Reform Party’s Wishlist for Budget 2015
The Budget Statement is only a few hours away. The Government-controlled and-owned media is full of speculation about the “goodies” that Singaporeans can look forward to. The Straits Times estimates that Government surpluses since 2011 have totalled $10-12 billion though it doubts that all or even most of this sum will be spent. Predictions for the use of all or part of this money include enhanced support for seniors, an SG50 bonus payout across the board, an extension of the Productivity and Innovation Credit (though even the Government media admit it has not worked) and tax reliefs rather than tax rebates.
Reform Party has since 2009 argued that the Government’s Budget presentation is deeply misleading and presents a wildly inaccurate picture of the resources available for extra spending or tax cuts. We begin by looking at the potential resources available and following the Norwegian model suggest that a fixed percentage of the total value of assets under management be made available for current spending. We then build on our previous proposals as to where the additional money should be allocated.
Government Resources and the Medium Term Spending Framework
The $10-12 billion total surpluses given by the ST are based on the format given in the Budget presentation, which excludes returns on reserves accumulated before the current Parliament. However we see no justification for this exclusion even if current legislation prohibits spending out of past reserves without the President’s approval. This is a basic lack of transparency and accountability which the PAP have never addressed.
In order to gain a true picture of the Government’s finances, we need to use the IMF framework, which includes interest and investment income on past reserves as well as realised capital gains on assets sold. This can be found tucked away in the Monthly and Yearly Digest of Statistics. Surprisingly no one in Parliament has mentioned this. In our response to Budget 2012, Reform Party set out the IMF framework for the Budget and demanded to know why the PAP do not follow this method
This is the table of accumulated surpluses on the IMF framework since 1999:
Using the IMF framework, which presents a much more accurate picture of the Government’s finances, we have accumulated about $258 billion in surpluses since 1999. If these were handed out to Singapore citizens we would all be approximately $80,000 richer. The real surplus over the last few years has been of the order of $30-40 billion per annum though we are missing the figures for 2013 and 2014. These figures include the returns of the Sovereign Wealth Funds run by Temasek and GIC, as well as the reserves managed by MAS and the revenue from land sales.
Reform believes that these surpluses belong to the people and are the fruit of many years of austerity during which our citizens have been forced by the PAP to go without many of the basic benefits that citizens of other rich countries enjoy, such as free education, health care, a state old age pension, and help for families with children and the disabled. We have proposed the drastic but simple solution of returning control over these accumulated surpluses by privatizing Temasek and GIC and distributing shares to Singaporeans. This was part of our Election Manifesto in 2011.
However this may be impractical in the short term. Therefore drawing on the Norwegian model we propose that every year a certain percentage of the assets managed by Temasek and GIC be added to current spending. Norway has one of the world’s biggest Sovereign Wealth Funds, the Norwegian Pension Fund, which was set up to manage revenues from its oil wealth not extracted through mindless austerity from its citizens as in the Singapore model. In Norway this is currently 4% of total assets, which represents a target real rate of return after inflation.
Every year the Government is required to produce a Statement of Assets and Liabilities (SAL) which is unfortunately two years out of date. According to the last published SAL for the year ended 31st March 2013 (which has mysteriously disappeared from the Budget website) total assets amounted to about $800 billion. However many of the assets managed by GIC are matched by liabilities to CPF holders so the net assets amount to roughly $360 billion. However it is not clear whether this includes Temasek’s $223 billion of assets. GIC should be able to make more than the assumed average 3.5% the Government pays on CPF balances but conservatively we assume that 4% of net assets can safely be spent every year without diminishing the real value of the net assets belonging to the Singaporean people. Therefore,
Total Funds Available on $360 billion = 4% x 360 = $14.4 billion
Total Funds Available on $583 billion = 4% x 583 = $ 23.3 billion
So we can safely spend between $14 billion and $23 billion extra per year without diminishing the real value of the people’s assets.
The Government already claims to allocate up to half the Net Investment Returns Contribution (NIRC) from our surplus assets to the Budget. This amounted to some $8 billion in the last Budget. However as we explained in “Smoke and Mirrors in the Government’s Accounts”, “How to Make A Surplus Disappear without Anyone Noticing”, and “Budget 2014: A Very Generous Amount of Wool Pulled over Your Eyes” this is not real spending since the Finance Minister always transfers the money to an unaccountable fund. In 2014 there was much fanfare about the $8 billion Pioneer Generation Package, which was funded by that year’s NIRC. However actual spending was estimated to be only some $400 million per annum (in 2014 only $230 million).
Reform Party proposes to increase current spending by at least $14 billion per annum and potentially more than $20 billion per annum once we get transparency on the total size of the Government’s assets. By spending we mean actual spending rather than a fictitious transfer by which the PAP shuffle money between accounts without any actual outflow. We can do this without raising taxes or cutting defence spending.
We set out below our spending priorities.
Reform Party’s Spending Proposals
- A Basic Old Age Pension
In our press release entitled “CPF Needs Radical Reform Not Cosmetic Changes”, we proposed that the Government fund a basic old age pension for our seniors of $500 per month over and above CPF balances up to the Minimum Sum. We costed this at less than $3 billion per annum even if this was extended to everyone currently over the age of 65. If it were only given to those on low incomes the cost would be considerably lower. We assume for the purposes of this exercise that a more targeted pension would cost less than $2 billion per annum.
- Higher Health Spending
We would allocate another $6 billion to Health expenditures. This would take spending in the current year, projected to reach $8 billion this year, to $12 billion, reaching the Government’s target for 2020 five years early.
Reform Party is in the process of reviewing our current health system with a view to combining Medishield Life, Medisave and Medisave into a unified system that would provide universal and comprehensive health insurance, including full coverage of pre-existing conditions without additional cost and ensuring that no Singaporean should live in fear of being bankrupted because they have reached their insurance limit and exhausted their Medisave funds. We shall release more details shortly.
- Family Credit
In order to help low-income families with children and as a step towards reversing our current low birth rate Reform Party proposes to institute a system of payments to families with children. We propose initially a payment of $300 per month for each child below the age of 18. Based on estimated numbers of around 800,000 children of Singapore citizens the total cost would be around $3 billion though this could be lowered considerably by restricting it to families on median incomes or less.
- Higher Spending on Education
Reform Party proposes to allocate an additional $2 billion to education spending to help pupils from low-income families, increase teaching hours, abolish fees for education, reduce class sizes and improve teaching standards. We believe that while our overall standard of educational attainment is satisfactory, this masks considerable variations between elite schools and the rest. In addition parents are required to spend considerable amounts on tuition, which should not be necessary.
Total Cost of Reform Party’s Proposals
The total cost of these proposals is $14 billion. Based on the PAP Government’s own figures, we believe this additional expenditure is both prudent and easily affordable.
We consider it to be an investment that will pay dividends in the medium to long term by increasing the productivity and quality of our future workforce. It will also help to reorient the economy more towards domestic consumption and become less dependent on exports. Finally we expect a significant portion of the cost to be recouped through higher tax receipts from higher domestic incomes and expenditures.