Constitution protects land & proceeds from its sale as past reserves: Swee Keat

[reporter2]

Budget 2018 debate

Why not use land sale proceeds?

Mar 2, 2018

Yasmine Yahya
Senior Political Correspondent


Most land parcels in Singapore are sold on leases - and would return to the Government after a spell.

Why then would it be imprudent to use proceeds from their sale to fund Singapore's spending?

Workers' Party chairman Sylvia Lim (Aljunied GRC) raised this question yesterday, following on a suggestion mooted by fellow party MP Pritam Singh on Tuesday to use land sale proceeds to boost revenue, up to a cap, such as 20 per cent of land sales for that year.

All land sale proceeds currently go to the national reserves.

In response, Finance Minister Heng Swee Keat noted that most land parcels are sold on long leases of 30 to 99 years.

This means it could take up to 100 years for a parcel of land to return to the Government.

"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."

Mr Singh had also proposed temporarily tweaking the net investment returns contribution (NIRC) framework so the Government could spend, say, 60 per cent or 70 per cent of the expected returns generated by the Monetary Authority of Singapore (MAS), Temasek Holdings and GIC, the three entities that manage and invest the reserves.

This, he suggested, could help fund large infrastructure pro-jects. The NIRC spending cap could then be lowered back down to the current 50 per cent and revenues from the projects returned to the reserves.

Mr Heng argued that the Government's plan of issuing bonds for these projects was better, as it would allow investors to "scrutinise those numbers". The reserves could be used to guarantee the borrowings. "And so you are using the strengths of the reserves strategically but without touching the reserves, so the reserves can continue to be invested for long-term gains," he said.

Yesterday, Mr Heng underscored the importance of Singapore's reserves, saying they help to defend the Singapore dollar against speculators in times of crisis.

Mr Singh wanted to know how the Government determines how much of the reserves are needed to maintain the strength of the Singapore dollar.

Mr Heng said: "Speculators know that should they try to attack the Singdollar, it is not just our official reserves that they have to contend with, we also have reserves that are invested in longer-term assets and that we will be able to mobilise if we need to."

This was one reason why speculators largely left the Singdollar alone during the Asian financial crisis of 1997, even as they sold down other regional currencies, sometimes to the point of collapse. In relating his experiences during the crisis, Mr Heng painted a picture of how important it was to be a responsible steward of the reserves.

Wading into the exchange, Nominated MP Kuik Shiao-Yin asked about the feasibility of a suggestion by OCBC economist Selena 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. This would increase transparency and encourage more meaningful public discussions, she said.

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.

[reporter2]

Singapore Budget 2018: Constitution protects land & proceeds from its sale as past reserves: Swee Keat

Principle applies whether it's 20% or 100% of the sale proceeds

Fri, Mar 02, 2018

Chia Yan Min


INCLUDE a portion of land sales proceeds in the Budget, or use more of the returns from the reserves - these are tempting suggestions to raise government revenue and easier to swallow than hiking taxes.

But it would be "ill-disciplined and unwise" for the government to do so by amending the rules as a first resort, Finance Minister Heng Swee Keat told Parliament on Thursday.

Singapore's approach strikes a balance between present needs and preserving resources for future generations, said the minister in a speech rounding up the three-day Budget debate.

He was responding to Workers' Party assistant secretary-general Pritam Singh (Aljunied GRC), who had suggested that proceeds from land sales should be used to boost revenue in lieu of raising the Goods and Services Tax (GST).

"Our Constitutional rules protect our financial assets and land as past reserves. As land sales convert physical assets into financial assets, the proceeds from land sales are rightly fully protected as past reserves as well," said Mr Heng.

"This principle of asset conversion is sound. It is irresponsible to mislead people that the principle suddenly does not apply when we use 20 per cent instead of 100 per cent of land sale proceeds."

Under the Constitution, proceeds from land sales are added to the reserves, which are invested.

From the returns, the government takes up to 50 per cent as the net investment returns contribution (NIRC) to supplement its budgetary needs.

The NIRC is now the largest contributor to the annual Budget, he noted.

"If we did not introduce the NIR framework, we would have had to double our personal income tax collection or our GST collection to raise the same amount of revenues," Mr Heng said.

Rules on land sales and the 50 per cent NIRC cap were introduced "so that we do not succumb to the temptation to draw more from our reserves to fund current expenditure or eat into the principal sum", he noted.

"If as soon as we need more money, the first thing we do is to 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."

Mr Heng also sought to respond to concerns about the necessity of the planned GST hike and the potential impact this might have on households and business competitiveness.

He had announced in his Feb 19 Budget speech that the GST will go up by two percentage points - from 7 per cent to 9 per cent - "sometime in the period from 2021 to 2025".

"This is not an option that we have taken lightly," Mr Heng told Parliament on Thursday.

"Not just because raising taxes is unpopular, but because the government should as far as possible avoid taking people's hard-earned money and deciding on their behalf how the money should be spent, unless it has to do so for critical social, economic or national needs."

The GST increase is necessary because healthcare, security and social spending are expected to continue climbing, said Mr Heng.

These are needs that occur year after year and will keep rising especially as Singapore's population ages.

The increase in GST is projected to raise revenues by 0.7 per cent of GDP a year, before accounting for the amount needed to fund GST vouchers.

Mr Heng said Singapore's key expenditure drivers - healthcare, security and preschools - already exceed this amount and there are risks that spending could rise even more than predicted.

"So the two 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.

"It is thus the prudent and responsible approach to raise GST in good time, instead of hoping for expenditure to fall."

He also reiterated that Singapore cannot rely on one-off budget surpluses to fund its growing spending needs.

Much of the surprise S$9.61 billion Budget surplus in the 2017 fiscal year was a result of one-off factors, including an exceptional contribution from the Monetary Authority of Singapore due to unexpected currency translation gains and investment gains from a global rally in equity and bond markets.

The other big contributor to the surplus was higher stamp duty collections following the recent pickup in the property market.

"We cannot fund our plans to secure Singapore's future on the basis of episodic windfalls. If we are fortunate to have these occasional windfalls, we should do the responsible thing and save most of it for our future needs," Mr Heng said.

Parliament approved the Budget, even as Workers' Party MPs said they did not support the proposed hike in the GST. After a vote, 89 MPs voted to approve the Budget, while eight MPs - all from the WP - voted "no".