Balancing a nation's books

Balancing a nation's books

How are priorities set and trade-offs made when planning the national Budget?

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Budget planning involves complex trade-offs to meet the current and long-term needs of a diverse population. Photo: Shutterstock

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Budget planning involves complex trade-offs to meet the current and long-term needs of a diverse population. Photo: Shutterstock

Planning the national Budget is not unlike planning a household budget. Both involve prioritising different spending needs and making necessary decisions and even compromises in the face of limited resources. But the national Budget does this on a far wider, deeper, and more complex scale.

READ: Five things you never knew about the Singapore Budget

Given the magnitude of the task, how does the team at the Ministry of Finance (MOF) go about planning the Budget?

According to Mr Lim Zhi Jian, a good national Budget should address the following objectives:

  • Balance needs in different areas to benefit Singaporeans
  • Balance current and future needs
  • Be widely understood by Singaporeans

Giving a glimpse behind the planning process ahead of Singapore’s 2019 Budget, Mr Lim was one of two MOF budget directors who oversaw the development of Budget 2018 as well as the drafting of last year’s Budget statement.

WHICH BASKETS DO YOU PUT MORE EGGS INTO?

At its core, Budget planning involves allocating limited resources to areas where they are most needed. The challenge lies in knowing which baskets to put more of your eggs into.

Said Mr Lim: “There are always competing needs – building our economy, strengthening our social bonds, taking care of our environment, or ensuring our safety and security, just to name a few. A good Budget finds an optimal balance across these needs to benefit Singaporeans best.”

READ: Budget 2019: The next step in an ongoing journey

Planning a Budget to meet wide-ranging national issues is challenging enough. Factoring in the long-term view adds another layer of complexity to the equation – but it’s an approach that MOF has to take to ensure Singapore remains fiscally sustainable.

Mr Lim commented: “This is the hallmark of Singapore’s fiscal approach: Our long-term orientation, which ensures that our programmes can be sustainable and continue to benefit Singaporeans for years to come.”

A COMPLEX TASK, EXPLAINED SIMPLY

Planning and producing a good Budget is only part of the equation; communicating the message effectively is also a daunting challenge. The need for the Budget to meet wide-ranging challenges requires a tailored approach and customised solutions.

“But this amount of customisation and differentiation may not be easily summed up into catchy soundbites,” said Mr Lim. “We do our best to convey our thinking as clearly and simply as we can, because it is important for Singaporeans to be aware of our collective challenges in the long term, how the government plans to respond to them, and where they can play a role.”

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Staff collecting feedback from the public at one of REACH’s listening points. Photo: MCI/REACH

The engagement process doesn’t stop after the year’s Budget speech is given. MOF continues to work with stakeholders such as business chambers and community associations, using their networks to explain how the Budget initiatives can help Singaporean families and businesses.

SETTING GOALS AND PRIORITIES

MOF’s Budget team starts the process of preparing for the following year’s national Budget by first examining the government’s key priorities. For instance, to help strengthen economic competitiveness, the last three Budgets introduced programmes – such as the Industry Transformation Maps – to spur companies to build the required capabilities to thrive in a rapidly evolving global landscape.

“Another focus of the current government is to strengthen local communities and encourage citizens to care for one another. You’d see this in the continuing roll-outs of various schemes and programmes, such as the Community Network for Seniors. The pilot was first announced in Budget 2016, then extended nationwide through Budget 2018,” said Mr Lim.

This programme aims to help seniors remain healthy and connected to health and social services through active ageing, befriending and offering care and support.

GROUND-UP PLANNING

Such programmes were developed through a bottom-up process within the government – with MOF compiling and prioritising specific spending requests from ministries and government agencies.

One key consideration is ensuring cost-effective spending, said Mr Lim.

“Internally, MOF has a range of budget mechanisms and controls in place to ensure effective spending of public monies. For example, under today’s block budget framework, the growth of ministry baseline budgets is pegged to 40 per cent of GDP growth.

“This ensures we do not spend more than what we earn as a country. The remaining 60 per cent is re-allocated to new priorities or areas of increasing need,” he added.

MOF also engages extensively with the public to explain government policies and gather feedback. This involves meeting representatives from the economy and society, such as industry associations, economists, voluntary welfare organisations, unions, media representatives, and tax consultants.

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Discussions at a Pre-Budget Dialogue with Second Minister for Finance Indranee Rajah and REACH Chairman Sam Tan (centre). Photo: MCI/REACH

“All this feedback helps us identify areas that we need to pay more attention to, and how we can implement our policies better. For example, one common item of feedback we get from companies is how we have many different schemes, which can be confusing. So in Budget 2018, we combined similar schemes to make things simpler,” said Mr Lim.

IS IT STRATEGIC AND SUSTAINABLE?

From the internal discussions and public feedback, a list of potential Budget measures, as well as their costs, is drawn up and prioritised.

Said Mr Lim, “We consider various factors such as Singapore’s long-term plans and needs, the overall economic situation, and the progress of past programmes. We then allocate resources to the different programmes to ensure that they can be run effectively but also sustainably.”

“This gives us the rough shape of what the Budget will look like.”

Finally, in the months after the Budget speech, MOF continues to reach out to Singaporeans to explain the various Budget initiatives and what they mean for citizens, businesses and community groups.

ENSURING FAIRNESS AND PROGRESSIVITY

While there are some similarities between national budgeting and household financial planning, there is one important difference. Unlike a household, where higher income is always better – in the country’s context, revenue ultimately come from taxpayers – be it an individual or a business.

“So we pay particular attention on the overall tax burden, and ensure that our taxes are progressive. Those with more means, should pay more taxes. This allows the government to redistribute and support those who need more help,” said Mr Lim.

Visit the Budget 2019 website to find out more about the Singapore Budget.

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