Money already budgeted for handouts; Singapore’s land is a renewable fiscal resource

Bertha Henson, a former journalist from Straits Times and consulting editor of the defunct social-political site, Middle Ground wrote an opinion piece, following Prime Minister Lee Hsien Loong's speech in the National Day Rally, asking whether the nation can afford to pay for the Merdeka package that was revealed by the PM.

She wrote,

"To put it bluntly, the cost of  the Pioneer Generation Package will disappear along with this pioneer crop of Singaporeans much sooner than the Merdeka package. And don’t those in the Merdeka generation already have access to the Silver Support scheme if they need aid? It strikes me that we might be better off just giving everyone above a certain age a pension of sorts.

It looks like I am throwing cold water over your proposals which I believe will be very much welcomed by most people. I just happen to be one of those people who count pennies and don’t resort to the muddle-headed thinking that “the government is very rich” and therefore can afford to be generous. It is not the G which is rich, it is the State – and taxpayers will have foot the bill – unless we’re thinking of raiding the reserves."

And commenting on the matter of HDB policy by the PM, Bertha added,

"I listened to this very carefully because I happen to live in a flat that is more than 40 years old and which recently underwent HIP. I see that you decided against entering into a debate about whether HDB residents are really home-owners or tenants and went straight into what a 99-year lease meant. I am not sure you satisfied those who decry the depreciating asset that they now live in. The problem, you see, is that people expect the value of the flat to always go up, but in recent years, those older flats appeared to have passed their peak prices and started going down. Yes, it is an unreasonable expectation. We all know about the 99 year lease, but choose to think of it as something far down the road. It is only when we try to sell an old flat that we get floored by a lower than expected profit margin.

I am glad, however, that some long-range thinking has gone into (or will go into) Singapore’s public housing programme, even though I may not  live to see them. I have always thought that a HDB flat is not worth leaving to younger people because it would have to go back to the State.  Now I have a reason to think about the flat as an inheritance. There’s HIP 2 and my precinct would be among the pioneers in the queue for Vers. Whoever gets the flat will still be able to unlock the value of this hand-me-down."

Chris Kuan, a former banker and regular commenter on financial issues, commented on Bertha's piece, noting that the money is already budgeted for as the citizens have been squeezed over the years to pay for the spending.

He wrote,

Do we really, I mean really have to ask? Bertha Henson wonders "How are we going to pay for everything? I waited and waited for the penny to drop after your announcement on extending the Community Health Assistance Scheme and introducing a new Merdeka Generation package."

Come on, the penny has already dropped because we were already squeezed to pay for all these. 2016 Budget surplus $5.2b, 2017 Budget Surplus $9.6b and expected 2018 Budget is a deficit of $0.6b. all excluding land sales revenue and investment returns. If 2019 budget is balanced, the government has already accumulated budget surpluses to be expensed all at one go in the final year before the election just like the previous Parliamentary term. the oldest trick in the books. So far the ammo is $14.2b, crafted out of not spending enough on citizens' welfare. So how big do you want the MGP, the CHAS top-up, the HIP and the VERS to be. Mind you they will announce a big number just like the $8b PGP but dispenses over a long period of time like 20 years. The actual spending per year is much lower than at first sight. Another very old trick.

Agreeing with Chris' assessment, Donald Low, former associate dean of Lee Kuan Yew School of Public Policy (LKYSPP) and academic, added to the discussion by addressing the views on HDB issue raised in Bertha's blog post,

Yes, indeed. The short answer to Bertha's question is "paid/paying already". This is what the "sacrifices" in the speech refers to.

Also, when the PM explained why HDB leases have to be 99 years (so that land can be recycled and sold again after 99 years), he confirmed what all of us should know but probably didn’t: that land in Singapore is a renewable fiscal resource.

And it is because land is a renewable resource, MOF was on very weak grounds when it rejected suggestions during the Budget debate this year to use more of the NIR from reserves or use (part of) the revenue from land sales (which are currently wholly locked up as reserves).

If land is a renewable fiscal resource - that is, land reverts to the state after 99 years, which it can then sell again - the major implication is that in the stable state (i.e. in equilibrium), all of the revenue received each year from selling 99-year leasehold land can be used in the current budget. There's no need to lock up any land revenues in reserves (except for revenue from sales of freehold and 999-year leasehold land). It's certainly not the case, as the Minister for Finance then said, that at most 1/99 of the revenue from land sales each year can be used. This is because in equilibrium, the state would be recycling and re-selling “only” 1/99 of its land holdings each year.

In fact, using all of the revenue from the sale of 99-year leasehold land is the very definition of sustainability: you only use what you can earn each year, in perpetuity.

On the point of Bertha's last para, "But I have to say this: Your speech was better than last year’s.", I would have to respectfully disagree, both were as bad as both touched on issues that people were concerned with but brushed off with motherhood statements and solutions.