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Budget 2016: Greater Dependence On Reserves

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Many will know Chris Kuan who has enlightened us on the intricacies of national finance, CPF and related issues. Given his more than 30-year background in that highly-specialized domain, I have to be careful if I should disagree with any of his views. He clearly is the expert and me not.

Here’s his first take on Budget 2016.


He concludes;

That the government has made increased use of the reserves should be lauded since the reserves were derived from selling public housing at elevated prices to citizens and from excess returns earned on CPF savings. However this is tempered by the fact that social expenditures are still too low, defence spending continues to exceed healthcare spending, the government continues to aim for a surplus in the overall budget (excluding land sales and unspent returns) and it continues to be beholden to chasing ever decreasing global investment returns by not following the example of Norway having the flexibility to use up to 100% of long term real returns.

There is nothing to disagree with Chris about on all his key observations related to a ‘greater dependence on the reserves’. The only objection I have – in the immediate and foreseeable future – is his believe that Singaporeans should give the PAP government ‘the flexibility to use up to 100% of long term real returns’.

I think that is a mistake, a big mistake in at least 2 ways.

Firstly, based on PAP’s track record of how they practically ride roughshod over inputs from opinions other than their own and their total dominance of parliament to pass each Budget the last 50 years, what is there to stop the current or a renegade PAP government to raid the reserves during just one term of government? Don’t think it won’t happen just because it hasn’t happened yet.

Secondly, to resort to using more reserves just to up ‘social expenditures’ (healthcare, transfers etc) is to buy hook and sinker into PAP’s false narrative of their annual expenditure allocation for the nation, the citizens of Singapore (that’s our money, by the way, not the PAP’s).

I say, let’s stick with the current 50% Constitutional restraint on use of our reserves. Let’s be ‘kiasu’ a little bit even as the world & the economy get a lot more complicated.

But, yes, let’s increase social expenditure, not by looking to use more of our reserves’ return. Instead, let’s look at each item in the mandatory and discretionary spending by the government.

Much as I also believe that defence has always been higher than needed – to spend not just on the necessities but a chunk appears to always be spent in order to ensure that the defence minister gets the red carpet welcome as a willing-to-pay high prices for, sometime, needlessly advanced military toys. Why must we line up to buy weaponry that are 2 or 3 generations of what our neighbours have? Is that not wasteful? Hello, it’s our money they are spending to be treated like an Arabian king with his petrol dollars to burn.

But any calls by anyone non-PAP for a reduction in defence spending will be branded a reckless fool by the PAP and crucified in the mainstream media as a lunatic, traitor even.

Likewise with education. Defence and education are no-go items for discussion with our brainwashed citizenry. So, let’s not touch that.

Where then to analyse how we can use what money we already have yearly to allocate to social spending?

I say, look at 3 broad areas with these characteristics in their motivation to spend the money.

#1: Vainglory projects/allocations.
For e.g. let’s ask why the need for The Jewel? Even if there is a case for The Jewel at Changi, the next question is why now? Why now when the demand is not quite certain yet given that any Black Swan event can and will do havoc to the best projections of travel patterns. And why now, when our closest competitors do not appear to be struggling with making their current airports already built with no expansion plans known or projected to come about? Why the need to be ahead of the pack/competition by, say, 20 years or 30, when we can settle for 10, 15 – and use the money to look after our more needy fellow Singaporeans. Or, yes, lessen the burdens hoisted upon us just to stay alive in our HDB flats and ever receding chance of driving a cheapo car?

#2: Political & Civil Service Salaries & Bonuses
I have no idea of how much we can still force the PAP to agree to revise downwards their 4X higher than the US benchmarked salary packages. But, we cannot let up to taken as a untouchable given their salary level is sacrosanct. It isn’t. It never was.

In the first place, the PAP’s logic is not completely watertight – that we need to pay more to attract capable officer holders and public service professionals. If PAP is correct, then by extension, none of current and recent past world leaders are true talents – and patriots rolled in one.

Do all of the office holders really, really deserve their current pay?

#3: This one should be #1 on the hit list. Using taxpayers’ money to spend on PAP’s party-positive activities and programmes. Look no further than how the People’s Association budget doubled in Budget 2015. Of course, the increase was passed by PAP members in parliament.

Whilst the leaders are not corrupt, nonetheless, the party is using taxpayers’ money to advance their private party interests. It’s sad that Singaporeans do not voice objections to the practice.

So, Chris, no need to start thinking of using 100% of long term real returns to improve on social spending. Just question each of the 3 items above to get started.





One thought on “Budget 2016: Greater Dependence On Reserves

  1. Point taken but do note that just because the suggestion is to use up to 100% of the NIR for full flexibility does not mean the reserves do not continue to grow especially since a large component of the reserves accumulation is due to “net acquisition of non financial assets” which in SG’s context, is net sale of land. My concern is that even if defence spending is reduced from the current 3.3% of GDP to 2.3%, the $4b of expenditure is nice but not enough to make a paradigm change in reducing income inequality if all of it is re-allocated to social transfers.

    The most important thing to note about the flexibility of using 100% of the NIR is that the government need not use it to the full every year. The flexibility can provide what is called “counter-cyclical” buffers. That is to say the flexibility can be used to lean against the shifts in the economic growth by increasing the use of the NIR when the economy is weak and decreasing when the economy is stronger. One of the huge problem in Europe is that the debt and deficit targets each Eurozone member signed up to, is too rigid preventing the respective governments to enact “counter cyclical” measures through the fiscal policy.

    Another thing to note about Changi airport, the funds allocated went into endowment. Here is another budget trickery, the IMF do not see transfers to endowments as expenditures but savings, and rightly so because once the monies go into the endowment, only the interests is spent. This use of endowments is endemic in the way the government allocate “expenditures”. But it also mean it is not as if endowment “expenditure” can be re-allocated to social expenditure as if they are the same thing accounting wise.

    Juz my 2cents, mate.


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