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Social spending, fiscal prudence in sharp focus

MPs debate striking a balance between the two
Tuesday, March 4, 2014 - 06:00

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MPs such as Seah Kian Peng (Marine Parade) urged the government to do more for Singaporeans, noting that the $8 billion set aside to pay for the Pioneer Generation Package was not taken from reserves, and that even after the $8 billion - PHOTO: SPH

[SINGAPORE] The delicate balance between heavier social spending and fiscal prudence came into sharp focus yesterday, on the first day of the Budget debate.

Even as some Members of Parliament (MPs) called for bolder social spending, others expressed concern over fiscal sustainability and urged continued conservatisim.

MPs such as Seah Kian Peng (Marine Parade) urged the government to do more for Singaporeans, noting that the $8 billion set aside to pay for the Pioneer Generation Package was not taken from reserves, and that even after the $8 billion, Singapore's fiscal position is still strong enough to be considered a balanced budget.

"But is balance always a good thing? Is the impending demographic change not rainy enough for us to run into deficit?" Mr Seah asked. Though not proposing an outright deficit, he asked the finance minister "to consider the short term", and take additional funds from the reserves to spend on what else is needed to look after the pioneer generation of Singaporeans.

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Nominated Member of Parliament Laurence Lien - who proposed that the government guarantee free basic education for all between three and 18 years, and halve the percentage of basic and essential healthcare spending that is financed out-of-pocket by patients from the more than 50 per cent currently - reckons that Singapore can afford such programmes to get social fundamentals right.

Including the Net Investment Returns Contribution, which has been stable as a percentage of GDP over the last six years, yields total revenues of 17-18 per cent of GDP, he said. On the spending front, if Singapore can continue the long-term trend of reducing security and external relations expenditure to 4 per cent of GDP and keep economic development and government administration spending to 3 per cent, Mr Lien estimates that social development spending can comfortably rise to 9 per cent of GDP without major tax hikes.

This ought to still provide a buffer of one to 2 per cent for short-term programmes catering to economic, financial and social exigencies, he said. Special transfers can also be reduced in the future as packages to help with transition are trimmed or turned into recurrent operating expenses, while the "very conservative approach" of topping-up endowment funds "can simply be ceased".

However, other MPs, such as Liang Eng Hwa (Holland-Bukit Timah), feel that criticism of the government for being too prudent and too conservative are misplaced. "There is no shortcut to prudent and sound fiscal management. It took a lot of effort, determination and political will to institutionalise and embed these values within our system. We should not allow it to weaken or slip in the years to come," Mr Liang said.

Lim Wee Kiak (Nee Soon) also noted that without the net investment returns contribution, this year's Budget would project an even larger deficit than the estimated $1.17 billion deficit. "I am concerned with the current government fiscal position . . . Will the government need to raise taxes, either direct or indirect, in the near future to fund our increasing social needs due to an ageing population? What is the health of our national reserves?

Alvin Yeo (Chua Chu Kang) stressed that rising social spending cannot be funded by depleting the reserves. "We cannot just spend more on social measures by drawing on the reserves, because one day even those reserves will run out, and what would future generations be saddled with?"

Referring to how certain developed countries with generous welfare systems have governments deeply in debt and economies marked by high taxation and high unemployment, Mr Yeo said that these examples offer a "vision for Singapore if we allow good intentions to blind us of the need for our citizens to be self-reliant".

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