:: Budget Speech :: News :: Budget Q & A :: Forum :: Final ERC Recommendations
:: Singapore's Economic Results :: Budget 2002 :: Main

PART II: THE FY 2003 BUDGET

Mr Speaker Sir,

I will now turn to the budget for the Fiscal Year 2003.

Revised FY 2002 Budget Estimates

First, let me recap the FY 2002 Budget. I refer Members to the first column of the budget statistics table on the screens and in your Handout.

Table 6: Budget Statistics for FY 2002 and FY 2003 (figures rounded off in $ billions)

When I presented the budget last year, I estimated operating revenue at $29.2 billion and total expenditure at $28.3 billion, leaving a modest surplus of $900 million. I also estimated then that the surplus would turn into a small deficit of $190 million after accounting for the package of offsets, rebates and ERS.

As the second column of the table shows, the revised operating revenue is almost the same as the budgeted amount. Tax revenues were lower because of the cut in corporate income tax to 22% in YA 2003 and slower economic growth, but Net Investment Income (NII) contribution was higher than expected. The revised total expenditure is about $1.0 billion less. Therefore, in addition to the $1.2 billion special transfer for the ERS, I have decided to make additional special transfers to the Lifelong Learning Fund (LLF) and the Medical Endowment Fund (Medifund).

The Lifelong Learning Fund is an important part of our continual education and training (CET) framework. Established three years ago, the Fund will be built up to a target size of $5.0 billion to ensure a secure and continuing stream of income to support lifelong learning in Singapore. As highlighted by the ERC, we spend less on CET at the national level than on pre-employment, formal education and training. I have therefore decided to transfer $500 million into the Lifelong Learning Fund, to bring the Fund to $1.5 billion. This will generate $60 million of interest income a year to fund skills upgrading and retraining programmes.

The Medifund has helped many needy Singaporeans to pay for their medical bills during this economic downturn. To enable the Medifund to help more Singaporeans, I have decided to increase it to $900 million through a $100 million special transfer.

Taking the revised revenue, expenditure and special transfers into consideration, an overall budget deficit of $90 million is now expected for FY 2002.

Projected FY 2003 Fiscal Position
Let me move on to the FY 2003 Budget, which is summarised in the last column of the table.

The operating revenue for FY 2003 is estimated at $29.6 billion. This includes $3.0 billion in NII contribution, and is $500 million more than the operating revenue for the previous year. Total expenditure is budgeted at $30.0 billion, comprising $20.4 billion in operating expenditure, and $9.6 billion in development expenditure. Taking into account the $600 million provision for ERS, the Government is, therefore, projecting a deficit of $900 million, before taking into account the fiscal changes in this Budget Speech.

The Government turned in a budget deficit in FY 2001, and is likely to be in deficit again in FY 2002 and FY 2003. This will be the third consecutive year that the Government is running a budget deficit. But this is the appropriate fiscal stance to adopt in an economic downturn. During recessions, revenues will fall, but expenditures need to be maintained to fund essential projects and services, thereby resulting in a budget deficit. This deficit serves as a stabiliser to steer the economy towards the path of recovery. The Government has done this previously, although not in recent years. After the deep recession in 1985, we ran a budget deficit for two consecutive years, in FY 1986 and FY 1987.

I assure the House that this Government has not changed its longstanding prudent fiscal policy. The Ministry of Finance continues to plan for a modest budget surplus over the business cycle. In difficult years, we can accept a deficit. But we intend to accumulate surpluses in good years, to cover these deficits and build up the reserves for rainy days. This prudent and disciplined approach has kept the Singapore dollar strong and inflation low. If we spend beyond our means, inflation would go up, the value of Singaporeans' savings would be eroded, especially our CPF savings, and confidence in our currency and economy would fall.

However, we must recognise that it will be more difficult to balance the budget in future, even after the economy has recovered. Revenues will be less buoyant, as we lower income tax rates further, and as our GDP grows less rapidly. On the other hand, we will come under persistent pressure to spend more, especially in healthcare and social services, as the population ages.

Government expenditure has already gone up over the years. A decade ago, it was only 15% of GDP. This year, it will be 19% of GDP. This is still low compared to the 40% or 50% share of GDP that the Government takes up in most developed countries. This is the result of our deliberate policy to focus spending on critical areas that yield lasting returns, but it also reflects our relatively young population.

In healthcare, for example, our national expenditure currently stands at 3.5% of GDP. 3.5% is much lower than any developed country, but this is not solely because of our efficient healthcare system. It is also because our population is much younger. If our population had the same age profile as, for example, the UK, then based on our present spending patterns alone, our national expenditure on healthcare would be 7.2% of GDP, higher than the UK's figure of 6.8%. Similarly, if we were to match the age profile of Japan, our health expenditure would be close to Japan's (6.6% versus 7.4%). As our population is ageing rapidly, we must expect our national health expenditure, including government's share, to go up too.

Higher government spending will mean higher taxes. To keep taxes as low as possible, we must target government social spending to reach those who need it most. One effective way to do so is through means-testing. The Ministry of Health already uses means-testing to decide on subsidies for step-down healthcare. As revenue pressures intensify in future, we will need to extend means-testing to other medical and social services. This will ensure that truly needy Singaporeans receive adequate support, despite our budget constraints.

Expenditure Priorities
Let me move on to the Government’s expenditure priorities.

Table 7: Sectoral Shares of FY 2003 Budget

Social
The Government will maintain the balance of expenditure across the four sectors: Social, Security, Economic and Government Administration. Nearly half of the Government's FY 2003 expenditure will be on social development. MOH will spend $1.2 billion to subsidise Singaporeans' healthcare costs through 13 public hospitals and healthcare institutions, 17 polyclinics and 64 voluntary welfare organisations. MOH will also spend $270 million on health research and promotion, as well as the Interim Disability Assistance Programme and Eldershield.

The Government will continue to invest heavily to develop Singapore's human capital to the maximum. Some 660,000 students will benefit from the $4.5 billion that MOE will spend on their education from primary school to university.

Security
We will devote 36% of total expenditure to the Security and External Relations sector. This will maintain and raise Singapore's preparedness to handle both conventional and terrorist threats.

We must maintain and upgrade our conventional defences. A strong SAF is the shield for our security and our deterrence against potential external threats.

At the same time, Singaporeans must be vigilant against the threat of terrorism. While we have broken up the Jemaah Islamiyah group in Singapore, the group is still active in the region and key members remain at large. The formation of the Immigration and Checkpoints Authority (ICA), in April this year, will enhance security at our checkpoints. The ICA will exploit cutting-edge technology such as gamma ray scanners and biometric identification tools to prevent undesirable people and goods from entering Singapore. The Home Team will also enhance its ability to prevent and respond to accidents and incidents.

Economic
To help Singapore develop new economic capabilities and sharpen our competitive edge, MTI's budget will be significantly increased. The Government will set aside $500 million to grow Singapore companies and help them venture abroad. We will invest $1.0 billion to strengthen our R&D capabilities and $1.8 billion to enhance industry capabilities. Another $1.2 billion will be spent on land reclamation and upgrading our industrial and tourism infrastructure.

Our first-class transport infrastructure is a key competitive advantage. It raises the efficiency of the economy and enhances our quality of life. MOT will spend $1.2 billion to expand and improve our rail and road networks, including the MRT Circle Line and the Kallang/Paya Lebar Expressway.

The Government will continue its strong support for re-training and upgrading workers' skills. In addition to the $500 million top-up for the Lifelong Learning Fund in the FY 2002 budget, this year I am setting aside another $37 million to enhance MOM's many employment assistance and training programmes. This will generate 20,000 additional training places under the Skills Redevelopment Programme and 7,500 job placements through the People for Jobs Traineeship Programme, which provides financial support to employers who hire older unemployed workers.

Government
Our e-Government Action Plan for the public sector was launched three years ago. Today, more than 90% of services which can be delivered electronically are already online, making Singapore a world leader in e-Government. To the public, this means faster and more convenient access, as well as more innovative and seamless public services. From next month, the Government will be providing an online consultation portal on eCitizen to obtain public feedback on new policies. This will include the consultation on the changes to income tax laws following from this Budget.

However, not all Singaporeans are IT-literate. To help those who do not have access to a computer or are not able to use one, the Government has established eCitizen Help Centres at CDCs and CCs. This is part of our plan to ensure that everyone may enjoy the convenience and benefits of e-Government and e-services. From March 2003, eCitizen Help Centre services will also be available from private sector outlets such as Fuji Film and NTUC Fairprice which sign up to offer the service.

Despite the cost of these improvements, the Government's administrative functions will only consume 5% of total expenditure. As always, the bulk of government resources goes to the operational ministries to deliver services to the public. The Government sector will remain lean and efficient, and will restructure itself if necessary to deliver value-for-money services.