New bonds can also fund human capital investments: Jamus Lim

Money raised from the issuance of new government bonds should not be used only to fund long-term infrastructure projects, but also be put towards research and development (R&D), reducing class sizes in schools and to implement unemployment insurance, Associate Professor Jamus Lim (Sengkang GRC) said yesterday.

These long-term investments in human capital are "low-hanging fruit" and would amount to about $60 billion, a sustainable debt burden for the Government to shoulder, the Workers' Party MP said.

Prof Lim suggested these investments can be funded by increasing the total amount that can be borrowed under the proposed Significant Infrastructure Government Loan Act (Singa), or carved out of the $90 billion borrowing cap under the proposed law. "Even if we take the $60 billion and $90 billion together, this would represent a little less than a third of our GDP."

The economics professor said he supported Deputy Prime Minister Heng Swee Keat's proposal to issue new bonds under Singa, which will be tabled in Parliament later this year.

But Prof Lim asked: "Why would we limit our investments to only bridges and train lines and airports and seawalls, and not consider the equally important long-term investments we could direct towards soft capital, namely the capabilities of our people?"

He noted that Singapore devotes less than 2 per cent of its income towards R&D, behind countries such as Israel and South Korea, and can afford to spend more.

More resources should also be channelled towards reducing class sizes, which today average 33 students for most subjects, he said.

The existing professional conversion programmes and SkillsFuture scheme could also be better weaved into an "end-to-end jobs safety net". Prof Lim said he would elaborate on these proposals in the coming days, when Parliament debates the ministries' plans.

Mr Heng had said in his Budget speech that the new bond issues will fund infrastructure investments with large upfront costs, including new MRT lines such as the Cross Island and Jurong Regional lines, and pumping stations and tidal walls to protect Singapore against rising sea levels. There are also plans to issue some green bonds under Singa for climate change-related infrastructure.

These bond issues will allow for a fair and efficient way of distributing fiscal responsibility, Mr Heng said, and as a safeguard, borrowing will be capped at $90 billion based on the expected infrastructure pipeline over the next 15 years.

Prof Lim suggested the maturity of Singa bonds be extended to 50, or even 100 years, to lock in the current low interest rates for longer. He also called on the Government to benchmark the speed of debt issuance against prevailing growth conditions.

Warning against pulling back financial assistance to families and companies prematurely, he noted how in some European countries, austerity measures had instead led to recessions. He said there are those who argue holding back on the wind-down of support programmes could lead to over-stimulation, but "premature austerity" could result in real economic pain for thousands of workers and businesses. "We must bear in mind that at the moment, the economy is very much like Swiss cheese. While it may look solid, it is, in reality, still riddled with holes."

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A version of this article appeared in the print edition of The Straits Times on February 26, 2021, with the headline New bonds can also fund human capital investments: Jamus Lim. Subscribe