Extraordinary measures for extraordinary times: Heng Swee Keat
This is an edited excerpt of the statement on the supplementary budget delivered by Deputy Prime Minister and Finance Minister Heng Swee Keat yesterday in Parliament, setting out why an additional budget is necessary. The $48 billion package includes wage support for workers and requires drawing up to $17 billion from past reserves, for which President Halimah Yacob has given her in-principle support.
On Feb 18, just five weeks ago, I started my Budget 2020 speech setting out what we must do to combat the threats posed by the Covid-19 outbreak. At that time, there were 800 confirmed cases outside of China.
The outbreak has escalated quickly. Three weeks after my Budget speech, on March 11, the World Health Organisation (WHO) declared Covid-19 a pandemic, recognising the severity and risk of further global spread.
Today, the WHO estimates that the number of people infected has exceeded 410,000, across more than 190 countries.
The Covid-19 outbreak is a battle on many fronts - medical, economic and social.
First, on the medical front, countries are taking extraordinary measures to contain the spread of the virus, so that their healthcare systems are not overwhelmed. Many countries have implemented lockdowns, while the United States has declared a national emergency.
In Singapore, we are doing everything we can to keep you and your families safe. We acted early and decisively. As the severity of the virus outbreak grew worldwide, we stepped up our measures. This has, so far, helped to keep the number of cases at manageable levels during the first wave.
However, as much as we try, the Covid-19 pandemic is likely to take at least a year to be resolved, and the economic repercussions would last even longer. The world is seeing successive waves of infection, and importation of infections. We must be prepared to take further tougher measures.
Yet, measures on the medical front to contain the pandemic, both in Singapore and around the world, have made the second front of the battle - the economic front - even more difficult. These public health measures have caused severe economic disruptions and uncertainties. As more countries implement their measures, the economic disruptions will be wider, deeper and more prolonged.
The global economy is now facing both a supply and demand shock.
On the supply side, supply chains have been disrupted as locked-down workers are unable to work. With highly integrated global supply chains, a disruption in any one part of the chain, or in any one country, will have knock-on effects worldwide.
On the demand side, aggregate demand has fallen as people stay home and curtail spending. Consumer and business confidence are plunging in the face of growing uncertainties.
The International Monetary Fund has downgraded its 2020 global growth forecast three times since January 2019, and flagged that a further downgrade is imminent in April. It added that it expects a recession at least as bad as during the 2008 global financial crisis.
Global financial markets are being roiled by the mounting uncertainties and cutback in economic activity. Stock markets have come down from their peak some weeks ago.
The S&P 500 index took only 22 trading days to fall by 30 per cent from its peak, making it the fastest drop of this magnitude in history. The key volatility indices in Europe and the US, which some call the "fear index", briefly reached levels last seen during the global financial crisis.
Credit has tightened across the world, and the US yield curve has fallen below 1 per cent for the first time in history. The disruptions around the world will significantly curtail global demand, disrupt supply chains, and possibly lead to financial shocks. As an open economy that is highly integrated with the global economy, we will be deeply impacted by these global shocks.
Based on advance gross domestic product (GDP) estimates released this morning, in the first quarter, the Singapore economy contracted by 10.6 per cent quarter on quarter, or 2.2 per cent year on year, reversing the 0.6 per cent growth in the previous quarter.
This morning, the Ministry of Trade and Industry further downgraded Singapore's GDP growth forecast for 2020, from a range of minus 0.5 per cent to 1.5 per cent announced last month, to between minus 4 per cent and minus 1 per cent.
THE RESILIENCE BUDGET
This extraordinary situation calls for extraordinary measures.
Last month, I committed $6.4 billion in the Unity Budget towards the Stabilisation and Support Package, the Care and Support Package, and to support our front-line agencies.
Today, I will introduce measures worth over $48 billion in this Resilience Budget, to deal decisively with the situation at hand. This is over seven times of the first tranche.
Altogether, we are dedicating close to $55 billion to support our people in this battle, amounting to 11 per cent of our GDP. This is a landmark package, and a necessary response to a unique situation.
The Government has sought and obtained the President's in-principle support to draw up to $17 billion from our past reserves to fund part of the Resilience Budget.
The Resilience Budget focuses on three key areas:
•First, save jobs, support workers and protect livelihoods.
•Second, help enterprises overcome immediate challenges.
•Third, strengthen economic and social resilience so that we can emerge intact and stronger.
Let me now elaborate on our considerations for drawing on past reserves in this budget, and our fiscal position after the measures that I have put forth to tackle the Covid-19 pandemic.
Our reserves are our strategic asset, built up through the discipline and prudence of our people and political leaders, across generations.
Our reserves serve as our bulwark against shocks and crises of an extraordinary nature. For a nation with no oil, no gas, no gold, no diamonds, or natural resources of any kind, it is remarkable that we have built this up.
Our prudence and discipline in saving and growing our reserves give us the wherewithal to respond decisively when our nation faces extraordinary circumstances.
Our founding fathers created a rigorous framework to ensure that such strategic assets are used only for the right purpose. We amended the Constitution in 1991 to provide for an elected president who is the custodian of our past reserves.
Under Article 148A of the Constitution, the President can withhold her assent to any supply Bill if she is of the view that it is likely to draw on past reserves.
Our principle is that each term of government must live within its means. Any additional spending that the government of the day proposes must be funded in a sustainable manner - recurrent expenditures should be funded from recurrent revenues.
Past reserves can be drawn down only in exceptional circumstances, under a two-key system, if the President, after consulting the Council of Presidential Advisers, agrees with the Government's proposal to draw on the past reserves in exceptional situations.
Despite political pressure to dip into the reserves, the Government has scrupulously upheld the principle that past reserves are to be used only for exceptional situations.
Until now, the Government has drawn on past reserves only once, during the global financial crisis, when the President approved a draw of $4.9 billion to fund the Jobs Credit Scheme and special risk-sharing initiative.
During that period, the Government also sought the President's concurrence to use $150 billion of past reserves to back the deposit guarantee scheme. I was at the Monetary Authority of Singapore (MAS) at that time. We had asked for this, and it took us a long time to deliberate on this. As it turned out, the guarantee was not triggered, and there was no draw on past reserves.
The Covid-19 pandemic, and the multiple threats it poses to our nation, is the sort of event that we had accumulated reserves for.
We have saved up for a rainy day. The Covid-19 pandemic is already a mighty storm, and is still growing.
If over the years we had frittered the reserves away, on more immediate but less existential needs, big and small, as some in this House have pressed the Government to do, we would be in a much weaker position today.
We are experiencing a confluence of multiple external shocks - a pandemic that has triggered many nations to shut their borders, limit exports and halt economic activities, in order to fight this pandemic.
This economic impact is magnified, as the global economy is already fragile, and further weakened by a protracted US-China trade conflict, and an oil price war.
So this is not a normal business cycle that we would have anticipated and dealt with using the revenues collected by each term of government. It is a "black swan" event that comes only once every few decades.
In view of the exceptional circumstances, the Government has sought the President's in-principle support to use past reserves to fund part of the package.
The Covid-19 situation is fluid and fast-moving, and nobody is quite sure how it will develop. But because we have prepared ourselves well, Singapore has the resources to meet this crisis with confidence.
We will use our resources to get through this together.
The Government will continue to monitor the situation closely. Should it become necessary, I am prepared to propose to the President further draws on past reserves to deal with the situation. I trust that every member of this House will deeply internalise the mission to be careful stewards of our reserves.
The measures that I have announced today will raise the overall Budget deficit for FY2020 to $39.2 billion (7.9 per cent of GDP). We are able to support this unprecedented deficit, and still remain fiscally sustainable, because we have been disciplined in the use of past reserves, tapping them only in exceptional circumstances like these.
The situation remains highly fluid and uncertain, with significant risks. Our fiscal position will be affected from both the revenue and expenditure sides.
With a weak GDP outlook, our revenues will be affected. Sentiment-driven revenues may come down sharply.
While revenues are coming down, our expenditure will be going up, to enable us to respond effectively to the crisis. In the past few years, we benefited from unexpected revenue upsides, such as exceptional statutory board contributions from MAS and increased stamp duty collections. We cannot hope to rely on a repeat of this. Instead, we must be prepared to bear the down sides when they happen. Because we have been prudent and did not decide to spend all of the surplus that we collected, we are ready to meet such downsides.
We can expect significant volatility in the economy, and in financial markets, in the near future. We will need to continue to review our expenditure plans very carefully in this fluid situation. We will adopt a nimble fiscal posture, so that we can quickly channel the resources at hand to the most urgent and important needs of our people.
The Covid-19 pandemic is the most serious crisis we have faced in a generation.
It has put all countries around the world to the test - on the medical, economic and social fronts.
We have been able to respond boldly and decisively to the outbreak in Singapore, because we have forged a cohesive, resilient society. The whole nation has come together in response. Our healthcare and front-line workers are working tirelessly to care for the infected. Our cleaners are doing humble but heroic work to keep our environment clean.
Thousands of public officers are working round the clock to respond to the threat of Covid-19. The private sector and corporations too have stepped forward.
Individuals are doing their part - vloggers and bloggers are helping to share public messages, others are volunteering, giving support and encouragement and, crucially, by complying with health advisories and practising safe distancing. These include foreigners who live among us and who care deeply about Singapore.
Many have also had to make sacrifices in this time. Families have had to make difficult adjustments to their lives, some having to undergo quarantine, cancel celebrations or put off other long-awaited plans, including wedding plans.
And despite our best efforts to work with businesses and unions to save jobs, some workers have suffered a loss of income or jobs.
The Government and the political leadership are in this with Singaporeans. We share the worries and anxieties of Singaporeans, and we will do our best for you.
To show solidarity with Singaporeans, I announced at the Budget debate last month that the political leadership will take a one-month pay cut. With the deteriorating situation, we will go further. All political office-holders will take an additional pay cut of two months, altogether a three-month cut in their salary.
The President, Speaker and both deputy Speakers have informed me that they will join in, and take a similar three-month pay cut in total.
It is in times of crisis that the true character of a nation can be seen.
The months ahead will not be easy, as the situation continues to evolve dynamically and unpredictably. We must continue to be on high vigilance, mentally and psychologically prepared for every scenario.
The Government will lead the way. We will do our best to anticipate and respond to developments, make decisions based on facts and evidence, and exercise judgment when there are trade-offs.
While we attend to the immediate and urgent tasks, we will set our sights on the long term, so that Singapore comes out of this crisis stronger as a nation.
We will protect and advance the well-being and livelihoods of Singaporeans. We will take care of our people. We will leave no one behind. And we will stand with Singaporeans of all walks of life to battle this crisis, together.
We are all in this together. And we must all look after one another in these trying times.
This is the essence of who we are as a nation. This is the essence of who we are as a people. This is SG United. This is SG Together!
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