NCMP Hazel Poa queries: For whom are the Singapore Reserves saved as birth rates halve?

SINGAPORE: Hazel Poa, Non-Constituency Member of Parliament (NCMP) from the Progress Singapore Party (PSP), raised critical questions regarding Singapore’s reserve policies during the motion filed by Mr Leong Mun Wai on Wednesday (7 Feb).

Mr Leong, NCMP and Secretary General of PSP also had called for the government to reassess its budget and reserve accumulation policies.

Her inquiries centered on the purpose of these reserves, particularly amidst declining birth rates and population growth largely reliant on new citizens’ influx.

The motion, focusing on Singapore’s public finances, urged the government to reevaluate budget and reserve accumulation strategies to alleviate present financial burdens while securing future generations’ welfare.

Ms Poa stated in her speech, “We keep hearing that the reserves are for the benefit of our children and grandchildren. But our total fertility rate has fallen to 1.05, which is half the replacement rate of 2.1.

“This means that the number of our children is halving with each generation.  So who exactly are we leaving our ever-growing reserves to?

“If not for over 20,000 new citizenships granted each year, our citizen population will start shrinking significantly in the coming years,” she said.

She noted that Singapore’s reserves are built up through collecting more from taxpayers than the Government spends on Singaporeans.

Hence, as the population ages, and the generations that have built up the reserves enter age groups where higher healthcare expenditures are incurred, “it is timely to review our reserve accumulation policies,” said Ms Poa.

“Should we be funding the higher healthcare expenditures through raising additional taxes like GST, or should we choose to slow down the building up of reserves and use land sales proceeds instead?”

To answer such questions, Ms Poa stated that accurate information on the financial status of the Government is needed.

Highlighting a significant disparity between household savings and governmental reserves, Ms Poa emphasized the urgency of prioritizing present needs over continued accumulation.

Despite acknowledging challenges in determining an ideal reserve level, she stressed the need for a balanced approach.

PSP estimates S$1.2 trillion of the Reserves

During the motion, she elaborated on the methodology employed by PSP to derive the estimate of S$1.2 trillion for Singapore’s financial reserves, outlining two distinct approaches.

Firstly, the calculation involved aggregating the assets overseen by GIC, Temasek, and MAS. This method was utilized by CNA in the documentary “Singapore Reserves: The Untold Story” in August 2023.

According to her, Temasek’s Net Portfolio Value latest available figure stands at S$382 billion, while the Official Foreign Reserves (OFR) managed by MAS amount to S$461 billion.

Notably, this sum excludes the S$247 billion of Reserves Management Government Securities (RMGS) issued when MAS transferred excess OFR to the Government.

Although the precise value of GIC-managed assets remains undisclosed, the combined total of assets under Temasek, OFR, and RMGS yields a conservative estimate of S$1.09 trillion for the financial reserves.

The second approach, as she asserted, involved scrutinizing the latest Government Financial Statements.

These statements indicate total financial assets of S$1.73 trillion as of end-March 2023, juxtaposed with government borrowings totaling S$1.08 trillion. Deducting government borrowings from total assets yields a net financial assets figure of $0.65 trillion.

Notably, Government Financial Statements do not encompass the assets of statutory boards like MAS. Therefore, by aggregating the net assets under GFS and incorporating OFR and RMGS under MAS, the estimation reaches $1.36 trillion.

Consequently, Ms Poa posited that the actual size of the Financial Reserves lies somewhere within the range of $1.09 trillion to $1.36 trillion.

Asserting the reasonableness of the S$1.2 trillion estimate, she urged the Deputy Prime Minister and Finance Minister during the motion to provide clarification if they contested this figure.

How CPF contributes into the Reserves

Ms Poa further discussed how the increased returns generated on Central Provident Fund (CPF) savings, coupled with the lower interest rates paid to CPF members, additionally bolster the accumulation of reserves.

She started by saying, “as of the end of 2022, Singaporeans have accumulated S$545 billion in CPF savings. These savings are used to buy government securities and is then passed on to be managed by GIC and MAS.”

GIC has revealed that its nominal rate of return averaged 6.9% over the past 20 years in US dollar terms.

“If we take into account the depreciation of US dollars relative to Singdollars over the same period, we can estimate that the rate of return is about 5.4% in Singdollar terms,” stated Ms Poa.

The Minister for Manpower announced last year that CPF members earn an average interest rate close to 4%.

The disparity of 1.4 percentage points between the rate of return earned by GIC and the interest rate paid to CPF members directly contributes to the reserves and could currently amount to approximately S$7 billion annually.

“Will the Government reveal the average discrepancy between the rate of return earned from investing CPF savings and the interest rate paid to CPF members over the last 20 years? How much have Singaporeans contributed to the reserves through our CPF savings? Could these returns not have been distributed to CPF members?” she queried.

She urged the government to disclose the disparity between returns earned from CPF investments and interest rates paid to members.

Meanwhile, her colleague, Leong Mun Wai, also a NCMP from PSP had scrutinized the government’s policy of charging land costs for public housing.

This practice, he argued during the debate motion, burdens taxpayers and contributes to high deficits for the Housing Development Board (HDB).

Challenges of over-accumulating Reserves: Impacts on retirement and cost of living

Additionally, the debate shed light on the costs of over-accumulating reserves, with Ms Poa emphasizing the adverse impact on retirement adequacy and living expenses, particularly concerning recent GST hikes and high HDB prices.

“If we do not put the excess returns from CPF savings into the reserves, it can be paid to CPF members to improve their retirement adequacy,” Ms Poa said.

“A 1.4% difference in return may not seem like much but it makes a big difference over a long time. For example, a savings of S$50,000 earning an interest of 4% would grow to S$162,000 after 30 years. If the interest rate were 5.4%, it would grow to S$242,000.”

Thus, the accumulation of reserves leads to lower retirement adequacy.

Additionally, reserve accumulation stems from charging land costs for public housing, as elucidated by Mr Leong Mun Wai. This constitutes a significant expenditure for HDB, necessitating funding from government revenue.

“If land cost was not an expenditure item, the need for government to raise revenue by raising taxes like GST would be reduced.

“The recent GST hikes came at a very bad time and directly added to the cost of living pressures faced by many Singaporeans,” Ms Poa explained.

Moreover, Ms Poa emphasized that even with subsidies and grants, the elevated prices of HDB flats pose a challenge for many young couples. This predicament, in turn, could adversely affect their considerations regarding family planning.

PSP also contends that funneling all land sales proceeds into the reserves is excessive.

“Since land is no longer sold freehold, it is effectively a renewable source of income for Singapore.

“Land sales revenue should be recognised as revenue divided over the lease tenure. This will further reduce the need to raise taxes and  impose further financial burden on taxpayers,” Ms Poa said.