Concerns raised over reserves and balancing the Budget

During a debate on the Government's strategy on Covid-19 in Parliament yesterday, the question arose of whether the current draw from the reserves to the tune of $52 billion would need to be returned in full, and if further draws on the reserves woul
During a debate on the Government's strategy on Covid-19 in Parliament yesterday, the question arose of whether the current draw from the reserves to the tune of $52 billion would need to be returned in full, and if further draws on the reserves would be considered. ST PHOTO: MARK CHEONG

Three MPs have voiced concerns over whether Singapore would be able to balance the books for the current term of government, as well as in the future, after the Government committed nearly $100 billion to Covid-19 support measures this year.

During a debate on the Government's strategy on Covid-19 in Parliament yesterday, they asked if the current draw from the reserves to the tune of $52 billion would need to be returned in full, if further draws on the reserves would be considered, and the impact of the draw on the reserves' longer-term returns.

Deputy Prime Minister and Finance Minister Heng Swee Keat had announced in August that $8 billion would be spent on measures such as extending wage subsidies for firms and a grant for Singaporeans who have been laid off. This comes on top of the nearly $100 billion committed under four Budgets this year.

Mr Heng had said that the $8 billion would be funded by the reallocation of monies from other areas, such as development expenditures that were delayed due to Covid-19.

There was no further draw on past reserves beyond the $52 billion, for which President Halimah Yacob's approval was obtained earlier.

Mr Liang Eng Hwa (Bukit Panjang) noted that the net freed-up funding amounts to $5.1 billion, leaving a potential deficit of about $2.9 billion just a few months into the new term of government.

The picture also looks daunting on the revenue front, he said, as the latest estimate projects a $12.3 billion, or 16.1 per cent, drop in the Government's operating revenue.

"Given the revenue outlook and the likelihood of further Covid-19 support that is needed, how does (Mr Heng) envisage we could balance the Budget in the next two to three years?"

Mr Liang asked if the Government would consider a further draw on the reserves, as some of these projects are necessary spending as they are capability investments for the future.

Mr Louis Chua (Sengkang GRC) sought clarification on the Net Investment Returns Contribution (NIRC) - the returns on investments of Singapore's reserves - to the Government's revised revenue estimates. He asked how the NIRC estimate remained the same as it was in February - at $18.6 billion - given the substantial draw on reserves to fight Covid-19, and how this was determined.

Mr Chua also said there is scope to rethink the country's position on when to employ government debt, given the low interest rate environment. "In this lower-for-longer interest rate environment, we should as a government be open to exploring such possibilities, instead of funding our expenditures with higher-cost equity funding or funding from our reserves."

Mr Gerald Giam (Aljunied GRC) asked if Mr Heng, who is also Coordinating Minister for Economic Policies, would clarify if the $52 billion drawn from Singapore's reserves would be returned in full or in part.

Mr Giam said restoring the amount in a short time could subject Singaporeans to unnecessarily high levels of austerity, which could slow economic growth and cause painful cuts to public services that might impact the poor.

"Can the DPM assure Singaporeans that they would not have to go through a period of austerity after the economic crisis is over, in order to restore the reserves?"

Mr Giam pointed out that during a Parliament debate in June, Mr Heng had said that there was no legal or constitutional obligation for the Government to restore the draw on past reserves, although he noted that Mr Heng had also said the Government is committed to doing so.

Mr Heng had said then that the Government had put back the $4 billion drawn from the reserves during the global financial crisis in 2009, but could not be definitive about how long the restoration for the current withdrawal would take.

While Mr Giam acknowledged that the $52 billion was necessary to prevent excessive job losses and boost consumer spending during the crisis, he urged greater consideration of the possible burden that could be imposed on the next generation. "Given the Budget impact of potential provisions to restore this extraordinarily large amount to the reserves, I feel it's important for the Government to provide more clarity about its broad timeline to do so."

Mr Heng will round up the debate today.

A version of this article appeared in the print edition of The Straits Times on October 15, 2020, with the headline 'Concerns raised over reserves and balancing the Budget'. Subscribe