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SINGAPORE: The government is prepared to ask President Halimah Yacob for approval to tap into the country’s past reserves if necessary, Deputy Prime Minister Heng Swee Keat said in Parliament on Thursday (October 15).
Rounding out a two-day debate on the government’s strategy to emerge stronger from the COVID-19 crisis, Heng said there is “deep uncertainty” about the trajectory of the coronavirus pandemic and its economic impact.
“We must act early and decisively to support our workers and companies when necessary, so I am prepared to propose to the president a new use of our past reserves should it be necessary for us,” Heng said in response to a question from Bukit Panjang MP Liang Eng Hwa.
The Government has drawn an unprecedented S $ 52 billion from reserves as part of the nearly S $ 100 billion it has pledged to support COVID-19 measures this year.
READ: The government may not be able to save all businesses and jobs amid the COVID-19 crisis, but it will support all workers: DPM Heng
In the medium and long term, Singapore’s approach is “to adapt and find new ways to generate growth,” said Heng, who is also Minister of Finance and Coordinating Minister for Economic Policies.
“We must work hard to get back in a position where our economy is growing and we can build reserves for the future again,” he said, describing this as the “sustainable and prudent” way forward.
Even as the government works to support residents during this difficult period, Heng said it must be more prudent when it comes to using more reserves due to the greater uncertainties ahead.
“First, the global economy and the financial system will be more volatile. The accumulation of debt worldwide introduces instability in the financial system, which can lead to crises or exacerbate them, “he said.
Mr. Heng also pointed to the growing risk of geopolitical conflict and deglobalization, as well as the risk of another possible serious international epidemic.
“I am sure that we all want Singapore to be here for the long term. As long as Singapore continues to exist, the question is not whether there will be an externally induced crisis, but when, ”he said.
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“If we spend more or even all of the returns on our reserves annually, future generations will likely have a smaller cushion in a world of greater uncertainty,” he added.
“Therefore, we must ensure that we continue to spend within our means and give our children more than what we inherited from previous generations.”
STRENGTHENING THE SINGAPORE TAX TOOLS TEAM
Mr. Heng noted that the latest support package is fully funded through budget reallocation, and the government conducts a “thorough analysis” of each ministry’s budget to identify possible deferrals or reductions in spending.
Some expenditures, such as those for MRT lines or improving the Housing Board’s properties, were postponed due to delays due to “circuit breaker” measures and the need to ensure that the construction sector reopens safely. . Other expenses were lower than projected due to COVID-19 and safe distancing measures, he said.
However, most of this is simply delayed spending, which will still be incurred in the future, the deputy prime minister said, adding that Singapore will go ahead with critical projects.
“These projects are necessary to raise the standard of living of Singaporeans and our economic development. We will move forward when conditions permit, ”he said.
Singapore’s fiscal situation will tighten, and revenues are likely to be moderate and uncertain in the medium term, Heng warned.
He pointed to global economic growth that is likely to continue to weaken in the coming years, as well as intensified global competition for tax revenue.
“Many advanced economies have accumulated more debt to finance their responses to COVID-19, which they will have to repay,” he said.
“There is an additional push globally to push for the ‘reallocation’ of tax rights under the Base Erosion and Profit Shifting project, or BEPS in short,” he said, referring to the initiative of the Organization for Cooperation and Development. Economic and the G20. to renew international corporate taxes.
“Even as we face these revenue challenges, we cannot lose sight of our goal of securing Singapore’s long-term needs,” he said, pointing to the expected increase in spending on health care and preschool education in the future.
WATCH: Heng Swee Keat completes debate on strategy to come out stronger from COVID-19
Singapore is studying how to strengthen its “fiscal toolkit” to ensure its financial security, he said.
“Even before COVID-19 arrived, we explained that we are seeking loans for important long-term infrastructure. This will help to spread the high start-up costs equitably among current and future generations who will benefit from such investments, “he said, describing Singapore’s approach as” principled and prudent. ”
The country will only borrow for infrastructure that will benefit several generations and will ensure that its debt level and future payments are sustainable, he explained.
“We will not borrow just to make up for income shortfalls or to be opportunistic in the market moment,” he said.
Deputy Prime Minister Heng Swee Keat speaking in Parliament on October 15, 2020.
THE GST INCREASE CANNOT BE INDEFINITELY DIFFERENT
For recurring expenses like health care and education that benefit today’s generations, “the responsible way is to pay for them with what we earn,” through recurring income like taxes, Heng said.
“This discipline ensures that each generation wins and pays its share,” he added.
Noting that several MPs had asked about the planned increase in the GST rate to 9 percent, Heng said that he had announced earlier this year that the GST will remain at 7 percent in 2021.
However, the increase cannot be postponed indefinitely, he said, pointing to the need to support future needs in health care and preschool education.
“We will continue to study the timing of raising the GST rate carefully, taking into account the pace of our economic recovery, our revenue prospects and how much spending we can defer to later years, without jeopardizing our long-term needs,” he said. .
This year’s GST collections are projected to drop 14 percent from initial estimates before the start of the year, he said, adding that this is due to travel disruptions and the impact of the breaker period.
“We expect receipts to remain lower than usual until international travel fully recovers, which we hope will be at least in a couple of years.”
READ: Timing of GST increase and other moves to shore up revenue position will be ‘carefully’ monitored: Heng Swee Keat
The government remains committed to helping people manage the impact of the GST rate increase, Heng said, pointing to the S $ 6 billion Guarantee Package aimed at cushioning the impact of the increase.
Responding to non-constituent MP Leong Mun Wai’s suggestion to shelve the increase indefinitely, Heng noted that more than 60 percent of the net GST comes from foreigners living here, tourists, and the wealthiest 20 percent of resident households. .
Any indefinite postponement of the GST increase would mean losing additional income from these groups that could be used to improve the lives of Singaporeans, Heng said.
He also responded to Sengkang GRC MP Louis Chua who had asked how the extraction of reserves would affect the net contribution to return on investment (NIRC).
“Yes, there will be some impact on NIRC, but the design of the NIR (Net Investment Return) framework is to provide a stable and sustainable source of income for our budget, smoothed over market cycles,” he said, in response to the Deputy of the Workers’ Party (WP).
“This means that when projected returns and the value of the net asset base go down, we don’t see an immediate commensurate decline in NIRC,” Heng said.
In the same way, in periods of strong spikes in the market and asset values rise, we do not see an immediate increase and excessive spending ”.
READ: Singapore’s income position will be ‘weak’ in the coming years, spending strategy will be ‘prudence, not austerity’: DPM Heng
THE COVID-19 CRISIS IS NOT OVER
In cases where the potential failure of a company due to the COVID-19 crisis would significantly affect Singapore’s competitiveness or national security, Heng said he could not rule out the possibility that the government would take steps to ensure such measures are preserved. “strategic capabilities”.
“The exact form of support will depend on the circumstances. But the bar for any government action will be high. The Government will also act with prudence and will guarantee the proper use of public funds, ”he said.
Responding to a question from WP, Aljunied GRC MP, Gerald Giam, on whether the government plans to return money taken from reserves, Mr. Heng noted that there is no legal obligation for the government to do so under the Constitution.
“Rather, it is about having a moral obligation and a sense of duty towards current and future generations, and the recognition that we are stewards of our reserves that have not arisen easily,” he said.
“It is not possible for me to be definitive about how long it will take us to accumulate enough surpluses to reach S $ 52 billion,” he added.
“I would like to remind everyone that the COVID-19 crisis is not over. The scars it will leave on our economy and the world economy are still unknown. But I can say it won’t be two years, and I certainly hope it doesn’t take 50 years.
“The time it will take also depends on the decisions we make as a country and government, if we continue to manage our resources wisely. We remain committed to executing a broadly balanced budget during each government term, and we will evaluate the feasibility of returning the withdrawn amount, depending on our fiscal position.
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