SINGAPORE - Senior Minister of State for Law and Finance Indranee Rajah said on Tuesday (Feb 20) that the Government intends to keep to the proportion of spending only 50 per cent of the expected returns from investing Singapore's reserves, and saving the rest.
This ensures "consistency, stability and sustainability", and "for as long as we can keep it at this level, we will like to do so", she added speaking at the sidelines of a dialogue on the Budget.
Currently, the net investment returns contribution (NIRC) framework allows the Government to spend half of the long-term investment returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities that manage and invest the reserves.
The debate on whether the Government should tap on a larger portion of the returns was reignited, after the announcement in Monday's Budget that Goods and Services Tax (GST) will be raised to meet growing spending needs.
Ms Indranee said 50 per cent is a "fair amount", as it ensures that the other half of the returns are ploughed back into the reserves so that the principal sum grows.
Increasing it to 60 per cent or 70 per cent will mean less money is put back into the reserves, she added.
"If you start going down the slippery slope, then after a while, you will have to make your principal work a lot harder. You are also not assured that you will be able to get consistent returns all the time, and you don't know what the market will be like," she said.
GST will be raised from 7 per cent to 9 per, taking effect some time from 2021 to 2025.
The tax hike was one of the hot topics among about 100 participants at the Reach dialogue held at the National Museum of Singapore.
Ms Chen Li Ying, 50, a manager in the marine industry, said she was surprised a GST increase was announced, despite the budget surplus of $9.6 billion for the 2017 financial year.
In response, Ms Indranee said the surplus was primarily due to exceptional contributions from the Monetary Authority of Singapore and from stamp duty collections.
She said it will not be enough to cover long-term expenditure which is growing, which is why GST has to be raised.
Later, Ms Indranee also addressed the question of whether the GST hike may become an issue at the General Election due by 2021.
She said the GST collected will ultimately be given back to people through public spending, adding: "I hope Singaporeans are realistic and practical enough to look at that."
She added that announcing it early would give people time to prepare and said there would be an offset package and the permanent GST Voucher scheme to help especially those who are most in need.
For more Budget coverage, visit the ST microsite at str.sg/budget2018