Singapore government expects to fund this term's spending without further draw on past reserves

THE government expects to fund expenditures for the rest of its term without a further draw on past reserves - but it is keeping open the option of doing so if the fiscal situation turns out worse than expected, said Deputy Prime Minister and Finance Minister Heng Swee Keat in his round-up speech on the third day of debate on Budget 2021.

Given the uncertain global outlook, Singapore must plan how it might respond, he said. If it faces a prolonged slump, economic transformation will become even more necessary, yet it will also be more challenging to find sufficient fiscal resources.

Singapore must press on with planned economic investments to emerge stronger, he said: "If we hold back these investments, we will miss the opportunity to restructure, seize new opportunities and race ahead."

"If we fail to change, and our economic recovery is sluggish, it would have a long-tail effect on our jobs and economic vibrancy, and affect Singaporeans adversely. It will also worsen our fiscal situation."

So after considering the various options, if the public health and economic situation deteriorate sharply and the fiscal situation is worse than expected, the government may have to seek the President's approval for the use of past reserves to continue such economic investments.

If such a draw is made, however, the government should do its best to return the amount, he added. "These investments are expected to yield returns for the economy, which can give a boost to our tight fiscal situation and allow us to make good the amount drawn."

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In contrast, the amount drawn from the past reserves as a crisis response to Covid-19 is equivalent to about 20 years of fiscal surpluses. "It will be a challenge to also make good this amount drawn, given the magnitude of the crisis," he said. "Nonetheless, we should strive to remain fiscally prudent to build back our reserves gradually."

In its fiscal strategy, prudence and stewardship remain the core values by which the government abides, Mr Heng stressed.

He noted that during the period of high economic growth in the 80s, the government of the day managed its fiscal surpluses prudently, accumulating them rather than seeking to spend them, and amending the Constitution in 1991 to require the government to run a balanced budget across each term.

Yet Singapore is in a new phase of development, where it cannot expect the same buoyant gross domestic product (GDP) growth rates as the past, and expenditure needs will grow and the country must keep investing in the future, he said.

The country is facing structural increases in recurrent spending, especially in healthcare, where spending will have to rise by 30 per cent to meet the needs of the population in 2030.

To meet recurrent needs, Singapore must find recurrent revenues, he said, reiterating the justification for the upcoming hike in the goods and services tax rate.

Over the last 15 years, government spending has grown by about 1.5 percentage points of GDP - about S$7 billion per year - in each five-year period. This is about two-thirds of current GST revenue, he noted.

As for other forms of taxes, Mr Heng agreed that there is further scope to review wealth taxes, though this will not replace the need for a GST rate hike. The government will also continue to review property-related taxes, to ensure progressivity.

But he also highlighted the need to "balance between progressivity and staying competitive", adding: "Singapore must remain attractive to those who work hard and those who invest to create good jobs, because growing the economy is the most sustainable way to generate revenue and raise our standards of living."

As for Workers' Party Member of Parliament Jamus Lim's suggestion of borrowing to fund "soft capital" such as education, Mr Heng said that is essentially recurrent expenditure, and borrowing to fund that will lead to greater debt.

"Borrowing is not a form of revenue," he said. "Borrowing gives us cash for liquidity planning but it does not create free monies for spending."

But to MP Liang Eng Hwa's suggestion of one-off, special purpose borrowing for economic investments to help Singapore emerge stronger from this crisis, Mr Heng said the government will study this.