by Pat Low
A family plans for their present and future needs by living within their means, avoiding debt, sacrificing immediate gratification to put something aside for their future, and as far as possible, building some financial legacy for their children.
By securing their own future, they seek to be independent in their old age and avoid imposing burdens and liabilities on their children. That is a microcosm of what a state should be doing, but many have been found wanting.
Tax and fees are a burden on the present generation, and the national debt is a burden on the future generation.
Has the fiscal policies of the People’s Action Party government been conducted in a way that has intergenerational equity, i.e. fair to both current and future generations in Singapore?
The exploitation of natural resources benefits the present generation at the expense of future generations if earnings are deployed to non-infrastructure consumption.
Natural resource depletion denies future generations of its use. Examples are oil and gas, forestry, minerals, precious stones, land. Many resource-rich countries set aside a portion of the income from their extractive industries for future generations. These are managed by special funds.
Co-Mingling Of Funds Makes It Hard To Determine How Much We Are Saving
Wikipedia lists 49 countries with sovereign wealth funds (SWFs), but only 28 countries have SWFs that manage earnings from resource exploitation. The funds and earnings are for future generations. The rest are managing pension funds and foreign exchange reserves. The earnings are for the present generation.
Singapore is an oddity and a complex case. We build reserves for rainy days, not for any defined future generation use. We legislate to deny the government of the day to spend away past reserves, defined as reserves accumulated by the prior administration.
Only a portion of the earnings of the SWFs is allowed to be spent on the present generation. Of the invested funds, we know how much of it is pension money, forex reserves and debt.
The government’s opaqueness makes it impossible to determine how much of the SWFS’ funds are reserves. Thus Singaporeans sit on a supposedly huge pile of reserves, exactly how much we never know, to be used on rainy days we don’t know when.
The pandemic is such a rainy day, and it marks the second time we have dipped into the reserves to fund various support schemes. Since we don’t know what the pile of reserves is, we have no idea what is the percentage that was tapped.
Could it be 1% or 0.001%? We would consider present inflation and cost of living as rainy days. But the government sees sunny skies.
Reserves Built On The Blood And Sweat Of Present Generation
Unlike the 28 countries that put aside income from their extractive industries, like Kuwait, Saudi Arabia, and Norway, our reserves are extracted from the toil of the present generation.
It is thus extremely inequitable to the present generation if the funds are continually reserved for rainy days that may never come. A family saves for their children’s future, but it ranks lower priority than putting food on the table today. The high inflation today makes it difficult to put food on the table.
Of the other countries with SWFs that manage pension funds and forex reserves, earnings go to fund budgets that benefit the present generation. For Singapore, earnings from managing pension funds, forex reserves AND proceeds of government debts, land sales and fiscal surplus, only a portion of the earnings are spent on the present generation.
In the case of state land sales, the proceeds cannot be spent by the government but are put into reserves and invested.
The leases run out in 99 years, that is about 2 generations.
The 1st generation pony up the reserves and benefits from a portion of returns on the invested funds.
2nd generation enjoys free returns on the investments of the land sales proceeds.
By the 3rd generation, the land will be resold, and reserves get another bump up. 3rd generation ponies up for a new lease but enjoys the returns on the investments of 2 generations’ land sales proceeds.
The game is, therefore, skewed against the present generation.
Current Generation Bears The Burden Of Building For “Future Generations”
Singapore has excellent infrastructure, and credit is due to the government. However, it has overbuilt its infrastructure.
One needs to understand, to a large extent, that the built-up has been the pursuit of a legacy economic policy of big-ticket projects to boost Gross Domestic Product (GDP) rather than from a needs analysis basis.
Such blind faith policies run the risks of white elephants, such as the stadium that replaced the beloved Kallang stadium and wastages highlighted in my older blog, “The Broken Windows of Singapore“.
They are as much politically than economically driven decisions. The projects are mustered from collective spoils extracted from the present generation.
Given infrastructures have long life spans, these projects, funded by the present generation, benefiting future generations to come.
The benefit is not just the free enjoyment of the infrastructure but that their generation has less need to suffer taxes to build such. It’s like a parent bequeaths a child a house; he or she does not need to go into a mortgaged debt.
Investing Too Much In Future Generations Without Having Enough To Spend For The Current
Singapore has laws that prevent the government from borrowing for fiscal purposes; therefore, there are no debts to burden future generations, unlike all other countries in the world.
But this has come about from the present generation paying a heavy toll. The law has recently been relaxed to allow a certain amount of debt for development spending. But this was not a decision to improve intergeneration equity. It was a move to allow the government to take advantage of the cheap cost of money at the time. Too bad the era of cheap funds is over.
Whilst it is good that one protects the future generation, overdoing it at great expense to the present generation is not fair. And the frustration that Singaporeans feel is that whilst much has been, and continues to be, extracted from them for future generations; it will be a future where one-third of the population will be new citizens. It is a sentiment for which there is no empathy from the government.
The increase in Goods & Service Tax (GST) is poorly timed whilst we are amid terrible inflation, which appears to be a long one. The year-over-year inflation currently is about 7.6%. I have no idea how the Consumer Price Index (CPI) is computed, but the general feeling is inflation is much worse in reality, up to 20% to 30%, based on the ordinary household purchases I make.
For the government to increase GST now is nothing short of a cruel policy. It is not money that is needed now but to prepare for increased medical costs for the elderly in a shrinking younger demographic.
Given that our fiscal policies have been skewed against the present generation, the planners in government have led the country to a situation, not unlike a household where the parents have invested too much money in the children’s future; they are finding out they do not have enough left for their spending in old age.
This opinion was first published on Pat Low’s blog and reproduced with permission