SINGAPORE - Sacrifice and careful husbandry by earlier generations was how the Republic built up its nest egg of past reserves, and the current generation should see themselves as not just beneficiaries but also trustees who protect this inheritance for future Singaporeans, said Prime Minister Lee Hsien Loong.
The past savings were built up at a unique time in Singapore’s history when it could set aside budget surpluses, and if they are gone, it will not be possible to build them up again, he stressed.
This is why it is important to have the “right instincts”: to save where possible, to resist pressures to use the reserves, and to unlock them only when really necessary, he said.
PM Lee was speaking in Parliament on Feb 7, amid calls by opposition MPs for the Government to use more of the reserves.
“We must not erode the patrimony, this family treasure, which we have inherited from our forefathers, nor should we burden future generations with debt nor mortgage their future,” he added.
This compact of protecting the reserves has been forged across generations of Singaporeans, and had also been upheld across both sides of the House, he said.
He reiterated the Government’s long-held stance on the reserves in response to a call by Progress Singapore Party (PSP) Non-Constituency MPs Leong Mun Wai and Hazel Poa for the Government to review its current budget and reserves accumulation policies.
The two NCMPs had proposed that more of the reserves be used to “help present-day Singaporeans reduce their financial burdens and improve their quality of life”.
They were joined in this by Leader of the Opposition Pritam Singh and Workers’ Party (WP) MPs, who repeated their party’s position that using more investment returns would not jeopardise growth of the reserves.
Mr Leong said that in the face of the goods and services tax (GST) hike and rising cost of living, accumulating reserves at the current rate “hurts the welfare of present-day Singaporeans”.
PSP’s view is that current reserves are enough, especially if the Government is raising taxes “for the sake of maintaining the current rate of reserves accumulation”.
But it is a misconception that a specific number can be deemed enough when it comes to the reserves, said PM Lee.
He recounted how Singapore first tapped $4 billion of the reserves in 2008 when the global financial crisis hit, to help employers pay Central Provident Fund contributions and protect jobs.
When the Covid-19 pandemic hit, some $40 billion was drawn from the reserves to fund assurance packages and pay for vaccines to save lives and livelihoods.
That is far from the worst thing that can befall Singapore, PM Lee added. He noted that the war in Ukraine costs the Eastern European country more than US$100 million (S$134 million) a day.
These examples are why there is no sensible answer to the question of how big a nest egg is enough.
“Looking ahead 50 years, can anyone promise that Singapore will enjoy another half century of peace and tranquillity? Or guarantee that someone will come to our rescue if we ever find ourselves in the same situation as Ukraine?” he said.
“We can never say for sure how much is enough, because we do not know what kind of crises we will face in the future, or how our investments will fare.”
But that does not mean Singapore should mindlessly save for a rainy day without regard for present needs, said PM Lee.
That is why the Government had enshrined in the Constitution the “50-50” rule, which allows up to half of returns from investing the reserves to be used for current spending.
This also happens to be about the right ratio to keep the reserves in proportion with the gross domestic product, PM Lee added.
With long-term expected real returns of the reserves currently at about 4 per cent, the Government can spend about 2 per cent and save the other 2 per cent. Singapore’s economy is expected to grow at about 2 per cent a year if things go well.
Keeping this balance means the Government can count on the reserves to provide 3.5 per cent of its annual spending without having to double the GST, said PM Lee.
Among the points Mr Leong made was that too much money from the reserves was locked up in trust and endowment funds to pay for longer-term spending, at the expense of current generations.
Ms Poa, meanwhile, suggested that it was excessive to plough the proceeds of land sales back into the reserves, since land is sold on leases and is thus more akin to a renewable resource.
The Government’s policies therefore prioritised future generations at the expense of current Singaporeans.
Rebutting these arguments, Minister in the Prime Minister’s Office Indranee Rajah said that money in these funds was “not just for the far unknown future”, but was set aside to meet specific funding commitments for the benefit of today’s Singaporeans.
These include the over $2 billion disbursed each year from the GST Voucher Fund to help lower- and middle-income households defray their GST expenses, and money in the Pioneer Generation Fund and Merdeka Generation Fund that is drawn down regularly to support Singaporeans in those cohorts.
As for funds set up to pay for large infrastructure projects, these help to smoothen the lumpy spending on such projects and ensure that future generations will not have to scramble to find money to pay for them, Ms Indranee said.
“This is prudent, thoughtful and responsible fiscal policy – not evidence of excess fiscal resources,” she added.
As for treating land sales as revenue, Ms Indranee said selling land did not generate wealth. Instead, it merely converted a physical asset into a financial asset.
The cash proceeds accrue to the reserves and are then invested to generate returns, which contribute to government spending. In this way, the proceeds of land sales are used indirectly in each year’s budget, she said.
Past savings are also a strategic asset during crises and emergencies. Thus, it would be imprudent to disclose the size of the reserves, she said in response to calls for greater transparency from PSP and WP MPs.
PM Lee noted that the growing political pressure to use more of the reserves was not new, and that it would always be tough to raise taxes.
Early in Singapore’s history, founding prime minister Lee Kuan Yew and his team had anticipated this, and that is why they had formulated a two-key system that required the president’s approval to unlock the country’s savings, he said.
When Singapore instituted the 50 per cent spending rule in 2001, the former prime minister intervened in the debate to remind the House that at the end of the day, the Government’s deepest obligation is to the future.
“Not just to the present; certainly not to the past,” said PM Lee.
He said that is why in taking care of today’s citizens, the People’s Action Party (PAP) Government is conscious to also safeguard the interests of young people not yet of voting age, future citizens not yet born, and the long-term interests of Singapore.
This ethos was in fact shared across the aisle in the past, he added, noting that former WP leader Low Thia Khiang had commended the Government for being prudent when it returned $4 billion to past reserves in 2009.
“Now I hear the opposition arguing that we should change the rules and draw more from reserves, and that of course they have no intention to raid the reserves, far from wanting to bankrupt Singapore,” said PM Lee.
“They say we can easily afford what they are proposing, I conclude their tune has changed.”
Mr Singh’s rejoinder was that different times call for different measures, which was why the PAP Government has said it is unlikely to return to the reserves the $40 billion it took out to deal with Covid-19.
Mr Singh, who is WP chief, also said the Prime Minister was cherry-picking what Mr Low had said.
PM Lee said the PAP is convinced that it has the right approach to stewarding the reserves.
Opposition parties who want to spend more should therefore put the issue upfront and campaign on it at the next general election, he said.
“Say you want to touch, you want to spend, you want to shift the rules,” he said. “Don’t pretend that you’re just as prudent, only more kind-hearted.”
The PAP will join the issue and convince Singaporeans that its way – taking a long-term view of the reserves, and striking the right balance between present and future needs – is the right one for Singapore, said PM Lee.
“We are confident that we will win the argument, and we’ll be able to get Singaporeans to do the right thing.”
PM Lee said he had spent 40 years of his life stewarding and safeguarding the reserves, and was now preparing to hand over to his successor a Singapore in good order, one that is more prosperous and more secure.
“I ask everyone to help them maintain the prudent policies that have served us well to keep Singapore on the right track, so that we can all continue to benefit from the nation’s success for many years to come,” he said.
This article was first published in The Straits Times. Permission required for reproduction.