Budget debate

Govt spends ‘on the side of caution’ amid volatility, says Chan Chun Sing

Mr Chan Chun Sing, Minister in Prime Minister's Office, delivers his speech at the Excellent Service Award 2016 Presentation Ceremony.
Mr Chan Chun Sing, Minister in Prime Minister's Office, delivers his speech at the Excellent Service Award 2016 Presentation Ceremony.PHOTO: ST FILE

In Budget 2017, about $14 billion of the $70 billion for government spending will come from the returns from past savings.

This means that "$1 out of every $5 that we are spending in this Budget comes from the income from our reserves", and this net investment income share looks set to rise with demands going up and revenues possibly shrinking, said Mr Chan Chun Sing, Minister in the Prime Minister's Office.

He also warned that the expected Budget surplus this year hangs in the balance because of the volatile economic situation and rising spending needs.

Some of the top contributors to the government coffers, such as net investment returns and corporate income taxes, are subject to the vagaries of economic cycles that are not within the Government's control, Mr Chan said.

So there is a need to "err on the side of caution" by ensuring government spending remains prudent and sustainable, he added.

 

Mr Chan made these points yesterday, the second day of the parliamentary debate on Budget 2017, after some MPs expressed concern that the Budget did not provide enough help for households and small and medium-sized enterprises hit by the slowing economy and rising costs.

  • TOP FOUR SOURCES OF REVENUE

    • Net investment income

    • Corporate tax

    • Goods and services tax

    • Income tax

In particular, Non-Constituency MP Leon Perera, who is from the Workers' Party, asked if the Government held back on spending this year "to keep ammunition in reserve for closer to the election".

He said recent Budgets had followed a pattern of racking up a surplus early in the Government's term, then incurring deficits closer to the general election.

Mr Chan refuted this, saying the Government does not adopt "such a cynical attitude to budgeting".

Budget 2017 contained measures to provide short-term relief to the hardest-hit companies, such as those in the offshore and marine sector, as well as rebates for lower- income households.

"If indeed this is a cynical government, then we shouldn't be giving anything at all," Mr Chan added.

Indeed, the latest Budget was made possible by prudent spending in previous terms of government, as well as judicious management of Singapore's reserves, he said.

He also noted that the net investment returns contribution overtook corporate income tax to be the No. 1 contributor to government coffers for the first time in the 2016 financial year.

But the amount of net investment income - as well as other top contributors to revenue - is subject to the ups and downs in the economy, he said.

"The top four (sources of) revenue are net investment income, corporate tax, goods and services tax (GST) and income tax, but these are all subject to factors outside the Government's control, he noted.

"Net investment income depends on the status of the world economy. Corporate tax and income tax will be similarly cyclical according to the world economy. Even GST, to a less extent, will be cyclical," he said.

This means that the $1.9 billion surplus expected in Budget 2017 could be at risk.

"Will we realise this $2 billion surplus?" Mr Chan said. "What if the economy turns soft and we don't realise the full amount that we have budgeted for the net investment income, but instead we need more money to help fellow Singaporeans? How much can we afford and how much more do we have?"

The Government has to keep spending on a "steady path", he added. "Making sure that we address the short-term pains, while establishing the conditions for our long- term success, is never either or. It is always both."

A version of this article appeared in the print edition of The Straits Times on March 02, 2017, with the headline 'Govt spends 'on the side of caution' amid volatility'. Print Edition | Subscribe