You are here

SINGAPORE BUDGET 2019

Govt needs mix of one-off funding and structural increases

Finance Minister also addresses potential new fiscal tool of government borrowing

BT_20190301_JAFISCAL_3710393.jpg
Mr Heng gave reasons for rejecting the idea of a multi-rate GST to help the lower-income and defended the diesel tax hike.

Singapore

ONE-OFF surpluses are not a substitute for the goods and services tax (GST) hike which is needed to support structural spending increases, said Finance Minister Heng Swee Keat.

To meet growing fiscal demands, the government must use "the right tools for the right needs", he said.

Defending tax hikes, addressing concerns on Budget surpluses, and reassuring the House that any use of government debt will be "disciplined and prudent", Mr Heng laid out the different tools used to fund government spending in yesterday's Budget debate round-up speech.

sentifi.com

Market voices on:

Acknowledging reservations over tax hikes and Member of Parliament Foo Mee Har's call to postpone the GST hike, Mr Heng said the decision to raise GST "was not made lightly".

Planning for the future involves distinguishing between one-off factors and underlying structural increases. The GST hike, which is a structural increase in operating revenues, is needed to support structural increases in healthcare spending.

This is "of a completely different scale and nature" from the cohort-based Pioneer or Merdeka Generation packages, he added. In 2019 alone, the Health Ministry expects to spend S$6.1 billion to subsidise patient bills under existing permanent schemes for all Singaporeans. As the population ages, the base for healthcare spending will grow.

"We have yet to decide on the exact timing of the GST increase and we will exercise care when doing so. We will continue to monitor the prevailing economic conditions, trends in expenditure, and buoyancy of our revenues," said Mr Heng, adding there will also be a transitional package.

He rejected the idea of a multi-rate GST to help the lower-income, for three reasons: it is hard to define necessities; better-off households tend to spend more in absolute terms and thus benefit more; and a multi-rate system raises firms' costs, which could be passed on to consumers.

Mr Heng also defended the diesel tax hike as part of a broader move towards cleaner and more sustainable alternatives, highlighting the health risks of diesel exhaust.

He rejected the idea of exempting vehicles and machinery from the tax if there were no non-diesel alternatives, suggesting that firms aim for greater efficiency instead. "For example, companies can consider adopting consolidated logistics and use better routing applications to optimise their deliveries."

Mr Heng also addressed the potential new fiscal tool of government borrowing. Noting upcoming infrastructural investments "to enhance connectivity and create new growth opportunities", he said the government "is studying the option of borrowing carefully, as a tool to finance major, long-term infrastructure, and will announce our plans in due course".

But such borrowing does not create new revenues for recurrent spending, he added: "It merely converts a concentrated lump of spending in a few years into a smoother stream of loan repayment with interest." It would be irresponsible to borrow for recurrent needs, as that "shifts the burden of paying for today's needs onto future generations".

If Singapore does proceed to use government debt, this will be "in a disciplined and prudent manner", with safeguards to ensure that the debt, its interest and repayment are sustainable, and in line with the Reserves Protection Framework.

Nor will borrowing change the fact that government projects "should be cost-efficient, well-managed and must yield economic or social benefits", he said.

As for questions about the surpluses accumulated in the current government term, Mr Heng noted the volatility of revenue items such as stamp duty, and spending surprises such as the suspension of the High Speed Rail project. The accuracy of Budget projections has been "respectable by international standards", with figures generally within +/- 4 per cent of original estimates, he said.

"The unexpected surpluses over the last few years are not due to the introduction of Temasek into the NIRC (Net Investment Returns Contribution) framework."

He also clarified that surpluses do not "disappear" at the end of a government term but become part of the reserves, and that having surpluses on hand can help fund targeted support if the business cycle turns. "More fundamentally, we should not have the mentality of trying to spend everything that we have, before the end of each term of government."

Mr Heng stressed the importance of the reserves, with the NIRC - derived from returns on invested reserves - as the largest contributor of government revenue. Declining Workers' Party MP Pritam Singh's request for more data on the reserves, he noted that having the reserves as "a strategic asset" helped Singapore weather the Global Financial Crisis.

In the Ministry of Finance's Committee of Supply, Second Minister for Finance Lawrence Wong addressed Mr Singh's call for more information on GIC's investment performance.

In line with GIC's mandate to achieve good long-term returns, its performance is evaluated on a continuing long-term basis - in particular, the annualised rolling 20-year real rate of return of its portfolio, published each year, said Mr Wong. GIC also publishes its rolling 10-year and 5-year nominal returns.

Though Mr Singh asked for annual indicators, it is "well-accepted in the investment world" that a focus on short-term results incentivises short-term investment behaviour, he said. This would erode GIC's major strength: its long-term orientation.

READ MORE: