Financial commentators on Singapore Budget 2017

Minister for Finance Mr Heng Swee Keat had laid out the Government Budget 2017 with plans to help Singaporean tackle an increasingly complex global environment, while also promising more measures to help reduce environmental impact as the Government continues its efforts to develop Singapore’s economy.
Former-GIC (Government of Singapore Investment Corporation) chief economist, Yeoh Lam Keong wrote his thoughts on the Government Budget 2017 in his Facebook post on 21 Feb, correlating with financial commentator, Chris Kuan who has also written on the same subject earlier.

Mr Yeoh,  wrote:

Right on Chris Kuan. This chronic structural surplus of at least 7 percent of GDP or around $30bn plus the invest income from reserves needs more considered and active use short, medium and longer term.

First, the economy is stagnating given two major medium to long term adjustments, the residential housing bust and more importantly the slower rate of unskilled immigration. Both are necessary and will play out over the next 3-10 years respectively.

In the meantime there is an inevitable hemorrhage of demand and business confidence that is becoming a vicious circle of weaker animal spirits, investment, consumption and employment. Our stagnation is in marked contrast to our ASEAN neighbors who are still growing robustly.

In order to break out of this stagnation, sustained major fiscal expansion is needed, especially in high local content sectors. Monetary easing alone is insufficient and given our exchange rate policy tool, too risky inflation wise.

Secondly, as Chris has also been pointing out, our public investment in social security, poverty alleviation, education and healthcare ( especially long term care ) and industrial policy is painfully and inappropriately low by OECD standards.

All these need massive planned investments over the next 5-10 years and could make a huge difference to both citizen well being and buoyant demand as local content is relatively high.

In this light, the 2017 budget is both sadly inadequate in reviving the economy near to medium term and a failure in strategic long term vision. It reinforces the paradox of thrift when it should be using our massive public savings to lean against it while building productive and social infrastructure.

Social protection spending especially for the poor gets the usual peanuts. A real pity as we could virtually eradicate absolute poverty for some 120,000 families.

And the greatest irony is that we are one of the few developed economies that have the fiscal headroom to fund such a long term budget expansion sustainably.

But then we don’t do bold needed change well these days do we? Nor it seems, are we able to have meaningful national conversations or CFE studies that even hint at these major vital economic issues.

Earlier, Chris Kuan, a well-known Singaporean ex-banker, had posted his thoughts on the Government Budget 2017 on his Facebook on 20 Feb evening, where he wrote:

The 2016 budget position is revised from a surplus of $3.4b or 0.8 percent of GDP to a surplus of $5.2b or 1.3 percent of GDP. The 2017 budget is an estimated surplus of $1.9b or 0.4 percent of GDP. Of course, not included are land sales revenues and retained earnings from the reserves after net investment return contribution to the budget.

Heng said that the 2016 budget was expansionary and the 2017 budget continue to be so. Yeah, from the budget point of view but in my own point of view, the net impact on the economy is not simply the budget as it is presented but to what extend the expansionary effect from the budget is offset by the unreported land sales revenues which are an extraction from households and therefore a contractionary effect.

Given that the unreported revenues had over the long run pushed the actual budget position to surpluses of 7-9 percent of GDP, much higher than that reported on budget day, I would take the expansionary effect of the budget with a very large pinch of salt.

On Tuesday, Chris Kuan further added his opinion on the budget concerning the net assets on his Facebook page.

The Budget 2017 appendices show that the Statement of Assets and Liabilities reported total government financial assets at $ 941b, an increase from last year’s $ 878b and prior to that $ 841b.

Net assets, i.e. government assets minus its liabilities e.g. funds owed to CPF and funds committed to various trust funds and endowments from which amounts are spent on various functions and initiatives over several years – this stand at $ 294b. an increase from last year’s $ 275b.

In my view of the reserves which is strictly by how the constitution defines it, the net assets is the reserves. Those directly lodged with the government now stand at $ 294b, an increase of $ 19b.

The total amount of assets presumably managed by GIC stands at $ 941b given in the first paragraph. This does not include the assets and reserves of Fifth Schedule entities which are tasked with managing other parts of the nation’s assets and reserves, i.e. MAS and Temasek Holdings.

In my opinion, the Statement of Assets and Liabilities is NOT a consolidated balance sheet report of the government, hence it would not include the assets and liabilities of any Fifth Schedule entities.