Why we can’t spend proceeds from land sales, explained

We’ve heard this one before and we hear this again at the Budget debate this year.

Leader of the Opposition Pritam Singh again raised the possibility of including a portion of land sales into recurring revenue on the first day of the Budget debate (Feb 28), echoing the same suggestion mooted by his party as far back as 2018, something noted by The Straits Times.

To answer this recurring suggestion, one would only need to understand what Second Minister for Finance Indranee Rajah said in Parliament last year.

Cash surpluses ≠ revenue

Proceeds from the sale of land are just a transformation of one asset to another – when land is sold, the asset is converted to cash. This much is easy to understand. For instance, state land that are not due for immediate development are typically leased out for interim use so that the government can generate rental income.

This rental income forms a bulk of our cash surpluses but an important distinction to note is that cash surpluses do not equate to revenue. Government spending draws from the revenue well as it is meant for spending. A responsible government will not draw from the cash surpluses because it would deplete our store of wealth.

Instead, the government invests the cash surpluses and part of the investment income is used to support the spending needs of Singaporeans via the Net Investment Returns Contribution (NIRC). So in an indirect way, we are using the cash surpluses to fund spending but only through the dividends earned.

An example

Say for example you want to generate some income with your property. A common way is to rent out rooms to get rental income. This way, you are maximising the potential of your property by renting out unused rooms while still owning the house. With this additional income at hand, you use a portion of it to invest in bonds, working the rental income hard to produce more money. You then use the dividends for your daily expenditure. This way, your principal amount (which includes your property) remains while you spend the dividends on the present family or invest it further for the future. This is the government’s approach, which is risk-adverse and extremely prudent.

However, if you are using the proceeds purely for daily expenditure without investing the proceeds properly, you will soon be left with nothing. This is what the WP is proposing.

Careful with the reserves

A responsible government with an eye for the long-term benefits of Singapore will be careful with how the reserves are being utilised.

The reserves are meant for the rainy day, an unpredictable crisis such as the Covid-19 pandemic, which saw the government drawing some S$100 billion to help Singaporeans.

This also meant racking up the largest Budget deficit since independence at S$64.9 billion or 13.9 per cent of GDP.

The government has no interest in hoarding wealth needlessly but instead will spend what is necessary whenever is needed.

This is the government’s commitment to Singaporeans: to plan for the long-term but shows dexterity when the situation arises.

This is the hallmark of a strong, responsible government.

Cover photo credit: URA