Lowering budget cap for ministries to ensure prudent spending

Singapore

TO ensure a sustainable fiscal system, the government is looking inward: It will apply a permanent 2 per cent downward adjustment to the budget caps of all ministries and organs of state from FY2017, to emphasise the need to stay prudent and effective.

Finance minister Heng Swee Keat said: "With our spending needs increasing, the government will continue to spend judiciously, emphasise value for money and drive innovation in delivery. "We can do better - and more - with less," he said.

Four ministries that serve security needs, or are significantly expanding their services - namely Home Affairs, Defence, Health and Transport - will have the two per cent adjustment phased in over FY2017 and FY 2018.

FY2017 total expenditure is estimated to be S$75.1 billion, an increase of S$3.7 billion or 5.2 per cent over the revised FY2016 expenditure of S$71.4 billion.

Some funds will be reallocated for cross-agency projects that deliver value to citizens and businesses.

One example is the initiative by the Municipal Services Office. It runs the OneService app, which directs citizens to the correct agency when they need help on municipal services, especially those that involve multiple agencies.

The Business Times understands that the budget cap adjustment will apply to regular operational spending. With it in force, projects could be delayed or cancelled, pay could be frozen or hiring slowed down as the ministries look into raising their productivity.

It could also be mildly contractionary. DBS Bank economist Irvin Seah said: "But it certainly reflects the need to maintain fiscal sustainability."

CIMB economist Song Seng Wun said it is good to be more prudent, since it reflects that citizens and businesses are tightening their belts amid a slowing economy. "Bear in mind it's citizens' taxes... It's recognising that, going forward, tax revenue growth is more unpredictable."

As for the impact the cap might have on hiring, he suggested that the ministries could, like the private sector, be more selective when taking on additional staff; they could also not replace people who leave government for the private sector and leave the positions unfilled.

But some observers say that, in a sluggish economy with rising unemployment, people tend to look to the public sector for jobs.

Mr Song said that ministries take on temporary staff, which is a flexible way of taking in Singaporeans for various jobs; the Ministry of Manpower, for example, hires temps to conduct surveys.

HIGHLIGHTS