ASEAN KEY DESTINATIONS
Budget 2018, a responsible budget in spending and financing
What one should take away from this Budget is how government spending and financing have been enhanced to give Singapore more fiscal space for future needs, says one observer from Ernst & Young Solutions LLP.
SINGAPORE: Budget 2018 has been described as one that’s multifaceted and lays the foundation for a sustainable future for Singapore.
On deeper reflection, one could describe it as a responsible budget.
It is responsible on two fronts. First, in the area of government spending and second, in the area of financing that spending.
RESPONSIBLE GOVERNMENT SPENDING
The announcement by Finance Minister Heng Swee Keat to moderate the pace of ministries’ budget growth by cutting the growth of their block budget from 0.4 times to 0.3 times of GDP growth sets a clear tone towards prudence.
Yet, this cut is no surprise as it echoes the permanent 2 per cent downward adjustment to the budget caps of all Ministries and Organs of State in Budget 2017.
This approach to tighten the Government’s own purse springs is commendable and timely, done when Singapore is currently in a position of strength, in ending FY2017 with an overall budget surplus of S$9.6 billion.
That said, Mr Heng laid out methodically the areas in which government spending is expected to increase in the years to come. Not surprising, these are healthcare, infrastructure and security.
HIGHER SPENDING TO SUPPORT AN AGEING POPULATION
1 in 4 Singaporeans will be aged 65 and older in 2030, according to the Ministry of Health. This greying population is exacerbated by Singapore’s low fertility rate.
In years to come, ceteris paribus, the burden of financing the increase in the expenditure to support an ageing society will fall on the shoulders of a shrinking workforce, calling to question the sustainability of Singapore’s finances.
With this, if measures are not taken early, our sound fiscal footing fortified through the years may not extend beyond 2020. It is with this foresight that underpins the Government’s call to foster prudent and effective public spending.
Government ministries, like private enterprises, will need to look for more productive and innovative ways to run their agencies.
In the Budget announcement, several collaborations and streamlining of activities within government agencies were introduced.
Examples include the Pioneer Generation Office to be merged with the Agency for Integrated Care, SPRING Singapore coming together with IE Singapore to form Enterprise Singapore, and perhaps more to come.
Against a global landscape of increased connectivity and sector convergence, it is timely that government agencies and ministries too be more streamlined in providing integrated services to residents and companies, while being more cost efficient.
RESPONSIBLE IN FINANCING FUTURE SPENDING
While prudence goes some way to reduce expenditure, as important is raising revenue to make sure that our nation’s coffers remains in a strong position.
The easiest way for a government to raise finances for its spending is through taxation. In a progressive tax system, it is expected that a greater burden will be placed on those with higher income.
To alleviate the burden of long-term nation building on the current generation of taxpayers, Budget 2018 takes a step in the right direction by financing national infrastructure building like the Integrated Waste Management Facility, the Kuala Lumpur-Singapore High Speed Rail and Changi Airport Terminal 5 through savings and borrowings.
A Rail Infrastructure Fund will be set up to save for large-scale, multiyear rail line projects with top-ups by the Government when Singapore is in a good fiscal position.
A Changi Airport Development Fund for Terminal 5 had been already been set up in 2015.
Statutory boards and government-owned companies that build the infrastructure will explore borrowing, likely much like how private companies fund acquisition and expansion plans.
Returns of investments from such projects may then be distributed to bondholders, corporates and individuals alike.
With this added mode of financing, the Government will have greater fiscal flexibility in funding projects - not only through direct use of external funding for these long-term projects, but also through channeling its existing operating revenues to other areas of expenditure.
More importantly, with this save and borrow approach, there is no need for the Government to dip into our national reserves to fund these major projects, preserving it for future generations.
That said, it is clear that more tax dollars are needed to fund expenditure of a recurrent nature, such as healthcare, security and other social spending.
Such expenditure directly benefits the current generation and as Mr Heng puts it:
With this, several tax rate hikes and new taxes have been announced. With immediate effect, the top marginal Buyer’s Stamp Duty rate for residential properties has been increased from 3 per cent to 4 per cent. Tobacco excise duty across all tobacco products have also been raised by 10 per cent.
Budget 2018 has been lauded as a strategic and integrated financial plan to position our island city for the future. And it is indeed so.
At the heart of Budget 2018 is a responsible masterplan that builds on the core values of Singapore: Thrift, prudence and self-reliance, while caring for the young, old and needy and making sure that the future ahead is a sustainable one for generations to come.
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