The trouble with sparks flying in Parliament is that we tend to focus on the sparks and not how they were ignited. Sometimes, we don’t even care to see if sparks should fly in the first place.
So we’re all agog now at how the Workers Party MPs locked horns with the People’s Action Party bigwigs when the opposition politicians declared they cannot vote for the Budget Statement because they disagreed with the 2 percentage point hike that is supposed to take place between 2021 and 2025. MPs Low Thia Khiang, Pritam Singh and Sylvia Lim were roundly castigated by Ministers K Shanmugam and Heng Swee Keat for their “dishonest” views which were also described as ”unwise” and ”hypocritical”.
Did any side gain political points from their sparring? I think the PAP lost quite a bit because their ripostes came across as hectoring and bullying. This is especially the case when the WP might well be articulating what segments of the population think – and which deserve more considered responses from the G.
For the G, it was a chance to educate the people on the ins and outs of the Budget, including the mathematics that many now find hard to grasp what with the calculation of Net Investment Returns Contribution and the different revenue sources. I’m not sure they took it.
So I have been trying to come to grips with some issues, like…
That 50 per cent cap on long-term returns on the reserves.
It’s more or less the same reiteration that we should not dip into the reserves because, as MP Lee Bee Wah said, it’s like selling your house to pay your current bills. (I can’t help but think that if the people agreed to downgrade, why not?) Or the reiteration that the current Budget surplus is “one-off” and we shouldn’t think that we’d always strike 4D.
The answers revolve on fiscal prudence. I think the G should just say – or can only say – that it took a political decision to only use half because it’s a good number: Half into reserves so that it will keep on accumulating, and half for use. Very fair right? If we want to shift this position, we don’t know whether future returns will still be as good and do we really want to save less in our piggy bank?
But aren’t we also talking in a vacuum since we don’t know…
The size of the reserves?
OCBC economist Selena Ling told a forum that in the absence of public information about parameters such as the size of the reserves and the rate of return on investing them, “any speculation…is quite meaningless”.
It seems like she’s saying that unless the G decides to tell all (and it says it won’t to protect the reserves from currency speculators) we can only talk in general, philosophical terms. That philosophy, as Mr Heng put it, is: “If as soon as we need more money, the first thing we do is relax the rules, that is the surest way to change Singapore’s basic orientation – from saving and building for the future, to living for today and letting tomorrow look after itself.” .
Therefore, 50 per cent.
Mr Heng makes the point that this cap is constitutionally enshrined, which means its more or less sacred. But there’s the other argument that the NIRC was introduced in 2008 and changed in 2016 to include Temasek Holdings. The G also has to contend with the other cynical view: The constitution has been changed before and there’s no problem with the PAP getting a majority to get this done.
I think the best thing that can be said about the G is that it could have succumbed and taken this route because it would popular. (No one likes being taxed) But there is also the other argument that by stubbornly sticking to the cap, it is unnecessarily hoarding reserves. Academic Donald Low has asked whether we need huge reserves (or whatever is the amount) to fend off currency speculators if our economic fundamentals are sound. We might need to dip into our reserves to buy Singapore dollars to prop it up against attacks but he’s convinced that this would be a short-lived and very bad experience for speculators once they realise that it’s too hard to keep it up.
I don’t think this point was addressed.
There was another point raised by Nominated MP Kuik Shiao-Yin about the International Monetary Fund describing the size of Singapore’s reserves as excessively prudent . “IMF’s opinion is that a good enough amount of reserves would be 27 per cent of our GDP or $113 billion. I read that MAS’ foreign exchange reserves alone as of January 2018 are around $369 billion or 88 per cent of GDP… ” She asked for a “thoughtful, easy-to-understand response.
Mr Heng’s response as reported in ST: The IMF’s guidance is meant specifically to address capital flight risk, which is the risk that Singapore dollar deposit holders will switch out into foreign currency because of loss of confidence in Singapore’s currency.
I leave you to decide if the above is easy to understand
The NMP also asked about a suggestion from OCBC economist Ms Ling to split the reserves into two parts: One, to generate the NIRC, whose amount could be publicly disclosed, and another to be kept secret, to deter currency speculators.
Mr Heng said he had considered it, but did not think it a sound move as there would still be speculations over the secret portion. Furthermore, MAS’ official foreign reserves are already public data and it would not be wise to reveal more, as it could attract currency speculators whose profit motive, as seen during the Asian financial crisis, “can destroy countries”, he said.
I’ve always thought that the use of adjectives is, to use another adjective, “bad” unless it is elaborated in a way people can understand. So if official foreign reserves are public, this means there are some numbers to work on – unless economist types think this is a gross under-estimation which make any calculation meaningless?
In any case, the WP seemed to have made some calculations…
Regarding land sales
WP’s Mr Singh suggested that not more than 20 per cent of the value of average land sales over 20 years, or 20 per cent of land sales for that year, whichever is lower, be used to fund spending. Land sale proceeds are now ploughed into past reserves and is part of NIRC.
The answer is no because, among other things, it could lead to hasty selling of land simply to fund expenditures. Also, it would take a long time for the G to take back the land, like 99 years, after the lease expires. Or i “So, if you are rigorous about it, you really ought to be spending no more than 1 per cent of that land sale proceeds (each year), even if you want to use land sale proceeds, because that is what the land is worth for a year.”
Which makes you wonder how much is 1 per cent and what really would be 20 per cent as Mr Singh suggested. I was kaypoh enough to check up land sale proceeds. For 2017, it’s estimated at $8,237,185,000 which is a 30 per cent decrease from the year before.
I leave you to calculate whether this can offset…
That 2 percentage point increase in GST
Which is projected to raise revenues by 0.7 per cent of GDP a year or $3.2 billion, before accounting for the amount needed to fund GST vouchers. I think there is some confusion over what exactly the tax is supposed to fund : long-term spending, which would give those who believe the reserves can be used since its the next generation which will benefit, or something more near-term, that is, from 2021.
Mr Heng said the 2 percentage point GST increase “will not fully cover our expenditure needs, but only make the fiscal gap more manageable, in conjunction with other measures to manage expenditure”.
Earlier in his Budget statement, he said average annual healthcare spending will rise from 2.2 per cent of GDP today to almost 3 per cent of GDP over the next decade. This is an increase of nearly 0.8 percentage point of GDP, or about $3.6 billion in today’s dollars. More healthcare spending alone will use up the increased GST revenue.
So somehow or other, we have to find the money for this, going by the G’s calculations on future spending.
If the G keeps flogging this point, I think most people won’t have trouble understanding the rationale for added revenue. Of course, the question is which way.
In conclusion, I think the ministers were unnecessarily harsh on the WP MPs. The fact is that many people can’t make sense of why the G sees a need to float a GST trial balloon so far ahead of time, and then surprise the people with an akan datang tax. I don’t think it’s “dishonest” for WP’s Ms Lim to suggest that the G might have taken public backlash into account when it decided to delay the tax. It is speculation, sure, and unless Parliament thinks it is not the place to bring up issues that the public are, even irrationally, talking about, then how is the G going to dispel speculation? Post on FB? Give a statement? Just so as not to concede any points to WP?
It is the same for WP Mr Low’s assertion that bringing up the GST now is a “distraction”. People do wonder why Parliament is now talking about a tax rise that will take place a few years later, after this current Parliament is dissolved for the next election. It seems to me more like something that should be in a political party’s manifesto, rather than a pre-emptive move from a government to tell the next government what to do.
Actually, much depends on how the motion to support the Budget statement is framed for the MPs. Does passing the Budget mean that MPs agree that the GST should be raised by a certain percentage within a certain time-frame? This, even though we don’t have enough detail of the checks and balances or size of the offset package?
Mr Heng argued that the WP’s stance amounted to one in which it “must know ev-erything” before deciding on anything. “I think if I had taken that approach, if previous finance ministers had taken that approach, that I must know every item of expenditure before I can support you, before I know how much to raise, we would have been in serious deficit long, long ago.”
I don’t think past finance ministers or finance ministers anywhere in the world have done what Mr Heng did: announce a tax raise in advance. So his statement is pretty moot. In any case, I think it is common sense to want to know the full facts of the case before saying aye or nay.
The motivation behind this announcement, as Mr Heng put it, is to be upfront and honest about future needs. That’s laudable but it also leads to an expectation that the issue is something that can be discussed further, whether among the financially-savvy types or the layman.
If the ministers’ words to the WP are representative of how the G will respond to questions about the reserves, the Budget and the tax, then we mere mortals might as well shut up and sit down.