Significant Infrastructure Government Loan Bill

Mr Deputy Speaker: Deputy Prime Minister and Minister for Finance.

3.25 pm

The Deputy Prime Minister and Minister for Finance (Mr Heng Swee Keat): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

Sir, first, let me set the context behind this Bill. To do so, may I ask the Clerk to distribute the handout, please?

Mr Deputy Speaker: Please do. [A handout was distributed to hon Members. Please refer to Annex 2.]

Mr Heng Swee Keat: Members may also access this handout through the SG PARL MP mobile app. Mr Deputy Speaker, over the next 15 years, Singapore will be making bold investments in major infrastructure that will benefit both the current and future generations. This generational upgrade in our infrastructure will greatly enhance the connectivity, liveability and sustainability of our home. Taken together, we expect an upcoming hump in development expenditure of around 5% of GDP annually, higher than our baseline or average development expenditure of 3.7%.

This expenditure is over and above other infrastructural investments that we will continue to make, in areas like building more healthcare and education facilities.

We plan to build new MRT lines such as the Cross Island Line and Jurong Region Line. MRT is the most efficient and greenest mode of transport. We want to raise the mass public transport modal share during peak hours from 64% now to 75% by 2030. New MRT lines will move us closer to the vision of a 45-minute city with 20-minute towns by 2040 and bring greener transport options closer to more Singaporeans.

Another example is the Deep Tunnel Sewerage System, or DTSS. The DTSS will meet our long-term needs for used water collection, treatment, reclamation and disposal. As part of the second phase of DTSS, the Tuas Water Reclamation Plant will be able to treat up to 800,000 cubic metres of used water per day. This is equivalent to 320 Olympic-sized swimming pools. This will enhance our water resilience, in the face of larger fluctuations in rainfall.

Other examples of major, long-term infrastructure that we are building or expecting to build include major highways, such as the North-South Corridor which will alleviate congestion on the CTE, as well as coastal protection infrastructure to protect us against rising sea levels caused by climate change. Agencies are already embarking on site-specific studies at our coastlines, to examine potential measures like sea walls and polders. We expect more expenditure on climate change beyond 2030.

This Bill before the House today will permit the Government to borrow for these major, long-term infrastructures, subject to strict safeguards, under the new Significant Infrastructure Government Loan Act, or SINGA for short.

Given this upcoming hump in development expenditure that I just described, borrowing is a fair approach, because it allows each generation that benefits from the infrastructure to pay for its share. Otherwise, taxpayers in the next decade will need to finance much of this lumpy infrastructure that has a useful life of 50 years or more.

Borrowing in this context is also efficient. First, with Singapore's AAA rating, we are likely able to tap the debt market at favourable interest rates.

Second, by borrowing instead of drawing on investments, our reserves can remain invested to earn returns. We can tap on these returns to supplement our Budget through the Net Investment Returns Contribution, or NIRC. Other alternatives to borrowing include raising taxes temporarily, diverting resources from other spending needs such as social spending, or delaying significant infrastructure investments; however, all these options would be less efficient and more costly to the nation.

Borrowing for infrastructure is not new. As a fledgling state with no natural resources, we had borrowed to finance large infrastructure investments to help build Singapore in the past.

Singapore launched our first Development Plan in 1961, an ambitious $871 million plan to kickstart industrialisation and economic development. We borrowed from the World Bank and the Asian Development Bank, and paid these debts back steadily and on time.

In the 1980s, we borrowed to finance a wave of major infrastructure projects that we continue to benefit from today. These projects include Changi Airport Terminals 1 and 2, and our first MRT lines, the North-South and East-West lines.

By the early 1990s, our economy was growing rapidly, aided by our young demographic. This led to buoyant revenues, which allowed the Government to meet all its expenditure needs and pay down the earlier debts. In addition, with prudent management of our finances, we were able to run healthy Budget surpluses and build up our reserves. There was no need for us to borrow to pay for major infrastructure expenditure.

While we must continue to build for our future, including significant infrastructure, such as MRT lines and coastal protection infrastructure, our economy and demographic are now more mature. Given our ageing demographic and less scope for catch-up productivity growth, we cannot expect our economy to grow rapidly in the future.

Hence, we will not have the same buoyant revenues as before to pay for large infrastructure expenditure upfront. Instead, we will reactivate Government borrowing.

Our approach on borrowing should remain prudent and disciplined.

First, we will not borrow for just any kind of development expenditure. We will set a high bar for qualifying projects that can be financed by borrowing.

Second, we must ensure that we do not overly burden future governments with high debt servicing costs, which will reduce the resources available for spending on worthwhile services and subsidies for our people. Hence, we will impose both strict borrowing and interest limits.

We have benefited from the prudence of previous generations, who set aside surpluses then, when our economy was growing rapidly. This is why we have our reserves and a Reserves Protection Framework. Let us not forget that the opposite of reserves is debt. Today, the NIRC adds about 3% of our GDP to our total revenue. For most advanced economies, 1%-3% of GDP is spent on debt servicing costs.

We must be careful not to slide from a position of having net assets to one of having net debt. Otherwise, instead of having assets that earn a stream of earnings to add to our revenue for future spending, we will be committing resources to servicing debts incurred by earlier generations.

Mr Deputy Speaker, I will now explain how we have included these safeguards in the Bill, which will apply in addition to the Reserves Protection Framework.

The earlier Development Loan Acts in the 1960s to 1980s that permitted Government borrowing for spending on development did not set out criteria for the type of development that qualifies. However, given that our economy is maturing and we are no longer expecting the same high growth and high fiscal surpluses as before, we have set out a prudent and disciplined approach.

Today, all Government development projects go through a rigorous multi-stage evaluation process to ensure project worthiness and cost effectiveness. All infrastructure projects will also need to obtain Ministers' approval before they can be built. SINGA projects will undergo the same scrutiny.

In addition, under the SINGA Bill, nationally significant infrastructure projects must satisfy four requirements.

One, it must be major in size. Two, it must be important to Singapore's national interests and benefit the general public. Three, it must last multiple generations. And four, it must be owned by the Government.

First, nationally significant projects will have to cost at least $4 billion. This is set out in clause 11(5a).

Nationally significant infrastructure projects tend to be big-ticket items as they are major and complex in nature. The $4 billion threshold will capture major, lumpy development needs that form the upcoming "hump" above our baseline development expenditure.

It will also exclude smaller-scale infrastructure, such as schools and polyclinics. Such smaller scale infrastructure makes up the base of our annual development expenditure and should continue to be funded from taxes and other revenues.

Clause 11 of the Bill sets out the criteria for determining the costs of the project.

First, recurrent expenditure related to the nationally significant infrastructure, such as costs of repair and maintenance and purchase of vehicles, is excluded.

Second, the cost of acquiring land is excluded as well.

Third, the Bill permits projects to be built in phases, such as our MRT lines. Where these phases have been planned for right from the start, the costs of all phases of the infrastructure project can count towards the $4 billion threshold, if the different phases or components of the project are linked either physically or operationally. In short, we can view such a project as one system of integrated and inter-connected components.

For example, the cost of the entire Cross Island Line will count towards the same project value threshold because all its stations and rail tracks are physically connected to each other. The entire Cross Island Line is also expected to operate in its entirety, interchanging with all other MRT lines, existing and planned.

In the case of the different infrastructure components that are required to protect us against rising sea levels, they are linked operationally but not physically. They may not be physically connected to each other because they may be triggered at certain locations. However, the costs of these components will also count towards the same project value threshold because the components need to work in tandem to protect our coastlines.

For separate infrastructure projects that are not linked physically and can operate independently, the SINGA does not permit these projects to be bundled together in order to meet the $4 billion threshold. For example, the costs of individual hospitals will not count towards the same project value threshold, as each hospital can function as a standalone. When one hospital is down, other hospitals can continue to run and they may even pick up some of the slack in providing healthcare capacity. In contrast, if a component of an MRT line or coastal protection infrastructure is not built, the whole system would not be able to function as intended.

I turn to the second requirement, which requires the infrastructure project to be important to our national interests and benefit the general public in Singapore. This is set out in clause 2, under the definition of "nationally significant infrastructure", as being one that is "likely to materially improve national productivity or Singapore's economic, social or environmental sustainability" and in clause 2 as being "intended principally for use by or for the benefit of the present and future generations of the general public".

New MRT lines will qualify, because these enhance liveability, promote economic activity by improving connectivity and are the greenest mode of transport in the long run.

The Bill provides a list of examples that meet these objectives, such as transport infrastructure, climate change-related infrastructure, as well as utility network infrastructure. This list is non-exhaustive. This is because we can never know today, what we may need in the future. What is important is that we are targeting those projects with benefits that accrue widely to Singapore as a whole, or to a large majority of our people.

In order to adhere to the spirit of this thinking without trying to predict too far into the future, we have safeguards that I have mentioned earlier, to ensure that the Government will use this carefully.

The third requirement, as set out in clause 11(2), is for the resulting nationally significant infrastructure to have a useful life of at least 50 years. This ensures that the infrastructure project will benefit more than one generation of citizens.

To be clear, the useful life of an infrastructure is not necessarily the same as its physical life. The physical life can be shorter, if we expect that the infrastructure may no longer serve its intended function sometime in the future, for example, if it is likely to be rendered obsolete by technological advances after a period of time.

We will use the useful life of the infrastructure to determine the depreciation period of the capitalised assets. This is fair as it ensures that depreciation costs are spread only across generations who will benefit from the infrastructure.

Lastly, all nationally significant infrastructure financed by borrowings must be legally owned by the Government. This ensures that the qualifying infrastructure assets can be capitalised on the Government's accounts.

In addition, the asset must be controlled either by the Government or another entity on behalf of the Government. This ensures that the Government retains ultimate oversight over the infrastructure assets, to incentivise proper upkeep and maintenance, so generations of Singaporeans can benefit.

To give an example, the North-South Corridor will qualify under SINGA, because it is an asset owned by the Government and is controlled by another entity, namely LTA, on behalf of the Government.

The four qualifying requirements that I have touched on set out the projects that can qualify as nationally significant infrastructure. In addition, the Bill sets out limits to ensure that the amount the Government borrow is equitable and sustainable. This is to ensure that future generations are not saddled with a high debt burden.

Clause 5 imposes two restrictions: a gross borrowing limit and an annual effective interest cost threshold.

Together, these restrictions ensure that future Governments will be able to afford the principal and interest costs, while having sufficient fiscal space to fund their priorities of the day.

The gross borrowing limit is set at $90 billion under the Bill. This sum reflects the projected pipeline of nationally significant infrastructure over the next 15 years, after adjusting for inflation.

Ninety billion dollars is approximately 20% of today's annual GDP at current market prices. This is lower than the borrowing limits of Development Loan Acts which previously allowed the Government to borrow for development expenditure in the 1960s to 1980s. Previous borrowing limits averaged 40% of GDP in the year the Acts were introduced. It is thus a reasonable figure given our more mature economy.

I should emphasise that the borrowing limit is a gross limit and not a rolling limit. Once the Government has raised a borrowing under SINGA, that amount will be counted towards the total borrowing limit, even after the loan has been repaid.

After the $90 billion limit is reached, the Government will have to amend the borrowing limit by passing a new Bill in Parliament in order to borrow further sums under SINGA. In doing so, it will need to justify such further borrowings to finance infrastructure projects that are of national importance.

In other words, this Bill that we are legislating is limited to enable the Government of the day to borrow to meet the significant infrastructure needs in the coming years up to a maximum of $90 billion, as we undertake this generational upgrade.

If there are further needs beyond the $90 billion, future terms of Parliament will have to debate and approve further measures to meet these needs.

As set out in clause 5(2), refinanced borrowings will not count towards this $90 billion limit. This is because there is no corresponding spending on and capitalisation of nationally significant infrastructure. Allowing for refinancing, gives the Government of-the-day the flexibility to manage borrowing costs efficiently across interest rate cycles. For instance, the Government may issue bonds across a range of tenors and refinance when the bonds mature.

Hence, the Bill provides for borrowings for the purpose of refinancing, even after the $90 billion borrowing limit is reached.

The second restriction is an effective interest cost threshold of $5 billion per annum. Five billion dollars interest against the $90 billion cap works out to be an effective interest rate of about 5.5%. This threshold ensures we limit our borrowings when interest rates are very high, as interest costs will have to be borne by future generations.

The annual effective interest cost will be calculated based on the effective interest costs paid in the preceding financial year. If the effective interest paid exceeds $5 billon, the Government will not be allowed to borrow more in the next financial year.

Allow me to illustrate how the threshold will work. The recent 30-year SGS that was auctioned in January 2021 had a cut-off yield of 1.4%. If we borrow the full $90 billion based on this rate, the annual interest costs will be $1.3 billion, which is below the $5 billion threshold. But we cannot expect interest rates to remain at low levels forever. Historically, the longest period where SGS yields remained low did not last for more than two years, and this was in the aftermath of the Global Financial Crisis from 2011 to 2012.

So, interest rates may continue to stay low or may increase in the future and we have to be prepared for that. In fact, the cut-off yield of a 30-year SGS went up to 2.94% in February 2018, which is not too long ago.

We have also examined the interest rate trends for SGS over the past 25 years. Cut-off yields of SGS with tenors of more than 10 years have ranged from a low of 0.93% as recently as July 2020, and to a high of 5.87% in 1998 when global interest rates were higher. The $5 billion threshold thus provides some buffer for us to cater to such scenarios.

We will, however, limit the maximum amount that can be borrowed if interest rates are overly high and the interest cost threshold achieves this objective. For example, if interest rates averaged around 10%, then the interest cost threshold will constrain the amount of borrowings under SINGA to $50 billion, notwithstanding the gross borrowing limit of $90 billion.

Setting the threshold at $5 billion therefore helps us to balance between fiscal sustainability and flexibility to accommodate market fluctuations.

A $5 billion threshold caps the interest costs at around 1% of our GDP in 2020 at current market prices. This is a fiscally sustainable level and would not excessively impinge on future Government's ability to fund other priorities of the day. It also provides a buffer to account for interest rates rising and falling through the cycle, as the Government borrows at different points in time to finance infrastructure as and when we need to build them. Let me elaborate.

The cost of borrowing is fixed at the prevailing yield during each bond issuance. As the Government issues bonds over several years, it will lock in interest rates at different points in the interest rate cycle. This means that even if some borrowings needed to be made during periods of high interest rates, there would have been borrowings that were made, or will be made, during periods of low interest rates, so the costs of borrowing will be averaged out over time. Further, the $5 billion threshold translates to borrowing cost of 5.5%, for $90 billion borrowing, which is high relative to historical borrowing rates. The last time when 10-year borrowing costs exceeded this level was in 1998.

With all its fiscal expenditure, the Government will be transparent in reporting the use of borrowings to finance nationally significant infrastructure. When borrowings are used to meet progress payments for nationally significant infrastructure, such spending will be reported in the annual Budget Statement and the Government Financial Statements (GFS), together with annual depreciation expenses and interest costs. Additionally, we will submit a statement of assets financed under SINGA to the President annually to ensure accountability.

Sir, let me now explain how this Bill will impact our Current Reserves and annual Budget balance.

Presently, the development costs of infrastructure are financed using revenues accruing to the Current Reserves and fully expensed upfront in the annual Budget. In other words, Government's annual Budget balance is reduced by the full development costs of any infrastructure that is paid in that year.

With borrowing, the Government will be able to raise cash to meet the outlays for these major, long-term infrastructure projects. But borrowing is not revenue and does not increase the Current Reserves that we can allocate in the annual Budget. This is why the Bill also provides for the capitalisation of infrastructure projects that are financed under SINGA. In other words, the development cost of major, long-term infrastructure will be financed using borrowings raised under SINGA, capitalised as assets and depreciated over the useful life of the infrastructure. Depreciation of SINGA assets, as well as borrowing costs, will be expensed against the annual Budget balance and will reduce Current Reserves of each term of Government over the assets' useful life.

As such, development expenditure financed by SINGA will affect the Current Reserves differently, compared to regular development expenditure. The Budget presentation will reflect this treatment. This better matches the timing of benefits with the timing of spending. Present and future generations of Singaporeans will both contribute to and benefit from such infrastructure. Put together, this approach will smoothen the upcoming hump in development expenditure and lower our average development expenditure over the next decade from around 5% of GDP to 4.2% of GDP, after taking into account depreciation and borrowing costs.

Let me explain using an example. Assume an MRT line that costs $14 billion and has a useful life of 70 years. Currently, we would expense the full $14 billion upfront, which reduce our annual Budget balance by the full $14 billion over the construction period, which may be over a period of say, 10 years. Assuming equal progress in every year, this would mean expenditure of $1.4 billion per year.

Under SINGA, the $1.4 billion cash payment for each year will still form part of the development estimates in our annual Budget, which are subject to Parliament's approval and President's assent. However, we will add back this $1.4 billion in computing our annual Budget balance as this $1.4 billion will be capitalised as an asset.

Upon completion of the construction, we will spread the total development costs of $14 billion over the MRT line's useful life of 70 years, by expensing annual depreciation costs of about $200 million instead. This means that our annual Budget balance will be reduced by $200 million over 70 years, before borrowing costs.

Clause 29 of the Bill will amend the Financial Procedure Act to allow for nationally significant infrastructure financed by borrowings to be capitalised as assets and depreciated over the useful life of the infrastructure.

The Reserves Protection Framework will continue to apply as well. If the Government runs a deficit, including depreciation and borrowing cost of SINGA assets, and do not have sufficient Current Reserves, there will be a draw on Past Reserves. Each term of Government will need to run a balanced Budget over its term, maintaining the fiscal discipline to ensure that we do not spend beyond our means. This fundamental principle remains unchanged with SINGA.

We had sought the President's in-principle support in February this year for the Government to borrow for and capitalise nationally significant infrastructure under SINGA. And as with the case for all Bills to become law, we will also seek the President's assent to this Bill. Under Article 144 of our Constitution, the President has the discretion to withhold assent to any Bill providing for the borrowing of money by the Government, if she is of the opinion that the Bill is likely to draw on Past Reserves. Only after Parliament has passed and the President assented to the Bill, will the Government be able to borrow for nationally significant infrastructure, up to a gross limit of $90 billion.

Mr Deputy Speaker, Sir, I would like to make it clear that this Bill introduces a new form of Government borrowing to finance spending on nationally significant infrastructure.

This is distinct from existing borrowings under the Local Treasury Bills Act or LTBA and Government Securities Act or GSA, which are for specific non-spending purposes, such as for market development, meeting the investment needs of CPF and liquidity. All borrowing under the LTBA and GSA are invested and cannot be spent. Even if we were to borrow up to the $90 billion limit under SINGA to finance nationally significant infrastructure, the majority of our borrowings will continue to be under the LTBA and GSA, which are for non-spending purposes. Some commentators have incorrectly interpreted our high gross debt-to-GDP ratio as a sign of fiscal imprudence, when in fact, our assets are well in excess of our liabilities.

To address these misperceptions, we intend to clearly delineate the two types of borrowing in legislation. First, borrowings to finance spending on nationally significant infrastructure under the SINGA; and two, borrowings which are invested and cannot be spent under the LTBA and GSA. We intend to merge the LTBA and GSA into a single Act, as both are for non-spending purposes. The merger Bill will be tabled in Parliament in the coming months.

In addition, this Bill repeals the Development Loan Acts (DLAs) which previously allowed the Government to borrow for development expenditure in the 1960s to 1980s. This makes it clear that borrowing for developmental purposes going forward, can only take place under the new safeguards that are imposed under SINGA.

Mr Deputy Speaker, Sir, let me now conclude.

In 1965, shortly after Singapore became an independent nation, Mr Lee Kuan Yew said, and I quote, "Over 100 years ago, this was a mudflat, swamp. Today, this is a modern city. Ten years from now, this will be a metropolis. Never fear". Since Independence, infrastructure has played a major role in Singapore's remarkable physical transformation from mudflat to metropolis.

We built a world-class airport that has made us the open, globally connected city we are today. We created our first reservoir in the city and the largest reservoir in Singapore, the Marina Reservoir, by building a dam to keep out seawater. This innovative method provides us with an additional source of water supply and helps alleviate flooding in low-lying areas of the city.

The Downtown Line, which opened in end 2015, reaches out to residential areas such as Bukit Panjang, MacPherson and Bedok Reservoir that were previously not served by the MRT, cutting travel times for Singaporeans living in these areas and connecting people to the city centre.

Moving forward, infrastructure will remain important as our country enters into its next phase of development. We will turn our metropolis into a green, global city that is robust in addressing future challenges. We are building a sewerage system that helps us recycle every drop of water in a never-ending loop. We will bring green and efficient transport options closer to more Singaporeans. We will build coastal protection infrastructure to protect our coasts from rising sea levels caused by climate change.

And in so doing, we will build a Singapore where we and our children can live our best lives in a safe, green and liveable environment, for all time and seasons to come.

This Bill will allow the Government to borrow so that we can make bold and necessary infrastructure investments that are critical to Singapore's long-term development – just as our forefathers did.

It provides an additional fiscal tool to continue to build Singapore for the future. It adheres to our prudent fiscal approach by ensuring that we do not risk borrowing beyond our means.

After all, all debt has to be paid for. If we do not borrow responsibly and sustainably, we would risk being unable to meet our debt obligations. This would jeopardise our credit rating as well as investor confidence and this will hurt us and our children in the future.

This Bill ensures that we borrow to spend only on nationally significant infrastructure investments which will benefit many generations of Singaporeans to come – in line with our values of taking a long-term view and staying prudent and responsible.

We are not borrowing to spend on expenditures that will be consumed quickly. Current generations should continue to pay for their own recurrent needs like healthcare expenditure through recurrent revenues such as taxes. This is the right and responsible thing to do.

Let us share the effort to build our nation together. Most importantly, let us never stop thinking about our future.

In the long journey of nation-building, each generation of Singaporeans are relay runners. Let us always take good care of what we have inherited, run our best race and pass on a better Singapore to those who come after us.

This Significant Infrastructure Government Loan Bill is but one step in this long journey. It seeks to do right by Singaporeans, both present and future, through the financial plans and provisions that we make today. Sir, I beg to move.

Question proposed.

Mr Deputy Speaker: Mr Liang Eng Hwa.

4.02 pm

Mr Liang Eng Hwa (Bukit Panjang): Mr Deputy Speaker, Sir, I will speak on two aspects related to this Bill: firstly, on fiscal prudence and financial discipline, whether that has been undermined with the SINGA Bill; and secondly, on intergenerational equity, a somewhat new perspective that increasingly deserves our attention.

I will also briefly touch on the other tactical considerations with regards to the Government's long-term borrowing strategy, namely interest rate levels and credit costs, servicing and repayments of the Government's borrowings as well as the development of the Singapore debt capital market.

First, on fiscal prudence and financial discipline. Since Independence, the overarching guiding values of our fiscal management have been to spend within our means and to maintain a balanced Budget. We saved whenever we could for rainy days and refrained from borrowing to pay for our expenditures. Whenever we had surpluses at the end of the term of government, we would either redistribute or endow it for specific uses such as the Pioneer Generation Fund, the Rail Infrastructure Fund, the Special Employment Credit Fund and so on. Otherwise, we would convert the surpluses to reserves so as to grow the base, to invest and to a generate larger returns contribution in the future.

These values of prudence and discipline are also enshrined in our Constitution.

The Government of the day must balance the Budget during the term of government. The President holds the second key in the use of reserves and only up to 50% of the NIRC can be used to fund the current annual Budget spending. There are also gross borrowing caps set by the Parliament on the issuance of Government debt securities where the proceeds can only be used for investments.

Besides these institutional safeguards, it is also vital to have alignment at the political stewardship level. We are fortunate to have successive Ministers for Finance who are committed to the values of prudence and discipline. Some would say that our Ministers for Finance tended to be conservative in managing the Budget. Well, they should be. For a small island state like Singapore, a higher safety buffer is always wise and will always serve us well. We must always expect a major storm around the corner that could hit us and when it does, we can take comfort that we have the resources to decisively tackle and overcome the crisis.

Our prudent and disciplined management over the years has allowed Singapore to build a strong balance sheet with net zero debt and attain the highest international sovereign ratings of AAA by global rating agencies. As a result, whenever the Government taps the debt market, it is able to borrow at a risk-free rate or at zero credit costs. This opens another avenue of inexpensive funding for the Government.

Sir, the basic question then is whether this differentiated financing strategy where we can now borrow over a long term to fund large-scale capital expenditures signals an increasingly less prudent management of our finances?

In all fairness, the Government did borrow in the 1970s and 1980s to pay for the construction of Changi Airport and our MRT lines. However, since the 1990s, we have used the annual budget and the accumulated surpluses to pay for major infrastructure projects.

Under this SINGA framework, lumpy infrastructure costs greater than $4 billion can be financed using long-term debt.

I have been pondering this topic since it was first raised in 2018; should we be concerned with this new approach and where it could lead us to? Will these borrowings burden our future generations with high interest costs and large bullet repayments? Or is it indeed timely to now be open to long-term debt financing so that we can achieve the optimal outcome for Singapore given the current circumstance?

Let us first look at the realities before us.

First reality: we do have significant infrastructure expenditures in the immediate future and these are not small spending items. Projects like the Cross Island Line, Jurong Rail Line as well as the Deep Tunnel Sewerage System are not only super big-ticket outlays, their constructions may stretch more than a decade with benefits accruing across generations.

Second reality: even if we were not in the midst of the COVID-19 crisis, financing such huge expenditures using current revenue or accumulated surpluses would still pose a significant strain to the annual Budget allocation.

Our recurrent expenditures are already growing each year while our revenue outlook looks increasingly uncertain. The massive pandemic-related relief spending has also exacerbated the strain on our books. To fund such mega long-term projects under current Budget cycles, we may have to either cut other spending or raise tax revenues – neither of which are suitable under the current environment.

So, we are indeed facing a situation of tighter fiscal headroom going forward. Should we delay these critical projects because of current budget constraints? Well, these infrastructures are necessary to enhance our capabilities and to improve our quality of life. We should get these projects going soonest.

Should we then just draw on our reserves to pay for these projects? If this is indeed the instinctive mindset, then we would really be going down a slippery slope. We should not see the reserves as an ATM to be drawn on whenever we need money. Reserves should only be used as a last resort such as during a devastating crisis like the one we are in today. They are our last line of defence and we really want a solid defence.

Each draw on our reserves also means divesting a part of our financial investments and so we will lose out on the returns from these investments and their contribution to NIRC.

Given these considerations and the current budgetary constraints, I would agree that the next best option would be to borrow for such expenditures – but with strict conditions.

I note the list of qualifying criteria to borrow under SINGA such as the minimal useful life of 50 years and that the projects should support national productivity and achieve economic, environmental and social sustainability goals.

Similar to the Government Securities Act (GSA) and the Local Treasury Bills Act (LTBA), we need to also hardcode the necessary prudential safeguards so that borrowings are indeed selective and controlled. The overall gross borrowing limit of $90 billion ensures that the Government will not run into an excessive debt situation and that we will have the ability to service and repay the debt.

It is also important to impose an annual interest threshold to avoid overly onerous financing costs on future generations, although, in my view, the $5 billion threshold in the Bill appears to be on the high side. And the reason is because besides the interest cost, there is also the depreciation charge. Under the SINGA framework, we need to capitalise the expenditure and these items – both the interest cost as well as the depreciation charge – will henceforth be an additional recurring expense item in our annual Budget. This is a significantly large expense item and will make the overall balancing of the Budget more challenging going forward.

Hence, this option of tapping the debt market to finance very large infrastructure projects can only be palatable if interest rates and costs remain low.

Indeed, interest rates are at historical lows today, presenting an opportune window for the Government to seek funding. It also makes good sense to take advantage of our very solid credit ratings to enjoy zero credit cost borrowing in the market. From a capital market development standpoint, having such a high quality issuance will also deepen our bond market and attract a bigger pool of institutional investors to Singapore.

Sir, we are far from those countries with high public debt-to-GDP ratio, which transfers heavy tax burden of today onto future generations. This brings me to the next point on intergeneration equity.

Perhaps the more enduring argument as to why we should introduce the SINGA Bill is that it helps better manage intergenerational equity when we fund very large and very long-term infrastructural projects.

During the early years of Independence, where survivability as a nation was our foremost concern, our pioneering generations saw the need to tightened belts and save for a better tomorrow. The savings built up provided security and benefited subsequent generations who also saw as their obligation to build on past savings so as to provide a better and more secured life for the next generation.

The is the self-sacrificing spirit of the Pioneer Generation as well as Merdeka Generation. They supported the Government's prudent fiscal policy and worked hand in hand with the Government to grow the reserves and strengthen our fiscal foundation.

As we built up our nest eggs over the decades, the Government would regularly share and distribute the fruits of our past successes. At the same time, we also accumulated where we could so as to provide for higher spending needs in the future.

In 2009, the Government tweaked the reserves framework and also introduced the NIRC as another contribution to the budget to help pay for our growing current expenditures. In a way, the 50-50 sharing of the NIR represents an intergenerational balance that we want to achieve between current and future generations.

In 2015 and 2018, to thank our Pioneer and Merdeka Generations for their sacrifices, the Government set aside a total of $15 billion from the accumulated surplus or current reserves to set up the Pioneer Generation Package (PGP) and Merdeka Generation Package (MGP) to provide healthcare support for our seniors. The Government also increased the share of Budget spending in senior facilities and major healthcare infrastructures, amongst others, to care for this generation of seniors.

On the other hand, in order not to pass the buck of current spending to future generations, we strive to use current revenue to pay for these recurring expenditures, thereby ensuring sound and sustainable operating finances.

The financing of our large-scale long-term infrastructure with long-term borrowing is a further manifestation of that spirit of equity. As this infrastructure benefits multiple generations, it is more equitable to share the costs across generations by way of a long-term financing structure.

Although I support the Government's greater emphasis on intergeneration equity in our fiscal management, we know it is always difficult to find that balance that everyone agrees with. So, while we can depend on frameworks like SINGA and NIRC to seek better equity, we should never discard our long-held values and ethos of always leaving something behind for our next generation and to strengthen our future. Sir, in Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] Mr Deputy Speaker, Sir, the SINGA Bill introduces a very important topic on intergenerational equity, that is, how to distribute fiscal resources and burdens in a more balanced way between generations?

In the past, our Pioneers scrimped and saved so that future generations can have a better and more stable life, as well as more financial resources to rely on during rainy days. It was the spirit and values of the Pioneer Generation to be thrift and to toil before enjoying. Because of their sacrifices, Singaporeans today enjoy sizeable reserves. It is exactly because of our reserves that we can have the resources and confidence to fight the current COVID-19 crisis.

As the economy matures and demography changes, our fiscal policies and practices must change accordingly, especially in terms of the intergenerational distribution of financial resources and fiscal burdens.

Let me give two examples.

First, of course, we want to strengthen our financial foundation. We should not change this principle and practice. But when each term of Government ponders upon what to do with the Budget surpluses and NIR, the idea of intergenerational distribution of fiscal resources should be considered.

Over the years, as our fiscal position improves, we have been able to allow this generation of Singaporeans, including our Pioneers, to enjoy the fruits of economic growth and improve their lives. That is why we introduced the Pioneer Generation Package and the Merdeka Generation Package and allocated more funds in each Budget to build more healthcare facilities to better look after the seniors.

With regard to NIR, we amended the Constitution in 2009 to allow 50% of the NIR to be used to fund the current annual Budget spending, to help balance each year's Budget. The other half of the NIR must be reinvested in our reserves so that it can continue to grow. We can then continue to have more returns to be injected into each year’s fiscal revenues to cope with the fast-growing expenditures of the future.

I think this is an acceptable and balanced intergenerational approach. As the saying goes, "50-50, feelings will not be dissipated". This will promote intergenerational harmony and allow each generation of Singaporeans to enjoy the fruits of our success

Second, we also need to ensure that there is a balance between recurrent expenditures and revenues for each term, and that there is no deficit, so that we can sustain it for the long term. For each generation of Singaporeans, the recurrent expenditures must be borne by the current generation and not through loans and other forms to spend the revenues of the future. They should not pass the fiscal burden to the future generations.

This is being responsible and is in line with the principle of equity.

Now that the Government is introducing this new Bill, I think this is a good opportunity to adjust the intergenerational distribution of fiscal resources within an appropriate scope.

In the past, we used our current Budget surplus to fund lumpy, large-scale projects. That is to say that, we are using the current generation's money to pay for infrastructures that will benefit future generations. But we know that as the economy matures and the population ages, our expenses will continue to increase, and our Budget will tighten. Worse still, with the pandemic and not knowing how long it will last, our overall fiscal outlays and revenues will definitely be subjected to greater pressure. If we continue to use the annual Budget surplus to pay for these mega infrastructure projects, we will have to face the choice between reducing expenditures in other areas or tax hikes. Both options, given the current economic situation, are not palatable.

With this new Bill, we can fund lumpy, long-term infrastructure projects by issuing long-term debts. This is the next best thing at this stage. I would like to give two reasons to support it.

First, the long-term interest is at a historic low so we can use this window of opportunity to reduce the borrowing cost to the lowest.

Second, by issuing long-term debt, we can achieve intergeneration equity by spreading the burden to future generations as well.

Projects like the Cross Island Line, Jurong Rail Line as well as the Deep Tunnel Sewerage System are all long-term, cross-generation endeavours which will benefit many generation onwards. Through long-term loans, we can more appropriately spread the burden across several generations. This is fair and can also avoid major budgetary fluctuations from year-to-year. Of course, we have the duty to ensure that we do not leave a huge debt to our future generations.

This Bill has also set certain key principles that we must abide by, such as the $90 billion borrowing limit and the $5 billion annual interest payment threshold. These two ceilings will help ensure that Government will not have too much debts and that it will have the ability to repay.

I believe this Bill will give the Government another fiscal management tool, so that the Government can respond more nimbly amidst the current uncertainties and have more policy space to address the issue of intergeneration equity.

(In English): Sir, I have two further clarifications.

First, during the debate on the 2021 Budget Statement earlier this year, I had suggested that if the fiscal condition remains tight, the Government could consider special purpose borrowing to finance time-critical and worthy investments to avoid having to divest our financial investments in the past reserves.

In his round-up speech, the Deputy Prime Minister replied that the Government would study the possibility of a one-off, special purpose borrowing to finance economic investments to help Singapore emerge stronger from COVID-19. So, can I clarify whether the Government envisages that the considerations behind such one-off borrowings would be different from those of SINGA?

My own thinking is that, when I made the suggestion during the Budget debate, it should be different. SINGA is meant to finance major, long-term infrastructure benefiting multiple generations.

I would suggest that the one-off special purpose borrowing be to finance economic investments to emerge stronger and should only be done in the context of the exceptional circumstances presented by COVID-19. For example, we may need to invest in capabilities that take advantage of the new opportunities in the global economy arising out of COVID-19. So, if our revenues are insufficient to fund these investments due to the economic situation being subdued, then we can deploy such special purpose borrowings. And such special purpose borrowings can also be distinguished from the normal borrowing in that it is one-off, it has a clear nexus with strategies for post-COVID-19 recovery and investment and also help us keep our assets invested. Could the Deputy Prime Minister provide an update on this?

My second clarification is, as mentioned in my speech, one of the most invaluable international accolades that we received is —

Mr Deputy Speaker: Excuse me, Mr Liang, you have to wrap up quite shortly, please.

Mr Liang Eng Hwa: — our AAA rating by all three major global rating agencies. I believe we are amongst the remaining nine countries in world left that continue to enjoy this highest rating. So, being a AAA-rated sovereign enables us to borrow from the international market at a risk-free rate. It also has implications on the borrowing cost of Singapore corporates, as bonds issued by corporates/companies are often benchmarked to the Singapore Government yield curve.

So, can I ask the Deputy Prime Minister if our AAA rating status could be affected with this SINGA Bill and how have the rating agencies and international market responded to this new move? Sir, I support the Bill.

Mr Deputy Speaker: Ms Foo Mee Har.

4.25 pm

Ms Foo Mee Har (West Coast): Mr Deputy Speaker, the proposed Significant Infrastructure Government Loan Bill, SINGA, represents a significant shift in the Government's position on borrowings for the purpose of Government spending. I support the Bill.

It is coming at a time when the country is facing another hump in its development spending needs, with plans for new rail lines, water and sewerage infrastructure as well as coastal protection measures against rising sea levels. These important projects come amidst a tighter fiscal situation, exacerbated by the COVID-19 pandemic. The proposed SINGA will enable the Government to continue investing in nationally significant infrastructure which incur heavy upfront costs but provide long-term benefits.

With the low interest rate environment and Singapore's AAA credit rating, the borrowing cost associated with SINGA is expected to be low. SINGA will make related amendments to the Financial Procedure Act to provide for capitalisation of the expenditures of these nationally significant infrastructure over the long term. This is in contrast to the current approach of fully expensing off upfront in the annual Budget of the Government.

Sir, the ability to capitalise expenditure under SINGA will enable lumpy upfront costs to be spread out across current and future generations who will enjoy these benefits. It will help free up cash for other needs, lessen pressure for tax increases and trade-offs on competing important investments.

Sir, I have three questions for the Minister to clarify relating to capitalisation.

One, for the Minister to provide details on how far out capitalisation of projects under SINGA will be allowed. Two, quantify the fiscal space created from this new accounting treatment. Three, estimate the amount of taxes that would have had to be raised to fund such long-term expenditures, if these were made under the current annual expense approach.

Sir, even as I support this Bill, we must exercise utmost discipline in what we borrow for and the extent of our borrowing. I would like to call out the need to guard against going down the slippery slope of other countries, where public debt has been accumulated to higher than that of their GDP, thereby transferring immense tax burdens from today onto future generations.

High levels of Government debt can have adverse effects on the economy, including crowding out of private sector investment, creating the expectation of future tax increases and injecting overall uncertainty into the economy.

It is critical that SINGA does not represent a material shift from the Government's long-held policy stance of maintaining fiscal prudence. We must ensure that our net asset position remains strong to absorb the borrowings under SINGA. The debt we accumulate must not put unfair pressure on future generations.

So, to avoid the temptation of a "spend, spend, spend" mentality that access to "easy" money can engender, it is critical that the Government puts in place the necessary safeguards. It is important that we establish a set of robust parameters at the starting line now. Borrowings must be carefully calibrated and we must draw a red line that should never be crossed.

Mr Deputy Speaker, I am, therefore, comforted that clear provisions are provided in the Bill to separate major infrastructure from routine infrastructure and recurrent spending. Projects under SINGA need to be at least $4 billion, with the infrastructure available for use for at least 50 years, owned by the Government and important to national interests.

I call on the Government to put in place a SINGA Evaluation Panel, to include independent expert panels, to ensure all projects funded under SINGA are highly selective, robustly assessed against the qualifying criteria provided under the Bill. There should also be cost-benefit analyses to justify the expenditure.

It is important that our borrowings are sustainable and prudent. The Bill includes safeguards that cap the overall gross borrowing at $90 billion. However, Statutory Boards such as HDB, LTA and PUB have also issued bonds on financial markets to finance infrastructure projects. How do we ensure that cumulative bond issuance, whether for SINGA or non-SINGA projects, by all Government agencies as well as contingent liabilities, remain within an acceptable range? Borrowings under SINGA are capped at $90 billion, about 20% of GDP. I would like to ask the Minister, if this limit will be adjusted as GDP grows? How will the Government ensure Singapore's AAA credit rating be preserved amidst increase borrowings?

Sir, the Bill provides for an annual interest threshold of $5 billion to avoid imposing burdensome financial costs on future generations. Nevertheless, the potential interest costs of $5 billion on our annual Budget is still very significant. To put things into perspective, the impending GST hike of two percentage points is expected to raise $3 billion in revenue, but GST would have to be raised 3.3% to cover interest costs of $5 billion. This does not include the additional revenue needed to also fund annual depreciation of the capital expenditure borrowed under SINGA.

Of course, having said this, given the current low interest rate environment in the foreseeable future, I do agree with hon Member Liang Eng Hwa that it makes sense to tap the debt market now but we must remember interest rate can rise. So, this Bill does provide some buffer for interest rate cycles' yields and the potential for issuances of longer tenure bonds.

Mr Deputy Speaker, the Government's intention to issue green bonds under SINGA is a great move. For a start, up to $19 billion in public sector green projects have been identified to be financed by green bonds, including the waste and water treatment facility at Tuas Nexus.

SINGA has the potential to catalyse the flow of capital towards sustainable development, not just in Singapore, but in Asia. I have seen a strong momentum amongst investors around the world towards environmental, social and governance (ESG) causes, with increasing numbers of asset owners making commitments to prioritise sustainability and investing for good in their investment portfolio. The green bonds under SINGA are, therefore, likely to be well supported by market demand, attract more favourable pricing and have potential to deepen market liquidity for green bonds.

Last but not least, I would like to end by seeking a number of clarifications from the Minister in relation to the assets under SINGA.

With the expectation that the infrastructure should be available for use for least 50 years, does the $90 billion limit take into account upgrading and maintenance cost over the lifespan of the infrastructure? If not, where in the Budget does it provide for this cost?

Two, if interest rates rise and the cost of debt servicing hits the threshold, does the Government have the right to divest the Government-owned assets in part or fully to keep within the interest rate threshold?

The Government can raise money outside of Singapore and in a currency other than the Singapore dollars. How does the Government intend to manage the foreign exchange risk related to this borrowing?

Mr Deputy Speaker: Assoc Prof Jamus Lim.

4.34 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Deputy Speaker, during the Budget 2021 and subsequent Committee of Supply debates, I suggested that our notion of infrastructure should not be limited to traditional understandings of physical structures and facilities. I explained how if we wish to be a leader in the modern knowledge-driven economy of the future, we can and should direct our development expenditures ever more towards investments that are essentially weightless in nature and scale back on the lumbering, massive capital projects of yesteryear.

Today, I wish to flesh out these arguments in greater detail. I will explain how investments in human capital are not only distinct from investments in labour, but also more akin to our usual definitions of infrastructure. I will also share how returns to human capital often significantly exceed those of hard infrastructure even as we are looking purely at the boost to macro-economic growth. I then offer a simple checklist of how we can distinguish between human capital investments from recurring expenditures.

For starters, allow me again to applaud the Ministry for its willingness to relax its traditional reticence towards borrowing, to recognise that this really is an opportune time to exploit historically low interest rates to finance important, long-term investment opportunities. I sincerely believe that there is a pearl of wisdom in this oyster of insight.

I do have a number of concerns specific to the Bill itself.

My first concern has to do with both the total borrowing limits of $90 billion, as well as the interest threshold amount of $5 billion stated in clause 5 of the Bill. Well, I understand that it is ultimately necessary to impose specific thresholds. I think it is worth asking how these values were arrived at. I also wonder why the interest threshold of $5 billion was chosen which would imply an interest rate of 5.6%, as Minister Heng alluded to. Because this strikes me as rather high given the current interest rate environment. And since rates are locked in at the time of issuance, it also raises the hurdle rate for infrastructure investments that may be considered.

Second, I note that clause 5 of the Bill also allows for monies to be raised in foreign currency, as Member Foo Mee Har has mentioned. This suggests that if our inherent liabilities are long-term and denominated in Singapore dollars, this exposure if undertaken in foreign currency subjects the debt to a non-trivial amount of currency risk. What mitigation mechanisms does the Ministry or MAS plan to deploy to limit such risks?

Third, clause 11(2) of the Bill defines nationally significant infrastructure to be one that has a useful life of at least 50 years upon completion of the project. Again, while I appreciate that a duration for what constitutes significant will ultimately have to be chosen, I would note that many existing infrastructure projects would not have qualified under this rather long timespan.

The Tanjong Pagar Container Terminal, for instance, began operations in 1972 and moved to Pasir Panjang in 2017, amounting to 46 years. The Brani Terminal dates back to 1992 and is set to be decommissioned in 2027, by which it will have operated for 36 years. Kallang Airport lasted for 19 years and Paya Lebar Air Base, while it operated as Singapore International Airport, lasted 28 years.

A lower useful life threshold of say, 35 years, strikes me as more reasonable.

Finally, I will add that clause 11(4) requires that the qualifying capital expenditure for every project participant must amount to at least $4 billion. For public-private partnership projects, then, this would either rule out those where the Government is either unable to secure sufficient private sector buy-in which may in or of itself be a signal of the project's potential viability, or when buy-in is sufficiently large, it would preclude the Government from being able to take a minority stake. I understand that this is the purpose. But nevertheless, it should be clear what our trade-offs are.

Having said all that, what is infrastructure? The Oxford English Dictionary defines it as the basic systems and facilities needed for the operation of a society or enterprise. Such systems and facilities could and typically do refer to roads, bridges, power ports or what I will refer to as hard infrastructure. Roads get us to work, power keeps us working in ports, allows us to sell the fruits of our work to markets, far and wide. There is no dispute that when designed and implemented well, hard infrastructure accumulated over the span of many years or decades can yield valuable payoffs to an economy and society, and, hence, is an endeavour worthy of Government investment.

But it is not difficult to conceive of other systems that are critical for the successful functioning of any modern economy. We sit in the House operating under the auspices of a particularly successful realisation of the Westminster system of government, without which our contracts might not be honoured, our policies not delivered or our peace not guaranteed. Our healthcare system has kept us safe from the ravages of COVID-19 and our educational system has allowed our emergence, in the words of Founding Father Lee Kuan Yew "from Third World to First". These latter two aspects – health and education – and arguably constitute systems that enable the operation of not just our, but any 21st century economy. We often refer to the accumulation of knowledge and wellness which makes us productive as human capital, and the systems that deliver human capital are essentially soft infrastructure.

Mr Deputy Speaker, I am not alone in insisting that infrastructure can be more broadly and meaningfully defined. The recently announced American jobs plan, while billed as a US$2 trillion infrastructure stimulus, nevertheless, construes a much wider scope for what constitutes infrastructure, including the soft infrastructure components I am suggesting here.

If one is willing to apply a charitable interpretation, clause 2 of the Bill actually already allows for SINGA to encompass soft infrastructure. Part B(7) states that investments are to support or materially improve productivity and Part C requires that they benefit present and future generations of Singaporeans.

Human capital investments are entirely consistent with both of these sub-clauses. The only limitation being that it constrains infrastructure to any structure or building, whereas I would instead allow for structure, building or projects instead.

The standard concern that this Government has historically raised is that we should not be financing routine spending – payment of our education and healthcare professionals or funding allocated to subsidise such efforts – with long-term borrowing. But these are only recurring expenditures when viewed from the perspective of the service delivery providers. In this sense, paying our teachers, our trainers, our doctors and nurses, our scientists and researchers are certainly a variable cost. But when viewed from the perspective of the recipients – our students, our temporarily sick, our potential inventors – we can see how we are ultimately vesting value into the future. Moreover, we already systematically embed development expenditures, which by definition are deigned to be long lasting, into our annual fiscal Budgets, a recognition that what is spent on a year-to-year basis cannot be easily disentangled from multi-year projects.

By the same token, funds devoted to soft infrastructure can and should be regarded as non-recurrent development financing, especially when returns are expected to accrue over the very long run. My Sengkang colleague, Louis Chua, will elaborate on why this distinction between development expenditures and long-term assets may well turn out to be an artificial construct.

Another objection to Government's investment in human capital or soft infrastructure more generally is that being embedded in private individuals, investing the greatest benefits to them directly, could mean that it is difficult to justify paying for skill and experience acquisition out of the public purse. However, there are means by which such private returns may be recovered. One approach is to offer scholarships that are contingent on incomes finally earned. I will return to this example in a bit.

When we think about investments, the standard approach is to compare observed returns. This is bread-and-butter work for the professional fund management industry, of which I have been a part. As an asset class, the expected long-term returns from global infrastructure, net of inflation, is only 2.6%. In contrast, the real returns to an additional year of schooling is often in the order of 10.2%, almost 10 times as large.

One could argue, of course, that such returns are private returns and do not capture the contribution of each of these factors in macroeconomic performance. That is fair enough. So, let us go ahead and compare their respective contributions to economic growth. While estimates may differ, one recent study suggests that a 1% increase in infrastructure capital can elevate output by 7% to 10%, not a number to be sniffed at. But the comparable increase in Secondary education alone could induce gains of 10% to 12%. Other credible estimates suggest even higher gains as much as 16%.

Sir, the bottom line is straightforward: whether we focus on public or private returns, investments in soft infrastructure, such as human capital, generally offer a higher payoff compared to hard infrastructure, and my belief is that we should invest more in the type of infrastructure assets that offer a greater bang for the buck.

While a comprehensive checklist for evaluating the merits of any human capital project falls well beyond the scope of this speech, I will sketch out some assessment criteria that I believe are worth considering as to whether a project should be classified as soft infrastructure.

First, as a basic principle, the assessed returns from the project should more than pay for its original outlays. This is a remarkably low hurdle. Schooling projects that permanently raise an individual's income, say, a full-ride scholarship to university, could translate into as much as 70% higher lifetime earnings. Such higher incomes would mean higher tax returns over the course of the person's working life, which could easily pay for the original costs of the scholarship.

Second, most capital projects often impose static criteria, involving cash flow analysis. The most common among these are payback period computations, which is the time needed for the project to return the original investment, in terms of cash flows generated. For hard infrastructure, these may be measured in terms of tolls or user fees; for soft infrastructure, these would be evaluated by enhanced tax revenue. Since changes in taxable incomes are not generally large, we can conceivably entertain payback periods of between 10 and 12 years.

Third, capital projects also allow for dynamic criteria, such as the net present value of a project or its internal rate of return. Such criteria are easily adjusted to accommodate human capital projects. The main adaptation is to substitute the useful working life of a project with the average duration of a working life. In advanced economies, this duration averages 36 years. This itself would exceed the useful life threshold of 35 years that I outlined earlier for hard infrastructure projects.

Finally, as is the case for hard infrastructure, all borrowing should roll in the full amount of the project's expenditure, including interest costs and regardless of whether the disbursement is over time, into the initial borrowing issuance. This protects against unexpected changes in interest rates and the need to roll over borrowing.

What might some examples of soft infrastructure projects, which broadly meet the conditions I set out above, be? In my earlier speeches, I spoke about how we could finance smaller class sizes, even if on a limited basis, for languages and math, or to provide additional funding for teaching aides. This will allow us to avoid closing or merging schools and instead direct SINGA funds towards keeping schools open, albeit with trimmed-down class sizes. Similarly, we could use SINGA to seed an initial insurance risk pool, so as to enable us to roll out redundancy insurance without delay and without drawing down on our reserves.

The Workers' Party manifesto has also suggested raising the target percentage of university graduates per cohort, expanding additional baseline funding for less popular schools and expanding the number of infant care centres, especially in demographically-consistent neighbourhoods. All these examples could conceivably qualify as long-term human capital accumulation projects.

Two more ideas may be considered. First, we could use SINGA to seed a fund for income-contingent scholarships, as I mentioned earlier. The Government pays for all the costs of University or the continuing education programme, perhaps subject to a very modest co-payment as collateral. The recipient would then pay off that acquired debt only in the event that they secure a job, following graduation. Of course, some details, such as the specific major that is allowed to be undertaken, may need to be finessed. But the overall idea strikes me as eminently implementable.

Second, we could direct SINGA funds towards vouchers that would be applied by parents to send their children to both non-KiFAS-eligible pre-schools as well as charter schools, which are schools allowed to develop non-traditional syllabi that de-emphasise academic testing but, nevertheless, set rigorous, assessable markers for inquiry, innovation, imagination and invention. The key difference here is that these schools would be funded indirectly by the vouchers, instead of direct MOE-approved funding. The upshot of such schools is that they may even generate excellent test scores, even if this objective does not feature in their original mandates.

Mr Deputy Speaker, I have, thus far, emphasised all the economic payoffs to investing in soft infrastructure. In closing, allow me to also touch on why the benefits of human capital accumulation go far beyond simply improving the productive capacity of our economy.

A nation rich in human capital is often one that is simultaneously rich in ideas and experiences, happiness and well-being, wisdom and understanding. These contribute far beyond the narrow scope of economics. An educated and informed populace will be engaged, creative participants in our political process, enhancing our democratic credibility. Creative and curious individuals also bring out diversity and novelty to our social environment, enriching our cultural and artistic landscape. Indeed, Gary Becker, the Nobel Prize-winning economist who pioneered much of the early work on human capital, deeply understood the importance of habits, culture and social interactions and the role they played in the long-run success of a nation.

It is in this spirit, extending beyond only dollars and cents, that I am making the case for us to expand our conceptualisation of SINGA infrastructure beyond structures and buildings, to encompass investment in our children, in our people, in the one resource that we truly have as a country. On that note, Mr Deputy Speaker, I offer my support for the Bill.

Mr Deputy Speaker: Order. I propose to take a break now. I suspend the Sitting and will take the Chair at 5.15 pm.

Sitting accordingly suspended

at 4.53 pm until 5.15 pm.

Sitting resumed at 5.15 pm.

[Deputy Speaker (Mr Christopher de Souza) in the Chair]

Significant Infrastructure Government Loan Bill

Debate resumed.

5.15 pm

Prof Hoon Hian Teck (Nominated Member): Mr Deputy Speaker, Sir, although the Singapore Government has borrowed from international lenders previously to fund public infrastructure projects, such as the loans it took in the 1980s to build the first MRT lines, this Bill is significant in the scale of borrowing and the types of infrastructure that qualify.

It has been remarked that it is efficient to issue new bonds under the proposed Significant Infrastructure Government Loan Act (SINGA) as it allows the country to benefit from the current low interest rate environment. To place this remark in perspective, it is helpful to recognise that for a small, open economy like Singapore that is well integrated with the international capital market, the interest rate charged on a sovereign loan is roughly speaking the sum of a safe rate of interest such as the interest on the US Treasury Bill and a credit risk.

While the Singapore economy largely takes a safe rate of interest as given, the currently low credit risk is the result of past fiscal prudence. Our capacity in the future to generate tax revenue to meet our future spending needs will be necessary to enable the country to maintain this low credit risk. In other words, the credit risk can move up or down even when the safe interest rate stays constant.

What factors led to the creation of fiscal space in the past and what factors might affect Singapore's credit rating in the future?

Before answering these two questions, it is good to quickly review the justification for SINGA Bill that we are talking about in Parliament.

The purpose of the Act is to enable the Government to borrow and to finance nationally significant infrastructure to support or improve national productivity or Singapore's economic, environmental or social sustainability.

As I read it, there are two dimensions to the infrastructural investment.

The first is public investment, such as in roads and major highways, which serves to raise the productivity of firms. There is evidence that the stock of public capital – highways, roads and so on – complements private capital so that the public capital raises the returns to private business investments. Consequently, workers' productivity is also raised.

The second is infrastructural investment which serves to mitigate the adverse effects of climate change, such as seawalls and dykes. In the absence of this second type of investment, not only would national productivity fall, lives could be at risk with coastal hazards.

Since the benefits derived can be enjoyed by as yet unborn generations, the Government of the day must act on their behalf. They are not around to vote.

It is also justifiable to issue new bonds to finance such infrastructural investments so that future generations can share in bearing the tax burden. This is intergenerational distributive justice.

To the question of what factors led to the currently low credit risk.

No doubt, Singapore's remarkable economic catch-ups since Independence effectively expanded the tax base at given tax rates. With economic growth, real income steadily increased decade after decade. Income inequality was not a serious problem in the first couple of decades after Independence as industrialisation increased the demand for relatively unskilled to semi-skilled workers, thus pulling up their wage earnings.

With a relatively young population then, healthcare spending was a smaller share of the Budget. Thus, the demand for fiscal resources to support social spending was less pressing. Budgetary surpluses added to our national reserves. Unlike unfunded social security systems, a pay-as-you-go system where current taxes on the working young are used to pay for the benefits of retirees, Singapore's fully funded social security system, the Central Provident Fund, also added to national saving.

These factors altogether contributed to Singapore's good credit rating. That was how we achieved our low credit risk.

Looking to the future, what factors might affect Singapore's credit rating?

With health expenditure rising as a share of gross domestic product (GDP) in tandem with an ageing population, having the capacity to raise tax revenue to fund such spending will become important.

The concept of fiscal sustainability is useful as a way to think about how to maintain a low credit risk. The Government Budget at any point in time is fiscally sustainable if the expected present value of primary surpluses, which do not include interest payments, is at least as large as the size of the public debt. Although a country can still run into Budget deficits – when it is hit by a recession, for example – it must ultimately plan to generate tax revenue that is in excess of current spending in other years if it is to be able to service an outstanding stock of public debt.

To use an analogy, suppose that at the start of your career, you take out a loan. Then, although in future periods, you might still occasionally borrow, there must be sufficiently many periods during which you spend less than your income for you to be credit worthy.

In anticipation of increased social spending, in particular on health, with an ageing population, it would be necessary to raise taxes in order to remain fiscally sustainable.

The Government has announced in Budget 2021 that it plans to raise the GST rate from 7% to 9% any time from 2020 to 2025. From the perspective of the analysis just provided, one benefit to the country of raising tax revenue in anticipation of higher social spending is that the credit risk or risk premium can be kept low.

In other words, whatever the safe interest rate is, the borrowing costs incurred to service the loan undertaken in this Act can be kept relatively low by maintaining good credit worthiness.

Returning to the analogy, suppose that in the course of your working life, the interest rate unexpectedly rises. Then, in order for you not to default, you would have to tighten your belt and cut spending unless you discover that your income is also going to increase.

While the safe interest rate is currently low and expected to be low for some time, unexpected events that raise the safe interest rate can affect fiscal sustainability.

Data showed that in the early 1980s – the first half of the decade of the 1980s – the safe interest rate experienced a sharp spike that caused a fiscal crisis in many emerging economies and posed budgetary challenges for some advanced economies as well since the cost of servicing public debt sharply increased.

In order to re-establish fiscal sustainability in the event that the safe interest rate rises, it is necessary to either raise taxes or to cut spending.

Mr Deputy Speaker, Sir, there is indeed justification for the Government to issue new bonds to finance significant infrastructure projects that would raise national productivity or mitigate the adverse effects of climate change. We must maintain the reputation that we have built up over the years for good financial management of our fiscal affairs. In this context, I support the Bill.

5.25 pm

Mr Gan Thiam Poh (Ang Mo Kio): Mr Deputy Speaker, Sir, I support the Bill and the parameters set out for major infrastructure projects to be financed by borrowing, especially since these are long-term infrastructure that will benefit future generations. However, I am concerned about how we can do more to guard against burdening our future generations. After all, such borrowing needs to be serviced and repaid.

We need to be mindful as we do not have natural resources for sources of revenue, unlike other nations. Therefore, our manpower capabilities and earning capacity are important. We must be able to weather economic ups and downs and future political and social developments. Such uncertainties could potentially derail projects – just as we are experiencing the disruptions to our construction sector caused by the COVID-19 pandemic.

In other countries, in addition to borrowing money, some governments had resorted to printing money, commercialising public services and levying taxes in order to afford development works.

We are fortunate that Singapore's AAA rating enables us to borrow at favourable interest rates, particularly in the current economic environment. I am confident that using these funds to invest in our infrastructure development will stimulate future economic growth, which will enable us to service and return the borrowed money.

The other options are out of the question. Printing money leads to hyperinflation. Commercialising public services will impose hardship on the lower income groups. How can we levy taxes for infrastructure projects when we are already trying so hard to minimise taxes?

It is possible to partly service the loans through revenue collected from services provided by the infrastructure such as via tolls and fees. A portion of the repayment will come from users of the projects who can be both local and foreign. It would be less of a burden on our future generations if more of the revenue could be generated from foreign or external parties while ensuring that the services provided fulfil all demands without conflict or competition. The Government may still need to step in to render assistance and subsidies for the less privileged users.

Finally, we must consider operational and maintenance costs of infrastructure projects. It remains important that they can be self-sustaining and operationally viable. I support the Bill.

5.29 pm

Mr Leong Mun Wai (Non-Constituency Member): Mr Deputy Speaker, Sir, I support the Significant Infrastructure Government Loan Bill, or SINGA, in short, because it can improve the financial efficiency and fiscal accountability of our public finances. However, the SINGA Bill is no indication that the Government is short of funds for national development.

Today, the total financial assets owned by our country has reached $1.35 trillion by end of March 2020. Despite the drawdown for the five COVID-19 Supplementary Budgets, our total financial assets are probably still growing because large capital inflows should have allowed MAS to accumulate more foreign currency assets in order to keep the Singapore dollar within its policy band.

Even without touching the principal of the reserves, the Net Investment Income of about $40 billion a year from the reserves is enough to fund the infrastructural projects and social spending increases, especially those in the healthcare area, into the foreseeable future. Hence, SINGA is just an additional financing scheme and not an absolutely necessary funding source.

The Government's narrative about intergenerational equity is also not an accurate description of the SINGA scheme. Since there is no lack of fiscal resources, intergenerational equity can be achieved as long as the Government allocates the resources accordingly. There is no need to borrow to achieve intergenerational equity.

However, the Government's mention of intergenerational equity for the first time is heartening and I hope it will use it as a guiding principle from now on.

Up till now, the Government has always frontloaded all the infrastructural costs to the current generation of Singaporeans and, at the same time, parked a disproportionate amount of current fiscal resources into the national reserves.

In addition, the social security costs, namely, retirement and healthcare costs of Singaporeans, are all self-funded by themselves, without burdening the future generations. This is unlike the social systems in many developed countries like Japan where a major part of the taxes collected from the current working population is used to support the retirement and healthcare spending of the older retiree generation.

As a result, the current generation in Singapore has to shoulder a disproportionate amount of the infrastructure and social security costs and has to struggle with a lower level of disposable income, giving rise to the phenomenon popularised by Jack Neo's movie, "Money No Enough".

So, there is an urgent need to address this intergenerational inequity. However, SINGA is not necessarily the best way to achieve that. Rather, as I have said at the start, I support the SINGA scheme for better financial efficiency and fiscal accountability in the public finances.

For better financial efficiency, I would expect GIC/MAS to generate a higher return of at least 2% more than the borrowing cost of the SINGA loans.

Unless GIC/MAS can consistently earn a positive spread over the borrowing costs of the SINGA loans, there is no reason to borrow the SINGA loans and not make use of our current resources to fund our infrastructure projects.

The SINGA loans should also be issued as Singapore dollar-denominated securities to reduce foreign exchange exposure and to broaden and deepen our bond markets. It will be a big step forward for our local bond markets if the Government can issue Singapore Government Securities or bonds with longer maturities like 20 years and 30 years.

[Mr Speaker in the Chair]

For better fiscal accountability, I would expect to see the pre-investment feasibility studies for the SINGA projects to be subject to public consultation so that we can tap the collective wisdom of Singaporeans and not be guided only by the experts engaged by the Government. Regular progress reports of SINGA projects should also be submitted to Parliament for scrutiny. Mr Speaker, in Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] The SINGA Bill is no indication that the Government is short of funds for national development. Today, the total financial assets owned by our country have reached $1.35 trillion by end March 2020. And despite the drawdown for the five COVID-19 Supplementary Budgets, our total financial assets are probably still growing because large capital inflows should have allowed MAS to accumulate more foreign currency assets in order to keep the Singapore dollar within its policy band.

Even without touching the principal of the reserves, the Net Investment Return of about $40 billion a year from the reserves is enough to fund the infrastructural projects and social spending increases especially those in the healthcare area into the foreseeable future. Hence SINGA is just an additional financing scheme and not an absolutely necessary funding source.

Because we have the sufficient resources, we do not need to use SINGA to achieve intergenerational equity, that is, allocate national resources between generations fairly. As long as the Government recognises the huge size of our national reserves and that it continues to grow, we are already providing a strong safety net for our future generations. It is time that we do more for this present generation.

I support the SINGA Bill more because it can increase our financial efficiency and fiscal accountability. Financial efficiency means that, when the returns from the reserves are higher than the borrowing interest of international market, we should not tap on our current resources to fund significant infrastructure projects; instead, it is more worthwhile to borrow from the international financial market. SINGA therefore, provides an additional option for the Government.

We have issued more than S$700 billion Singapore-dollar bonds and treasury bills. But strictly speaking, these are not debts because this S$700 billion is reinvested in the financial assets of foreign countries through the GIC. It is only the SINGA loans that will be our real debts because these loans will be used for significant infrastructure projects. I therefore hope that the Government will increase the accountability for SINGA loans and report to Parliament regularly on the progress of these projects.

(In English): Mr Speaker, Sir, with no real lack of fiscal resources and SINGA as an additional funding source, the Progress Singapore Party (PSP) calls on the Government to review our long-term fiscal plan and allocate more funds to alleviate the financial pressures of our middle class Singaporeans and help them improve their quality of life.

This is necessary because the future of our country depends on a resilient Singaporean Core of skilled workers and motivated entrepreneurs. Mr Speaker, I support the Bill.

Mr Speaker: Mr Edward Chia.

5.39 pm

Mr Edward Chia Bing Hui (Holland-Bukit Timah): Mr Speaker, Sir, Singapore has to continue to invest in competitive economic and efficient public services infrastructure. We need to do this with robust financial approaches that provide differentiated expenditure support. As such, I find the overall principles laid out for the SINGA bonds to be sound for our long-term infrastructure investments.

Having said that, the principle of equitable sharing of expenditure holds up best if the proposed infrastructure provides clear "net" benefits to the economy and society. This requires us to be prudent on our assessment of the infrastructure project investments' cost and benefits. If the cost outweighs the benefits, we could burden future generations with a potential growing net debt load and this is an outcome we must avoid.

It is also important to stress that SINGA, like any other forms of borrowings, needs to be repaid. We need to ensure that future revenue growths can accommodate the repayments and maintain Singapore's strong balance sheet and credit ratings.

I have met some residents who expressed concerns on whether we are passing on debt to future generations. Residents have expressed that we need to be cautious and ensure we pass on assets and not liabilities to our children. With their concerns included, I would like to make five clarifications.

One, the $90 billion limit is about 20% of current Gross Domestic Product (GDP) which is lower than the past six Development Loan Acts, which was near 40% of GDP. Having said that, our GDP in the past had higher year-on-year growth rates. Hence, may I ask to what extent the limit took into account future growth trends in the coming years, especially when we are expecting a slower recovery due to both the COVID-19 context and ourselves a maturing economy?

Two, how did the setting of a minimum project qualification sum at $4 billion come about and what would be the considerations in the future for adjustments of this minimum sum qualification criterion?

Three, could the risk and benefit assessment matrix that the Government intends to use for deciding on projects be shared with Parliament, please?

Four, will the duration of the issued bonds dovetail with the payback period of the project to prevent a scenario where a bond needs to be extended with higher interest rates and, thereby, adding more expenditure to recurrent Government Budgets?

Five, as a key principle of SINGA bonds is the equitable sharing of cost across generations, will capitalisation and depreciation be linear throughout or frontloaded to take into account higher maintenance cost in later years?

Lastly, I would suggest to include initiatives to ensure that infrastructures are built to cater for larger capacity and with better materials, methodologies and technologies. These may translate into higher capital cost today, but can lower downstream cost expenditure for an ageing asset, adding to my previous point on avoiding putting burden on maintenance cost on future generations of Singaporeans.

Mr Speaker, Sir, investment in public infrastructure is certainly beneficial for Singapore and Singaporeans. We, however, must continue to be prudent on the deployment of these funds as the effects will ripple and reverberate into multiple generations of Singaporeans. Mr Speaker, Sir, notwithstanding the considerations and clarifications I have raised, I support the SINGA Bill.

Mr Speaker: Mr Murali Pillai.

5.44 pm

Mr Murali Pillai (Bukit Batok): Mr Speaker, Sir, I support the Bill.

The logic behind it is compelling. The current proposal presents an opportunity to arbitrage – we can make more with our capital in our reserves, generating returns to fund our social programmes, as compared to the cost of borrowing. So, it makes sense to borrow under these prevailing circumstances where there is low interest rate and we enjoy a good credit rating.

Notwithstanding that, circumstances can change. And in that regard, I am happy to note the Government's safeguards built into this Bill.

One safeguard is that the infrastructure developments must last for at least 50 years. I listened intently to the speech of the hon Member Assoc Prof Jamus Lim when he argued that infrastructure should be extended to not just hard infrastructure, but also soft infrastructure. And by that, he meant an investment in health, education, accumulation of knowledge and human capital. While I listened to him, I think there is a lot of agreement, as opposed to disagreement, on the need to invest in these areas. In fact, if we were to reflect back on how the Government has been investing in these areas – things like SkillsFuture, building more hospitals, schools – we can see that that is also part of what the governing party is doing, investing in soft infrastructure.

The focus of this Bill, however, is financing infrastructure. And this is where we need to be careful because we are talking about sending a bill to our children, our children's children to settle. And I thought what the hon Member Prof Hoon Hian Teck said was quite compelling because he cautioned that the situation can change. There could be a situation whereby the safe interest rate, in his words, can increase. And this is where I think the rub lies. What are the infrastructure developments we should send to be settled by our children and our children's children? Here, I would respectfully submit that it is safer and more prudent for us to invest in soft infrastructure as much as we can and settle the bill ourselves. But when it comes to infrastructure developments which lasts for generations, to achieve – in the words of Prof Hoon Hian Teck – intergenerational distributive justice, then it makes sense to consider the format that we have in the SINGA Bill.

There are two other safeguards which I thought was laudatory: the gross borrowing limit of $90 billion, which is about 20% of our Singapore's GDP, as well as the interest threshold of $5 billion per year and this limits the Government's ability to borrow if interest rates go up. I have two points to make. First on the nature and the structure of the bonds and, second, on the realities of implementation.

First, on the nature and structure of the bonds. In this regard, I have two points to make. First, the interplay between the constitutional safeguards – and the hon Deputy Prime Minister mentioned the Reserves Protection Framework – and SINGA. As mentioned by the hon Deputy Prime Minister, Article 144 of the Constitution is engaged, and he highlighted that the in-principle approval of the President has been obtained for the passing of this Bill. And it was specifically mentioned that Her Excellency agreed to a borrowing limit of $90 billion. My question relates to the workings of the procedure. Say, for example, the Bill is passed and the Government intends to issue bonds. Would the Government come back to Parliament for a resolution to be passed and would it still be subject to the discretionary approval of the President? I respectfully seek a clarification from the Deputy Prime Minister on this matter.

The second point I wish to make is in relation to our commitment to green bonds. The hon Deputy Prime Minister Heng mentioned in February 2021 that Singapore will issue green bonds on select public infrastructure projects, with up to $19 billion of public sector green projects already identified. Today, he mentioned that one of the objectives of SINGA is to build a safe, green, liveable environment.

To further encourage sustainability efforts, would the Government be minded to stipulate at least a minimum percentage of SINGA bonds that will be green? This will have a salutatory effect of ensuring the high percentage of infrastructural projects being undertaken in Singapore with sustainable measures in place.

On to my second point about the realities of implementation. What about projects that may, for one reason or another, be aborted? For instance, when there is a change in government. We cannot predict the future, but we have seen examples all over the world. One government may come in and say it wishes to build a wall. Another government may say no. Closer to home, one government may say "build a high-speed railway system"; another government may decide not to do it. Would it not be prudent to work in a requirement that the government of the day which wishes to abandon infrastructural projects funded by SINGA bonds must ensure that it is able to finance the abortive costs from its current revenue?

Sir, I conclude. The logic behind this Bill is compelling, but I sense nervousness in the speeches of the hon Members, such as Mr Edward Chia, Mr Liang Eng Hwa and Ms Foo Mee Har. And it is understandable, because borrowing always entails a risk, just as the fruits of spending are always alluring. But I am satisfied that the safeguards that the hon Deputy Prime Minister highlighted are safeguards that will stand us in good stead. So, notwithstanding my comments, Sir, I support the Bill.

5.51 pm

Mr Chua Kheng Wee Louis (Sengkang): Mr Speaker, I would like to start by declaring my interest as an employee of a financial institution here in Singapore.

Mr Speaker, I would like to begin by extending my support for the Significant Infrastructure Government Loan Act, or SINGA in short. In October last year, I shared that there is scope to rethink Singapore's position on debt, instead of funding our expenditures solely with higher cost equity funding or funding from our reserves. This is especially if the funds are being used for quality investment projects that will benefit current and future generations of Singaporeans.

Today’s Bill represents an important milestone for us as a country and, while it may have been a little later than some had hoped, it is, indeed, better late than never. In finance, we often speak of an optimal capital structure for a firm – the ability to have a proportion of debt and equity that results in the lowest Weighted Average Cost of Capital (WACC) when making the capital management decision. While certain commentators may liken Government finances to a household budget, unlike a household, firms and countries can be assumed to last into perpetuity.

Debt is not inherently bad per se and, if it can be employed effectively to increase returns or result in a lower WACC on an overall basis, then it should always be considered as a viable option. Moreover, while we can have a different philosophical view of what the ideal structure should be on the national level, we must be keenly aware that equity funding or funding from our reserves is not free.

I would now like to take the time to seek some clarifications on several points in this Bill.

The first is on the capitalisation of expenditure on nationally significant infrastructure. Again, this is another welcome change from an alignment of accounting practices point of view. After all, the long useful lives of infrastructure projects do suggest that they clearly fall under the accounting definition of an asset, as it is a present economic resource that has the potential to produce economic benefits. This change is in contrast to the current practice of charging off development expenditure annually. As an example, a $1 billion project today with a useful life of 50 years is charged to the financial statements at 2% annually, which represents a $20 million annual depreciation charge. This is a fraction of what it would have been had we stuck to the current accounting treatment.

In FY2018 and FY2019, actual total development expenditure was $20.3 billion and $16.7 billion respectively, while the revised development expenditure in 2020 was $16.4 billion and the estimated expenditure in 2021 will be $19.9 billion.

Mr Speaker, I would like to ask, based on the adoption of capitalising long-term assets as an accounting treatment, how much of our development expenditure in dollar terms would be freed up annually?

The second point I would like to talk about is the type of projects which have been identified for the purpose of SINGA. These include infrastructure intended for a list of specific purposes as listed in section 2, such as transport, water treatment, alleviation of floods and so on.

The new MRT lines, such as the next phases of the Thomson-East Coast Line, the Jurong Regional Line and Cross Island Line, as well as the extension of current lines, such as the North-East Line, Downtown Line and projects, such as the Deep Tunnel Sewage System as mentioned by Deputy Prime Minister Heng, are projects that would fall under the scope of SINGA. I would like to ask the Deputy Prime Minister how was the final list of use categories identified and chosen?

My colleague Assoc Prof Jamus Lim has built a strong case for human capital as a form of soft infrastructure investment. Indeed, when we look at US President Biden's $2 trillion infrastructure plan, we see that it includes a planned funding of the care economy, which includes $400 billion towards expanding access to quality, affordable home- or community-based care for the elderly and people with disabilities. It will also cover investments in schools, childcare facilities and workforce development programmes, among others.

In a knowledge-based economy, intellectual and human capital are just as important, if not more important than physical hard assets. We should not solely be focusing on conventional property, plants and equipment as possible infrastructure projects to finance with borrowing. As it is, intellectual property and other intangible assets can already be capitalised under a firm’s balance sheet under accounting rules, given the recognition of the economic benefits that they generate. As a Government, we should seriously consider this as an extension of the SINGA Bill, as compared to only that of traditional infrastructure assets.

Third, I note that these projects need to have a useful life of at least 50 years. As shared by my colleague Assoc Prof Jamus Lim, many existing infrastructure projects would not have qualified under this rather long timespan. I am concerned about how practical that might be in an era where technological and environmental needs are changing so rapidly. If climate change were, indeed, a motivating factor for the need for infrastructure changes, it would be far from accurate to assume that any infrastructure planning now will be useful for the next 50 years.

Rapid technological changes have shaped the tech infrastructure needed to keep our economy competitive. Over the past 20 years, we have moved from an era of 3G cellular networks in the 2000s, to 4G in 2010s and, finally, the rolling out of 5G networks from 2020. That is roughly a 10-year gap between each generation of cellular networks. It would be extremely difficult for anyone to predict with utmost confidence if the infrastructure we are building for 5G today, for example, will continue to be relevant 10 or even 20 years down the line, let alone 50 years at a minimum.

Our MRT systems are yet another example. First constructed more than 30 years ago, the replacement of sleepers, signalling equipment, track upgrading and power supply systems over the last couple of years have meant that it is as good as replacing the entire system with a brand-new set. Even power plants, such as one of the newer CCGT plants in Singapore, only have a useful life of around 25 years.

My fourth point covers that of green financing. We aspire to be a green hub and we have laid out grand plans in our current Singapore Green Plan 2030. From my understanding, some of these projects, such as Tuas Nexus, have been identified. In trying to keep in line with these aims, I would like to ask the Deputy Prime Minister, out of the $90 billion set aside for SINGA, how much of this would be set aside for green infrastructure? As a Government, we should aspire to lead by example and set a laudable target for how much we plan to spend on green infrastructure itself.

Further, I believe that the financing of nationally significant infrastructure should be tied to the mandatory completion of rigorous environmental, heritage and social impact assessments done using the best available science at reasonable cost. Such studies should be made fully available to the public for feedback and for the public to take any private mitigation measures if necessary. This would then allow the full buy-in from society at large on the benefits of such infrastructure projects.

I recognise that advisory services, such as the associated design, investigative and engineering studies, surveys or, say, research, are already deemed as qualifying capital expenditure. The key caveat here, of course, is that such advisory services have to be reasonable, relative to the total project cost. Even though I am sure there are many considerations and technical challenges to work through, it would be unwise if consultancy fees end up being 90% of the cost of the actual project, for example. So, I wonder if the Government would also include limits on how much should be spent on advisory fees, as compared to the overall construction cost of the project.

The fifth point I would like to cover looks at some of the numbers as specified within the SINGA Bill.

The first question is on the $90 billion loan limit which has been put in place. Debt levels, in themselves, cannot be seen in isolation and we need to assuage Singaporeans that the level of borrowing is not unsustainable. Credit rating agencies often compare debt levels to net worth or net assets or, in the case of sovereign credit ratings, usable reserves, for example. My question for the Deputy Prime Minister, therefore, is how much does this $90 billion represent, relative to Singapore's current account receipts and reserves?

Further, Minister Ong Ye Kung has mentioned that we would need to spend more than $60 billion over this decade to expand and renew our rail networks while Prime Minister Lee has mentioned that Singapore is probably going to spend $100 billion, possibly more, to protect our country against rising sea levels.

I would thus like to ask the Deputy Prime Minister to put into context how is this sum of $90 billion of debt financing determined? And if there are any quantifiable targets such as the total expected infrastructure spending in dollar terms over the next one to two decades? And how much of the funds are already earmarked for specific projects?

On the total effective interest paid or payable of $5 billion, that would imply a total yield to maturity of 5.6% on the loan limit of $90 billion. How does this compare to the current and future expected Singapore Government Securities yields that the Ministry is projecting?

Singapore's 10-year bond yields stand about 1.5% today while 30-year bond yields are about 1.9%. Based on my checks, historical average bond yields of varying bond durations are only at about 2.5% to 2.8%, notwithstanding a wide range of less than 1% to almost 5%, 6%. But yet this is significantly lower. The average is significantly lower than the implied yield to maturity of 5.6%.

Lastly, with regards to the qualifying amount of capital expenditure being at least $4 billion or more, I would like to ask the Deputy Prime Minister how this number was derived as well?

In 2008, the KPE was built at a cost of $1.8 billion. Inflation, notwithstanding, the value that the project has brought to Singaporeans has been immense, especially residents staying in the Northeast, such as that of our Sengkang residents. In 2014, the 800-megawatt state-of-the-art power plant by PacificLight was built at a cost of $1.2 billion. Despite the size and value that these projects bring, they hardly come close to the qualifying amount of $4 billion or more.

There is also a question of whether the definition of "nationally significant infrastructure" being defined under Part I as being geographically located "in Singapore" may restrict the spending needs for infrastructure that crosses borders. A nationally significant infrastructure, the Linggiu Reservoir, which Singapore built at a cost of more than $300 million in Malaysia comes to mind.

Further, should the Government decide to set a much more ambitious, renewable energy target, the infrastructure costs for the import of electricity, especially solar electricity from overseas, would also not fall within the purview of this SINGA Bill.

Mr Speaker, I like to conclude with two parting thoughts.

The first is that, I agree with Deputy Prime Minister Heng that there should be various strict safeguards on the projects that can qualify for borrowing and the amounts that can be borrowed. Similarly, when it comes the use of our reserves via the NIRC, it too has strict safeguards in place. Ultimately, any sound policy decision should have safeguards built in and, hence, if we decide to tap on Singapore's ample fiscal space to fund our investments into our people, we should not fear the slippery slope of there not being any safeguards that can be put in place.

The second is that, again, I agree with Deputy Prime Minister Heng that borrowing for nationally significant infrastructure will spread these lumpy expenditures across the generations who will benefit. If we want to be a progressive society that firmly believes in the principles of fairness, we should also be acutely aware that the converse is also true. Besides Changi Airport Terminals 1 and 2 and the first MRT project, the Government has not borrowed to fund other infrastructure projects since the 1990s.

In essence, the generation that came before us has borne a significant cost of infrastructure development upfront for our benefit without having the cost spread equitably across generations. Despite a lifetime of hard work and contributions to our nation, sadly more than half of our seniors do not appear to have sufficient funds to retire comfortably. We should never forget the sacrifices the earlier generations of Singaporeans have made in building this nation and must always keep this in mind. Needless to say, we should never contemplate taking any future decision that could potentially add to their tax burden. Mr Speaker, I support the Bill.

Mr Speaker: Assoc Prof Jamus Lim, any clarifications?

6.04 pm

Assoc Prof Jamus Jerome Lim: Thank you, Mr Speaker, for the recognition. If I may just quickly respond to Member Mr Murali who raised two points actually. The first, he talked about financing versus investment and he stressed the point that the Government, indeed, has invested quite a bit in soft infrastructure and human capital projects. I agree with that. And then, he said that the purpose of this Bill is actually for financing.

We must remember the context. The context is that the interest rates are currently low. So, when we say that we want to invest in infrastructure, hard infrastructure, but not soft infrastructure, it seems like we are only willing to offer the terms of favourable interest rates for physical capital and not human capital. For me, that is like saying that we think it is equally important to educate both our son and our daughter, but sure, we will finance Ah Boy's schooling but Ah Girl, you go work so that you can pay for your school fees.

And the other point which is worth pointing out is something that other Members, including Prof Hoon, mentioned, which is that we always need to think about the returns when we invest in a project. I agree with this and this is why in my speech, I demonstrated that returns on soft infrastructure actually dominate those of hard, which is yet another reason why we want to invest in soft infrastructure in this Bill.

Mr Speaker: Mr Xie Yao Quan.

6.05 pm

Mr Xie Yao Quan (Jurong): Mr Speaker, Sir, I will make three observations and raise three suggestions on the proposed SINGA Bill.

First, my three observations, which all relate to the larger point about long-term planning. Fundamentally, SINGA reflects this Government's commitment and orientation to plan for the long term and govern in the long-term interest of Singapore. So, my first observation is about this Government's long-term plan for our national infrastructure.

There are very bold, ambitious plans, for Changi Airport Terminal 5 and a third runway, for a mega seaport in Tuas, for a massive expansion in our MRT rail network, and much more, all in turn to anchor Singapore's next phase of development, well into SG100.

At the same time, SINGA has an eye on the Government's 100-year plan for our coastal defence infrastructure, to secure Singapore against the very long-term threat of rising sea levels posed by climate change. These long-term infrastructural plans are essential to our mission of continuing to improve the lives of Singaporeans, present and future.

Indeed, our history clearly shows how we are the current beneficiaries of long-term plans and big bets in strategic infrastructure that previous Governments had made.

For example, plans for the first container terminal in Singapore – and the region – located at Tanjong Pagar were made way back in the 1960s, when containerisation was not yet the norm, in fact far from it. The Government then had to borrow $45 million from the World Bank, a very handsome sum back then, and the container terminal was completed in 1972.

The first vessel the Terminal received had 300 containers on board; compared to the more than 1,000 people gathered on shore to receive it. So, 300 containers, 1,000 people receiving that.

And in fact, container volumes did not really take off, until the next decade, in the 1980s.

But finally, the long-term bet paid off, and since then, more long-term plans had been made and implemented for the Brani Terminal in the 1990s, Pasir Panjang Phase 1 and 2 in the 2000s, and Phase 3 and 4 in the last decade, such that we have the Port of Singapore that we have of today, after almost 60 years since the first plan for a container port was laid.

In short, it was a decisive bet, a far-sighted decision and a constant focus on what is next and what is on the horizon that had allowed Singapore to move ahead and stay ahead of the competition.

It was a similar story with Changi Airport. Plans were made in the 1970s, with the aim then already to be Asia's largest airport at that time of opening. A significant amount of land had to be reclaimed, and Terminal 1 opened in 1981. Plans were made in 1970s, Terminal 1 opened in 1981. Terminal 2 then opened in the next decade, in 1991. Followed by Terminal 3 in the decade after that, in 2008. And of course, Terminal 4, in the following decade, in 2016.

So, decade after decade, a quantum leap each time, anchored on robust long-term planning and execution.

Looking ahead, therefore, SINGA, I think, underlies this Government's continued commitment to a long-term, ambitious strategy for our national infrastructure, to secure our future and success well into SG100.

My second observation about long-term planning is about this Government's commitment to a long-term fiscal strategy, to sustain and properly steward our strategic fiscal resources and to take full advantage of our strong fiscal standing, in the best long-term interest of Singapore.

Crucially, the Government is not looking to borrow for significant infrastructure because it lacks money. Quite the contrary, it is looking to borrow, so as to take full advantage of our fiscal strength and the expected low cost of debt capital going forward, instead of expending our existing financial resources for lumpy infrastructural outlays, when these resources could be deployed and invested to generate good returns for Singapore and Singaporeans.

In other words, the Government's strategy of borrowing for infrastructure on the one hand and investing on the other is an astute, long-term strategy to fully leverage relatively low interest rates and avoid the opportunity cost of dipping into our own resources.

The third observation I would make is this: beyond SINGA, beyond physical infrastructure, I think successive Governments have always made long-term plans and investment in our soft infrastructure, in human capital development, to ultimately improve the lives of Singaporeans.

And it will continue be a constant work in progress but let us look at their track records.

Through the decades, successive Governments had invested steadily and decisively in education, in skilling Singaporeans, because ultimately, that is our surest way to better opportunities and better lives. From $6.5 billion in the 2003 Budget, to $12 billion, $13 billion in recent years. And from a focus on 15, 16 years of formal schooling, to now learning for life. I think it is clear to see how much successive Governments had invested in education for Singaporeans.

Successive Governments had also invested steadily in Singaporeans' health. From $2 billion in 2003, to $6 billion in 2013, to $12 billion in 2019. And of course, this Government has said that it would do even more going forward.

Successive Governments had invested billions in defence, which is in turn absolutely vital to create the basic conditions for Singapore to thrive. They have invested significantly in research and the building up of our base economic capabilities and they have invested significantly in our social capital to strengthen our social safety nets.

And so, we need to look beyond SINGA, beyond physical infrastructure, about successive Governments', including this Government's approach to long-term planning and development in general which has always been about the whole of society, the whole of nation.

Sir, I have three suggestions on the proposed provisions of SINGA.

My first suggestion is to lower the cap on total borrowings. The proposed cap of $90 billion in the Bill represents roughly 18% of GDP. This is quite significant, especially if a profligate government were to take over and on this, I echo Member Murali Pillai's point about us not knowing what will happen in the future.

Ninety billion dollars is not quite enough to run the country to the ground, but certainly enough to cause a rather bad bout of indigestion.

And so, to maintain public confidence, I suggest that the initial cap be lowered to $50 billion, which would represent roughly 10% of GDP. This lower cap would nonetheless give the Minister sufficient space to operate within the Act initially, and the Government can always come back to Parliament when there is a need for the borrowing cap to be raised beyond that.

My second suggestion is to lower the cap for total interest payments. The proposed cap of $5 billion in interest payments alone represents almost a quarter of our entire development outlay per year in recent years. To signal prudence, I suggest that the initial cap be limited to $2.5 billion, or roughly 10% of recent annual development outlays. Given our credit rating and trends in long-term interest rates, I think this lower cap should be quite practicable.

My third and final suggestion is to reconsider the qualifying limit of $4 billion for a nationally significant infrastructure project. I would like to ask the Ministry how narrow a range of projects it expects to qualify under the Act given the proposed limit of $4 billion. Would major healthcare infrastructure projects, for example, which usually cost around $1 billion to $2 billion each, make the cut? If not, why not, if we agree that the value of healthcare infrastructure, in terms of its social value, is certainly of national significance?

Since we have the safeguards on total borrowing and total interests, I suggest we lower the qualifying limit for projects so that the scope of qualifying projects of national significance can be made more inclusive and more flexible. Mr Speaker, Sir, the above suggestions notwithstanding, I stand in support of the Bill.

Mr Speaker: Mr Saktiandi Supaat.

6.17 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Speaker, Sir, the concept of borrowing, taking on debt, may have a negative connotation. This is especially so in Singapore where our Government is known for its long-running commitment to prudence.

But the fact that the Government has tabled the SINGA Bill is testament to a sustained commitment for fair intergenerational equity, prudent spending and an enhancement to our differentiated financing strategy beyond. This is a necessary response to an expected spike in development expenditure in the next decade to address infrastructural needs and existential threats like climate change and rising sea levels but also taking into consideration the low interest rate environment we are in for now.

This is a bit different from what the hon Member from Sengkang GRC mentioned, about spending further on human capital. It would be useful to find out from him how much more he would like to borrow on human capital, given that Singapore is already the highest ranked in the World Bank's Human Capital Index report. Just to explain, the Human Capital Index by the World Bank measures countries best in mobilising economic and potential of its citizens. We are already ranked highest and I think the Government has put in quite a bit already in terms of human capital. After all, Singapore's best resource or most important resource is our people. I would just want to probably seek a clarification from the Member from Sengkang GRC on that point – how much does he plan to borrow for human capital.

Mr Speaker, I support this Bill as it is fair and efficient. It is fair because it supports intergenerational equity. Without borrowing, the expenses for the infrastructure would have to be shouldered by the current Government for projects that may only demonstrate their potential in decades to come. With SINGA, the upfront development expenditure is converted into a stream of annual depreciation over the useful life of the project. As the infrastructure is improved over the years, future generations pay directly for the enhanced benefits enjoyed. So, there is capital efficiency as we will benefit from low interest rates, given our AAA credit rating.

In addition, the SINGA bonds could potentially extend the Singapore Government Securities (SGS) yield curve beyond its current 30-year maturity depending on investor demand and primary dealers' market making obligations. This helps in deepening the bond market domestically too.

But, Mr Speaker, for the man on the street, beyond the technical terms, there may emerge concerns that with the formation of SINGA, we will be tapping on bond markets and see more foreign exchange exposure for our long-term infrastructure spending. These are valid concerns, especially if there are some level of market exposure and liabilities that may be created.

Firstly, is there a plausible worst-case scenario in tapping the bond markets for the first time over the long term for infrastructure spending?

Mr Speaker, Sir, I am confident of our Government's fiscal discipline and our cash management ability. Our finances are strong, with assets well in excess of liabilities. This is being demonstrated in the COVID-19 crisis, where the Government could purchase vaccines for the whole population while introducing various financial assistance schemes to help citizens and keep the economy and job market abreast.

But complacency is dangerous. Looking ahead, I would like to ask if the Government has considered the plausible worst-case scenarios that would see the Government's balance sheets and net foreign assets being weakened? What if our capital efficiency advantage weakens as global interest rates rise sharply?

The Deputy Prime Minister explained it very clearly and in detailed form in his speech earlier when talking about the 5.5% effective yield-to-maturity rates. But my question is: has MOF and other economic policy agencies such as MAS done counter-factual simulations using market shock variable?. What are the risks going forward?

The Bill has also importantly spelt out crystal-clear clauses for safeguards. There will be a gross borrowing limit of $90 billion. The Government cannot raise more than this amount in loans under SINGA without legislative amendments. There is also an annual interest rate threshold of $5 billion. These measures will ensure the future generations will not end up with burdensome financing costs.

But, may I ask the Minister if our debt servicing costs will be funded by our annual Budget and met from our overall revenue? If so, assuming we have a full $90 billion issuance and we are constrained by our current principle of having an overall balanced Budget over each term of Government, can the Minister share if this will affect our annual fiscal policy options in periods of extreme crisis in the future? Can the Deputy Prime Minister also share the different phases of fiscal policy options in a crisis or national emergency, for example, if we are to use past reserves first, at the first stage; do we then need to liquidate GIC investments second or do we need to borrow last?

Mr Speaker, Sir, secondly, since we know autonomous flows – for instance, changes in the stock of outstanding SGS where net issuance of SGS actually drains liquidity from the domestic banking system, how will the new SINGA SGS securities issuance affect our financial system liquidity as well as the Singapore dollar during times of financial market stress when banks may also desire to hold larger buffers of liquidity? The amount that we are borrowing – up to $90 billion – can be quite significant.

Thirdly, may I ask the Deputy Prime Minister on the SINGA infrastructure bond issuance: what are our baseline economic assumptions and how do we ensure issuance supply is calibrated to market demand? What tenors would be issued under SINGA? Following the introduction of SINGA, will the duration of the SGS market change over the medium term?

On a separate issue, some projects were previously placed under Statutory Board issuance but moving forward, will these be funded by the SINGA bonds if they qualify? It is useful to know if the SINGA bond issuance will have a crowding out effect on future bond issuances by Statutory Boards.

Mr Speaker, so far, the market seems receptive to the potential of SINGA bonds based on the prices of the yield curves when it was announced.

Globally, there has been steady growth in sovereign green, social and sustainable, or GSS, bond issuances in the past years. Looking at the experience of Germany's sovereign green bonds, there might be room for a sustained premium or lower yield to green issues versus conventional issues. Recently, Germany issued green bond counterparts to its 10-year and five-year conventional bonds. In both cases, the green bonds were priced at a premium when issued. They seem to have consistently maintained lower yields as well as exhibiting lower volatility than their conventional versions.

May I also ask the Deputy Prime Minister, if the Government will issue green bonds to the public under SINGA and what will these infrastructure projects likely be focused on? Can the Deputy Prime Minister also share more information about the project size, timing and so on, if possible?

Finally, I am glad to note that the majority of Government borrowing will still be for non-spending purposes such as meeting the investment needs of the CPF for Singaporeans' retirement and for market development and there are strict eligibility criteria in place to ensure that qualifying SINGA bond projects are truly essential to national interests. This is a forward-looking Bill with Singapore's economic, environmental and social sustainability in mind. Mr Speaker, I support the Bill.

6.25 pm

Mr Don Wee (Chua Chu Kang): Mr Speaker, Sir, I agree that it is necessary to exercise good fiscal prudence by capping SINGA gross borrowings at $90 billion and setting the annual interest ceiling at $5 billion. I have some queries about these limits.

Firstly, I would like to ask whether these two controls are independent of one another. If they are related, assuming that we reach the maximum borrowing of $90 billion based on the $5 billion annual interest payment, the borrowing rate is 5.5% per annum. It would appear that the annual interest threshold is set rather high, considering that the coupon rate of a 30-year Temasek bond is only 2.25% per annum. Would the Minister elaborate on why the annual interest threshold is set at $5 billion?

Secondly, would the Minister share how the target of $90 billion was decided upon? Why not $88 billion – an auspicious number? Has the Government already selected the projects to fund and have their estimated costs in hand? Otherwise, why not choose a figure which is a percentage of our GDP or a multiple of the average development expenditure for the past three years, for example?

Another question is why is the minimum project cost set at $4 billion? To put this figure in context, a massive project like the iconic Sports Hub incurred only $1.3 billion in construction costs.

Instead of an aggregate limit of $90 billion, is it possible to consider an annual debt ceiling which is based on the estimated infrastructure expenditure over the next 10 to 15 years? We have seen how costs have ballooned over the past one year and costs will only continue to escalate in the future. Can we consider a short-term debt ceiling? For example, net short-term debt should not exceed a certain percentage of budgeted expenditure in a financial year. We can have a separate category for long-term debt.

Singapore's institutional framework has often been praised for its high level of quality, predictability and transparency. Although it was brought up during the Committee of Supply debate in March, I wonder if we could set such prudent debt limits in consultation with our citizens? I understand that in New Zealand, for example, the government had organised consultative sessions with industry bodies and its citizens to share the need to borrow or issue bonds.

I fully support the decision to issue green bonds to fund environmentally sustainable long-term projects under SINGA. This will result in a deeper and more varied Singapore bond market, providing more opportunities for long-term investors.

Would the Government set aside a good portion of SINGA bonds for retail investors? I hope a significant portion in affordable denominations can be reserved for Singaporeans so that more of our citizens can own a piece of our country's future development.

I would like to ask if there will be any issuance in US dollars or the euro so as to tap the pool of international investors. With the growing concern and interest in environmental issues globally, we will be able to attract a substantial pool of international green investors.

As what Member Saktiandi Supaat has said, drawing on the experience of Germany's sovereign green bonds, our potential investors should be able to attach a durable premium – in other words, lower yield – to green issues versus the conventional ones. I understand that many investors who support green initiatives accept lower yields because it is important for them to finance environmentally responsible projects.

With aligned goals for the benefit of our planet, our green issues should do well. How much of the SINGA bonds will be green? Would the Minister provide estimates for the various initiatives in our Singapore Green Plan 2030 and fight against climate change which will be supported by the SINGA green bonds, such as the construction of polders and so forth?

Can we set out a range of planning instruments relating to the provision of infrastructure? These can include a 20- to 30-year infrastructure strategy and 10-year plans for services and activities broken down to how they are related to financial strategies and annual plans.

Next, I would like to ask if bond issuance is the only mechanism to fund infrastructure development. How about public-private partnerships or crowdfunding? Perhaps we should look into the availability of private partners for public-private partnerships to finance local investments, for example, special purpose vehicles or lease contracts.

I hope Singapore's sovereign rating remains AAA forever. However, in the event that our rating deteriorates, to limit financial risks, derivative contracts should not be allowed and speculative positions with derivatives should not be permitted. Mr Speaker, Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] The Significant Infrastructure Government Loan Bill will play a vital role in the development of our country's infrastructure construction in the future. With complete infrastructure and social resources such as sea walls, transportation, hospitals and schools, we can build a beautiful, sustainable and warm home, an ideal home where the capable can be gainfully employed, the young can learn, the sick can be treated and the elderly can find joy. I would also like to take this opportunity to thank Deputy Prime Minister Heng for his contribution to Singapore in his capacity as Finance Minister.

(In English): I support the Bill.

6.31 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, SINGA will allow the Government to better finance large, nationally significant infrastructure projects. This will materially improve national productivity and benefit the society and the environment.

Additionally, given the substantial drawing of national reserves to finance the costs from the COVID-19 pandemic, SINGA will create extra fiscal space and allow for the debt to be paid back in a manner that is equitable across generations.

That said, this is the first time in 40 years that the Government will be borrowing very large sums of money. It is important to have strict and robust safeguards in place to ensure that the borrowing is sustainable and prudent.

I have two areas of clarifications on the Bill.

My first area of clarification is on safeguarding the proper use of the loans. Deputy Prime Minister has provided assurances that the Bill includes "strict safeguards on the projects that can qualify for borrowing and the amounts that can be borrowed".

Key safeguards include the $90 billion gross limit on borrowing and an annual interest threshold of $5 billion. Future changes to the gross borrowing limit and annual interest threshold can only be made by introducing a new Bill in Parliament.

However, the definition of "nationally significant infrastructure" laid out in the new section 2(1) can be broadly construed.

First, can Deputy Prime Minister share what checks and balances will be put in place to assess if the loan is raised for infrastructure projects that are indeed nationally significant? For instance, while the new section 9 provides the Minister's power to raise a loan is non-delegable, can a committee be formed to deliberate and recommend if a loan should be raised for an infrastructure project?

Secondly, the $90 billion gross borrowing limit is not an insignificant amount. It is equivalent to about two-thirds of total outstanding Singapore Government Securities (SGS). Can the Deputy Prime Minister share what checks are in place to ensure that the loan is used in a manner that is responsible, prudent and sustainable by the party the loan is issued to?

Thirdly, the Government trusts that Singapore would likely benefit from favourable interest rates given Singapore's AAA credit rating and the current market environment. Low interest rates would keep the intergenerational costs of public debt low.

However, in the off-chance that interest rates rise substantially, what contingency plans does the Ministry have in place to finance the debt in a way that does not impose a huge burden on future generations?

My second area of clarification is around financing green infrastructure projects. With SINGA, the Government will issue a new category of government infrastructure bond, termed SGS (Infrastructure). Green bonds will form a subset of SGS (Infrastructure).

Firstly, will the SGS (Infrastructure) green bonds take reference from credible international bond standards? Examples of these standards include the International Capital Market Association (ICMA)'s Green Bond Principles, EU Green Bond Standards and the ASEAN Green Bond Standards.

Taking reference from these "green" standards can be important in giving lenders and financiers assurance and confidence that green financing is true to its label.

Secondly, can the Deputy Prime Minister clarify if there are plans to designate a set proportion of SGS (Infrastructure) bonds as green bonds for climate mitigation and adaptation efforts? If not, can Deputy Prime Minister, together with MSE, consider doing so? For example, these green bonds could be used to fund some of the $19 billion of public sector green projects identified in the Singapore Green Plan 2030.

Thirdly, I understand that there are plans for SINGA to finance the building of climate adaptation structures, such as sea walls, dykes, floodgates, barrages and coastal pumping stations to mitigate the risks of rising sea levels.

Can Deputy Prime Minister share if there are plans for climate mitigation projects? It is not only important that we adapt to climate change, but that we work to minimise its impact in the first place. Sir, notwithstanding these clarifications, I stand in support of the Bill.

6.35 pm

Mr Derrick Goh (Nee Soon): Mr Speaker, Sir, in March this year, the local media reported that Singapore was ranked 11th in the world in the latest Schroders Global Cities index. This index ranked cities by measuring key dimensions, such as economic dynamism, innovation, sustainable environmental policies as well as transportation. Transportation infrastructure is a new factor included by the researchers this year as they noted it is critical to supporting social mobility, a key feature of great cities. Singapore will need to continue to invest in its infrastructure for its long-term development to continue to be amongst the top cities in the world for its citizens to live in and be an international place to do business.

Given the need to continue to develop our MRT lines, infrastructure to adapt to climate change as well as sewerage systems, it is logical and a sensible thing for our Government to finance these projects through borrowings to spread the lumpiness of the cost to match the benefits that will accrue over time. I fundamentally agree with this approach as it is also economically efficient given the ability of Singapore to tap the debt markets.

Given the past and continued strong track record of this Government, we have every reason to be confident that the SINGA Bill would be used optimally for the benefit of our citizens. Notwithstanding this, I am glad that there have been ample safeguards built into this legislation, such as, one, a precise definition of what an "infrastructure project" means to eliminate the possibility of using this Bill as a backdoor way to spend on soft investments; and two, a clear definition of "qualifying capital expenditure" to exclude expenditures, such as the cost of repairs and maintenance which should be rightfully expensed when incurred and therefore not be allowed for capitalisation.

This will ensure that such expenses, including soft investments, will need to be transparently put before this House as part of our annual Budget debate.

While we are on the topic of safeguards, since significant infrastructure have long development lead times as well as useful life, can the Deputy Prime Minister clarify how will the financial mechanism be applied to decide on the borrowing tenor since most of these public projects are unlikely to have a clear cashflow stream?

The Deputy Prime Minister had mentioned that nationally significant infrastructure funding is managed on a bond portfolio approach. However, a portfolio is made up of many projects. The question I have is that, at a project level, for example, if the useful life of the flood defences project is 50 years, can the Government decide to fund this through a shorter borrowing tenor of, say, 10 years? If so, when the time comes for rolling over the borrowings, interest rates could have risen potentially, leaving the future term of Government with a higher interest rate expense.

In short, as interest rate trends are not always predictable, the question more broadly is: how will the Government hedge the interest rate risk since we ought to also protect the future generation from shouldering an unexpected debt servicing burden?

Clause 5 (1)(b) limits the total effective interest rate paid on the securities issued under this legislation to be no more than S$5 billion. Effectively, the Bill provides an implied interest cap of around 5.5% against the total SINGA bonds of S$90 billion. This rate appears to be a good and reasonable control in the context of today's low interest rate environment. However, I note that 10-year SGS yields were over 5% in the late 1990s.

If there is a resurgence of inflation, which is not unlikely, given the massive stimulus by governments, such as the US, and a corresponding rise in the level of risk-free rates, it is good that the future Government be required to come back to debate and receive support from this House.

While this legislation will help address the funding of our significant infrastructure needs, from a financial market development standpoint, the issuance of SINGA bonds will help further deepen Singapore as an international financial market. Currently, there is lower liquidity at the longer end of the sovereign rate curve given that the Government has had little need to issue longer dated financial instruments. With SINGA bonds issued with longer tenors, this can help build out a longer term risk-free curve which financial institutions need for referencing the pricing of long-dated projects, such as project finance loans as an example. Additionally, SINGA bonds would be a good asset-liability match for financial institutions such as insurers which have long dated funds that needs to be deployed as the insurance market grows further. Mr Speaker, Sir, in conclusion, I support this Bill.

Mr Speaker: Leader, would you like to move an exempted business Motion?

Debate resumed.

Mr Speaker: Ms Mariam Jaafar.

6.42 pm

Ms Mariam Jaafar (Sembawang): Mr Speaker, there are many factors that give us confidence in this move to borrow to fund nationally significant infrastructure development expenditure, given low interest rates, the likely healthy demand, all the safeguards in place that have been described and the opportunity to develop the market for green financing.

Notwithstanding the fact that interest rates could continue to be low for a protracted period of time, the risk remains that rates could move higher in the event of a strong economic recovery or even more importantly, a material rise in inflation. But what is more important than rates per se is perhaps the differential between rates or "r" and growth "g", in other words, "r" minus "g". Stated plainly, what matters is whether you can make more than you pay through borrowing.

The infrastructure projects that the SINGA bonds are expected to fund, whether for new rail lines or climate adaptation, will surely boost productivity, growth and the sustainability of our economy over the long term. If we can grow GDP faster, taking on debt to fund public investment in nationally significant infrastructure, under the current low interest rate environment, can in fact lead to lower debt-to-GDP in the long term. The bigger the interest rates-growth differential, the more favourable the debt dynamics. However, IMF studies have shown that marginal borrowing costs often rise abruptly and sharply after long periods of low differentials, and it is marginal borrowing costs which really matters when it comes to refinancing. So, I hope that as we envision a portfolio of tenors, we will pay attention to refinancing risks in particular.

So, in the end though, the important thing is, our economy must continue to grow. We must continue to transform the economy, spend on infrastructure, cut waste out of public spending, taking a value-based approach to all that we do. Some might say tapping the reserves and borrowing are really two sides of the same coin. Perhaps, the most noteworthy thing here is really the change to capitalisation of expenditures financed through borrowings under SINGA. Under a strong growth recovery, it should free up more budget for recurrent expenditure, including welfare, healthcare and yes, education and reskilling, for the current generation today, all of which Members from both sides of the House have asked on multiple occasions.

Mr Speaker, I feel that the Government has shown its ability to adapt and try new things, such as the SINGA bonds, without losing sight of fiscal prudence, responsibility and fairness. Mr Speaker, I support the Bill.

Debate resumed.

Mr Speaker: Deputy Prime Minister.

6.46 pm

Mr Heng Swee Keat: Mr Speaker, Sir, I thank, in fact, all Members who have spoken for supporting the SINGA Bill. They have also raised many suggestions. Even though Leader has just extended our time for my speech, I think if I were to go on to every single one of your suggestion, we will be here way past midnight. So, let me just cluster your suggestions around three broad questions.

First, why is the Government borrowing for nationally significant infrastructure? Second, is borrowing under SINGA a prudent approach? And third, how would the Government manage the debt issuance under SINGA?

Before I address these questions, I would first like to thank Mr Liang Eng Hwa for laying out the principles and considerations clearly. Indeed, as Mr Liang has rightfully pointed out, borrowing should be anchored by our overarching guiding values of prudence, discipline and equity. In fact, the key reason, as he pointed out, for borrowing is about intergenerational equity, a point which Prof Hoon Hian Teck also made about intergenerational equity or re-distributive justice. In fact, Prof Hoon mentioned that, for example, on climate change, the building of dykes and polders and other structures for keeping our island safe, is also a responsibility to unborn generations for which the Government is acting on their behalf.

What we are doing builds on what we have been doing in managing our reserves to make sure that while we draw on our NIRC for our recurrent spending, we are also leaving aside sums for the future generation, so that they too can manage the long term. So, this has been, in fact, the Government's approach which has been a very carefully calibrated one. So, let me now go into some details.

Today, we borrow under the Local Treasury Bills Act or LTBA and the Government Securities Act or GSA only for specific policy purposes such as for market development, meeting the investment needs of CPF, and liquidity. In fact, the majority of our borrowings, about 71%, is made up of the Special Singapore Government Securities (SSGS), which are issued primarily to support the retirement needs of Singaporeans.

All these borrowings are invested and are not spent, and the returns on our investments are able to cover the borrowing costs over the long term. This includes the higher interest rates that we give to CPF members for the monies in their CPF accounts. We manage our borrowings carefully to ensure that we have the financial resources to repay our debts.

While we used to borrow for spending in our development years, there has not been a need for us to do so since the 1990s because of strong growth and healthy revenues. Prudent management of our finances during these good years also helped us to build up our reserves.

As Mr Liang pointed out, we could therefore now count on our rainy-day fund to mount a quick and decisive response to protect the lives and livelihoods of Singaporeans when the COVID-19 crisis hit last year. We did not have to incur a single cent of debt to fund our COVID-19 response.

Our approach is different from other countries as our circumstances are different. As Ms Foo Mee Har reminded us, even during the COVID-19 crisis, some countries already had high levels of net government debt as they borrowed to fund recurrent needs. Some of these countries had to borrow even more to fund their COVID-19 response. For instance, the average net government debt amongst OECD countries rose from 65% of GDP in 2019 to 80% in 2020.

By contrast, Singapore does not have any net debt. This strong fiscal position puts us in a good position to emerge stronger from the COVID-19 crisis.

So, let me address why do we limit it to nationally significant infrastructure.

This Bill is a continuation of our careful and calibrated approach towards borrowing. As mentioned in my earlier speech, we are anticipating a hump of development expenditure as we embark on a generational upgrade of nationally significant infrastructure to improve the lives of Singaporeans. Borrowing and capitalisation of nationally significant infrastructure will help us spread out its lumpy costs, to better match the timing of the benefits to the timing of the spending. This is a fair and efficient approach. This is the result of long-term planning. We have been anticipating this need for quite some time now.

I first announced that we were studying the option of borrowing for nationally significant infrastructure about two years ago in 2019. I had also at the outset of my speech showed you this infrastructure hump that we are facing. Several Members have made comments relating about why $90 billion, why not lower it, why not increase it, why the criteria, and so on.

Let me remind all Members that we are not talking about from tomorrow, we are going to fund all development expenditure through borrowing. In fact, we are borrowing this $90 billion or we are going to borrow this $90 billion, in order to smooth out the funding needs because of this hump. Over and above that, our development expenditure will continue.

Several Members, including Mr Liang, have also asked about what is the impact on our AAA credit rating and several Members have pointed that this is the first time that we are borrowing for spending since the 1990s and it is not for a small sum; it is $90 billion. MOF and MAS have in fact engaged the three major credit rating agencies – S&P, Moody's and Fitch – to explain our approach on these borrowings. They too recognised that our approach is underpinned by key principles of prudence and sustainability. Even with the planned introduction of new borrowings to finance long-term major infrastructure, the credit rating agencies acknowledged that Singapore’s fiscal position and credit rating remain strong. This is because they understand that the Government is committed to a balanced Budget framework and to fund recurrent spending with recurrent revenue.

Having sound macro-policies – fiscal, monetary and structural – is paramount. As Ms Foo Mee Har reminded us, we cannot take our AAA rating for granted. We must be prudent in how much we borrow and what we use our borrowings for. So, let me elaborate.

One way we are exercising prudence is by limiting borrowing to infrastructure projects that have a total qualifying cost of at least $4 billion.

Mr Edward Chia, Mr Don Wee and Mr Xie Yao Quan asked about the Government's considerations in setting the project cost threshold at $4 billion and if the Government would review it in future. As explained earlier, the Government is starting off more prudently by limiting the scope of SINGA to larger projects that tend to have greater intergenerational benefits. Infrastructure projects are in most instances intended to provide a stream of services over many years, and a diverse set is needed for Singapore and many other countries. As Mr Don Wee pointed out, the Sports Hub itself, and whether it is Sports Hub or KPE, are all over a billion dollars.

It is not our intent that all types of infrastructure will be funded by borrowing. Let me emphasise. It is not our intent to fund all types of infrastructure by borrowing. Why? Because borrowing is not revenue. It must eventually be repaid by future taxpayers. If we borrow for all infrastructure projects, even the smaller ones, we will leave our children to shoulder a bigger stream of debt repayments. This would not be prudent, especially in view of our maturing economy and slower growth rates.

So, the Government will continue to plan for and build a range of infrastructure to meet the needs of our people. Such development expenditure will remain a part of our annual Budget, to be funded by the recurrent revenues that the Government has to collect. The $4 billion threshold captures major, lumpy development needs that form the upcoming "hump" above our baseline development expenditure, and are important to our national interests, as I have explained earlier on.

We are mindful that our infrastructure needs will evolve as our economy grows. Infrastructure costs may also grow with inflation. Hence, we are open to reviewing the $4 billion threshold in the future if necessary.

As to what should count as infrastructure, Assoc Prof Jamus Lim and Mr Louis Chua mentioned a few points and I want to thank Mr Murali Pillai for his thoughtful comments to these suggestions. Assoc Prof Jamus explained his proposal to expand the scope of borrowing. So, I take it that he is in full support of SINGA to fund large-scale infrastructure. But what he wants is an additional bit to further expand the scope of borrowing to include non-infrastructure spending. Let me sound a word of caution about the suggestions made by Members to borrow for other non-infrastructure needs, such as education or healthcare. And I thank Mr Derrick Goh, who has just spoken, for his warning that we should not dress all types of spending as "soft infrastructure".

In terms of spending on education, healthcare, the Government recognises the importance of spending on these needs but we should always focus on how well we spend, not how much we spend. And we should always focus on the outcome and effectiveness of our spending, not on how big a sum of money we spend.

So, we have made significant investments and ensured good outcomes. I have shown our effectiveness spending in education and health in this House before and I hope that Members will refer back to the Hansard and the charts that I have shown. This has been internationally recognised such as the World Bank Human Capital Index.

The second point is that Assoc Prof Jamus has also cited several studies, macro studies, and may not apply to Singapore. Singapore has already achieved high levels of schooling especially for our younger cohorts. Our university cohort participation rate is already at 42%, comparable to the advanced economies. More importantly, we have high employment and good outcomes.

Mr Louis Chua cited the recent US stimulus package and said it included a whole range of spending on social infrastructure. He then compared with what we are spending and suggested that actually we should be spending more. When we are looking at spending, we should be asking ourselves what do we have to spend on, what has been achieved and what other problems are we trying to fix?

So, both Assoc Prof Jamus and Mr Louis Chua's comments point to the risk, in fact, a very major risk, that if you do not draw clear lines every time expenditure items come up for debate, you would then blur the lines and the lines will keep getting blurrer. And you can argue that everything that a country needs to get itself working, to get working, would qualify. Just coin it by some nice names and call it "soft infrastructure". Is defence not soft infrastructure? Is security not soft infrastructure? Is guarding against cybersecurity not soft infrastructure? What about healthcare, education, social spending, spending to maintain social cohesion? Are those not so-called soft infrastructure too?

So, I think, please be rigorous. Let us stick to what are factors rather than to keep blurring the arguments. If you want to have higher spending on healthcare, on education, say so, and we can debate whether are we spending enough or not enough.

There is one other very significant point which I would like everyone to bear in mind. In talking about all the spending, neither Assoc Prof Jamus Lim nor Mr Louis Chua addressed the question of who is going to pay for this borrowing.

As I have said, borrowing helps you to finance but debt has to be repaid. Somebody has to repay debt.

The argument is that borrowing for recurrent expenditure will pay for itself because you will get higher returns on human capital versus infrastructure. But this has not been borne out anywhere in the world. Most developed countries that go into debt financing just end up with more debt. The hole is just getting bigger.

I want to remind Members that we spend more than 30% of our expenditure each year on MOE and MOH, and that share is expected to rise. In fact, I will talk more about this later.

So, if we borrow for one third of our recurrent spending, no matter how cost-effective they are, this would, over time, create a high debt burden for future generations.

I would also like to thank Prof Hoon Hian Teck for pointing out very clearly that we need to have the capacity to raise revenue, and this is critical for fiscal sustainability. Indeed, the credit worthiness of Singapore, the extent of credit that people are willing to recognise for Singapore and grade Singapore, depends critically on whether they think that we have a sustainable fiscal policy.

That, again, depends on how willing the Government is to maintain financial discipline and to raise taxes where it is necessary. If we do not do that, what is likely to happen is that your credit ratings will fall, the risk premium will rise. And this is going to have an effect on the entire economy – on not just Government borrowing but on corporate borrowing, and in turn, this is going to affect the jobs of our people. Because if we make ourselves a less desirable place for investments, it will come back and haunt us.

Mr Leong Mun Wai's long speech boils down to actually one argument: that we have a lot of money – more than enough – because our reserves are large and we can just spend and spend and spend. Then, he comes up with some estimates of how big our reserves are. As I have said before in this Parliament, we do not comment on the size of our reserves for the reasons I have set out in my earlier speeches. So, I shall not repeat these.

Mr Leong Mun Wai also conflated intergenerational equity for long-lived assets with intergenerational equity.

I mentioned that I would speak about the share of Government financing for just national healthcare expenditure alone. It was 35% in 2011 and 46% in 2018; and likely to rise further – so, an 11-percentage point increase in just seven years.

Mr Leong Mun Wai also claimed that the burden for paying various expenses came down to our workers. This is wrong. Let me just repeat what I said in Parliament again: about half of our workers do not pay income tax. About half of our workers do not pay income tax at all.

So, I hope that if Mr Leong Mun Wai would like to make a contribution to policy-making in this Chamber, please be rigorous. Come here with fresh insights or new facts. Bring this to the House for debate. Please do not reread and reread your old script.

Mr Saktiandi Supaat asked if we can borrow, say, during a crisis. There is no one-size-fits-all approach to a crisis. We need to take into account the nature of a crisis and be prepared to use all the tools at our disposal.

We are fortunate to have built up our reserves, which serve, among others, as a rainy day fund – as Mr Liang Eng Hwa pointed out earlier – which we can tap on in times of crisis. Indeed, with the President's concurrence, up to $53.7 billion is expected to be drawn from our past reserves over FY2020 and FY2021 to respond to the COVID-19 crisis.

Let me caution that the COVID-19 crisis is not behind us. If the global economic outlook worsens unexpectedly, we may have to take exceptional measures. If we have to draw on past reserves again to support our economy, we may consider raising cash by borrowing. Doing so would allow our assets to stay invested for the long term. But as I have said, we will be prepared to use all tools at our disposal but we have to consider this carefully.

Mr Liang Eng Hwa also asked about the update on his suggestion which he raised earlier during the Budget debate – other than SINGA, should we be prepared to borrow to finance investments that allow Singapore to emerge stronger?

Indeed, COVID-19 has accelerated structural changes in the global economy and has disrupted industries and reshaped jobs in significant ways. We are fortunate that five years ago, we started on our industry transformation and we have achieved results. In the midst of the crisis, we set up the Emerging Stronger Taskforce to look at how Singapore can emerge stronger from the crisis.

The Emerging Stronger Taskforce will be putting out its final report soon. There are many good suggestions in the report on how we can build capacity in our companies and in our people so that we can seize opportunities and emerge stronger. I will study this report carefully and discuss with MOF later on how we can fund additional investments during this period. This is an important opportunity for us to do so.

But if we do borrow for this purpose of emerging stronger, we must set some conditions; set safeguards, as Ms Foo Mee Har reminded us.

Firstly, the use of these borrowings should be tightly circumscribed to our Emerging Stronger strategies. Clear lines need to be drawn.

Secondly, we must ensure that this is a time-bound instrument, as any one-off special borrowing should be to meet the extraordinary circumstances arising from COVID-19. It is not to become a recurrent fiscal tool. So, let us stay disciplined. We will continue to monitor the economic and public health outlook closely and study this option carefully.

Ultimately, COVID-19 is sui generis. Exceptional times require exceptional measures. It is in this context that I am tabling this Bill and to consider borrowing, if necessary, to emerge stronger from this generational crisis.

Sir, let me just sum up this section by warning that while we have many needs in our society and these needs are very important, we must ensure that we use recurrent sources to fund all these recurrent needs and not to get our future generations to pay for what we enjoy today, because this is not fair. It is important that we must maintain this intergenerational equity.

Let me just move on to warn that if we lose our reputation for being fiscally prudent, investor confidence would be affected, cost of funding for everyone – the Government and our corporates – will rise and this will spill over to the real economy.

Ms Foo Mee Har, Mr Louis Ng, Mr Edward Chia and Ms Mariam Jaffar have asked about the checks and balances we need to put in place to ensure that the criteria for nationally significant infrastructure are met and borrowings are well used.

Sir, let me assure this House that there will be a rigorous multi-stage selection process to first identify potential SINGA projects which also involve third parties. This includes an evaluation through the Gateway Process and a certification by each agency's accounting officer that the criteria in SINGA are met. Let me elaborate.

First, all development projects will have to go through the Gateway Process to ensure project worthiness and cost effectiveness before construction – no different from today. Under the Gateway Process, these projects will first undergo review by MOF as well as the Development Projects Advisory Panel, or DPAP.

The DPAP includes independent third parties, such as academics and industry practitioners, with deep technical expertise. They ensure that the project meets Singapore's needs and not only today's needs, as Mr Edward Chia reminded us, but also tomorrow's. They also ensure that cost estimates are rigorous and reasonable. In fact, over the last few years, these processes have led to design improvements and generated savings of several billion dollars in total.

Thereafter, these projects will be subject to further approval by the Ministerial-level Development Planning Committee.

Finally, once these projects have been assessed to be meritorious, each agency's accounting officer, who is a senior civil servant, will be required to certify that the statutory criteria in SINGA are met, in particular, the $4 billion value project cost threshold and the 50-year useful life requirement, prior to the raising of borrowings.

Mr Murali Pillai asked about the approval process and so did Mr Louis Ng. Mr Xie Yao Quan suggested that, for prudence, perhaps we should reduce the total borrowing and reduce the interest cost.

Let me reiterate that this is to meet this hump coming up in the coming 15 years. But I want to assure Members that Parliament will continue to play an important role to ensure that our infrastructure investments are worthwhile. All infrastructure to be financed by borrowings will form part of our development expenditures to be approved through the annual Budget process. Parliament may carefully scrutinise our proposed infrastructure plans before we proceed with spending and capitalising the development expenditures. And any Committee of Supply Bill passed by Parliament has to be assented to by the elected President.

Let me now address some of the points raised by Members on how the safeguards under SINGA ensure that the borrowing is prudent and sustainable for both current and future generations.

First, I will address the limits on the amount of borrowings that can be raised before addressing the safeguards on the capitalisation of nationally significant infrastructure.

SINGA has two key safeguards to limit the amount of borrowings raised.

First, the $90 billion gross borrowing limit. Sir, let me put the $90 billion in context.

Ninety billion dollars is a sizeable limit, as Mr Xie Yao Quan pointed out. It is equivalent to about four Downtown Lines and about 20% of our GDP in 2020, at current market prices. Nevertheless, 20% of GDP is lower than the previous borrowing limits under the six Development Loan Acts, or DLAs. They averaged around 40% of GDP in the year the DLA was introduced. It is also lower than the borrowing limits in other countries. For example, Canada, which also has good credit rating, has a recurrent debt ceiling of 1.17 trillion Canadian dollars, which is about 51% of their GDP.

So, when we compare with our own past experiences and those of other countries, a gross borrowing limit of $90 billion is prudent and sustainable and can meet our needs.

Some Members, including Mr Don Wee, have asked why use an absolute limit of $90 billion instead, say, of rolling annual limits that are pegged to a percentage of GDP?

An absolute limit gives certainty to both current and future terms of Government on the amount that they can borrow to spend on nationally significant infrastructure. If we peg the limit to GDP, the limit will fluctuate as the size of the economy fluctuates over time. This will mean a lower limit during an economic downturn, like now, and constrain us from building critical infrastructure at a time when the conditions are right and could help to support the economy.

When we consider nationally significant infrastructure, we must take a longer term view. Nonetheless, I would like to assure Members, including Mr Edward Chia, Ms Foo Mee Har and Mr Louis Chua, that this $90 billion limit has taken into account future economic growth and expected inflation on the underlying development expenditures.

On the annual effective interest cost threshold of $5 billion, Mr Xie Yao Quan and Mr Don Wee asked about the considerations behind this threshold and whether it should be lower, given the low interest rates today.

As I have mentioned in my speech earlier, $5 billion caps our interest cost at around 1% of our GDP in 2020 at current market prices. This keeps the level of our interest payments sustainable and this is lower than the borrowing cost in other countries. For example, interest payment to GDP in the UK in FY2019/2020 is about 1.7%.

Mr Xie and Mr Wee are right that in the current low interest rate environment, we do not expect our interest costs to be near the $5 billion threshold even if we borrow up to the full $90 billion.

But the $5 billion cap provides some buffer when the interest rate cycle turns. And as several Members have pointed out, interest rates at some point will rise. So, we cannot expect interest rates to remain at current low levels forever and do not forget that this borrowing is not for the next year. This borrowing is for the coming 15 years.

So, I hope this will address Members' suggestion as to whether we should borrow more to take advantage of low interest rates.

Let us remind ourselves that our own interest rates are especially subject to global interest rate volatility, because our capital markets are open and monetary policy is centred on managing the exchange rate. And there were periods over the last 25 years of our history when our interest rates were much higher. For example, interest rates for 10-year Singapore Government Securities (SGS) reached 5.87% in 1998.

So, what will happen if interest rates rise? If we borrow too much from the onset, in particular for non-infrastructure expenditure, then we will have a much higher debt ceiling burden when we need to refinance our existing debts and our fiscal situation can spiral downward quickly. This usually happens in a crisis, when we can least afford it.

But if we borrow prudently to finance only critical, long-term infrastructure that bring significant benefits to Singapore, we can continue to ensure investor confidence even in a high interest rate environment. This will enable us to retain our triple A credit rating, which can anchor our interest costs.

In addition, because we are borrowing for infrastructure where the payment structure typically stretches across time, borrowing costs under SINGA would be averaged out. So, our prudent approach can therefore help us to maintain a strong fiscal position and continue borrowing to finance critical investments, even if interest rate cycles turn upwards. The interest cost threshold will keep the overall debt servicing costs in check.

Mr Edward Chia and Ms Foo Mee Har asked in the event that we are nearing the interest cost threshold, do we need to raise revenues or divest our financial assets to raise liquidity to repay some of the outstanding borrowings so as to keep within the threshold.

First, the cap on interest is on the outstanding debt. As we are ramping up infrastructure quite evenly over the next 10 to 15 years, the cap will not be binding as our initial spend is more limited. The next five years we are likely to utilise less than $30 billion but it is prudent that we size this cap early.

Second, the cap is on the effective cost across all the outstanding debt. If we issue bonds in the next few years, when rates are expected to be low, this will help reduce the overall effective interest cost even if rates go up in the future.

Hence, the cap will likely be more binding when we are closer to the $90 billion gross borrowing limit and if we are in a particularly high interest rate environment in the future. This is precisely why we need this safeguard to ensure that the Government will continue to exercise care in managing debt and debt servicing for future generations.

If interest costs rises beyond the threshold and we cannot borrow more, the government of the day can re-consider the threshold and debate in Parliament again.

I should also clarify that for outstanding loans, the Government can continue to maintain these borrowings until maturity and not have to repay the outstanding borrowings under SINGA immediately.

Some Members have also asked whether we should borrow the full $90 billion in advance, given the current low interest rates environment. Indeed, we are prepared to start borrowing for the infrastructure projects that have undergone the rigorous evaluation and review, for which approval has been given for works to begin within the next few years. This will enable us to benefit from the current low interest rates today and to better spread out the lumpy costs of our major infrastructure.

But we will not borrow for infrastructure plans that have yet to undergo evaluation and are not firm. Interest cost is not the only consideration – we have to continue to scrutinise projects rigorously. And by pacing our borrowings, it will also enable our financial markets to invest in a regular and stable way.

Ms Foo Mee Har and Mr Edward Chia asked about the safeguards. Besides limiting the amount of borrowings, the safeguards on the capitalisation and depreciation of nationally significant infrastructure assets.

We intend to depreciate the assets evenly via a straight-line depreciation method. This will ensure that each generation contributes an equal share towards the nationally significant infrastructure.

As an additional safeguard for prudence, we intend to cap the depreciation period for the assets at either 50 or 70 years, rounded down from its useful life.

This reduces the risk of future generations having to pay for an infrastructure that is becoming functionally obsolete towards the tail end of its useful life.

In addition, Mr Murali Pillai asked about potential abandonment of SINGA projects after borrowings have been raised.

I should first clarify that even the Government has started borrowing for and constructing a project, it has no incentive to abandon any meritorious projects. Because doing so comes with both tangible costs such as demolition costs that would be charged to the term of the government that abandons the project, as well as intangible costs such as reputational costs.

But as Mr Murali Pillai pointed out, there may be other scenarios where projects may be abandoned; for instance, if there is a change a government. If the new government abandons the project, it would indeed have to pay for the abortive costs, including contracts that have been signed. A few months ago, the Malaysian government decided not to proceed with the HSR project and compensated Singapore for the abortive costs in line with our bilateral agreement.

So, indeed, there is always a risk that any infrastructural projects, not just the ones that are financed by SINGA borrowings, may be aborted, due to circumstances beyond the Government’s control. And this is where we have to do our best, to put in place the measures to minimise the risks, and should these risks materialise, to have proper recourse and maintain investors’ confidence in the ability of the Singapore Government to manage the country’s finances properly and observe the rule of law.

Let me now address the points made by Members, including Mr Saktiandi Supaat, on how issuance will be managed, including green bonds.

The Monetary Authority of Singapore (MAS) as the Government’s agent will be issuing a new category of Singapore Government Securities (SGS) under SINGA. It will be named SGS (Infrastructure). To delineate this from the existing SGS issued under the GSA, we will rename the SGS issued under the GSA as SGS (Market Development).

Both categories of SGS will rank pari passu and will be priced along the same yield curve. They will also be subject to the same tax and regulatory treatments and will be made available to both institutional and retail investors. Hence, investors would see both SGS (Infrastructure) and SGS (Market Development) as equivalent substitutes.

To keep overall issuance costs well anchored, both categories of SGS will be managed holistically, as Mr Saktiandi Supaat pointed out. This ensures that the overall supply of the SGS will be calibrated to market demand.

To assess the demand for SGS each year, MAS will consider the prevailing global and domestic financial and monetary conditions, feedback from investors and the infrastructure spending needs under SINGA.

In a year, when more SGS (Infrastructure) need to be issued, MAS will accordingly reduce the issuance of SGS (Market Development), assuming market demand is constant. Like SGS (Market Development), SGS (Infrastructure) will be issued across a range of tenors. This will help to manage the overall borrowing costs across the entire yield curve.

The tenors and the overall duration of SGS (Infrastructure) would be calibrated to account for demand from investors. When market conditions are supportive, MAS will tilt the tenors for SGS (Infrastructure) towards the longer dated tenors, given that the borrowings are intended to finance infrastructure with long useful lives. Presently, the longest tenor for SGS is 30 years. We will consider issuing beyond the 30-year tenor, if there is strong market demand.

Some Members, such as Mr Don Wee and Ms Foo Mee Har, also asked if we will consider issuing SGS denominated in foreign currency.

We will not be issuing such SGS for a start. However, the SINGA provides the flexibility to issue SGS denominated in foreign currency. Together with MAS, the Government will work with the market to explore the possibilities of structuring borrowings differently over time, including SGS denominated in foreign currency, if there is demand. Should we issue such SGS in the future, we will carefully study the options to mitigate foreign exchange risk, as some Members have pointed out.

To Mr Saktiandi Supaat’s, Mr Louis Ng’s and Mr Don Wee’s query on green bonds, we will issue Green SGS (Infrastructure) for projects that meet the green criteria. As announced at Budget 2021, the Government will take the lead in issuing green bonds on selected public infrastructure projects. These green bonds are an important enabler of the Singapore Green Plan 2030. They will serve as a reference for the domestic green bond market, deepen the market liquidity for green bonds, attract green investors and anchor Singapore as the green finance hub.

We will issue up to $19 billion of green bonds over the next five years for a start. This comprises borrowings by both the Government under SINGA as well as borrowings by the Statutory Boards. For Green SGS (Infrastructure) issued under the SINGA, we expect the first issuances from FY2022 onwards.

Preliminarily, Second Party Opinion providers, which are institutions with environmental expertise to provide independent opinion on Green Bond Frameworks, have indicated that our MRT projects are likely to qualify for green issuances under SINGA, as electric passenger rail is the greenest mode of mass transportation.

The Government is working with MAS and industry partners to establish our own Green Bond Frameworks for Green SGS (Infrastructure), taking reference from international standards, as highlighted by Mr Louis Ng.

As we are only just starting out our green bond programme, we will not be stipulating a minimum percentage of green bonds under SINGA for now. Nonetheless, we thank Mr Murali Pillai for his suggestion.

As for green bonds issued by Statutory Boards, we expect NEA to issue green bonds for the Tuas Nexus project. Mr Louis Ng will be happy to know that the Tuas Nexus is one of the projects to help mitigate climate change. It maximises energy and resource recovery in the solid waste and used water treatment processes, leading to carbon savings of more than 200,000 tonnes of carbon dioxide annually. So, this is equivalent to taking 42,500 cars off the road.

Mr Saktiandi Supaat and Ms Foo Mee Har also asked how borrowings under SINGA will interact with existing borrowings by Statutory Boards.

To reiterate, borrowings under SINGA will be used to finance an upcoming generational upgrade of infrastructure which are large-scale projects which can cost up to tens of billions of dollars.

While our Statutory boards do currently borrow for infrastructure; it would be more capital efficient for such large-scale borrowings to be undertaken on Government’s balance sheet to optimise financing costs. Nonetheless, there is still a place for borrowings by Statutory Boards. We expect Statutory Boards to continue issuing bonds, including green bonds, to finance smaller scale infrastructure that do not fall within the scope of SINGA.

So, let me sum up by situating borrowing under the SINGA within our broader fiscal strategy. And in so doing, address Members’ questions about our fiscal approach.

Our fiscal strategy must remain true to our core values of prudence and stewardship. But it must also be resilient and nimble to adapting to changing times. Hence, we have employed a differentiated fiscal strategy for different kinds of expenditure.

For infrastructure needs, we will now employ borrowing as one of our financing strategies. And this is in addition to other financing strategies such as pre-saving in the Rail Infrastructure Fund and the Coastal and Flood Protection Fund.

Where appropriate, we will also consider ways to partner the private sector, as suggested by Mr Don Wee and several others, to fund infrastructure such as electrical grid upgrades to support electric vehicle charging infrastructure.

SINGA allows us to borrow to finance nationally significant infrastructure in a prudent and disciplined way. The safeguards help to ensure that the costs of borrowing remain sustainable and that these costs can be met by overall revenues without constraining our ability to pay for future needs.

Let me assure Members of this House that our fiscal position remains strong with borrowing, even if the economic outlook takes a turn for the worse.

We will also continue to remain in a net asset position. The majority of the Government borrowings will continue to be issued under the existing LTBA and GSA for non-spending purposes.

As for recurrent spending, such as healthcare and social spending, it is more sustainable to meet these growing needs through revenue that we can collect on an on-going basis, such as taxes.

Borrowing is not revenue, let me repeat that, and it must eventually be repaid by future taxpayers. Borrowing for recurrent spending will only mean that we will end up with higher and higher debt levels.

So, therefore, there will still be a need to raise the GST rate, to raise recurrent revenues for structural increases in healthcare and social spending as our population ages.

Such recurrent spending is in addition to our nationally significant infrastructure needs, which we will be financing through borrowings under SINGA.

Without borrowing, we might have needed to raise taxes even more in the next few years to fund the large upfront costs of these infrastructure, as Ms Foo Mee Har highlighted. So, borrowing helps us to spread the costs of infrastructure over generations and avoid steep increases in taxes over the coming years.

Let me address the three specific questions that Ms Foo Mee Har raised.

First, the details of how our capitalisation under SINGA will be allowed. I have mentioned that earlier on in my main speech.

Second, does the $90 billion limit take into account upgrading and maintenance cost of the infrastructure over the lifetime of infrastructure. Well, we will not be borrowing for recurrent expenditure related to nationally significant infrastructure, such as cost of repair and maintenance. So, this cost will be excluded from counting towards the $90 billion borrowing limits.

Third, Ms Foo asked, to quantify the fiscal space created from this accounting treatment, what is estimated to be the amount of taxes that would have had to be raised to fund such long-term expenditure if this was made under the current annual expense approach and does that mean that we will have more fiscal room?

I have said in my main speech earlier on that borrowing under SINGA will, I quote, "lower our annual average development expenditure over the next decade from around 5% of our GDP to 4.2% of our GDP after taking account depreciation and borrowing costs." So, in other words, on average, SINGA will create fiscal space of 0.8% of our GDP annually, in the next decade after taking into account the depreciation and borrowing costs. And this is around $4 billion in current dollars. So, put it another way, this is the amount of taxes we would have needed to raise have we not implemented SINGA, or the amount of spending that we will have to cut or not spend on SINGA.

So, to conclude, Mr Speaker, Sir, as we emerge from COVID-19, we must continue to build a better Singapore for the future. But we must remain prudent even as we do so and maintain our strong fiscal position. And to quote Ms Foo again, "the debt we accumulate must not put unfair pressure on future generations."

Borrowing for nationally significant infrastructure under SINGA will help us to achieve these goals and set Singapore up for future success. I beg to move. [Applause.]

Mr Speaker: Mr Leong Mun Wai.

7.34 pm

Mr Leong Mun Wai: Mr Speaker, thank you. I have four questions to clarify for the Deputy Prime Minister.

I am very perturbed by his saying that I am not contributing to this Parliament. I do not take umbrage because I aim to be a gentleman, but I am seriously perturbed. I think what I am trying to do here is to complete the picture. I think maybe because of the various commitment of Government, some of the information that is coming out of this Parliament is not complete. Let me ask four questions to complete the picture.

One, I will ask the Deputy Prime Minister: do you agree that this year, fiscal resources amount to $128 billion. We do not care how you classify that resources into revenue, but you have $128 billion; $39 billion of NIRC; $12 billion of land sales and $77 billion of taxes.

Two, while you refused to announce the accurate figure for the reserves, the Government publishes Government financial statements every year; and as of March 2020, the total financial assets reported on the financial statement was $1.35 trillion. Please confirm that.

Three, you provided some figures to say that middle class Singaporeans are getting more from the Government than the taxes they pay. One question I want to ask you is: why do you not go to our constituency and tell the constituents, "Please pay more taxes; you will get more from the Government." Have you taken into consideration all the indirect taxes when you presented your conclusion?

And fourth, for the expenditures that the Government is trying to incur, are you prepared to give a 20-year forecast of all the expenditures that are going to come? It is a very serious matter, you know. If we have that much resources, we almost have 7% to 8% of our GDP, including when you take into consideration the land sales and the NIR we have. Every year, we have about 7% to 8% of our GDP in this sort of resources. And you tell me that going forward, our expenditures will still be more than this. Then, we have to look at our expenditures very carefully. Those are the four questions, Deputy Prime Minster, please.

Mr Heng Swee Keat: First, I thank Mr Leong Mun Wai for the questions. Let me ask that the Member do not put words into my mouth. I did not say that you are not contributing to this Parliament. I said, "Please be rigorous when you come to Parliament and justify your position".

You asked four specific questions so you should not be perturbed nor should you take umbrage.

First, you quoted the figure of $128 billion and quoted $38 billion of NIRC and $12 billion of land sales. Again, I said in this Parliament, over and over again, please, read the Hansard, that land sale proceeds are not be used for recurrent spending. We have a Reserve Protection Framework, where land sales go into past reserves. Past reserves are then invested, and we have the elected Presidency to ensure that the Reserve Protection Framework is working as it should, working properly.

And as for NIRC, again, and I have said it before, that we only take up to 50% of the NIRC and we are already doing that. It now constitutes 3% of GDP of our expenditure – huge amount! More than any single category of taxes, whether it is GST, personal income tax or corporate income taxes. And we are only using 50% because it is our responsibility to put back that 50% for future generations as our needs grow.

If our parliamentarians have taken the approach that you have advocated, we will not even be debating this because we will just be talking about how much debt to issue in order to fund. And my numbers which I have quoted, on many of the OECD countries, that the average is 80% of the debt to GDP and how that has increased further. So, please look at your figures carefully.

And second, you have asked me to confirm whether reserves in the gross financial statements are correct. Well, the statements are prepared and are correct when we publish it, but whether this can be spent is a separate matter.

The third question is, to ask me to go to my constituents and make the claim that the more taxes you pay, the more benefit you get. I do not know your logic because I did not, in any way, say that the more taxes you pay, the more benefits you get.

You also asked specifically about indirect taxes. Again, since you entered Parliament, in the various Budget debates, you have been raising this. I have been answering as patiently as I can. I hope that this will be the last time that I have to answer this.

You cannot see GST in isolation. You have to see GST in the context of the entire expenditure of our households; and on what taxes they pay and what rebates they get. And again, all my numbers, I stand by all the numbers I have used in my past parliamentary speeches. So, please do your homework and check it out.

And finally, you asked me: am I prepared to prepare 20-year expenditure forecast of all that is to come? I am not. Because just two years ago, I would not have predicted that we would have faced such a generational crisis that I had to go to the President to touch our past reserves, to unlock our past reserves for them to be used, and $53.7 billion is not a small sum. So any projection, if anybody claims to have the foresight to project 20 years, I would say, better not trust that person. Even five years, I cannot tell you what exactly will happen.

But for recurrent expenditure, we can project. We can project how much our healthcare costs will be going up because it is our responsibility to provide for that. We know globally what is the trend of how ageing affects healthcare costs. What we do not know is what new treatments will come out, how lifespan will continue to grow, what kind of new drugs, new treatments, approaches will come and therefore, how healthcare expenditure will rise. So, even whatever numbers that Minister Gan Kim Yong and I have been working on, we are always conscious that this represents, in a way, a lower limit, we have to provide at least for that amount. Which is why I have argued that we need to raise GST from 7% to 9%.

So, please think about it carefully. And for you to argue that we have 7% to 8% of GDP, equals NIRC, equals to land sales – your numbers are just completely off. So, I hope that you take your parliamentary duties seriously and that you do your homework before you come and debates with us on the numbers. [Applause.]

Mr Speaker: Mr Leong, I have not called you yet.

Mr Leong Mun Wai: Sorry, I have to interject because there were a lot of allegations.

Mr Speaker: Mr Leong, wait till I call you. Mr Leong Mun Wai, if you have fresh insights, please. Thank you. I just called you. You can respond.

Mr Leong Mun Wai: Mr Speaker, I am also speechless. All the numbers that I am saying are backed by research. So, what the Deputy Prime Minister has said just now, can I confirm again that you agreed that: first, we have $128 billion of fiscal resources this year but you define and classify some of it into revenue, and some not into revenue. So, the Government is doing a different classification from what we see as total resources available. So that, I take it —

Mr Speaker: Mr Leong, can I suggest we cover new grounds? I think whatever Deputy Prime Minister has explained, he has explained. If you are holding your position, you are free to do so but if we can have new insights; otherwise, we can move on. Please do not repeat the same grounds.

Mr Leong Mun Wai: Mr Speaker, that is very important. What the Deputy Prime Minister is saying is – whatever he says is fact. Whatever we present as an alternative view is something that can be brushed off and I have to go back and do more homework and be more rigorous. That is, I do not want to take offence. Something that I take—I think that is not professional.

Mr Speaker: So, you will have a position in which you disagree with the Deputy Prime Minister and we can recognise that. So, do you have new insights that you would like to share with us in Parliament, apart from going over the same ground?

Mr Leong Mun Wai: Okay. The Deputy Prime Minister said that he could provide the recurrent expenditures as expected over the next 10 to 20 years. If I may request that he provides us with that so that we can scrutinise —

Mr Speaker: Mr Leong, the Deputy Prime Minister has replied as to how he wants to approach that. There is no point repeating the same question because you will get the same answer.

Mr Leong Mun Wai: But I am asking for a commitment.

Mr Speaker: The Deputy Prime Minister has replied and said that he is not able to provide the projection for the next 20 years because it is hard to project what the future will be.

Mr Leong Mun Wai: But he did say that recurrent expenditures are possible. Some expenditures, like the COVID-19 expenditures and all that, of course, are not predictable. But some are possible. So, I am requesting whether he can provide those that are possible. That is all, Mr Speaker. Thank you very much for your indulgence. Thank you for allowing it.

Mr Speaker: Thank you. Would the Deputy Prime Minister like to respond to any of that?

Mr Heng Swee Keat: Mr Speaker, Sir, let me set on record what I said. I hope that you were not insinuating that I was non-professional in my approach. Because, if that were so, then I am completely speechless.

When you asked whether I could provide projections for the next 20 years, I warned that it is not possible to project over such a long term because there will always be contingent events like COVID-19. We had gone through the Global Financial Crisis, the Asian Financial Crisis and SARS. So, crises are a recurrent feature of our life today and for us to pretend that we have the foresight to see clearly what will happen in the future is just not right.

What we can do, to the best of our ability, is to look at structural drivers that will drive certain expenditures, such as healthcare. As I said, even then, in my many meetings with Minister Gan Kim Yong, our Health Minister, we had gone through our projections over and over again, and the numbers keep changing because of the factors that I mentioned in my speech earlier.

So, I hope that the Member listens carefully and not just look at the phone, please. I am speaking and the Member is just looking at the phone. I hope the Member has the courtesy to at least listen when I am trying so hard to address the points, even though I am not obliged to stand up and answer.

Mr Leong Mun Wai: I am checking the figures —

Mr Speaker: Mr Leong, if you could let the Deputy Prime Minister finish.

Mr Heng Swee Keat: Can you let me continue?

Let me also make the important point as to why I had to stand up to say this. It is not my classification or MOF's classification that this constitutes revenue available for spending, and this does not. We follow international standards. These have been agreed. It follows the international standard set out by the International Monetary Fund (IMF). The IMF provides for a range of ways in which certain expenditures can be counted or not counted, because the structures of governments in different countries are different. [Please refer to "Clarification by Deputy Prime Minister", Official Report, 10 May 2021, Volume 95, Issue No 29, Correction by Written Statement section.]

Some countries have different layers of government. They have national government, they have state governments, they have city governments. What constitutes public spending will all have to be aggregated properly, in order to make useful comparison.

In Singapore's case, we have made it very clear – including during our IMF consultations – that we abide by these standards. We have always taken the same standards and reported our numbers consistently as to what we can spend and what we cannot spend. So, please do not confuse the public that the Government arbitrarily decides on what can be spent and what cannot be spent. This is a very serious allegation which I hope you will take back.

Mr Speaker: Mr Leong Mun Wai.

Mr Leong Mun Wai: Thank you, Mr Speaker. Deputy Prime Minister, I would like to clarify again. I do not think the definitions of NIR or NIRC, all these are IMF definitions. Can you provide documentary proof on that?

Mr Heng Swee Keat: Mr Leong, of course, they are not IMF definitions because which country in the world has NIRC? Tell me.

Mr Leong Mun Wai: Okay. Then, inside the Budget and financial statements, there is a table of total receipts, and inside that, it includes what we call cash flow. If we use the cash flow, the Budget deficit will also not be so big. So, again, you are defining —

Mr Heng Swee Keat: Mr Leong, I do not want to waste Members' time on this. Let me, first, say that the IMF does not stipulate what is NIRC, what constitutes NIRC and so on. It has a set of clear principles as to what will constitute proper spending and what can be counted and what cannot be counted and so on. And because we are in a net asset position – we are not in a net debt position, debt servicing costs and so on – as I said in my speech, instead of us using current revenue to pay for debt servicing incurred by earlier generations, we have been in an extremely fortunate situation that we inherited that legacy, those reserves, from our forefathers.

And I hope that every one of us in this House and in Singapore will abide by that principle and will understand the need for us to remain prudent and that we are a tiny red dot with no natural resources and for which we are subject to the vagaries of the global economy. We are an extremely open economy as well.

Sir, I will just end there because if you have any further questions, you can file a Parliamentary Question and we will answer you.

Mr Speaker: Assoc Prof Jamus Lim.

Assoc Prof Jamus Jerome Lim: Thank you, Mr Speaker. I have just two clarification questions that I hope will be a little tamer in nature.

My first has to do with the purpose of investment. A point was raised, both by Member Saktiandi Supaat as well as Minister Heng, that we are already number one globally on the Human Development Index. But, of course, we are debating infrastructure borrowing and our infrastructure ranking, incidentally, according to the World Economic Forum, is also number one. So, the first clarification is, surely, we do not invest only on the basis of the past or where we are now. Surely, we want to invest for where we want to be.

The second point that Minster Heng mentioned was that we should not count all education and health expenditures as infrastructure. I entirely agree. That is why I did not just wave my hands and suggest some random expenditures in these areas. I specifically spent one whole page of my speech explaining specific conditions where human capital projects would actually qualify as soft infrastructure. Suggestions I made would all pay for themselves and, just as important, satisfy intergenerational equity, a point that has been repeatedly made in this House over the course of this debate.

So, I wonder whether the Minister will consider any form of soft infrastructure that satisfies clear conditions. Or are these always going to be off the table?

Mr Heng Swee Keat: I thank Assoc Prof Jamus Lim for his questions.

First, on the point that we are number one in the world based on the Human Development Index and, for infrastructure, we are also number one, so, do we need to invest in infrastructure? The answer is, of course, yes, because the Member supported the infrastructure Bill as well.

But as to whether do we, therefore, need to invest further in human capital development – absolutely, which is why I said that, on healthcare, I had so many discussions with Minister Gan Kim Yong on healthcare expenditure and why we need to continue to provide for healthcare expenditure. Whether you call it “investments”, whether you call it by any other name, the fact is we do need to spend more on healthcare to take better care of our ageing population.

Will we continue to spend on education? Absolutely. When I was in MOE, we were already building on the investments that were made by previous Education Ministers, including Senior Minister Teo Chee Hean, and, over the years, we have been adding to our investments in education.

Just one data point, a simple data point: we increased the cohort participation rate that is funded by the Government to 40%. We set up two new Universities and, right now, we are also investing more in adult education, in SkillsFuture and so on.

So, it is not as if that the Government has stopped investing in education. So, please remember, as I said in my Budget Statements before, do not take every Budget as a standalone Budget. Every Budget builds on past Budgets and, therefore, we have to look at the cumulative effects of all these spending, investments and the outcomes that they have achieved.

On the Member's second point about whether I would ever consider any form of soft infrastructure and the Member said that he has spent a whole page specifying the conditions under which they would qualify.

Let me say that when I was Education Minister, I went to many, many countries to study their education system to see what we should do. I looked at the spending patterns of various countries and one education minister – whom I shall not name – said to me, "Why are you coming to study us?" And I said, "Well, because you have great peaks of excellence". And he said, "Yes, but we have very deep valleys as well". And I explained we will study from the best and look at how best we can learn, and we learn from each other.

And I have seen so many proposals on why spending more in this area or that area would make a bigger impact. The fact is that you have to consider education holistically. It is not just what you spend on pre-school, Primary school, Secondary school or University.

Human development takes time, takes effort. It takes consistent investment of time, effort and energy by parents and by students. So, to just simply think that we can achieve great outcomes by spending more money is just wrong. It is important for us to be rigorous about it, make out the case as to which are the areas of education spending which are lacking and what exactly would we do.

And do not get onto the wrong path, because I have also studied systems which had extremely high subsidies for students at various levels. Again, one education minister told me, "Please do not make the mistake that we have made, which is to assume that when we spend more, we will get better results. We awfully regret that decision because, now, it is impossible for us to take back".

So, please have a care. The Member is an Associate Professor of Economics and Finance, and I think the Member would understand these arguments quite well.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Heng Swee Keat.]

Bill considered in Committee; reported without amendment; read a Third time and passed.