Delivered in Parliament on 26 February 2021
The Case for an Independent Fiscal Council – Jamus Lim
Chairman, I beg to move, “That the total sum to be allocated for the Ministry of Finance be increased by $20 million.”
The role of independent fiscal councils
Fiscal councils are agencies, staffed by professional civil servants, which evaluate policy proposals to provide budgetary implications. To date, there are almost forty fiscal councils worldwide, concentrated among advanced economies. Some are comparatively older; the Netherlands’ Bureau for Economic Policy Analysis dates back to just after the end of the Second World War, while the Congressional Budget Office, which serves both houses of the United States legislature, was founded in 1974. Others have more recent provenance, but have nevertheless rapidly become influential. Canada’s Parliamentary Budget Officer was established in 2006, the United Kingdom’s Office for Budget Responsibility was formally constituted in 2010, and most fiscal councils within the EU were set up following the European Fiscal Compact in 2012.
Importantly, fiscal councils are independent, and are expected to provide non-partisan assessments of the expected effects of policy on revenue and expenditure. As such, they serve as trusted public institutions that can help score reform ideas and proposals, to help ensure the economy’s commitments to sustainable public finances.
Functions of fiscal councils
The support functions that fiscal councils offer include:
- Public assessments of fiscal plans and performance; and
- Evaluation or provision of macroeconomic and budgetary forecasts.
While these functions may already be performed, to some degree, by the Ministry of Finance, the MOF reports to the government of the day. In contrast, the fiscal council will provide advice—the key word here is advice, as they do not possess any formal power to determine the budget—to the whole of Parliament, at their request. As such, the council would be available to scrutinize policy proposals offered by PAP backbenchers, as well as opposition parties.
I should point out that a proposal to form an independent office of budget responsibility was raised by Mr Low Thia Khiang of the Workers’ Party, in the 2017 COS debates. This proposal builds on that, detailing the functions of the proposed agency and its service to the full legislature, and the underscore the distinct macro-fiscal environment today.
Benefits of fiscal councils
There is evidence that fiscal councils can improve fiscal performance, especially when such councils enjoy legal and operational independence, are tasked with monitoring fiscal rules, and when supported by robust media presence.
Moreover, an independent fiscal council can be especially useful at this juncture in our economic evolution, given how we are currently running the largest budget deficit since independence, with substantial uncertainty over the likely future evolution of the economy. Unlike the past—when our government has run balanced budgets over the successive terms, and hence may have little need for this institution—there was an unprecedented deficit over the last term of government, which necessitated a draw on past reserves.
I propose that the Ministry of Finance consider the formation of an independent fiscal council, the Parliamentary Budget Office of Singapore, seeded with an initial $20 million, and tasked with the mandate to score all major policy proposals formally advanced by Members of Parliament, for budgetary and macro implications.
Assessing NRF – Leon Perera
Mr Chairman, the National Research Foundation is responsible for directing a huge amount of government spending. The Research, Innovation and Enterprise (RIE) 2025 Plan announced in December 2020 plans for investments of S$25bn between 2021 – 2025.
In other countries, we do hear anecdotally how government-supported R&D initiatives help seed IP to domestically-based companies. In the US, for example, it is known that in the past NASA might have seeded technology to American companies, technology that arose from state-funded space efforts. I have spoken in the House about this before.
The nexus between state Research Institutes and Research Centres on the one hand and local companies on the other is not non-existent. For example, some new initiatives were rolled out in 2018 to try to ease the process by which local firms can engage with the R&D capabilities residing in our RIs and RCs. However, I still hear anecdotally that local firms find this process not altogether easy to navigate and that there is a perception that those local firms able to write and present their proposals well or those who hire consultants are best able to navigate this process, as opposed tom those with the best ideas.
I would like to suggest that the NRF be tasked with a number of hard mandates. Firstly, that KPIs be set for engaging with local firms and co-generating or supporting the generation of commercializable IP, with the economic impact and multipliers of that IP being measured and tracked going forward. This is in line with one of the themes of my Budget speech, that we should score an A for outcomes, not only an A for effort.
Secondly can the NRF be given a more structured “baked-in” mandate to direct some of its spending towards Greentech in ways that would help national and indeed global decarbonisation goals.
These two objectives are, of course, not mutually exclusive.
Assessing Performance of SWFs – Leon Perera
Mr Chairman, Temasek and GIC no doubt compare their performance against various global market indices and other standards of performance. It would be useful for these SWFs to publish these comparisons and their analysis, for better public assessment of performance.
In fact, it would be useful for the government, in the form of MOF, to understand these comparisons in some detail. With that said, I would like to ask – how does the MOF assess that the SWF Boards and Management have done a reasonable job in terms of returns? What internal metrics, indices, benchmarks and processes are used?
In the case of Temasek, MSCI is used as a reference. As I understand it, Temasek also sets its own hurdle rate : a risk-adjusted cost of capital that its market value TSR has underperformed on the 1-, 3-, 10-, and 20-year periods (as of March 2020). It has argued its underperformance relative to risk adjusted cost of capital is because it is making a systemic shift to build resilience for the future.
Does the government have clarity on the transformation Temasek is undertaking and why they think the future rate of return will outperform the current rate of return on these new investment strategies?
Reserves spending– Leon Perera
Mr Chairman sir, the reserves consist of various classes of assets held by Temasek, GIC and the MAS, if we are to exclude land banks. During typical economic crises, some asset values, such as equities, may fall, on the whole. This is fairly typical. If a reserves draw-down is financed by liquidating assets in a time of crisis, this may not necessarily be advantageous for Singapore, since it may mean selling fundamentally good assets, such as shares in good, blue-chip companies for example, at low prices, rather than hanging on to those assets to realise future value when the economy recovers.
However, if the reserves draw-down is financed by borrowing against the collateral of the reserves, that may, in some circumstances, prove to be more advantageous to Singapore, especially given that interest rates may be lower in a time of crisis as central banks slash the cost of credit to financial institutions, as they often do.
Or is the first line of execution for reserves draw-down utilizing cash or cash equivalents held by MAS and the other institutions?
Hence, I would like to ask the government what is the operating principle that determines how reserve draw-downs are executed with this question in mind.
In conclusion, I would like to add that I am aware that during the Covid period some sectors and some stock exchanges and other markets actually rose. In that sense this crisis has been atypical. My comments earlier refer to typical global economic crises.
MOF, SWFs and Green/Ethical investments – Leon Perera
Mr Chairman, I am heartened by the growing passion and quality of debate inside and outside this House regarding our climate challenges.
Our Sovereign Wealth Funds, as global players, should rightfully play a leading role in the effort to decarbonise. We could kickstart this by having our SWFs adopt a PSTLES-style framework directed by the MOF.
First, it is good that Temasek has committed to halve 2010 net portfolio emissions by 2030, and to deliver net zero by 2050. But this refers to only Scope 1 and 2 emissions. Can Temasek include Scope 3’s indirect emissions into its commitment since portfolio companies are often investors themselves?
On GIC’s end, we have no visibility on its portfolio environmental targets. Will GIC release this information?
While it may be impossible to disclose the full extent of investments, a declaration of standards companies must fulfil before our SWFs can invest in them would be positive. Norway’s SWF outlines concrete expectations of companies it invests in, and has an exclusion list on the types of companies that do not meet ethical and environmental standards. An explicit statement allows for accountability, and sends a powerful message to the business community about what the Singapore brand stands for.
ABSD remission for married couples – Chua Kheng Wee Louis
Mr Speaker, with a 9% increase in private residential volumes in 2020, despite the absence of foreign buyers and despite COVID, the Singaporean aspirations of upgrading from public to private property is stronger than ever. Aspirations for better housing is particularly pertinent for residents aged 35 & below, with 73% aspiring to upgrade according to the HDB’s latest sample household survey.
Enabling financially able Singaporeans to upgrade from their HDBs to private property not only fulfils their personal dreams but it also eases the demand for homes in the public residential market. While ABSD has helped reduce excessive demand for pure property investments, it has affected genuine HDB owners who upgrade to a private property.
A HDB owner today has to pay a 12 per cent ABSD upfront within 14 days of signing the sale and purchase agreement for a private property, if he/she has not already sold their current home. Given the rising prices of private property, 12 per cent is no small amount, even though this could be remitted for married couples, once they sell their first residential property within the specified timeline. This experience is different for a HDB owner who upgrades to an EC, or even buying another HDB unit. The government grants them an automatic ABSD remission, providing them 6 months after collecting their keys to sell the flat.
Mr Speaker, this remission reduces the pressure of having to pay the ABSD in a short span of 14 days, a relief that HDB owners transitioning to private properties do not enjoy. I would like to ask if there is any rationale behind the absence of remission for HDB to private property as compared to HDB or EC upgraders? Would MND explore harmonising this remission to this growing group of citizens who wish to fulfil their housing aspirations?
 Debrun, X., T. Kinda, T. Curristine, L. Eyraud, J. Harris & J. Seiwald (2013), “The Functions and Impact of Fiscal Councils,” International Monetary Fund Policy Paper, Washington, DC: IMF.
 Fiscal rules in the Singapore context include the balanced budget rule, where the government is required to run a balanced budget over its terms in office. See, inter alia, Debrun et al. (2013).