A family plans for their present and future needs by living within their means, avoid debt, sacrifice immediate gratification to put something aside for their future, and as far as possible, build some financial legacy for their children. By securing their own future they seek to be independent in their old age and avoid imposing burden 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 present generation and a national debt is a burden on future generation. Has the fiscal policies of Singapore government been conducted in a way that has intergenerational equity, ie fair to both current and future generation?
The exploitation of natural resources benefits present generation at the expense of future generation if earnings are deployed to non-infrastructure consumption. Natural resource depletion denies future generation of its use. Examples are oil and gas, forestry, minerals, precious stones, land. Many resource rich countries set aside a portion of income from their extractive industries for future generation. These are managed by special funds.
Weakipedia lists 49 countries with sovereign wealth funds but only 28 countries have SWF that are managing earnings from resource exploitation. The funds and earnings are for future generation. The rest are managing pension funds and foreign exchange reserves. The earnings are for 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 prior administration. Only a portion of earnings of the SWFs are allowed to be spent on present generation. Of the invested funds, we know how much of it is pension money, forex reserves and debt. The government's opaqueness make 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 dip into the reserves to fund various support schemes. Since we don't know what is the pile of reserves, 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.
Unlike the 28 countries that put aside income from their extractive industries, like Kuwait, Saudi Arabia, Norway, our reserves are extracted from the toil of 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 to putting food on the table today. The high inflation today is making it difficult to put food on the table.
Of the other countries with SWF that manage pension funds and forex reserves, earnings go to fund budgets that benefit 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 present generation.
In the case of state land sales, the proceeds cannot be spent by the government. The funds are put to reserves and invested. The leases run out in 99 years, that is about 2 generations. By the 3rd generation, the land will be resold and reserves get another bump up. The 1st generation pony up the reserves and benefits from a portion of returns on the invested funds. 2nd generation enjoys for free the returns on the investments of the land sales proceeds. 3rd generation pony up for a new lease, but enjoys the returns on the investments of 2 generations' land sales proceeds. The game is skewed against the present generation.
Singapore has over-built on infrastructures. We have excellent infrastructure, credit is due to the government. However, one needs to understand, to a large extent, the built up has been the pursuit of a legacy economic policy of big ticket projects to booster GDP, rather than from a needs analysis basis. Such blind faith policies run the risk of white elephants (the national stadium?) and wastages (see 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 present generation. Given infras have long life span, these projects, funded by present generation, benefits future generations to come. The benefit is not just the free enjoyment of the infras, 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 has no need to go into a mortgaged debt.
Singapore has laws in place that prevent the government from borrowing for fiscal purposes. There are no debts to burden future generation, unlike all other countries in the world. But this has come about from present generation paying a heavy toil. The law has recently been relaxed to allow a certain amount of debt for development spending. But this was not a decision to improve on intergeneration equity. It was a move to allow the government to take advantage of 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, over-doing it at great expense to the present generation is not at all 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 on third of the population will be new citizens. It is a sentiment for which there is no empathy from the government.
The increase in GST is badly timed whilst we are in the midst of a 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 CPI is computed, but general feeling is inflation is in reality much worst of 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 actually not money that is needed now, but to prepare for increased medical cost 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 on the children's future, they are finding out they do not have enough left for their own old age.
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