SINGAPORE – As Singapore embarks on a “generational upgrade” in its infrastructure over the next 15 years, Parliament on Monday (April 10) passed a new law that allows the Government to borrow to smooth out the hump expected in development spending.

Singapore has not borrowed to pay for such expenditure since the 1990s, and in making the case for the Significant Infrastructure Government Loan Act (Singa) on Monday, Deputy Prime Minister and Finance Minister Heng Swee Keat stressed that only infrastructure projects that are nationally significant and will benefit many generations will be funded this way.

“Borrowing is not revenue. It must be eventually repaid by future taxpayers. If we borrow for all infrastructure projects, even the smaller ones, we will leave our children to shoulder the bigger stream of debt repayments, and it will not be prudent, especially in view of a maturing economy and slower growth rates,” he told Parliament.

Other infrastructure required will continue to be built, he added, with money for it coming out of the Government’s recurring revenue.

With major highways, the Cross Island and Jurong Region MRT lines and climate adaptation structures in the works, Singapore expects a hump in development expenditure yearly of around 5 per cent of gross domestic product (GDP), higher than the baseline of 3.7 per cent.

The new law allows the Government to borrow up to $90 billion to pay for such infrastructure provided that it lasts for at least 50 years. The annual interest threshold of such borrowings also cannot exceed $5 billion, and each project funded under the law must be sizeable and cost at least $4 billion.

Many of the 15 MPs who spoke during the debate asked how the numbers were arrived at.

DPM Heng said $90 billion is approximately 20 per cent of today’s GDP, and is lower than the borrowing limit of 40 per cent of prevailing GDP allowed under older laws. But in the next five years, the Government is likely to use less than $30 billion of the limit, he added.

As for the minimum price tag of $4 billion – a sum exceeding the typical $1 to $2 billion spent on healthcare infrastructure and $1.3 billion spent on building the Sports Hub – it was meant to ensure prudence, so that only projects with greater inter-generational benefits can qualify, he added in response to Mr Xie Yao Quan (Jurong GRC) and Mr Don Wee (Chua Chu Kang GRC).

“Borrowing should be anchored by our over-arching guiding values of prudence, discipline and equity. And in fact, a key reason… for borrowing is also about inter-generational equity, said DPM Heng.

On how the Government will guard against an increase in interest rates unfairly burdening future generations, a topic many MPs brought up, Mr Heng said the borrowing costs will be averaged out, since payment for infrastructure typically stretches across time.

He added that depreciation of the assets will also be done via the straight line depreciation method, in which the value of an asset is reduced gradually over its useful life, so that each generation contributes an equal share towards it.

Workers’ Party MPs Jamus Lim (Sengkang GRC) and Louis Chua (Sengkang GRC) said the notion of infrastructure should not be limited to physical structures and facilities, and should also include “soft infrastructure” like human capital.

Associate Professor Lim suggested borrowings under Singa be used to finance smaller class sizes for language and maths classes, or for more teaching aides. He cited studies that found investments in secondary education can produce more gains than equal investments in infrastructure.

“When we say that we want to invest in hard infrastructure but not soft infrastructure, it seems like we’re only willing to offer the terms of favourable interest rates for physical capital and not human capital,” said Prof Lim.

“That’s like saying that ‘we think it’s equally important to educate both our son and our daughter, but… we’ll finance ah boy’s schooling, ah girl you go work so that you can pay for your school fees’.”

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In response, DPM Heng said that such recurrent spending has always been funded through the Government’s annual budget, and should continue to be so.

He added that investing on human capital through spending on education and healthcare is something the Government has been doing and will continue to do. He also said if clear lines are not drawn in defining infrastructure, almost anything can be said to qualify.

“You can argue that everything that a country needs to get itself working would qualify. Just coin some nice name and call it soft infrastructure,” he said, citing how anything from defence, to cybersecurity, health care, education and social spending could be described as “soft infrastructure” spending.

He added that more than 30 per cent of expenditure each year goes to education and healthcare, and if Singapore borrows to fund such spending, debt burden will go up over time and future generations will end up paying the price.

Ms Foo Mee Har (West Coast GRC) asked how much “fiscal room” Singa will create for the Government, and DPM Heng said it would lower annual average development expenditure from 5 per cent of GDP to about 4.2 per cent of GDP over the next decade.

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This works out to around $4 billion a year, based on current GDP.

Without Singa, this amount would have to be raised through taxes, or equivalent spending would have to be cut, said the DPM.

He added that while Singa has negated the need for a steep increase in taxes over the next few years, the Goods and Services Tax would still have to be raised as planned to pay for increased health care and social spending due to structural changes.

Nominated MP Hoon Hian Teck, an economist, said Singapore would need the capacity to raise revenue through raising taxes, if it is to maintain fiscal sustainability and remain credit worthy. Otherwise, Singapore’s credit rating could be affected, and it would have an effect on all kinds of borrowing, even by businesses.

DPM Heng assured MPs that Parliament will get to carefully scrutinise any proposed infrastructure plans through the budget process, and will play a vital role in ensuring only worthwhile investments pass muster to be financed through Singa.

He said Singa was a fair and efficient approach that would allow each generation to pay for its share, and also let Singapore take advantage of favourable interest rates at present.

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