Reserves 'help S'pore weather crises and keep economy stable'

Finance Minister Heng Swee Keat speaking yesterday at The Straits Times Global Outlook Forum, with moderator Warren Fernandez, editor of The Straits Times and editor-in-chief of Singapore Press Holdings' English/Malay/Tamil Media Group.
Finance Minister Heng Swee Keat speaking yesterday at The Straits Times Global Outlook Forum, with moderator Warren Fernandez, editor of The Straits Times and editor-in-chief of Singapore Press Holdings' English/Malay/Tamil Media Group.ST PHOTO: LIM YAOHUI

Any decision to tap savings should not be taken lightly even as needs grow, says Heng

Singapore's reserves deliver long-term economic stability while also giving the country firepower to weather crises that many other economies do not possess, said Finance Minister Heng Swee Keat.

The reserves have been accumulated over many years as a result of prudent spending by past generations, and Mr Heng said that any decision to tap them should not be taken lightly, even as spending needs grow.

He was responding to a question from Bank of Singapore chief economist Richard Jerram at The Straits Times Global Outlook Forum yesterday. Mr Jerram asked why recent talk on raising taxes - a point Prime Minister Lee Hsien Loong mentioned last month - has not been accompanied by discussions about tapping more of the earnings from Singapore's significant reserves.

In the 2017 Budget, the Government spent more than $15 billion from returns generated on past savings, Mr Heng said. "This is equivalent to several percentage points of GST, corporate income tax, personal income tax and so on. How did we as a country with no natural resources accumulate that?"

He said he was "humbled" by earlier generations who prudently saved for the future, even when the economy was growing rapidly and government revenues were rising.

In addition, the net investment returns framework was put in place to allow the Government to spend up to half of the long-term expected real returns from the assets managed by three Singapore investment entities - GIC, the Monetary Authority of Singapore (MAS) and Temasek Holdings.

The net investment returns contribution overtook corporate income tax to be the top contributor to government coffers for the first time in the 2016 financial year.

Mr Heng also recounted his experience at the MAS during the global financial crisis.

"My first concern was that the Singapore dollar would come under attack and it would go under," he said, citing American investor George Soros, who shorted US$10 billion worth of pound sterling and made US$1 billion in profit in 1992.

"If that attack had come to Singapore, we would not be sitting here today discussing this," he added.

A second concern was the potential for large outflows of funds. "At that point, money was flowing all over the world at an alarming rate. But people knew that if they tried to attack the Singdollar, we had the firepower to deal with it."

Mr Heng added: "Having those reserves gives our economy long-term stability and allows us to weather crises in a way that many other economies cannot."

"We need to leave (the reserves) to future generations so that their future is more secure," he said, adding that demographics would be very different in 15 years' time, with one in four Singaporeans older than 65, compared with one in eight now.

He sees fiscal sustainability as key to coping with future challenges, saying that Singapore must make sure government spending remains sustainable even as needs grow and it becomes tougher to raise revenue. The country is ramping up investment in key areas - such as defence and economic development - to prepare for an increasingly uncertain future.

"This is about staying responsible and spending within our means," Mr Heng said.

It also means the Government must prepare for revenue risks in the face of technological changes and evolving business models.

This involves making sure Singapore's tax system remains pro-growth and progressive, while maintaining a diversified revenue base, he said.

OCBC Premier Banking was the presenting sponsor for the ST Global Outlook Forum, and Mercedes-Benz was the official car.

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A version of this article appeared in the print edition of The Straits Times on December 06, 2017, with the headline 'Reserves 'help S'pore weather crises and keep economy stable''. Print Edition | Subscribe