Aesop’s fable on “The Goose that lays the golden eggs” tells the story of a farmer whose goose lays one golden egg a day. Wanting to get all the eggs at once, the farmer kills the goose, only to find that he has lost the source of golden eggs.
‘To kill the goose that lays the golden eggs’ is to destroy a source of wealth through greed or stupidity.
In 2018, Mr Goh Chok Tong was asked by residents during a dialogue session, “Is our nest egg not big enough?” The question pertained to the use and adequacy of our Reserves.
Mr Goh responded to the question with a fable of ‘the hen that laid golden eggs‘.
He explained that our Reserves are not just for a rainy day.
Our Reserves must be treasured as a hen that lays golden eggs. That is to say, it gives us a sustainable stream of earnings or Net Investment Returns (NIR). These returns are split into into 2 equal halves, with 50% used for current generation, and 50% saved and reinvested for future generations.
“Today (2018), the NIR contributes $15 billion to our Budget revenue, more than the $11 billion from GST,” Mr Goh said. “Doubling our reserves will double the NIR contribution to $30 billion, other things remaining equal. Then we can keep our GST and other taxes low and internationally competitive, provided we keep a watchful eye on expenditure.”
Conversely speaking, if we reduce the size of our Reserves by squirrelling from it year after year, decade after decade, we will reduce its NIR contribution resulting in the need to raise more taxes.
Our income tax is among the lowest in the world. Around 50% of our working people do not even pay income tax. Our GST, even when it is raised from 7% to 9%, will still be among the lowest in the world. Many countries with double-digit GST or value-added tax also have very high income tax. We are in a much better position because of prudence and good government.
Some 20 years ago, Mr Goh said, there were calls to stop accumulating more reserves and even to dip into them. But the government stood their ground and today, we are thankful that they did.
“Imagine the parlous state we would be, and the high taxes we have to pay, if we had yielded to the pressure to stop growing our reserves. Today, we are sitting comfortably with a golden hen which provides us with golden eggs. What will our children say of us in the future if we starve the hen now?” Mr Goh said.
“The moral of the story is: do not kill the hen that lays golden eggs. Fatten it instead.” And that is the strong advice from Mr Goh.
In this pandemic, our strong financial position through our vast Reserves have stood us in good stead, helping us to weather the unpredictable storm without having to borrow a single cent. Many countries envy us. This enviable position is not to be taken for granted. We don’t know when the next crisis will hit us, what kind of crisis it will be and how long it will last, and we have nothing besides our Reserves to see us through.
During the Global Financial Crisis, to shore up confidence in Singapore’s financial institutions in the midst of a deepening credit crisis that was world wide and to prevent run on banks, the government announced in October 2008 that they would guarantee all bank deposits from October 2008 till the end of 2010.
The guarantee covered all Singapore dollar and foreign currency deposits of individuals and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (MAS).
It was a huge guarantee. As the size of our economy grows, the size of our Reserves must also grow in tandem so that it can help us weather any crisis of different proportions. Imagine if the government had given in to pressure and stop growing the Reserves 20 years ago, will they have the capability to guarantee all deposits if a financial crisis hit tomorrow?
The current COVID-19 pandemic is a clear demonstration of how important our Reserves are to our survival. Don’t kill what we need to survive.