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Singapore Budget 2018: Constitution protects land & proceeds from its sale as past reserves: Swee Keat
INCLUDE a portion of land sales proceeds in the Budget, or use more of the returns from the reserves - these are tempting suggestions to raise government revenue and easier to swallow than hiking taxes.
But it would be "ill-disciplined and unwise" for the government to do so by amending the rules as a first resort, Finance Minister Heng Swee Keat told Parliament on Thursday.
Singapore's approach strikes a balance between present needs and preserving resources for future generations, said the minister in a speech rounding up the three-day Budget debate.
He was responding to Workers' Party assistant secretary-general Pritam Singh (Aljunied GRC), who had suggested that proceeds from land sales should be used to boost revenue in lieu of raising the Goods and Services Tax (GST).
"Our Constitutional rules protect our financial assets and land as past reserves. As land sales convert physical assets into financial assets, the proceeds from land sales are rightly fully protected as past reserves as well," said Mr Heng.
"This principle of asset conversion is sound. It is irresponsible to mislead people that the principle suddenly does not apply when we use 20 per cent instead of 100 per cent of land sale proceeds."
Under the Constitution, proceeds from land sales are added to the reserves, which are invested.
From the returns, the government takes up to 50 per cent as the net investment returns contribution (NIRC) to supplement its budgetary needs.
The NIRC is now the largest contributor to the annual Budget, he noted.
"If we did not introduce the NIR framework, we would have had to double our personal income tax collection or our GST collection to raise the same amount of revenues," Mr Heng said.
Rules on land sales and the 50 per cent NIRC cap were introduced "so that we do not succumb to the temptation to draw more from our reserves to fund current expenditure or eat into the principal sum", he noted.
"If as soon as we need more money, the first thing we do is to relax the rules, that is the surest way to change Singapore's basic orientation - from saving and building for the future, to living for today and letting tomorrow look after itself."
Mr Heng also sought to respond to concerns about the necessity of the planned GST hike and the potential impact this might have on households and business competitiveness.
He had announced in his Feb 19 Budget speech that the GST will go up by two percentage points - from 7 per cent to 9 per cent - "sometime in the period from 2021 to 2025".
"This is not an option that we have taken lightly," Mr Heng told Parliament on Thursday.
"Not just because raising taxes is unpopular, but because the government should as far as possible avoid taking people's hard-earned money and deciding on their behalf how the money should be spent, unless it has to do so for critical social, economic or national needs."
The GST increase is necessary because healthcare, security and social spending are expected to continue climbing, said Mr Heng.
These are needs that occur year after year and will keep rising especially as Singapore's population ages.
The increase in GST is projected to raise revenues by 0.7 per cent of GDP a year, before accounting for the amount needed to fund GST vouchers.
Mr Heng said Singapore's key expenditure drivers - healthcare, security and preschools - already exceed this amount and there are risks that spending could rise even more than predicted.
"So the two percentage point GST increase will not fully cover our expenditure needs, but only make the fiscal gap more manageable, in conjunction with other measures to manage expenditure.
"It is thus the prudent and responsible approach to raise GST in good time, instead of hoping for expenditure to fall."
He also reiterated that Singapore cannot rely on one-off budget surpluses to fund its growing spending needs.
Much of the surprise S$9.61 billion Budget surplus in the 2017 fiscal year was a result of one-off factors, including an exceptional contribution from the Monetary Authority of Singapore due to unexpected currency translation gains and investment gains from a global rally in equity and bond markets.
The other big contributor to the surplus was higher stamp duty collections following the recent pickup in the property market.
"We cannot fund our plans to secure Singapore's future on the basis of episodic windfalls. If we are fortunate to have these occasional windfalls, we should do the responsible thing and save most of it for our future needs," Mr Heng said.
Parliament approved the Budget, even as Workers' Party MPs said they did not support the proposed hike in the GST. After a vote, 89 MPs voted to approve the Budget, while eight MPs - all from the WP - voted "no".
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For more Budget 2018 stories visit bt.sg/budget18