The cost of returning $52 billion to the reserves

Delivered in Parliament on 14 October 2020 during the debate on the Supplementary Budget.

The economic crisis caused by the COVID-19 pandemic has been unprecedented in scale and depth. This crisis also marked just the second and third time in history that the Government drew on its past reserves to fund the recovery package. At $52 billion, these were the largest ever draws on past reserves—13 times what was drawn in 2009 during the Global Financial Crisis.

During the debate on his Ministerial Statement in June, the Deputy Prime Minister clarified that there is no legal or constitutional obligation for the Government to restore the draw from past reserves. Nevertheless, he said that the Government is committed to rebuilding the reserves, although he said that the Government cannot be definitive about how long that would take.

Can the DPM now clarify if the Government intends to return all of the $52 billion drawn and if it will include interest?

I am concerned that a commitment to restore $52 billion within a short timeframe may subject our people to unnecessary levels of austerity and constrain the Government’s fiscal space. Austerity can have a contractionary effect on the economy. It could slow economic growth and cause some painful cuts to public services, which might impact the poor.

Can the DPM assure Singaporeans that they will not have to go through a period of austerity after the economic crisis is over, in order to restore the reserves?

If the Government’s commitment remains to restore the full amount to the reserves, then will the DPM share the broad timelines for this restoration?

I am aware that he responded to similar questions from Members back in June, but he did not give any indication as to how long it will take. He only said that it would depend on Singapore’s economy emerging stronger so that we would be in a better position to build up our resources.

Sir, a timeline of two years, 20 years or 30 years will make a huge difference in the provision required in the budgets of current and future governments. This will translate to vastly different levels of tax hikes and spending cuts required to meet these provisions.

For example, a restoration timeline of two years will require the provision of $26 billion a year. This is clearly impossible even in the best of times, as the Government’s highest ever budget surplus was $10.9 billion in FY2017, which was an exceptional year. Even a timeline of 30 years will still require a provision of $1.7 billion a year on average. This is more than the combined FY2020 budget for the Prime Minister’s Office and the Ministry of Foreign Affairs.

During this 30-year period, we could also face multiple economic crises where more deficit spending might be necessary. There might even be a need for a further draw on past reserves to battle another deep crisis, which would set the timeline back even further.

Given the budget impact of potential provisions to restore this extraordinarily large amount to the reserves, I feel it is important for the Government to provide more clarity about its broad timelines to do so.

The $52 billion draw on past reserves during this crisis was necessary to prevent excessive job losses, make up for a decline in investments, boost consumer spending and stabilise aggregate demand. The reserves have served their purpose in this crisis. As we plan beyond this current crisis, let us consider carefully how much we want to burden the next generation of Singaporeans with the committed repayment of this draw on past reserves.

Author: Gerald Giam

Gerald Giam is the Member of Parliament for Aljunied GRC. He is a member of the Workers' Party of Singapore. The opinions expressed on this page are his alone.

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