SINGAPORE - In a seven-hour debate, Parliament on Feb 7 discussed the question of Singapore’s national reserves and how much should be spent from them to meet today’s needs.

The debate involved 12 MPs and stemmed from a motion tabled by Progress Singapore Party (PSP) Non-Constituency MP (NCMP) Leong Mun Wai, who called on the Government to review its reserve accumulation policies to help Singaporeans reduce their current financial burdens.

Several opposition MPs, including Mr Leong and his fellow NCMP Hazel Poa, as well as Leader of the Opposition Pritam Singh (Aljunied GRC), raised issues about the past reserves.

In response, Prime Minister Lee Hsien Loong and Second Minister for Finance and National Development Indranee Rajah stressed the need to maintain and grow a healthy nest egg.

Here are some key issues raised by the opposition MPs, and the Government’s response to them:

1. The Government should be more transparent about Singapore’s reserves

Mr Leong said that as collective owners of the reserves, Singaporeans deserve to know precise information about the reserves, while Mr Singh argued that the Government should reveal figures to facilitate mature conversations on them. Mr Singh added that MPs currently vote on drawdowns of past reserves, without knowledge of how much is left over.

Ms Indranee said: “Just as our defence forces do not reveal the full extent of our weaponry and military capabilities, it’s not in Singapore’s national interest to disclose the full size of our reserves.”

She noted that there is some publicly available information on the reserves from the Monetary Authority of Singapore (MAS), Temasek and GIC, but added that the reserves are a strategic asset and hence all the information about them should not be disclosed.

2. Reserves are being accumulated at a faster rate than necessary

Mr Leong said his party expects Singapore’s substantial reserves to continue to grow.

Ms Indranee said that if Singapore were truly over-accumulating its reserves, the Net Investment Returns Contribution (NIRC) would be growing at a much faster rate than the gross domestic product (GDP). However, the NIRC has remained stable at about 3.5 per cent of GDP.

“In truth, we are not at all over-accumulating our reserves. If we slow down the pace of saving, the value of our reserves will diminish over time,” she said.

“The fact of the matter is that our spending needs are growing and these need to be funded. We do not have a lot of fiscal space, contrary to what PSP suggests.”

3. The NIRC’s 50-50 formula should be tweaked

Workers’ Party MPs said Singapore should not touch the principal of the past reserves and instead argued for a larger share of up to 60 per cent of the Net Investment Return of the financial reserves to be allocated to the yearly budget, up from 50 per cent currently.

Ms Indranee said the current formula strikes a balance between Singapore’s current and future needs by spending 50 per cent of the investment returns while putting the remaining 50 per cent into the reserves to grow for the future.

She said: “In a crisis, we can draw on our reserves, but having such solid reserves in itself also means that we have a rock on which to anchor ourselves in turbulent times.”

PM Lee said the reserves helped Singapore protect lives and livelihoods during the Covid-19 pandemic, and that the pandemic was far from being the worst thing that can happen to Singapore.

“If we find ourselves at war like Ukraine, how much is enough?” he said, noting that the war with Russia is costing Ukraine US$100 million (S$134 million) a day, and that the country is heavily reliant on support from America and Europe.

“Looking ahead for 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 a situation like Ukraine’s?”

4. Singaporeans today are not enjoying the full benefit of NIRC as money is locked up in endowment and trust funds

Mr Leong said some money in the Budget goes towards endowment and trust funds for future spending.

Ms Indranee said that on the contrary, the monies that the Government put in funds are not just for the far unknown future, but resources set aside to meet funding commitments that are benefiting Singaporeans today. 

For example, more than $2 billion is disbursed yearly from the GST Voucher Fund for the GST Voucher scheme to help lower- and middle-income households defray goods and services tax (GST) expenses. Other examples include the funds for the Pioneer Generation and the Merdeka Generation packages.

There are also funds to meet longer-term commitments, especially where expenditure is large and lumpy, said Ms Indranee. For example, the Changi Airport Development Fund funds the development of Terminal 5 and other aviation facilities.

Ms Indranee said that by setting these monies aside, the Government can smoothen out lumpy spending. It can also give Singaporeans assurance that support will be available in the future, and that they will not have to scramble to find the money only when it is needed.

5. Reserves accumulation comes at the expense of CPF savings

Ms Poa said that the higher rate of returns achieved on Central Provident Fund (CPF) savings and the lower interest rate paid to CPF members contribute further to building of the reserves, and argued that these returns could have been paid out to CPF members.

Ms Indranee said there is no assurance that GIC’s returns will exceed CPF interest rates in the shorter term, and there have been years where GIC’s returns fall below CPF interest rates, but the Government does not cut CPF interest rates.

Where GIC has earned returns higher than CPF interest rates, this is used to cover for the many years of low interest rates, and when GIC earns returns below CPF rates.

“This ensures that Singaporeans do not experience fluctuating CPF rates and will continue to receive stable rates to grow CPF balances for retirement adequacy,” she said.

6. Proceeds from land sales should go into annual budget, not reserves

Ms Indranee said that there are several pitfalls to this suggestion.

First, land sales are affected by property cycles, which are volatile and difficult to predict.

This would mean government revenues could fluctuate with the market, making it more difficult for the Government to plan for the long term.

Second, when the Government relies on land sales to fund spending, it could develop a vested interest in keeping land prices high to maximise revenues.

Ms Indranee argued that by accruing land sales proceeds to the reserves, investing them and using 50 per cent of the investment returns through the NIRC, the Government is spending from land sales proceeds, but indirectly rather than directly.

“This provides a stable and sustainable stream of revenue and avoids the pitfalls of direct expenditure of the land sales proceeds,” she said.