Debate on fiscal sustainability turns to land sale revenues, GST hikes

Singapore

A DISCUSSION on Singapore's budget threw up a robust debate on its fiscal sustainability with economists talking about politically sensitive measures such as dole-outs to struggling firms, public transport fare control and delinking GST hikes from political considerations.

Some also pondered over whether the government should start considering tapping past reserves and monies from land sales to boost its fiscal position - two sources not included in annual budget statements.

"For the fiscal position, it's a bit cloudy here because the (Singapore) government has built up so much reserves, as opposed to the debt positions in Europe," said Maybank Kim Eng economist Chua Hak Bin. "So the proper calculation of fiscal surplus is probably to include all the land sales, extra income . . . it's just whether we want to tap that."

Dr Chua and three other invited economists were presenters at a discussion organised by the Economic Society of Singapore on Thursday. For over 90 minutes, they shared their thoughts on Budget 2017 that was announced on Monday.

The topic that stirred the most debate was how Singapore can improve fiscal sustainability, a perennial concern each time the fiscal budget is unveiled. For fiscal year 2017 which starts on April 1, the government expects a primary deficit of S$5.62 billion, higher than the revised S$2.72 billion for FY2016. This would be one of the deepest deficits in years.

Dr Chua said that it was "lucky" that the Budget got a boost from state investor Temasek Holdings' contributions to the net investment returns (NIR). It was added to the NIR last year. For FY2017, the NIR will be S$14.11 billion. This basically swings the fiscal position to a small surplus of S$1.91 billion, or 0.4 per cent of gross domestic product (GDP).

"The question now is: In three, four years' time, when expenditure keeps on rising, where is the additional money going to come from?" said Dr Chua.

One way to do so is, interestingly, to give more fiscal support to companies hurt by economic restructuring.

Calling it a "Catch-22" situation, he said that the restructuring has been painful for many firms, which slows down growth. This in turn affects how much the government can get in terms of corporate income taxes. "So that's why the companies were hoping for some breathing space . . . I don't think it'll cost very much to defer the (foreign worker) levies."

Fellow panellist Walter Theseira, who is an economics lecturer at SIM University, thought that some political will must be exercised in order to broaden the fiscal revenue base.

For example, with the operating expenditure - that is, funds used for the day-to-day functioning - of transport escalating, the government should consider raising the "politically-sensitive" public transport fares to generate revenue.

"Why are we spending so much effort holding down public transport fares? Why don't we just let them go up, and then just subsidise the lower-income people instead of insisting that we subsidise the middle-income people as well?"

CIMB economist Song Seng Wun believes that Singapore should "depoliticise" the issue of raising taxes such as income tax and GST so that the fiscal revenue base can be broadened.

"At this point in time, we know GST hasn't gone up, but there is a need to plan for a change in expectations (of this) . . . we need to focus on the long run."

But even as the economy transitions, SIM University professor David Lee said that the tax regime must also keep in pace so that all can benefit from the new economy. This would in turn result in a more robust and healthier fiscal regime.

"Policymakers need to think about how to ensure that the fruits are shared among all the people," he said. "The whole political philosophy has to change."

Parliament starts debate on the Budget on Feb 28.