Budget 2018: How the Government finances our needs

The Government finance our needs in 3 ways through (1) taxes (2) borrowing and (3) reserves. 

(1) TAXES

TAXES ARE USED TO FINANCE RECURRENT NEEDS. 

Recurrent needs are the 'every day need money' kind of needs. 

Think of your recurrent needs as the food that you need to eat every day, your utilities bills, transport costs. 

You do not borrow, or SELL your assets like LAND to finance such needs. 

If you borrow, you end up with a debt you have to pay. 

If you sell assets to finance recurrent needs, you will run out of assets to sell one day. 

To finance recurrent needs, you first have to raise income. That is why you look for a job and earn an income so that you have money to buy food and pay bills. 

The Singapore Government DOES NOT borrow to finance recurrent needs because it does not want to saddle future generations with debts to pay back. 

IT IS UNCONSCIONABLE TO LEAVE A LEGACY OF DEBTS FOR THE NEXT GENERATION to struggle to pay these off.

(2) BORROWING

Under the Singapore Constitution, the Government cannot borrow to spend. It can only borrow to INVEST.

The Singapore Government plans to BORROW FOR LONG TERM INVESTMENTS like Changi T5. 

These are investments that will continue to yield economic benefits for Singaporeans well into the future. 

The Government plans to leverage strategically on the strength of their financial position to optimize their borrowing.

(a) The Government will tap on its TRIPLE-A CREDIT RATING to borrow at a cheap cost. 

Singapore is one of only 11 countries left in the world with a triple-A credit rating. 

The credit rating of a country is its credit worthiness. That is, its ability to pay back what it borrows. 

The better the credit rating the cheaper the borrowing cost. 

Singapore's credit rating is the result of a solid foundation and the safety net that our forefathers have left us.

It is something very precious that should NOT BE TAKEN FOR GRANTED or SQUANDERED AWAY THROUGH CARELESS SPENDING. 

(b) The Government also plans to use our reserves as guarantees to back the borrowings so as to reduce financing costs. 
This way, the Government can tap on the strength of our reserves without directly using it. It allows the reserves to be invested to yield returns. 

(3) RESERVES

The NIRC from reserves plays a KEY ROLE IN BALANCING THE BUDGET without which it will be a budget deficit. 

Net Investment Returns Contribution (NIRC) is currently the largest single source of revenue for the budget. 

Constitution allows 50% of NIRC to be used as revenue for the budget. The other 50% is saved and reinvested for the future. 

This is a fair and even split that takes care of both present and future Singaporeans. 

The call to spend more of NIRC does not make sense because the more you spend today, the less you have to save and re-invest, and the less your income tomorrow. The result is a shrinking contribution in subsequent years. 

Conversely speaking, the more you save today and invest, the more your income tomorrow and the more the NIR contribution to revenue for spending.

For example:

For FY2017, NIRC amounted to $14.37 billion.

For FY2018 it is $15,89 billion, $1.52 billion more than the previous year. 

Also, we SHOULD NOT use more of NIRC because part of its contribution comes from PROJECTED UNREALIZED PROFITS. 

If we spend more of unrealized profits (money that is not yet there), how do you know years later if the projected returns may not be affected by changing factors in the global world? 

So we should not be careless and assume that factors will always be in our favour.