Govt not obliged to return funds drawn from past reserves, but is committed to rebuilding them: DPM Heng

SINGAPORE — There is “no legal or constitutional obligation” for the Government to return the S$52 billion record drawdown from past reserves, but it is committed to rebuilding them, Deputy Prime Minister Heng Swee Keat said on Friday (June 5).

At the moment, Mr Heng said the Government must focus its mind on making full use of the resources that it has deployed — including the drawdown, which was used to fund the four Budgets totalling S$92.9 billion — and help Singapore’s economy emerge stronger from the crisis, so as to be able to rebuild its resources.

Mr Heng revealed that the four Budgets are estimated to help Singapore’s economy avert an average output loss of five percentage points, or S$23.4 billion per year, over 2020 and 2021, according to a study by the Monetary Authority of Singapore.

“What we do know is that there will likely not be a V-shaped recovery, unlike in past crises. And the amount that we are tapping is S$52 billion. So how long would it take to build this back? We cannot be definitive.

“But rest assured that we are committed to rebuild not just our reserves, but also to continue developing Singaporeans and building Singapore,” said Mr Heng in his round-up speech during the parliamentary debate on the Fortitude Budget.

The Government had put back into the past reserves the S$4 billion which it had earlier drawn on in 2009, during the global financial crisis. And not a single cent of the S$150 billion of reserves that backed the Government’s guarantee of bank deposits was used, when Singapore’s banking system emerged safely from that crisis, Mr Heng noted.

However, the Covid-19 crisis is “of a significantly larger scale and reach”. “We are facing huge uncertainties regarding the course of the pandemic and its economic and social implications,” he reiterated.

Mr Heng, who is also Finance Minister, was responding to West Coast Group Representation Constituency (GRC) Member of Parliament (MP) Foo Mee Har and MacPherson MP Tin Pei Ling. Both MPs had asked how long it would take the Government to restore the reserves to pre-Covid-19 levels.

Other MPs had also asked about the role which the reserves play, with Sembawang GRC MP Vikram Nair likening the reserves to Singapore’s “golden goose” that was painstakingly built up since its independence.

RESERVES PUT S’PORE IN POSITION OF STRENGTH

Responding, Mr Heng said the reserves have given Singapore a position of strength to deal with the crisis and also given it options amid a period of uncertainty.

The reserves assure Singaporeans that the country has the means to navigate the challenges ahead, and build confidence in global investors that the Republic’s economic fundamentals are sound and stable in the long term.

They also protect Singapore from detractors and speculators who “know well enough not to take advantage of this crisis, to attack our economy and currency”, he said.

Mr Heng, who is expected to become the next Prime Minister, stressed that the country “did not get here by chance or good fortune”.

“We have designed and implemented policies that discourage waste or over-consumption. We have run our public services based on outcomes, not on size of spending,” he said.

He noted that this prudence and discipline were not always appreciated, pointing out past Parliamentary debates on whether the Government could have spent more freely from reserves rather than accumulating surpluses from each annual Budget.

Within three months of the 2020 financial year, Singapore has exhausted its current reserves, which are surpluses accumulated in the current term of government.

“Mounting Covid-19 packages amounting to nearly S$100 billion, of which more than half is funded from the reserves, is not a trivial matter, especially when our yearly budget is about S$80 billion,” said Mr Heng. “The total of our four Budgets, including the Covid-19 packages, is more than double the size of our annual Budgets in preceding years. Our reserves are a limited resource, and we must not take them for granted.”

Tapping past reserves, however, has warded off the need for Singapore to fund the supplementary budget through borrowing. Doing so would increase the risk of unsustainable debt financing, he said.

He said: “Our reserves are a limited resource, and we must not take them for granted. We owe it to our people — seniors, middle-aged, young and those yet to be born — to be prudent and to ensure good governance, so that they too have the resources to navigate future challenges in an uncertain world.”

During the debate on Thursday, Workers’ Party MP Faisal Manap had questioned if President Halimah Yacob was given information on the amount available in the reserves, when the Government sought her in-principle support for drawing on them. The opposition party’s Non-Constituency MP Dennis Tan also asked the same on Friday.

Responding, Mr Heng said: “I am surprised that Mr Faisal and Mr Dennis Tan had to ask. It is public information that, under our Constitution, the President has access to information about the size of reserves.”

In the process of seeking Mdm Halimah’s approval, Mr Heng said the Government conducted two briefings to the President and the Council of Presidential Advisers, covering its assessment of the global and local health and economic situations, the details of the measures, and the resources needed.

“In our system, the President is the custodian of our past reserves. She needs to concur with any draw, and her decision is made in full knowledge of why the draw is necessary, and the size of our reserves,” he said.

GST HIKE STILL NEEDED BY 2025

Calling the reserves Singapore’s “rainy day fund”, Mr Heng said the crisis has underscored the importance of spending responsibility and preparing for the future.

Even before Covid-19 appeared, Singapore’s structural needs will persist and significant fiscal outlay will be required in the medium- to long-term, said Mr Heng, adding that continued investments are also needed in healthcare, education and training, and infrastructure.

The Government has to use “a right mix of fiscal instruments” that meet its principles of prudence and equitable spending. Recurrent spending should be met with recurrent revenues, he reiterated.

“Such spending primarily benefits the current generation of Singaporeans, and so it is fair and responsible for all of us to do our part and chip in,” he said.

Reiterating a point he made in February in the Unity Budget, the first of the four packages unveiled so far, Mr Heng said that the planned goods and services tax (GST) rate increase will not take effect in 2021.

“However, we will not be able to put off the increase indefinitely, and this will still be needed by 2025,” he added.

When the GST rate increase is implemented, the Government will cushion the impact for Singaporeans with the S$6 billion set aside during the Unity Budget for the Assurance Package.

The package will offset at least five years’ worth of additional GST expenses for the majority of households, and more for lower-income families, he said.

Said Mr Heng: “With this differentiated and principled fiscal strategy, each generation rightly pays for the benefits that they enjoy, and we do not saddle future generations with our bills. This is an equitable approach, and will continue to be the cornerstone of fiscal sustainability for Singapore.”