Published Government Cash Surplus Numbers and Impact on Government's Fiscal Space and Decision on GST Rate Increase

Parliamentary Question by Mr Liang Eng Hwa:

To ask the Deputy Prime Minister and Minister for Finance (a) whether the Government’s published cash surpluses indicate that the Government has more fiscal space than it states in its Budget Statements, and (b) whether this reduces the need for the planned increase in GST rate.

Parliamentary Reply by Second Minister for Finance, Ms Indranee Rajah:

I thank the Member for his question as it highlights an area which some have misunderstood, leading to incorrect conclusions about our fiscal position and the need to raise GST.  Let me explain why.

There is a distinction between (a) cash receipts and (b) revenue that is available for spending. Cash receipts reflect all the cash that comes in. Every year, the Department of Statistics (DOS) reports our cash receipts and indicates whether we have a cash surplus or cash deficit. But not all our cash receipts constitute revenue available for spending.

The largest difference between our cash receipts and revenue comes from the sale of state land. Such proceeds from land sales do not generate fresh revenue.  They are simply a transformation of one asset to another – when land is sold, the asset is converted to cash. State land that are not due for immediate development are typically leased out for interim use. This yields revenue for the Government too, in the form of rental income. So selling land does not increase the Government’s revenue, and if we were to spend all the proceeds from land, it would deplete our store of wealth. 

Think of a family that has a house. So long as the family owns the house, it can rent out some of the empty rooms to generate income. But if the family sells the house and uses the proceeds for day-to-day expenditure, it will soon have nothing left. However, if it invests the proceeds of sale wisely, it will still have the original sale proceeds, plus a constant stream of income from those proceeds. This income can then be used partially for expenditure and partially reinvested to help sustain both present and future members of the family.

Likewise for government budgeting, land sales proceeds are not considered part of our revenue and cannot be directly used for expenditure. Instead they are invested and part of the investment income is used to support the spending needs of Singaporeans via the Net Investment Returns Contribution (NIRC). The NIRC is now the largest single source of Government revenue, supporting about one-fifth of our spending needs. This is only possible because of the prudent and disciplined approach we have taken to building and protecting both our land and financial reserves.

In a recent social media post, the Workers Party claimed that there was no need to raise GST because of the cash surplus.  As I have explained, this claim is inaccurate and misleading. The bulk of our cash surpluses arise from land sales proceeds. Such cash proceeds do not create additional revenues for the Government, and are therefore not a valid reason for holding off the GST increase.