NCMP Leong Mun Wai calls for review of Singapore’s budget and reserve policies

Mr Leong Mun Wai, a Non-constituency Member of Parliament and Secretary General of the Progress Singapore Party (PSP) initiated a robust debate with a motion calling for the government to reassess its budget and reserve accumulation policies.

The motion on Singapore’s public finances “calls on the Government to review its current budget and reserve accumulation policies in order to help present-day Singaporeans reduce their financial burdens and improve their quality of life while continuing to save for future generations of Singaporeans.”

In his opening speech, Mr Leong pointedly criticized the ruling People’s Action Party’s (PAP) economic strategies, linking them to the escalating cost of living and broader social challenges.

“Last November, during the debate on the cost-of-living motion raised by the Workers’ Party (WP), I attributed a large part of the rising cost of living problem to the policies of the PAP Government,” Mr. Leong stated, setting the stage for his argument that the PAP’s fiscal policies have substantial room for improvement.

He paid homage to the “good reserve accumulation system” established by the late Dr Goh Keng Swee but was quick to underscore the sacrifices Singaporeans have made to build these reserves.

“However, because our reserves are not accumulated from natural resources, there is a cost to accumulating our reserves, which comes from sacrifices made by Singaporeans,” he articulated, emphasizing the people’s stake in the national reserves.

In a direct challenge to the government’s approach to fiscal management, Mr Leong argued, “Whatever the Government has accumulated in surpluses or reserves, these are the People’s money, these are not the Government’s money.”

He described reserve accumulation as a practice that could hurt the welfare of present-day Singaporeans if it is continued unmoderated, especially as economic fundamentals shift.

Mr Leong dismissed the government’s secretive policy on the size of the national reserves, calling for transparency: “PSP believes that this approach does not do justice to the fact that the reserves are accumulated from the blood and sweat of Singaporeans.”

The NCMP went on to disclose that, based on publicly available information, the PSP has estimated Singapore’s financial reserves to be about “$1.2 trillion.” This figure, he argued, should not be kept confidential as it is essential for public debate and scrutiny of the government’s taxation and spending policies.

“There is a cost to accumulating reserves.  Singaporeans deserve to have a greater say over how much we are accumulating in the reserves, how we are using the reserves today, and how much we are leaving behind for future generations of Singaporeans.”

He detailed the sources of reserve growth, pointing out that even amidst the COVID-19 pandemic, Singapore’s Official Foreign Reserves saw an increase of “$250 billion,” significantly more than what was utilized to combat the pandemic.

This growth, according to Mr Leong, should provide enough fiscal space to adjust reserve accumulation rates.

On the hot-button issue of the Goods and Services Tax (GST) and property tax hikes in 2023 and 2024, Mr Leong was clear: “It’s because of this strong financial position that PSP has opposed the GST and property tax hikes.”

He suggested that the government’s current pace of reserve accumulation is no longer necessary and may be contributing to the cost-of-living crisis.

In his proposals, Mr Leong put forth two main changes: the cessation of creating new Endowment & Trust Funds and the waiving of land costs for public housing under the Affordable Homes Scheme.

He stated, “PSP’s first proposal is that no further Endowment & Trust Funds should be created and no further top-ups should be made to existing Endowment & Trust Funds.”

Mr Leong also called for the government to “release an official figure of the full size of the Financial Reserves” to facilitate a meaningful dialogue among Singaporeans about their nation’s economic future.

“While the size of the Financial Reserves can be estimated, an official statement is still important to put all Singaporeans on the same page”

Mr Leong remarked, “Although not necessarily known and accepted by most Singaporeans, it is transparent to the financial markets that Singapore has approximately $1.2 trillion of Financial Reserves. These reserves are still growing annually and are generating increasingly higher investment returns, amounting to $47 billion in FY2023.”

He goes on to state, “PSP disagrees that we continue to accumulate reserves at the same rate when it hurts the welfare of present-day Singaporeans.”

Mr Leong advocated for a reevaluation of how these funds are managed, “We are now in a better position to discuss how the budget and reserve accumulation policies can be tweaked to produce better economic outcomes for Singaporean.”

He pointed out that the PSP and WP have proposed several methods by which the government could alleviate the financial burdens of citizens through more strategic use of the reserves, without jeopardizing the interests of future generations.

Mr Leong emphasized a consensus on maintaining the principal of the past reserves untouched, noting the financial reserves amount to $1.2 trillion. However, he suggested that the reserves could grow at a more measured pace.

“Both PSP and WP have made different but reasonable suggestions on ways to continue growing the reserves but at a slower rate,” he stated.

He critiqued the government’s rejection of proposals to allocate a portion of land sales proceeds and a larger share of the Net Investment Return (NIR) to the yearly budget, rather than increasing taxes. The PSP and WP have called for an increase in the allocation of NIR from 50% to 60% for the Net Investment Return Contribution (NIRC), a move the government has not supported.

Mr Leong raised a significant question regarding the full benefits of the NIRC reaching Singaporeans, particularly because “not every dollar spent in the Budget has been used on spending in the current year.”

He detailed that a part of the budget is diverted to Endowment & Trust Funds for future spending, which, along with funds to cover the Housing Development Board’s (HDB) deficit from land costs, essentially reduces the immediate benefits of the NIRC.

Highlighting the complexities of fiscal planning, Mr. Leong dissected the government’s approach to budget deficits and surpluses, arguing that the reported deficits are a result of transferring surplus resources to numerous funds intended for long-term spending.

“The total capital transferred to the endowment & trust funds is equivalent to about 64% of the total NIRC allocated to the budget in that period,” he explained, referencing fiscal data from FY2012 to 2020.

In a further critique, Mr Leong questioned the necessity of locking up substantial amounts in these funds, particularly when they could be used to offset immediate costs like GST voucher payments.

The PSP suggests that these funds, especially those where the capital is locked up, effectively act as a secondary set of reserves, earmarked for specific future purposes but limiting current fiscal flexibility.

Mr Leong suggested that the overly cautious allocation of funds for future expenditures could lead to a shortfall in resources for present needs and potentially precipitate premature and excessive tax increases.

“If we are too conservative and allocate too much money for future expenditures in the current-year budget, this could potentially mean a shortage of resources for other expenditures and lead to tax increases that are larger and earlier than actually required.”

On the impact of land costs on public housing and the subsequent tax burden on Singaporeans, Mr Leong scrutinized the government’s long-standing policy of charging land cost for public housing since 1985, which he claims has led to a heavier tax burden for citizens.

“Since 1985, HDB has been required to pay the market cost of the land into the Financial Reserves when it gets land from the Government to build HDB flats,” Mr Leong pointed out, referencing the $5.39 billion paid by HDB in FY2022 as a substantial financial strain.

The PSP underscored that while the Financial Reserves, valued at about $1.2 trillion, are bolstered by such payments, the practice translates to high HDB deficits, almost equal to the land cost, ultimately borne by taxpayers.

“The HDB deficit created by paying land cost into the reserves is not only paid by the HDB flat buyers but also all of us taxpayers whenever we pay any tax.  It is a heavy and unnecessary financial burden on Singaporeans which can be avoided if the land cost is waived for public housing.”

Mr Leong raised a critical question: “Is this what we really want for ourselves and for our children and grandchildren?”

In response to these concerns, the PSP has proposed that the government should refrain from creating new Endowment & Trust Funds or making further top-ups to existing ones.

Instead, Mr Leong suggests consolidating surplus budget or Net Investment Return Contribution (NIRC) resources into a single Budget Surplus Fund for future Singaporean spending.

“This will ensure that surplus budget or NIRC resources will always be used promptly for the immediate spending needs of Singaporeans,” he asserted.

Furthermore, the PSP called for waiving the land cost for public housing under the proposed Affordable Homes Scheme, a move that could potentially slow the growth of Financial Reserves by up to $5 billion annually.

However, Mr Leong argued this is a small price to pay for ensuring affordable housing and sufficient retirement income for Singaporeans. He then urged the government to release an official figure of the Financial Reserves and to reevaluate the reserve accumulation rate.

“These are the kind of policies that will greatly reduce the financial burden and improve the quality of life of present-day Singaporeans while continuing to save for future generations of Singaporeans,” he concluded, emphasizing the PSP’s commitment to fiscal policies that are both equitable and sustainable.