SINGAPORE: The government is ready to seek approval from President Halimah Yacob to draw more on the country’s past reserves if needed, Deputy Prime Minister Heng Swee Keat told parliament on Thursday (October 15th).
Concluding a two-day debate on the government’s strategy to emerge stronger from the COVID-19 crisis, Heng said there was “deep uncertainty” about the trajectory of the coronavirus pandemic and its impact. economic.
“We need to act swiftly and decisively to support our workers and our companies when needed, so I am ready to suggest to the president to leverage more of our past reserves if it is necessary for us to do so,” said Mr. Heng in response to a question from Bukit Panjang MP Liang Eng Hwa.
The government has pulled an unprecedented S $ 52 billion from reserves as part of the nearly S $ 100 billion it has pledged to support COVID-19 support measures this year.
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In the medium to long term, Singapore’s approach is to “adapt and find new ways to generate growth,” said Heng, who is also finance minister and minister for economic policy coordination.
“We have to work hard to get back to a position where our economy is growing and we can again build up reserves for the future,” he said, describing this as the “sustainable and prudent” way forward. .
Even as the government strives to support residents during this difficult time, Heng said he had to be more careful 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 on a global scale introduces instability in the financial system, which can lead to or worsen crises, ”he said.
Heng also highlighted the growing risk of geopolitical conflicts and de-globalization, as well as the risk of a possible other serious international epidemic.
“I’m sure we all want Singapore to be here for the long haul. 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 income from our reserves each year, future generations will likely have a smaller buffer in a world of greater uncertainty,” he added.
“We must therefore ensure that we continue to spend within our means and give our children more than we inherited from our previous generations.”
STRENGTHENING SINGAPORE’S TAX TOOLKIT
Heng noted that the latest package of support is fully funded through budget reallocation, with the government performing “in-depth analysis” of each ministry’s budget to identify any postponements or spending cuts.
Some expenses – such as those for MRT lines or the modernization of Housing Commission housing estates – have been postponed due to delays due to “circuit breaker” measures and the need to ensure that the construction sector reopens. safely. Other spending was lower than expected due to COVID-19 and safe distancing measures, he said.
However, most of these expenses are just deferred expenses, which will still be incurred in the future, the Deputy Prime Minister said, adding that Singapore will continue with critical projects.
“These projects are necessary to improve Singaporeans’ standard of living and our economic development. We will move forward when conditions allow, ”he said.
Singapore’s fiscal position will tighten, with revenues likely to be moderate and uncertain in the medium term, Heng warned.
He pointed to global economic growth that is likely to remain weakened in the years to come, as well as increased global competition for tax revenues.
“Many advanced economies have accumulated more debt to fund their responses to COVID-19, which they will have to pay off,” he said.
“There is further impetus globally to push for the ‘reallocation’ of taxing rights under the Base Erosion and Profit Shifting Project, or BEPS in short.” , he said, referring to the initiative of the Organization for Economic Co-operation and Development and the G20 to reorganize international business taxation.
“Even as we face these income challenges, we cannot lose sight of our goal of meeting Singapore’s long-term needs,” he said, highlighting the expected increase in spending on health and d preschool education in the future.
WATCH: Heng Swee Keat summarizes debate over strategy to emerge stronger from COVID-19
Singapore is considering how to strengthen its “tax toolbox” to ensure its financial security, he said.
“Even before COVID-19 hit, we explained that we were looking to borrow for large infrastructure for the long term. This will help to fairly distribute the high upfront costs between current and future generations who will benefit from these investments, ”he said, describing Singapore’s approach as“ principled and prudent ”.
The country will only borrow for infrastructure that will benefit generations and ensure that its level of debt and future repayments are sustainable, he explained.
“We will not borrow just to compensate for declines in income or to be opportunistic in the timing of the market,” he said.
THE GST INCREASE CANNOT BE DEFERRED INDEFINITELY
For recurring expenses like health and education that benefit current generations, “the responsible way is to pay them using what we earn,” through recurring revenues 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%, Heng said he announced earlier this year that the GST will remain at 7% in 2021.
The increase, however, cannot be postponed indefinitely, he said, stressing the need to meet future health care and preschool education needs.
“We will continue to carefully consider the timing of the GST rate hike, taking into account the pace of our economic recovery, our revenue outlook and how much spending we can defer to future years, without compromising our needs. long term, ”he said. .
GST collection this year is expected to drop 14% from initial estimates before the start of the year, he said, adding that this was due to travel interruptions and the impact of the circuit breakers.
“We anticipate that collections will continue to be below normal until international travel fully recovers, which we expect to be at least in a few years.”
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The government remains committed to helping people deal with the impact of the increase in the GST rate, Heng said, highlighting the S $ 6 billion insurance package aimed at cushioning the impact of the increase. .
Responding to the suggestion of non-constituency MP Leong Mun Wai to suspend the increase indefinitely, Heng noted that over 60% of the net GST comes from foreigners living here, tourists and 20% of resident households. the most rich.
Any indefinite suspension of the GST increase would mean the loss of additional income for these groups that could be used to improve the lives of Singaporeans, Heng said.
He also responded to Sengkang GRC MP Louis Chua, who asked how the reserve drawdown would impact the contribution to net return on investment (NIRC).
“Yes, there will be some impact on the NIRC, but the design of the NIR (Net Investment Returns) framework is to provide a stable and sustainable source of income to our budget, smoothed over the cycles of the market,” he said. he said, in response to the Deputy of the Workers’ Party (WP).
“This means that when the projected returns and the value of the net asset base decline, we do not see an immediate proportional decrease in the NIRC,” Heng said.
Likewise, in times of strong market growth and rising asset values, we don’t see an immediate rise and fall. “
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THE COVID-19 CRISIS NOT OVER
In cases where the potential failure of a business due to the COVID-19 crisis would have a significant impact on Singapore’s competitiveness or national security, Heng said he could not rule out the possibility that the government is taking steps to ensure that these “strategic capacities” are preserved.
“The exact form of support will depend on the circumstances. But the bar for any government action will be high. The government will also be prudent and ensure that public funds are used well, ”he said.
Responding to a question from WP Aljunied GRC deputy Gerald Giam about whether the government is considering returning the money taken from the reserves, Heng noted that the government was not legally bound to do so. under the Constitution.
“Rather, it is about having a moral obligation and a sense of duty to present and future generations, and the recognition that we are the stewards of our reserves that did not come easily,” he said. .
“It is not possible for me to be definitive on how long it will take us to accumulate enough surpluses to constitute the 52 billion Singapore dollars,” 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 on the global economy are still unknown. But I can say it won’t be two years, and I certainly hope it won’t take us 50 years.
“How long it takes will also depend on the choices we make as a country and as a government – if we continue to manage our resources prudently. We remain committed to managing a broadly balanced budget during each term of government and will assess the viability of repaying the amount withdrawn, based on our financial situation.
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