Prime Minister Lee Hsien Loong noted at the National Day Rally that S$8 billion, a sum exceeding our personal income tax collection, was drawn last year from our reserves’ Net Investment Returns Contributions (NIRC) for the Budget.
He predicted that social spending will go up, and so will taxes within 20 years. If we factor in the declining worker-elderly ratio, with the number of elderly doubling by 2032, we can foresee that balancing future Budgets would be a colossal task.
Have we thought of the implications? What is the risk of assuming that we can rely on the NIRC to balance future Budgets and that our reserves would grow perpetually?
Also, how confident are we that future generations would be willing to pay more taxes, perhaps twice what we pay now?
If something goes wrong in the future, could a sovereign debt crisis like that in Greece develop here?
From 1990 to 2010, its government debt increased by 300 billion euros, or about S$470 billion. Greece’s population is nearly three times our resident population.
If we were to use S$10 billion from the NIRC to balance future Budgets, it would add up to S$200 billion over the next 20 years.
Without our reserves and tax increases, a debt crisis could develop here in 20 years or sooner.
With this illustration and Mr Lee’s reminder that we have a responsibility to “husband” reserves for future generations, we should be careful not to overspend in the Budget. Any extra spending, once instituted, would be almost impossible to take back.
We should never take our reserves and prosperity for granted, or assume that future generations would be as prudent as we are.