SINGAPORE: Beyond this decade, Singapore’s fiscal situation would become more challenging as Government spending looks set to outstrip revenue in the longer term, Finance Minister Heng Swee Keat said at the end of a three-day Parliament debate on the Budget for 2017.
To ensure that the country’s finances remain sustainable in the long run, the Government will need to spend prudently and effectively, as well as grow its revenue in a fair and sustainable manner, he added in his round-up speech on Thursday (Mar 2).
Over the past three days, various Members of Parliament (MPs) such as Ms Sun Xueling (Pasir Ris-Punggol GRC), have voiced concerns about Singapore’s weakening fiscal position as expenditures began outpacing operating revenues in FY2015.
Mr Heng acknowledged the worries, but said this was within the Government’s expectations.
In fact, the Government had “prepared early” by raising the Goods and Services Tax (GST) in 2007 and introducing the Net Investment Returns (NIR) framework a year later. Meanwhile, steps were taken to make property tax rates more progressive in the last term of the Government, while duties for betting, liquor and tobacco were increased in 2014.
“These measures now serve us well to meet our spending needs through to the end of this decade,” Mr Heng said.
But as the economy matures and adjusts to a slower pace of growth, alongside an ageing population and rising infrastructure needs, the challenge to keep Singapore in good fiscal health lies in the decade beyond, he added.
PRUDENT AND EFFECTIVE SPENDING
Amid higher spending needs, Mr Heng noted that it is “ever more critical” to ensure Singapore spends within its means to achieve desired outcomes.
The Government has begun doing so in three ways, he said.
Firstly, at the ministry level, funding policies are designed to drive agencies to strive for cost-effectiveness. “Today, we budget for ongoing functions using a Block Budget Framework, where ministries are provided with budget caps for a medium-term period. Within the cap, each ministry decides how best to allocate its budget,” he explained.
Furthermore, the newly announced 2 per cent downward adjustment to the budget caps of all ministries and organs of state will “free up resources” that can be re-deployed to other higher priority requirements and projects such as initiatives by the Municipal Services Office, according to Mr Heng.
Secondly, at the project level, the Government is tightening scrutiny of major infrastructure projects. The Finance Minister raised the example of an ongoing process that puts large infrastructure projects – defined as more than S$500 million or those that are highly complex in nature – through a series of reviews before funding is approved.
Thirdly, at the programme level, schemes are designed to ensure that subsidies are targeted at the right groups.
“As a general principle, we price services to recover full cost and discourage over-consumption. We then target subsidies appropriately at those in need, such as through GST Vouchers, S&CC (service & conservancy charges) rebates and Public Transport Vouchers. This is more progressive than under-pricing services, which implicitly subsidises all groups, including the rich,” he explained.
In his speech, Mr Heng mentioned Workers’ Party chair and Aljunied GRC MP Sylvia Lim’s question on whether the Government evaluates the efficacy of its programmes, such as the Productivity and Innovation Credit (PIC) scheme that has seen cases of abuse.
“The PIC in fact has largely achieved its objective but she raised examples of abuses to make her case. This is mistaken,” he said. “The fact that those abuses are uncovered is because of extensive audits that are done by the agencies and we should commend the officers for the seriousness in which they undertake this.”
GROWING REVENUE FAIRLY AND SUSTAINABLY
Commenting on the other much-needed factor to keep finances sustainable, Mr Heng said Singapore will have to grow its revenues through new taxes or raising tax rates over time.
However, he stressed that Singapore is not the only one facing the challenge of raising revenues for growing needs. Hong Kong, for one, announced in its Budget statement last week that it would be setting up a tax policy unit to comprehensively review its tax system, Mr Heng pointed out.
On questions about how Singapore intends to review the tax system, Mr Heng said any changes will be made with the aim of ensuring the tax system remains fair and progressive across income groups, and sustainable in that it rewards effort by individuals and enterprise by local companies.
“Any decision to raise taxes will not be taken lightly. We will study all options carefully.”
Meanwhile, Mr Heng echoed the point made by West Coast GRC MP Foo Mee Har on how a healthy and growing economy is the “only way” to sustain a healthy revenue stream. In light of how other countries have lowered or announced their intention to lower corporate income tax rates, “we must ensure that Singapore continues to be an attractive place to work and do business so that we have a thriving and vibrant economy,” he said.
In addition, to achieve sustainability, the Government will need to strike the right balance between current and future generations.
Thus far, Mr Heng said Singapore has “spent prudently, built up our reserves, and tapped on their returns judiciously”. Moving forward, the Government must remain disciplined and prudent in spending its reserves so that they remain a stable and sustainable source of revenue over the long term, he concluded.