Singapore should strive to remain fiscally prudent amid highly uncertain global outlook: DPM Heng

SINGAPORE: Singapore ought to try to stay fiscally prudent, even because it has drawn the equal of about twenty years of fiscal surpluses from previous reserves to assist the nation deal with COVID-19, stated Deputy Prime Minister Heng Swee Keat on Friday (Feb 26).

“As a crisis response to COVID-19, we have drawn from the past reserves an amount equivalent to about 20 years of financial surpluses. It will be a challenge to also make good this amount drawn given the magnitude of the crisis,” stated Mr Heng, who can be Finance Minister. 

“This is the crisis fund function of the reserves. Nonetheless, we should strive to remain fiscally prudent to build back our reserves gradually.”

In his Finances speech final week, Mr Heng introduced that the Authorities would draw on its previous reserves for a second consecutive 12 months.

It will fund the S$11 billion COVID-19 Resilience Bundle in Finances 2021, which is required to deal with the rapid challenges that the pandemic presents, stated Mr Heng in Parliament, including that the measures are “extraordinary and temporary”.

The sum represents about 2.2 per cent of the nation’s gross home product, Mr Heng beforehand stated.

READ: Finances 2021: Anticipated deficit of S$11 billion; Authorities to attract on reserves for 2nd straight 12 months

Regardless of the bundle, the general quantity the Authorities expects to attract from the reserves will solely rise by S$1.7 billion, totalling as much as S$53.7 billion for FY2020 and FY2021. It's because the estimated S$52 billion fenced off final 12 months for the disaster is not going to be totally utilised, Mr Heng had stated.

The Authorities expects to make use of S$42.7 billion of the S$52 billion, resulting in a S$9.3 billion stability which offsets the sum for the COVID-19 Resilience Bundle.

Whereas he had famous that it's anticipated that expenditure for the rest of this time period of Authorities might be funded with out having an extra draw on previous reserves, the worldwide outlook stays murky.

“I said in my Budget statement that we expect to fund the expenditure for the remainder of this term of Government without a further draw on past reserves. But the global outlook is highly uncertain, and we need to think ahead of how we can respond,” Mr Heng stated in Parliament on Friday.

READ: Singapore can seize alternatives to emerge stronger amid pandemic, says DPM Heng after Finances debate

Mr Heng additionally emphasised that the Authorities doesn't take any resolution on the usage of reserves flippantly. 

Singapore’s reserves serve three essential roles – as an endowment fund, a buffer in opposition to shocks and assaults on the monetary system, and a “bulwark against crises of an extraordinary nature”, he stated.

He additionally responded to NCMP Hazel Poa (PSP), who requested if it was time to make the nationwide reserves “part of the national conversation”.

“Ms Poa also asked about the size of our reserves. Again, it is not in our national interest to disclose the size of the reserves,” stated Mr Heng.

“Singapore is vulnerable to currency speculation and large capital outflows. Revealing the size of the reserves is akin to laying bare our defence plan, and will diminish the value of our reserves as a strategic defence. No responsible leader would do so.”

Mr Heng famous that NMP Hoon Hian Teck had “articulated well the difficult balance” Singapore must strike – stabilising the financial system to keep away from a pointy downturn, but additionally endeavor and investing in structural insurance policies for transformation.

“Taking the longer-term view, we have to press on with these economic investments, secure the next decade of growth, and emerge stronger. If we hold back these investments, we will miss the opportunity to restructure, seize new opportunities and race ahead,” Mr Heng defined.

“If we fail to change, and our economic recovery is sluggish, it would have a long tail effect on our jobs and economic vibrancy, and affect Singaporeans adversely. It will also further worsen our fiscal situation.”

Mr Heng reiterated that ought to the general public well being and financial state of affairs deteriorate additional and Singapore’s fiscal state of affairs seems to be worse than anticipated, the Authorities could once more have to hunt the President’s approval for the usage of previous reserves to proceed such financial investments.

“The President has expressed her understanding towards the Government’s approach, and will consider the Government’s specific proposals, should there be a need to draw on past reserves,” stated Mr Heng. 

“But if we are to draw on past reserves for the economic investments to emerge stronger, we should do our best to make good on the draw.”

These investments are anticipated to yield returns for the financial system, which can provide a “boost” to Singapore’s “tight fiscal situation”, permitting the Authorities to make good the quantity drawn, Mr Heng added.

TWO CORE VALUES

In his speech, Mr Heng identified that the present Authorities abides by the identical two “core values” as its forefathers – prudence and stewardship.

“First on prudence. We spend on needs, not wants, and we seek to get the best value out of our spending. We must be prudent because these finite resources are entrusted to us by Singaporeans,” he defined.

“Second, on stewardship. Within the Unity Finances Spherical-Up in 2020, I stated ... ‘We've got an obligation not simply to those that make their views identified at the moment, but additionally the younger and the long run Singaporeans. 

"They are not here today to represent their views, because they are not born yet. But we have a responsibility to them, and have to take decisions which are difficult for us, but which will safeguard their interests. In other words, we must be responsible stewards.”

Mr Heng noted how during the time of “high economic growth” in the 1980s, Singapore’s leaders managed fiscal surpluses “prudently”. 

“Instead of finding ways to spend the surpluses and win popularity, they not only accumulated surpluses, but also took the bold step in 1991 to amend the Constitution, to require each term of Government to run a balanced budget,” he said. 

“This is to ensure that future Governments do not make unrealistic promises, dip into our savings unnecessarily, and mortgage the future of our children. They knew the temptation of squandering the easy inheritance would be too great for some to bear.”

Mr Heng noted that Singapore is currently in a “new phase” of development, and cannot expect the same kind of “buoyant” GDP growth as in the past, given that its economy is now maturing. 

“Our expenditure needs will grow as new needs arise, and as our population ages. At the same time, we must continue to invest to build a better Singapore for the future,” he said.

“We are once again confronted with hard choices. We must abide by our core values, and keep Singaporeans, now and generations to be born, at the heart of what we do.”

READ: Emerging stronger from COVID-19 crisis the focus of Budget 2021

THE NEED FOR A GST INCREASE

Mr Heng also touched on the GST hike, addressing concerns from MPs and explaining why such a move would be necessary down the line.

The Government announced in Budget 2018 that it planned to raise the GST. However, Mr Heng said in last year’s Budget that the GST rate would not take place in 2021, in light of COVID-19’s effect on the economy. 

In his speech last week, he reminded Singaporeans that while a GST hike will not take effect this year, it is still on the cards.

“We are not raising the GST rate now, as the economy is in the nascent stages of recovery. But we have been giving notice, since Budget 2018. The fact is that some of the structural increase in expenditures will hit us sooner rather than later,” Mr Heng said on Friday.

He also emphasised that a GST increase is “needed”.

“Members of this House must have the will and courage to make the same responsible choices as our forefathers did. We must be upfront – that if we want to spend more, we have to raise the revenue,” he said. 

“First, acknowledge that if we want more social safety nets, it comes with costs. Second, work out sustainable resourcing. Do not make irresponsible promises which burden future generations. If these are recurrent needs, which have to be financed year after year, we must find recurrent revenues  which we can collect year after year.”

There are a number of reasons why a GST hike is needed, pointed out Mr Heng. This includes increased healthcare spending to meet the needs of an ageing population in the future, he said.

He noted how Singapore’s spending over the past 15 years has grown by about 1.5 percentage points of GDP - roughly S$7 billion per year - in every 5-year period. This is about two-thirds of the current GST revenues, with half of the increase in spending for social support, Mr Heng said.

“We have shown that current taxes are insufficient to cover our spending needs. Since 2007, we have already increased various taxes to collect more from those with more means, which are then transferred to our lower-income,” said Mr Heng.

“All this while … the GST rate has remained unchanged at 7 per cent.  We would be in a budget deficit if not for the contribution from reserves, in the form of Net Investment Returns Contribution or NIRC. 

“Economic growth alone is not likely to raise enough revenues to meet our needs. The honest but hard conclusion is that we will need to raise more tax revenue.”

READ: Budget 2021: GST hike to happen between 2023 and 2025

At the same time, Mr Heng said that the Government needs to consider "all obtainable choices" to boost revenues. 

“We will continue to review additional options to complement a GST rate increase, but it is not realistic to hope for these to become alternatives to a GST rate increase, or to make the GST rate increase unnecessary,” he stated.

The Deputy Prime Minister additionally acknowledged the considerations of MPs who famous within the Finances debate that the GST charge enhance may influence Singaporeans. 

Mr Heng stated the Authorities has put aside S$6 billion for an Assurance Bundle, which is able to in impact delay at the least 5 years of the GST charge enhance for almost all of Singaporean households.

Decrease-income Singaporeans will obtain greater offsets of about 10 years' value of further GST bills incurred, he added.

This bundle is along with present advantages and transfers such because the GST Voucher scheme. These measures will hold total taxes and transfers system “fair and progressive”, stated Mr Heng.

“I share your concern. As I said before, as Finance Minister, I do not have any joy in raising taxes. I do it because I care for our future,” stated Mr Heng.

“Let me assure members, and all Singaporeans, that we are committed to helping our people manage the impact.”