Fiscal planning: matching funding with project type

Singapore

THE Singapore government's plan to adopt a dual approach on new investments - borrow for big-ticket, lumpy infrastructure projects and tap recurrent revenue for social and security undertakings - was deemed by analysts as fair, decisive and a furtherance of its hallmark prudent fiscal stance.

"It's a sound rationale and a fairer way of funding long-term projects which spans many generations... it enables the financial burden to be shared across different generations rather than be shouldered by one," said DBS economist Irvin Seah.

Singapore's Finance Minister Heng Swee Keat said the government will pursue new investments using a "differentiated fiscal strategy", taking one approach for major infrastructure investments and another for recurrent social and security expenditures such as those involving healthcare, pre-school education and security.

Towards this end, it will borrow to pay for large and lumpy long-term projects such as Changi East and the Cross Island Line where the benefits span many generations of Singaporeans. He described this approach as "fairer" and "more efficient".

This is not altogether a fresh approach. In the 1980s, the government borrowed to build the city state's first MRT lines. In addition, Singapore's statutory boards and government-owned companies have also financed major infrastructure projects through borrowings.

In line with this, Mr Heng said Changi Airport Group (CAG) will be taking up loans to fund its share of investments in the multi-billion dollar Changi East project which is expected to be completed around 2030. The project is hoped will cement Singapore's status as a key aviation hub for regional and global traffic.

The government will provide a guarantee for the Changi East borrowings.

"This allows us to tap on the strength of the government's balance sheet to back this strategic investment," said Mr Heng, adding that this will lower borrowing cost.

"It makes sense. The last couple of budgets had several lumpy items involving multi-year projects. It is a right way to go to match the assets and liabilities going forward," said OCBC Bank head of treasury research and strategy Selena Ling.

She also pointed out that the capital market here could get a lift if the government decides to tap the debt market to fund long-term infrastructure projects.

'Necessary expenditures'

As for meeting the recurrent spending needs for social and security projects, Mr Heng deemed these "necessary expenditures" to take care of the elderly, give children a good start and keep Singapore safe and secure.

"Many countries have taken the easier route by funding these recurrent expenditures through borrowing. We must not do this as such borrowing shifts the burden of paying for today's needs onto future generations. That is not the Singapore way," said Mr Heng.

DBS's Mr Seah pointed out that in recent years, social expenditure has clicked higher to meet the needs of the rapidly ageing population and unless the government can find a way to derive "substantially more revenue", this may be another factor for the dual fiscal approach.

On the other hand, Mr Heng said infrastructure investments to protect against climate change is harder to predict as these were contingent on the future state of the world.

Other measures to combat global warming however may be relatively easier to implement and enforce. Towards this end, a carbon tax will be applied on this year's emissions to signal to companies and households to reduce emissions and adopt energy-efficient practices.

The carbon tax was no surprise. Last year's Budget revealed that an initial carbon tax of S$5 per tonne of greenhouse gas emissions will be payable in 2020 (based on 2019 emissions to 2023) with plans to increase this to S$10-S$15/tonne by 2030.

In addition, a Zero Waste Masterplan will be launched in the second half of the year which among other things will look at better management of food waste, e-waste and packaging waste including plastics.

"The zero-waste masterplan is timely and dovetails with global moves in developed countries to fight the scourge of waste that finds its way into the natural environment with devastating effects," said Ruth Yeoh, YTL Singapore's executive director and the YTL Group's sustainability head. Tay Hong Beng, head of tax at KPMG in Singapore, lamented however that the Budget did not provide an impetus to stimulate demand and supply for green buildings, more so as buildings are one of the major contributors to carbon emission in the country.

From this perspective, he deemed the Budget a "bit of a let-down".

Key points

CARBON TAX:

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