No change yet to spending up to 50% of investment returns: Indranee

SINGAPORE — For as long as possible, the Government will try to keep to its present Net Investment Returns (NIR) framework, which allows it to spend up to half of its long-term expected real returns from the assets managed by the Monetary Authority of Singapore, state investment firm Temasek Holdings, and the Government of Singapore Investment Corporation (GIC).

Ms Indranee Rajah, Senior Minister of State for Finance, told the press this on Tuesday (Feb 20), on the sidelines of the first post-Budget dialogue this year. The session, organised by government feedback unit Reach, comes a day after the Budget statement was delivered by Finance Minister Heng Swee Keat.

Responding to a question on the framework, Ms Indranee said that drawing up to 50 per cent of the returns is a “fair figure”. The remaining half of the returns are kept in the reserves.

Spending a higher percentage of the returns could be going down a “slippery slope” and the authorities will have to make the principal sum of reserves “work a lot harder”.

“You are also not assured that you will be able to get consistent returns all the time,” she said. “You don’t know what the investment market will be like, so the better thing to do — if you want to ensure consistency, stability and sustainability — is to continue to tap it, keep it at 50 per cent, but also introduce the increase in GST (Goods and Services Tax).”

She added: “You can never say when you might have to change something like that, but for as long as we can keep it at this level, we would like to do so.”

In his Budget speech, Mr Heng explained why Singapore cannot fully spend the returns. It will mean that the principal sum of the reserves will “stagnate over time” and, as a result, the NIR contribution as a share of the gross domestic product will fall as the country’s economy grows.

As it stands, any changes to the NIR framework can only be made through amendments to the Constitution.

TO BE PREPARED AHEAD OF TIME

On why the Government announced this year that it is going to raise GST from 7 to 9 per cent when it is expected to kick in some time between 2021 and 2025, Ms Indranee explained that this will give businesses and Singaporeans a chance to prepare for any changes and plan their finances.

The Government also wanted to be upfront and transparent with Singaporeans, and to let them know what the future landscape will look like.

“The Budget is how, as a country, we pool, organise and plan our resources for a collective future,” she said. “It’s only right that people know how we are going to achieve this, especially when you bear in mind that there is going to be a significant increase in expenditure, especially (when) there is an ageing population.”

Asked if she is worried that the impending GST hike may affect the next General Election, she replied that the Government had set out the plans for the future, the anticipated needs, and a clear way on how these will be funded.

Although the hike means that the costs of goods and services will go up, the Government is also making sure that there is an “offset package” to help people adjust, she said. Those who will be most affected by the hike will be buffered from it, through measures such as the enhanced permanent GST Voucher scheme.

“I hope that Singaporeans are realistic enough, practical enough to look at that and understand that, at the end of the day, when the GST goes up and the money is collected, what are we going to use it for?”

It will go into public goods and services, for healthcare, infrastructure, security and education, for example, she said.

BEING PRUDENT DESPITE BUDGET SURPLUS

At the dialogue, attended by about 100 participants, questions were raised on the GST hike, the Budget surplus, as well as changes to the foreign domestic worker levy.

One participant asked how the unexpected Budget surplus of S$9.6 billion came about and why there is a need to increase the GST when there is extra money in the coffers.

In response, Ms Indranee said that there were better-than-expected returns last financial year from the statutory boards, particularly from the Monetary Authority of Singapore. The stamp duties from property transactions also contributed.

However, she said that the amount will not cover all the things that the Government needs to do, and it adopted a “prudent approach” in setting aside the money for rail infrastructure and the Central Provident Fund’s ElderShield insurance scheme, among other things.

The surplus cannot replace the revenue from GST, because government spending on healthcare, infrastructure, education and security is going to be higher in future.

To another question on why the surplus cannot be used for something in the shorter term, Ms Indranee said that the Government wanted to make sure the money is used in areas that will require a lot of spending. One of them is infrastructure: The upcoming Terminal 5 at Changi Airport and the Tuas mega port, for instance, are going to be “very expensive”.

As to why the foreign domestic worker levy had to be raised, Minister of State for Manpower Sam Tan, who was also chairing the dialogue, said that the Government does not want Singaporeans to be too dependent on such workers, going by projections now.

Mr Tan added that the Manpower Ministry will continue to monitor this. If there are people with genuine needs, they may always appeal to the ministry, which will assess each on a case-by-case basis.