Should there be a need for Singapore to use its past reserves to fund economic investments, the Government would have to do its best to make good on the amount drawn, Deputy Prime Minister Heng Swee Keat said yesterday.
He told the House that he expects to fund government expenditures for the remainder of this term without a further draw on past reserves.
Even then, given the highly uncertain global outlook, there is a need to think ahead and plan how Singapore can respond if the situation evolves, he said, as he explained the circumstances under which Singapore might have to tap past savings.
Nominated MP Hoon Hian Teck had spoken during the Budget debate about the difficult balance Singapore will have to strike: Stabilising the economy to avoid a sharp downturn, but also investing in structural policies for transformation.
Referring to this, Mr Heng said the uncertainty over how quickly the global economy will recover makes the balancing act even more complicated. "If we face a prolonged slump, it will be even more necessary for us to transform, but it will also be more challenging to find the required fiscal resources to both stabilise and restructure the economy."
He said it was important to press on with economic investments and secure the next decade of growth, warning that holding back would mean missing out on restructuring and new opportunities.
"If we fail to change, and our economic recovery is sluggish, it would have a long tail effect on our jobs and economic vibrancy, and affect Singaporeans adversely. It will also further worsen our fiscal situation," he stressed.
"After considering the various options, if the public health and economic situations deteriorate sharply and our fiscal situation turns out to be worse than expected, the Government may again have to seek the President's approval for the use of past reserves to continue such economic investments."
He added that President Halimah Yacob had expressed her understanding towards the Government's approach, and will consider specific proposals should there be a need to draw on past reserves.
"These investments are expected to yield returns for the economy, which can give a boost to our tight fiscal situation and allow us to make good the amount drawn," he said.
Meanwhile, he also said that the expected draw of up to $53.7 billion in 2020 and 2021 to respond to Covid-19 was equi-valent to about 20 years of fiscal surpluses.
"It will be a challenge to also make good this amount drawn, given the magnitude of the crisis," he added. "Nonetheless, we should strive to remain fiscally prudent to build back our reserves gradually."
RESERVES NOT A 'GOLD MOUNTAIN'
Mr Heng also warned that the reserves should not be treated like a "gold mountain", in responding to Non-Constituency MP Leong Mun Wai's suggestion to use 100 per cent of the returns from investing the reserves.
Currently, the Government can spend up to 50 per cent of long-term expected real returns, including capital gains, on its relevant assets, through the Net Investment Returns Contribution (NIRC) framework.
For the Government to use all of the returns is akin to treating the reserves as a "gold mountain", said Mr Heng.
"If we adopt (Mr Leong's) suggestion, one day even this mountain will be eaten up completely… We have a responsibility to future generations."
He explained that the NIRC framework smooths the volatility arising from sharp fluctuations in the asset base due to market cycles, and avoids a boom-bust pattern in government spending.
He added: "However, some variation is still to be expected for the NIRC as we update the net asset base and investment income figures over the course of the year… How post-Covid-19 structural changes will affect long-term returns is still being played out."
He noted that NIRC was already the largest single source of government revenue - above corporate income tax, personal income tax or the goods and services tax - and that this was the result of years of fiscal discipline and did not happen by chance or good fortune.
"If we had succumbed to the temptation to spend more, we would not have built up our reserves. And without reserves, we would not have been able to generate this stable and recurrent source of revenue today," he said.