As the opposition once again raised in parliament the issue of spending more of the reserves on issues faced by the current generation of Singaporeans, Prime Minister Lee Hsien Loong took the podium, reminding the opposition and all Singaporeans that the reserves belong to all and future generations of Singaporeans.

"Some of [Lee Kuan Yew’s] senior colleagues told him that in locking up the reserves, he was trying the impossible.

Trying the impossible – you know why?

Because their philosophy was: If a generation wants to spend the money, somehow they will get their hands on it, and they will do it.

[He] disagreed and decided he had to try his best.

It is up to us and for us now to prove that we can protect the nest egg and that Singaporeans are capable of being prudent and responsible well beyond the founding generation.

We are not 'Ah Sia Kia'. (Hokkien term describing descendants of rich families who do not contribute to their families' fortune)

We are responsible.

We are also forefathers, one day, of generations yet to be born."

The motion filed by PSP

Non-Constituency Members of Parliament (MPs) Leong Mun Wai and Hazel Poa from the Progress Singapore Party (PSP) filed a motion in parliament on Feb. 7, 2024.

The motion called 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".

The motion was amended to change "review" into "ensure" after another motion was filed by the People’s Action Party (PAP) MP Liang Eng Hwa.

The main arguments from the PSP NCMPs were that there is no need to keep the size of Singapore’s reserves a “secret” and that the reserves would “continue to grow” even if a larger proportion is allocated to reduce the financial burdens of Singaporeans today.

Workers’ Party (WP) chief Pritam Singh and other MPs joined in the debate, arguing that using more investment returns would not affect the growth of the reserves.

PAP MPs voted for the amended motion, while members from PSP and WP all voted against one of the amendments and the amended motion.

The 50-50 rule for reserves is important

“I have spent 40 years of my life stewarding, safeguarding and improving this system, continuing the work of those who had come before me,” PM Lee said.

He explained at length how the reserves came to be, how much work Singapore’s forefathers put into them, how each generation debated using the reserves, and how the "50-50 rule" was decided.

In 2001, Parliament passed a constitutional amendment to protect 50 per cent of Net Investment Income (NII) while allowing the government of the day to spend the other 50 per cent.

In 2008, the constitution was amended again to introduce the Net Investment Returns (NIR) framework while keeping the 50 per cent rule.

NII refers to the actual dividends, interest, and other income received from investing the reserves and interest received from loans, all after deducting expenses.

Under the NIR framework, the government can spend up to 50 per cent of the long-term expected real returns (including capital gains) on the relevant assets.

The expected long-term real rate of return refers to the investment rate of return that can be expected to be earned over the long term after netting off inflation.

The NII and NIR combined are called the Net Investment Returns Contribution (NIRC).

“50 per cent for the present, 50 per cent for the future,” PM Lee said. “It is simple, it is intuitive, everybody can understand it.”

If there's no income from reserves, we might need to double GST

PM Lee also briefly explained how important the NIRC from the reserves is to Singapore, stating that it accounts for around 20 per cent of government revenue and 3.5 per cent of GDP.

The amount roughly equates to corporate income tax revenues, 1.4 times personal income tax revenues and 1.3 times GST revenues.

"Supposing we did not have NIRC out of the reserves. Then what would we do?" PM Lee said.

"You have a choice:

You can double corporate income tax, you can more than double personal tax, or you can roughly double GST – so instead of 9 per cent it may be 18 per cent or 20 per cent GST.

That is what the NIRC has enabled us to do. That is the burden which the NIRC has taken off Singapore taxpayers."

"How much is enough?"

PM Lee then addressed one of the key questions during the debate: "How much is enough?"

"How much is enough? To me, that is the wrong question to ask. It is a misconception."

He explained that it is never the case that the reserves exceed a certain amount and that it would be "enough".

"There is no such number," he said. "We can have no idea what the future holds: what crises we will run into, how much we will need."

He pointed out that when Singapore first touched on past reserves for the first time, it was during the Global Financial Crisis between 2008 and 2009 — when S$4.9 billion was earmarked to be used, S$4 billion was actually used and fully returned by the government by the end of its term.

PM Lee said that in the same crisis, S$150 billion was “ringfenced” to bail out banks in case they failed.

"Thankfully, no banks failed, and we did not have to touch the money," he said, adding that the ability to deliver a "credible guarantee" with the presence of Singapore’s reserves bolstered confidence and "probably prevented a run".

"The banking system would have crashed. The exchange rate would have crashed.

Those people who say it didn’t happen, it can’t happen.

I say, get real."

For the next crisis, the Covid-19 pandemic, S$40 billion was drawn from the reserves.

"It’s not likely that we are going to be able to put $40 billion back into the reserves any time soon," PM Lee said. "Again, our reserves were a tremendous advantage. It gave us confidence and gave others confidence in us."

"So we spent $40 billion in the end. So is $40 billion enough?"

PM Lee cautioned that the pandemic will not be Singapore’s last crisis and might not even be the most serious one.

He said that if Singapore finds itself at war, like what happened to Ukraine, which costs US$100 million a day and could come up to hundreds of billions of US$ of support from the US and Europe, can Singapore guarantee that someone will come to its rescue?

"How big a nest egg is enough?" PM Lee asked in parliament. "There is no sensible answer to this question. We can never say for sure how much is enough because we do not know what kind of crisis we will face in the future or how our investments will fare."

However, he said that this does not mean Singapore should "mindlessly save every dollar" they earn "without regard for present needs".

Instead, he said the mindset should be to treat the reserves as a "precious resource" and touch them only "in times of exceptional need".

If the reserves are gone, we will not be able to recreate it

PM Lee reminded that the government is elected "not just to take care of the citizens today, but also to secure the future of the country".

"But in taking care of today’s citizens, we are very conscious to safeguard the interests of young people not yet voting, future citizens not yet born, and the long-term interests of Singapore."

He said that the reserves are Singapore’s "precious resource" and "strategic advantage", an "extra card to play" when Singapore finds itself in "a tight spot".

“Other countries admire and even envy what we have, but they find it very hard to emulate what we have done.” PM Lee said.

“If it is gone, we would not be able to do it again either.”

Opposition changed their tune: PM Lee

PM Lee said that PAP and the opposition politicians had agreed to protect the "nest egg" for future generations.

He said that during the global financial crisis between 2008 and 2009, then-WP chief Low Thia Khiang had questioned why the government wanted to draw down on past reserves instead of savings from the government’s then budget.

PM Lee said it was a "very reasonable question" and a "very polite objection", and Low was right to raise it.

When the government paid the S$4 billion back to the past reserves, PM Lee said Low spoke in parliament again, doing the "honourable thing" to commend the government.

Low said, "In conclusion, sir, the budget this year has done one thing right. It has prudently put back into the Past Reserves the $4 billion that the government took in 2009."

“So this is how a responsible opposition conducts itself,” PM Lee said. “There was a common commitment to safeguard our past reserves.”

“Now I hear the opposition arguing that we should change the rules and

draw more from reserves,” PM Lee said.

"I conclude their tune has changed."

PM Lee challenges the opposition to put the issue to vote by raising it at GE

“Ultimately, in a democracy like Singapore, on big issues like this, it is the people who will decide,” PM Lee said.

"The PAP is convinced this is the right approach for Singapore. As long as the PAP government is in power, this is what we will do.

If any other political party thinks that this is not the right approach if they truly believe that we should dip into our reserves more — then bring it to the ballot box."

Put it up front. Say you want to touch, you want to spend, you want to shift the rules.

Don’t pretend that you’re just as prudent and only more kind-hearted.

Campaign in the next general election on this issue.

Ask voters for a mandate to form the Government, change the Constitution, dismantle the Second Key.

Put this squarely to the people and let them decide."

He said that he is confident that PAP will be able to convince Singaporeans and win the argument and "do the right thing".

"Now I am preparing to hand over to my successor in good order a Singapore, which is more prosperous and more secure.

I ask everyone to help them maintain the prudent policies that have served us well to keep Singapore on the right track so that we can all continue to benefit from the nation’s success for many years to come."

Top image via MCI