have that effect. In this light, I hope that this debate will focus on the substance of our proposals.

 Let us start with the size of our reserves.

 Mr Speaker, during this debate, we will be referring to the financial assets in the past reserves as the financial reserves and the fiscal assets in the past reserves as land reserves.

 During the Budget debate in 2021, Deputy Prime Minister Heng Swee Keat said that no responsible leader will reveal the size of the reserves.

 PSP disagrees. We believe a responsible leader should reveal the size of the reserves for the following reasons.

 First, as the collective owners of the reserves, Singaporeans deserve to have access to the precise information about our reserves, the returns and how it is being invested and managed. A clear statement by the Government on the size and performance of our financial reserves every year will go a long way to facilitate proper discussion on taxation and spending policies and to quash fake news about the insolvency of our Central Provident Fund (CPF), the size of our external debt and the performances of GIC and Temasek.

 There may be no real necessity for the public to know the full extent of our military capabilities. But Singaporeans would need a clear idea of the size and performance of our financial reserves as a reference point to have a constructive public debate on the Government’s taxation and spending policies.

 Secondly, the most effective defence against currency speculation lies not in the confidentiality of the size of our financial reserves but in the Monetary Authority of Singapore (MAS) ensuring that the value of the Singapore dollar is in line with our economic fundamentals.

 Third, there is no national security threat arising from disclosing the size of the financial reserves because it can already be estimated using publicly available information, such as the Government financial statements even though the Ministry of Finance (MOF) has claimed that the Government’s total financial assets, as reflected in the Government financial statements, do not represent the size of our national reserves. My colleague Ms Hazel Poa will show the House later that we can estimate our financial reserves to be about $1.2 trillion simply by deducting the relevant liabilities from the financial assets.

 While the size of the financial reserves can be estimated, an official statement is still important to put all Singaporeans on the same page. The $1.2 trillion figure for financial reserves is not a static number. It will continue to increase over time from five sources of growth.

 One, official foreign reserves (OFR). OFR will continue to grow as long as there is more money flowing into than flowing out of Singapore. For example, from the end of 2019 to the end of 2022, even during the COVID-19 pandemic, MAS had accumulated new OFR from large access foreign inflows amounting to about $250 billion. This is more than six times the amount the Government has drawn down to fight the pandemic or more than two and a half times the total Government expenditure in a normal year. There were so much OFR accumulated in recent years that the Government had to set up a new mechanism, the Reserve Management Government Securities in January 2022 for MAS to transfer excess OFR to GIC.

 Two, CPF balances. Ms Hazel Poa will explain in detail how the growth and investment of our CPF balances contribute to the growth of the reserves.

 Three, Net Investment Returns (NIR). Currently, the financial reserves generate NIR of about $50 billion dollars a year, of which half is kept in the financial reserves and half allocated to the budget for spending in the current year which is known as the Net Investment Returns Contribution (NIRC). As our financial reserves increase and make positive returns over time, our NIR and NIRC are also expected to increase in tandem.

 Four, land sales revenues. The revenue from all land sales goes directly into the reserves. I will be discussing this further later in my speech.

 And, finally, five, Government budget surpluses. All any surpluses of the Government go directly to the reserves.

 In summary, although not necessarily known and accepted by most Singaporeans, it is transparent to the financial markets that Singapore has approximately $1.2 trillion dollars of financial reserves, which is still growing every year and generating higher and higher investment returns each year amounting to $47 billion in fiscal year 2023. It is because of this strong financial position that PSP has opposed the goods and services tax (GST) and property tax hikes in 2023 and 2024.

 When Prime Minister Lee was interviewed by the CNA documentary in August last year, he said that the biggest misconception which people have is that there is such a thing as enough and that he does not know how much reserves is enough. PSP’s response to that is we are of the view that we may have reached the point of enough if we are raising taxes when Singaporeans are facing a cost of living crisis for the sake of maintaining the current rate of reserve accumulation.

 PSP disagrees that we continue the accumulate reserves at the same rate when it hurts the welfare of present-day Singaporeans. The accumulation of reserves comes with costs and benefits. For too long the Government has over-emphasised the benefits but downplaying the cost.

 Mr Speaker, after ascertaining the size of our financial reserves, we are now in a better position to discuss how the budget and reserve accumulation policies can be tweaked to produce better economy outcomes for Singaporeans.

 In the past few years, PSP and WP had suggested various ways by which the Government can deploy more reserves to ease the burden of Singaporeans today, without compromising the welfare of future generations. First, there is a general consensus that we should not touch the principal of the past reserves. For example, if the financial reserves is $1.2 trillion, well, we should leave that alone. Secondly, both PSP and WP have made different but reasonable suggestions on ways to continue growing the reserves, but at a slower rate. For example, we have suggested that part or all of the land sales proceeds should be allocated to the yearly budget for spending. Given the land is only sold at leasehold, land sales are a recurring source of income which can be used for current spending.

 Both PSP and WP have also asked for a larger share of the NIR of the financial reserves to be allocated to the yearly budget instead of raising taxes. Currently, 50% of the NIR is allocated to the budget as an NIRC. WP has suggested to increase the share of the NIR are from 50% to 60% for the NIRC.

 The Government has rejected all these proposals and continues that adhere to its stance that the allocation of 50% of NIR as NRIC to the budget is fair for both the present and future generations. This brings us to the very pertinent question which is whether present-day Singaporeans are really enjoying the full benefit of the NRIC.

 Upon deeper examination of our budgetary policies, we can see that not every dollar spent in the budget has been used on spending in the current year for the benefit of Singaporeans. Part of the budget goes towards the endowment and trust funds for future spending and another part goes towards making up the HDB’s deficit from land cost which goes to the reserves. This is equivalent to not enjoying the full benefits of the NIRC during the current year.

 Let me first explain in more detail the contributions to the endowment and trust funds. The Government has said that the budget is in deficit and will continue to be so because of the increasing expenditure for the ageing population. However, is the budget really in structural deficit? Our budget has about $100 billion in operating revenues which does not include the NIRC. Total expenditures which include both operating and development expenditures slightly exceeds the operating revenues by about $3 billion to $5 billion. So, the budget should be in a big surplus after taking in the NIRC which is $23.5 billion in fiscal year 2023.

 However, a deficit is normally reported in the overall budget because the Government transfers a large part of the surplus budget resources arising from the NRIC each year to many endowment and trust funds there are intended to fund long-term spending.

 In 2019, MOF reported to the Estimates Committee that there will 23 such funds. There are probably more now. It is not easy to keep track of the balances and expenditures of these funds because only 11 funds set up by legislation are reported in the Government financial statements. The other funds are reported in the financial statements of Statutory Boards. Capital transfers to these funds are accounted for as current expenditures in the budget although most of these transfers are not spent in the current year.

 Based on the budget figures from fiscal year 2012 to 2020, the total capital transfer to the endowment and trust funds is equivalent to 64% of the total NIRC allocated to the budget in that period.

In fiscal year 2023, the transfer equaled 72% of the NIRC. As a result, about $51 billion has been accumulated in the 11 funds listed in the Government financial statements by the end of fiscal year 2023. These funds are classified by MOF as: endowment funds; and, non-endowment or trust funds.

 For endowment funds, it is stipulated by law, that the capital transferred is locked up and cannot be spent. Only the investment income can be disbursed. There are five such funds reported in the Government financial statements and the total capital locked up, is about $23 billion. For the non-endowment – or trust funds – the capital, together with the investment income, might be drawn down to meet expenditure needs over multiple years, long into the future. Even though, the capital has been expensed off the budget in the year of transfer.

 Between 2018 and 2022, the actual net annual spending for the 11 funds, accounted for less than 10% of the total assets of the funds. The Government has argued, that the creation of endowment and trust funds is a more prudent measure to ensure that future expenditures are fully costed and paid for upfront. However, there is no need to do so in the case of the GST voucher fund, because, future GST voucher payments can be offset by GST revenues in the same year. As expenditures and costs are matched, what is the rationale to lock up $9 billion in the GST voucher fund now?

 The regular top-ups of the funds, also show that not all the future expenditures can be accurately forecasted from the start. Hence, these endowment and trust funds – especially the five endowment funds – where the capital is locked up, can also be seen as a second set of reserves that are being set aside for specific purposes. When money is being transferred from the current year budget into these endowment and trust funds, we are essentially transferring money back into the reserves.

 If we are too conservative and allocate too much money for future expenditures, in the current year budget, these could potentially mean a shortage of resources for other expenditures; and, lead to tax increases that are larger and earlier than required. PSP will suggest a more efficient way of deploying the surplus budget resources, arising from the NIRC later.

 Next, we examine how the payment of land cost for public housing, has led to a heavier tax burden for Singaporeans. We have said that the financial reserves are valued at about $1.2 trillion, as of end-March 2023. The land reserve, on the other hand, are valued only when it is sold. No land cost is paid for, for land use by the State, for schools, hospitals and other public infrastructure. But when land is sold for public housing and commercial use, the user will pay a market cost of the land, which goes directly to the financial reserves.

 Our main point of contention, relates to the Government charging land cost for public housing since 1985. Since 1985, the Housing and Development Board (HDB) has been required to pay the land cost of the land into the financial reserves, when it gets land from the Government to build HDB flats. In fiscal year 2022, the HDB paid about $5.39 billion of land cost to the financial reserves. The total cost of HDB flats, comprise the land cost and construction cost. When the land cost is high and increasing all the time, HDB cannot charge the full cost to the buyer in order to maintain affordability.

 As a result, HDB is saddled with large deficits – which amounted to $5.38 billion in fiscal year 2022. Incidentally, the HDB’s deficit is almost equal to the land cost paid in fiscal year 2022.

 The HDB deficit created, by paying land cost into the reserve, is not only paid by the HDB flat buyers, but, also all of us taxpayers whenever we pay any tax. It is a heavy and unnecessary financial burden on Singaporeans, which can be avoided if the land cost is waived for public housing. Hence, while the reserves increase over time, this comes at the price of more taxes and smaller BTO flats for Singaporeans.

 We must ask ourselves, is this what we really want for ourselves; and, for our children and grandchildren?

 Mr Speaker, the Government has tied up a lot of financial resources from the budget and in the reserves – to the detriment of the financial well-being of Singaporeans today. Through today’s debate, PSP hopes to convince this House that our resources in the budget and reserves should be deployed more fairly for present day Singaporeans, while we continue saving for future generations.

In this regard, PSP proposes two changes: pertaining to the deployment of the NIRC and the charging of the land cost to public housing.

 PSP’s first proposal, is that no further endowment and trust funds should be created; and, no further top-ups should be made to existing endowment and trust funds. We propose to consolidate surplus budget or NIRC resources in an omnibus budget surplus fund, for future spending for Singaporeans, instead of breaking these resources into many endowment and trust funds. Long-term expenditure needs, should then be funded each year directly out of this budget surplus fund. The investment returns on the assets in the fund, should also be retained in the fund.

 This approach has several advantages. First, it will ensure that surplus budget or NIRC resources will always be used promptly, for the immediate spending needs of Singaporeans. No capital will be left idle and the capital that is not used, remains in the budget surplus fund; and, not transferred back to the reserves.

 Secondly, Parliament can have better oversight over one omnibus fund, as compared to more than 20 different funds managed by different Ministries, statutory boards and other agencies. The Parliament can be informed of the expenditures of the fund at the beginning of each fiscal year – just like any expenditures in the Budget. The Parliament can be given long-term spending projections of the fund, from the MOF; and, better ensure that future expenditure for all social causes, are fully costed and provided for upfront. When an integrated view of all the fiscal resources are available, Parliament will be in a better position to support tax increases of the Government, if required.

 PSP’s second proposal, is to waive the land cost for public housing owned by Singaporeans – for the purpose of occupancy under the Affordable Homes Scheme, proposed by PSP. Under the scheme, a Singaporean still pays land cost plus accrued interest when he sells his HDB flat. Assuming the very unlikely scenario that all Singaporeans do not sell their HDB flat, waiving land cost for public housing may slow down the accumulation of financial reserves by up to $5 billion a year. Even so, this is a small price to pay to ensure that every generation of Singaporeans can afford a HDB flat; and also retire in the same flat with enough retirement income. In addition, the Affordable Homes Scheme will eliminate the HDB deficit, releasing substantial resources back into the budget and reducing the tax burden of all Singaporeans – especially the middle-class Singaporeans.

 The two PSP proposals, do not reduce our past reserves. Although, it may marginally slow down the future rate of reserve accumulation. On the other hand, they are expected to produce very substantial benefits for Singaporeans. We urge the Government to study our proposals and report the results to this House.

 Mr Speaker, Sir,

In conclusion, there is no need to keep the size of our past reserves a secret, when the size of the financial reserves can be derived from publicly available information. The Government should accept this; and, release an official figure of the full size of the financial reserves, so that Singaporeans can properly discuss our budget, taxation and reserve accumulation policies.

 PSP has estimated that our financial reserves is about $1.2 trillion. I have also explained that there are five main sources of growth for our reserves, which will enable it to continue growing, by tens of or even, sometimes, hundreds of billions dollars a year. This provides us, with the fiscal space to relax the pace of our reserve accumulation marginally by, perhaps, a few billion dollars a year; to waive the land cost for BTO flat pricing; and, deploy the surplus budget and NIRC resources more proactively, to delay and reduce the necessity to raise taxes.

 These are the kind of policies that will greatly reduce the financial burden and improve the quality of life, of present-day Singaporeans, while continuing to save for future generations of Singaporeans.

Sir, I beg to move.

For Country, For People.

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