Government funds are set up to meet ‘real commitments’, spending needs: DPM Wong
Elysia Tan
SETTING aside money in government funds is important to meet “real commitments and real spending needs” in the future, said Finance Minister Lawrence Wong in Parliament on Wednesday (Feb 28), the third and final day of the Budget debate.
He was responding to questions from Members of Parliament (MPs) about the government’s collection and use of revenues, in a round-up speech that also addressed the broad themes of inflation, growth and social welfare.
Fiscal topics raised by MPs included the implementation and impact of Base Erosion and Profit Shifting 2.0 Pillar Two rules for multinational enterprises (MNEs).
Here, Wong noted that despite estimates that Singapore could gain corporate income tax revenue of S$2 billion to S$11 billion from this change, the actual impact is unclear, with many unknowns. Any revenue impact from Pillar Two moves will only be observed from FY2027.
“The reality is that MNEs have bargaining power and governments around the world are all finding ways to favour them and getting them to invest,” said Wong, citing efforts by economies such as Japan and the US.
“We are not in the same league, but we have to play a smart game so as not to lose ground and to anchor important investments here,” he added.
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That is why Singapore is introducing a Refundable Investment Credit scheme and spending more to support new investments, research and innovation activities.
With this extra spending, Pillar Two changes are not likely to generate significant additional net revenues on a sustained basis – and Pillar One implementation, which has been delayed, “will clearly be revenue negative for Singapore”, he said.
On Singapore’s overall fiscal approach, Wong noted that the country has managed to achieve good social outcomes with relatively little public spending.
During the first day of debate, West Coast GRC MP Foo Mee Har noted that over S$40 billion went towards endowment and trust funds in FY2023 and FY2024. She asked about how the government determines whether expenditures should be funded from funds or from the operating budget.
In his round-up speech, Wong said that Singapore is “currently in a sound fiscal position” after recent tax changes and stronger-than-expected collections. “And we are putting our resources to good use to address immediate concerns and also upcoming needs.”
This involves setting up government funds for major expenditures in the future. Some are for recurring commitments, such as permanent Goods and Services Tax (GST) Vouchers or lifetime commitments under the Majulah Package.
Some address “major spending needs”, such as the Future Energy Fund to decarbonise the city-state’s energy system.
This approach is different from that of countries which “make major commitments without assurance of funding”, he said. “That’s not how we do things in Singapore. If this government makes a commitment, we make sure it is properly funded.”
But Wong warned that the days of structural fiscal surpluses are over. This is because growth is slowing down, with operating revenues barely keeping up.
The net investment returns contribution is also expected to stay at a similar share of gross domestic product, he added. This is because expected long-term returns on the reserves are about 4 per cent, and not likely to increase, given the challenging investment environment.
All this means that Singapore must manage its expenditures well, to continue running balanced budgets till the end of the decade, he said.
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