A principled fiscal strategy that gave S'pore four Budgets

With a differentiated and principled fiscal strategy, each generation pays for the benefits it enjoys, avoiding saddling future generations

This is an edited excerpt of Deputy Prime Minister Heng Swee Keat's round-up speech on debate on the Fortitude Budget in Parliament.

Government interventions have become the cornerstone of the Covid-19 response, as populations look towards the one institution that can organise and mobilise.

There has been a "flight to leadership". Administrations, regardless of where they sit on the political spectrum or their belief in government intervention, have responded with substantial support packages. Some have also stepped in to support distressed corporates, from airlines to carmakers.

We, too, have mounted a strong response, because lives and livelihoods are at stake. We are committing almost $100 billion, or close to 20 per cent of our GDP, to our Covid-19 response.

Adding the Covid-19 response to our usual spending, the total size of our four Budgets stands at $193 billion. This is more than double the size of our annual Budgets in preceding years.

In other words, we are looking to spend in one year what we would have done in two years or more in normal times. This is a very big commitment!

Beyond the size of headline numbers, what matters even more is whether resources are directed to the right areas, to enable our people and our economy to rebound faster and stronger. Design and implementation are critical...

I thank many Members for recognising that Singapore's fiscal response has been timely, comprehensive and decisive. And that it is commensurate with the widespread and unprecedented impact of the crisis.

Our strong response is projected to stabilise economic activity during this difficult period, and position Singapore for recovery.

Based on a recent study by MAS (Monetary Authority of Singapore), our four Budgets are estimated to help our economy avert an average output loss of 5 percentage points, or $23.4 billion per year, over 2020 and 2021. This is significant.

Some are of the view that we have spent too much, while others think it is too little. These contrasting views show that crisis budgeting is anything but straightforward.

These decisions have been made after careful deliberations, based on the best information available at the time. As the Covid-19 situation develops, we have continued to enhance and refine our schemes, as evidenced by our four Budgets.

Mr Liang Eng Hwa, in opening the debate, highlighted a distinctive feature of the Fortitude Budget - that we are setting aside an additional $13 billion in the Contingencies Funds.

The Covid-19 crisis has underscored the importance of upholding the prudence and discipline of Singapore's forefathers to spend responsibly, and prepare for the future, says Deputy Prime Minister Heng Swee Keat. This is why, even as Singapore devotes considerable resources to overcome the immediate challenges posed by Covid-19, the country must continue to plan ahead to secure a fiscally sustainable future. ST PHOTO: KELVIN CHNG

Such contingency budgeting reflects both the unprecedented levels of severity, as well as uncertainty, of this crisis.

As designed, the Contingencies Funds can be drawn upon if there is a need to do so. And as designed, we have not designated specific purposes for the Funds. In sizing it, we have run some "what if" scenarios, including the possibility that we may experience a setback in our fight against Covid-19 or the global economy does much worse than currently expected.

So unlike our usual annual Budget, where we seek to provide as much details as possible, we are setting aside a sum to meet future events or circumstances that are possible, but for which we cannot yet predict with certainty. This is indeed a special feature to allow us to respond swiftly to unforeseen developments.

The use of Contingencies Funds is not new. We have used it every year to meet urgent and unforeseen needs. With greater uncertainties this time round, it is natural for us to cater for a bigger quantum.

The Singapore Constitution includes safeguards over its use. First, the Government will need to seek the President's concurrence for drawing down the Contingencies Funds. Second, these drawdowns must be replaced through a subsequent Supplementary Supply Bill or a final Supply Bill that has to be presented to and voted on by Parliament, before seeking the President's assent.

This provides additional checks and balances over new spending from the Contingencies Funds. We will continue to ensure judicious use of the Contingencies Funds for urgent and unforeseen needs. When the uncertainty subsides, we can reduce the amount set aside in the Contingencies Funds.

Another exceptional feature of our Budgets this financial year - the draw on past reserves. For most countries, borrowing is the only way to fund their large stimulus packages. This increases the risk of unsustainable debt financing, which has severe consequences for the economy in the long run.

Countries that have taken on significant additional debt to pay for their support measures will have to find ways to repay the debt and interest accrued.

Future generations will be required to shoulder this debt, in the form of higher taxes, higher inflation or lower returns on their retirement assets. In order to service debt repayment, there will be less fiscal room to invest in human capital or infrastructure. The "Lockdown Generation" in these countries will end up paying for this crisis a long way down the road.


We are fortunate that in this hour of crisis, we have our national reserves to depend on. Our reserves allow us to deal with this crisis from a position of strength, and give us options in a period of uncertainty like this. Our reserves are our rainy-day fund. Our reserves are our key strategic advantage in the current environment.

First, it assures Singaporeans that we have the means to navigate the challenges ahead, to protect our lives and to sustain our livelihoods.

Second, it fosters confidence in global investors, that our economic fundamentals are sound and stable in the long term, and that we have enough resources to emerge stronger from the crisis.

Third, it protects us during this period of flux. Detractors and speculators know well enough not to take advantage of this crisis, to attack our economy and currency.

We did not get here by chance or good fortune. We have designed and implemented policies that discourage waste or over-consumption. We have run our public services based on outcomes, not on size of spending.

In short, we are in this fortunate position because of consistent hard work, prudence, long-term planning and discipline of those who came before us. Such prudence and discipline are not always appreciated.

Even as recently as January this year, before the Unity Budget was unveiled, many commentators inside and outside of this House speculated on how large our accumulated reserves would be. Yet, it took us just three months into FY2020 to use up the accumulated surplus that we had built up over the current term of government, since the start of this term of government. Even that is not enough.

Mounting Covid-19 packages amounting to nearly $100 billion, of which more than half is funded from the reserves, is not a trivial matter, especially when our yearly Budget is about $80 billion.

The total of our four Budgets, including the Covid-19 packages, is more than double the size of our annual Budgets in preceding years. Our reserves are a limited resource, and we must not take them for granted.

We owe it to our people - seniors, middle-aged, young and those yet to be born - to be prudent and ensure good governance, so that they, too, have the resources to navigate future challenges in an uncertain world.

(Some members) asked if we would restore the $52 billion drawn from our past reserves, and how long that would take. There is no legal or constitutional obligation for the Government to do so.

The Government put back into the past reserves the $4 billion it had earlier drawn on in 2009, during the global financial crisis. And not a single cent of the $150 billion of reserves that backed the Government's guarantee of bank deposits was used, when our banking system emerged safely from the global financial crisis.

This current crisis is of a significantly larger scale and reach than the global financial crisis. We are facing huge uncertainties regarding the course of the pandemic and its economic and social implications. What we do know is that there will likely not be a V-shaped recovery, unlike in past crises. And the amount that we are tapping is $52 billion. So how long would it take to build this back? We cannot be definitive.

At this moment, we must focus our minds fully on making the best use of the resources that we have deployed, be prepared to work hard in the years to come, and have the resolve to rebuild our economy. In this way, the Singapore economy can emerge stronger, and we will then be in a strong position to build up our resources. But rest assured that we are committed to not just rebuild our reserves, but also to continue developing Singaporeans and building Singapore.

Mr Faisal Manap and Mr Dennis Tan asked if the President was given information on the amount available in the reserves when the Government sought her in-principle support for drawing on them. It is public information that under our Constitution, the President has access to information about the size of reserves. Under Article 22F of the Constitution, in the exercise of her functions under the Constitution, the President is entitled to any information regarding the reserves. In addition, on the MOF (Ministry of Finance) website, it is already mentioned that the President has full information about the size of the reserves.

In the process of seeking the President's approval, the Government has conducted two briefings to the President and the Council of Presidential Advisers. These briefings covered the Government's assessment of the global and local health and economic situations, the details of the measures, and the resources needed.

In our system, the President is the custodian of our past reserves. She needs to concur with any draw, and her decision is made in full knowledge of why the draw is necessary, and the size of our reserves. In fact, Members have also heard the President's message in the Resilience Budget, delivered on her behalf by the Speaker, just before my Ministerial Statement then. We have a strict governance system scrupulously observed.

Now, some have also asked why the Government does not reveal the size of the reserves and let the public decide if we should use more.

The size of the reserves invested by MAS and Temasek is public information. But the amount invested by GIC is not disclosed. It is not in our national interest to reveal the full size of our reserves.

Besides being a buffer against crisis and providing investment return to supplement our annual Budget, our reserves also form our strategic defence against threats. And as a strategic asset, we will be diminishing its value if we disclose this for potential adversaries to use against us. No responsible leader will lay bare their nation's defence plan.


Mr Saktiandi Supaat asked if we should take advantage of the lower interest rates now, to borrow more to fund expenditure.

Fiscal discipline is one of the fundamental principles underpinning Singapore's fiscal system. We spend prudently within our means, and responsibly with a value-for-money culture. The rule to run balanced budgets for each term of government remains relevant. We also spend equitably, with the principle that each generation bears the cost of the benefits that it enjoys.

That is why we do not borrow to fund our recurrent spending. Doing so means getting our children to fund our current spending. There will be less resources for our children, after repaying such debt.

While interest rates may be low now, there is no certainty that we will be able to repay accumulated debt obligations in the future. This is especially so with the uncertain economic outlook, where all countries, including Singapore, will be operating in a tighter fiscal space.

While we have good reasons not to borrow for our current expenditure, the Government is already using debt productively and equitably to generate long-term returns for Singapore.

First, the Government issues debt securities domestically. For instance, to develop the domestic debt market. The borrowing proceeds are invested and we are able to cover the debt servicing costs through the investment returns.

Second, as announced in Budget 2019, the Government will guarantee the borrowing by Changi Airport Group to fund the development of Changi East, including Terminal 5. In this way, we leverage the strength of the Government's balance sheet to reduce borrowing costs. The debt repayments will be made during a period when the airport will be generating economic returns.

Lastly, as I had also mentioned in Budget 2019, the Government is considering borrowing for major long-term infrastructure. Long-term infrastructure requires hefty upfront investments and the costs are lumpy. But once built, they benefit many generations of Singaporeans. Borrowing for such developments allows us to spread costs equitably across current and future generations, without the need for sharp increases in taxes.

We have done so in the past, to borrow for many worthwhile investments that have benefited several generations such as the first terminal at Changi Airport and our first MRT lines. They will continue to generate growth for future generations of Singaporeans.


The crisis has underscored the importance of upholding the prudence and discipline of our forefathers to spend responsibly, and prepare for the future.

This is why, even as we devote considerable resources to overcome the immediate challenges posed by Covid-19, we must continue to plan ahead to secure a fiscally sustainable future.

In the medium to long term, our structural needs will persist, and significant fiscal outlay will be required. We need to continue investing in healthcare, education and training, and infrastructure - so that we have adequate capacity to take care of our elderly, and support an ageing population; so that we give every child a good start, and give every Singaporean the opportunity to re-skill and up-skill to access good jobs; and so that Singapore remains a liveable city and a place we are proud to call home.

These heavy and rising expenditures were known even before the outbreak of Covid-19. Covid-19 has increased the urgency for some of these investments, such as developing advanced medical research and production capabilities, and expanding training capacity for our workers.

It is hence critical that we deploy the right mix of fiscal instruments that meets our principles of prudence and equitable spending.

Major long-term infrastructure spending, which requires hefty upfront investments but benefits many generations of Singaporeans, may be financed through borrowing to fairly distribute the cost among those who benefit.

On the other hand, recurrent spending should be met with recurrent revenues. Such spending primarily benefits the current generation of Singaporeans, and so it is fair and responsible for all of us to do our part and chip in.

In the Unity Budget, I announced that the GST rate increase will not take effect in 2021. However, we will not be able to put off the increase indefinitely, and this will still be needed by 2025.

When the GST rate increase does take place, we will cushion the impact for Singaporeans; $6 billion in funds has already been set aside during the Unity Budget for the Assurance Package. This is sufficient to offset at least five years' worth of additional GST expenses for the majority of households, and more for lower-income ones. We will continue to absorb GST on publicly subsidised healthcare and education.

Overall, our taxes and transfers system will remain fair and progressive.

With this differentiated and principled fiscal strategy, each generation rightly pays for the benefits that it enjoys, and we do not saddle future generations with our bills. This is an equitable approach, and will continue to be the cornerstone of fiscal sustainability for Singapore.


The Covid-19 situation is a mighty storm that has damaged sails, and forced ships around the world to go into harbour. While waiting for the storm to subside, we must make the best use of this downtime to build new strengths and capabilities. Let us take this rare chance to repair, upgrade our ship and install new instruments, re-orientate our mental compass, and strengthen our sailors, so that when the fair wind comes, we will sail out faster and further than ever before. This is what our four Budgets enable us to do - let us make the best use of them!

A version of this article appeared in the print edition of The Straits Times on June 06, 2020, with the headline 'A principled fiscal strategy that gave S'pore four Budgets'. Subscribe