At a community dialogue in Joo Chiat today (17 Nov), Acting Culture, Community and Youth Minister Lawrence Wong cautioned against getting Singapore into debt as the government ramps up social assistance to help Singaporeans.
He said state spending has to be kept sustainable to avoid passing the burden to future generations.
Mr Wong was addressing calls for more subsidies in various areas from Joo Chiat residents. Although most all of them are living in private property, many are asset-rich but cash poor. They also do not have a steady income.
Although these residents could sell their property to downgrade so as to get cash out of it, many are not willing to because they do not wish to move out of Joo Chiat where they have been living in for decades.
Reverse mortgaging is another possibility but still, some want to leave the house to their children who themselves are having problems buying one.
Explaining to the residents, Mr Wong said that while more should be spent to help the needy, the challenge is to maintain a progressive tax system and avoid getting Singapore into debt.
He added that while some Western economies are debt-saddled, Singapore is fortunate it can draw about two per cent of the country’s GDP from its reserves to finance expenditure. He said that the figure is a significant sum – more than what the government collects through GST – with money going towards social assistance.
The fact of the matter is, Singapore’s current problem is not so much facing the danger of getting into debt any sooner. The problem is Singapore is generating too much surplus, which means Singaporeans are “over taxed” directly and indirectly. For example, HDB itself may be losing money building and selling flats to Singaporeans but SLA, which HDB buys land from, is laughing all the way to the bank. Indirectly, Singaporeans are financing a large part of the Singapore reserves through the HDB mortgages they are paying every month.
In fact, the surplus issue was such an “embarrassment” to the establishment that the Straits Times avoided mentioning it altogether in its recent report on IMF review of Singapore’s financial health (ST avoids mentioning IMF’s concerns over SG surplus).
In its review, IMF was concerned about Singapore’s huge current account surplus. It even suggested narrowing Singapore’s surplus in its review:
“(IMF) Directors took note of the staff’s assessment that Singapore’s external position appears to be stronger than warranted by fundamentals, suggesting the importance of further efforts to narrow the current account surplus over the medium term.”
International news agency Reuters even reported in its news article, ‘IMF says Singapore needs to narrow current account surplus‘:
Singapore needs to narrow its huge current account surplus further and the International Monetary Fund supports the government’s plans to raise public spending on infrastructure and social services, the IMF said on Thursday…
Singapore, unlike many developed economies, enjoys huge current account surpluses. This is partly due to the government routinely posting budget surpluses and its success in developing the city-state’s wealth-management industry, which has attracted large capital inflows.
Singapore is also Asia’s number one foreign exchange trading center as well as a key Asian base for commodities traders and fund managers.
The island, which has a population of just 5.4 million people, enjoyed a current account surplus of $51.4 billion last year, which was a massive 18.6 percent of gross domestic product (GDP).
With regard to this matter, popular blogger and financial analyst, Leong Sze Hian, felt that from a cashflow perspective, the government spends little on healthcare, CPF or HDB – building up huge budget surpluses and reserves. He estimated that the Singapore government has at least built up a minimum of $185 billion surplus over the last 7 years or so.
Hence, Mr Wong needs not worry about Singapore getting into debt. It’s the huge surplus that the government ultimately sucked out from Singaporeans that he needs to worry about.
TR Emeritus
*Article first appeared on www.TREmeritus.com