SINGAPORE — Non-constituency Member of Parliament, Leong Mun Wai has asked if the pricing of Built-To-Order (BTO) flats by the Housing Development of Board (HDB) should be affected by the reserve accounting policy of the Singapore Government, such that the removal of the land cost in HDB flats pricing is considered a draw from the national reserves.
In a Facebook post on Friday, Mr Leong responded to the comments made by Senior Minister of State, Sim Ann on 11 December, where she said Mr Leong has acknowledged that BTOs are subsidised and criticised his call for land costs to be removed from the pricing of HDB flats.
“Mr Leong’s response would be that the Government can charge HDB less for the land. By this he means that we should draw more from our Reserves, though he has avoided saying this explicitly. We have explained a number of times that state land forms part of the nation’s Reserves. If HDB does not pay back into the Reserves the fair market value of the land, we would in effect be running down the value of our Reserves, to the detriment of current and future generations,”Sim Ann
He clarified that he did not claim HDB flats have been subsidised.
“This is because the government has net positive cash flow from each HDB flat it sells disregarding land costs. Nevertheless, since the government has adopted a certain accounting method, we have no choice but to accept this and continue the discussion based on these methods.” wrote Mr Leong.
But even based on the government’s definition of the subsidy, it is not clear how the government has priced and subsidised HDB flats over the years. The so-called “net government subsidy” has fluctuated significantly over the years as a percentage of the total cost, based on the PSP’s research of the HDB’s financial statements over the past 20 years. For most of that period, the “net government subsidy” was a positive percentage but there we
Responding to Ms Sim’s statement that taking out the land cost in pricing HDB flats will require the government to draw from the national reserves, Mr Leong argued that if public housing is treated as public infrastructures like schools and hospitals and not charged with land costs, there will be no drawdown of reserves.
He asked if the land used for HDB flats was truly “disposed” by the government since HDB flat owners only own the rights to their flats and not the common areas and amenities. Further, nothing that the government can re-acquire the land at any time under the Selective En bloc Redevelopment Scheme (SERS).
He also questioned if flat owners are arguably paying a fixed monthly rent for 99 years in today’s dollars upfront when they purchase their flat.
S$1.57 trillion in financial assets by Singapore Government
Mr Leong emphasised in his Facebook post that Singaporeans collectively own financial assets totalling S$1.57 trillion as of 31 March 2022, as reported in the Government Financial Statement — A point he has raised in his previous Facebook posts and speeches in Parliament.
He further notes that this amount does not include financial assets held by the Monetary Authority of Singapore (MAS) and other statutory boards.
“The financial assets will continue to increase by at least S$40 billion a year, because we have to convert our structural excess savings, mostly inflows into CPF, into foreign currency assets as our economy does not have enough investment opportunities.”
Mr Leong highlighted that the government will be able to use the Reserve Management Government Securities (RMGS) to accumulate even more reserves after the MAS amendment bill was passed in January 2022.
The RMGS will be used to absorb the S$200 billion of additional reserves accumulated in the last few years on top of Singapore’s excess savings, wrote Mr Leong.
“Even the drawdown on reserves for COVID-19, which is touted as a once-in-a-lifetime crisis, has hardly caused “a dent in the armour” of our trillion-dollar reserves. So how much money do we need to save for future generations? Is there any point in talking about providing for future generations when they are already assured of a few trillion dollars of inheritance?”
During the debate on the hike of the Goods & Services Tax (GST) in November, Workers’ Party MP, Louis Chua asked Deputy Prime Minister and Finance Minister, Lawrence Wong, in terms of the Net Investment Returns Contribution (NIRC):
“is it wrong to say that increasing the NIRC contribution rate will not result in a decline in revenue? I think an example would be, as I shared in my Budget speech this year, where even if we put into context the drawdown of $43 billion in our reserves for the COVID-19 packages, our reserves today are still higher than they were five years ago.
Mr Wong responded to Mr Chua by giving a non-answer, saying:
“On NIRC, I have also explained our position on NIRC. I have said that, going forward, we anticipate that NIRC, which contributes about 3.5% of GDP to our revenue today, we think that is likely, over the longer term, to keep pace with economic growth. NIRC will keep pace with economic growth, we think, but this has not taken into consideration the potential for our expected long-term real rate of return to be reduced because of all these structural challenges that we have just been talking about – climate change, ageing population, geopolitical tensions.”
Mr Wong did not dispute Mr Chua’s point of the Singapore reserves being still higher than it was five years ago despite the historically high draw on the reserves for the pandemic budget.
Future generations not guaranteed by Govt’s reserves but its assistance
Mr Leong suggests that the more urgent need now is to do more to help the present generation overcome their many challenges.
This includes measures such as stopping increasing taxes like the GST and making better use of land sales proceeds and the remaining 50% of the Net Investment Return that has not been included in the Net Investment Return Contribution (NIRC) in the Budget — which is about S$20 billion for the Fiscal Year 2022.
“We would not be drawing down on the reserves but using the annual investment returns on the principal,” notes Mr Leong.
He estimates that the annual land sales proceeds are about S$10 billion and would be reduced to S$6 billion if HDB no longer pays the land cost for the HDB flats. Highlighting that, based on the government’s current definition, the S$4 billion not paid by HDB is “a drawdown of reserves”.
Mr Leong states that the PSP’s view is that the land sales proceeds should not be put into the reserves, but used in the current budget every year. This is because state land is a perpetual asset whose value does not diminish over time but is renewed after the end of each lease term.
He argues that Singapore’s future is not guaranteed by how much reserves it has but by having the future generation witness the success of the current generation.
This in turn depends on how many good jobs Singapore can provide for Singaporeans and how much financial security it can give Singaporeans, so they have the leeway to become productive, innovative and resilient.
“If we need to use more of our annual investment returns (not the principal) to achieve that, we should not hesitate to do so.”
