The Singapore Perspective

Fiscal prudence a key debate for economic future

To secure the next 50 years of prosperity, Singapore needs to start building its foundation now.

That entails investments in technology, in skill training, in infrastructure developments.

But these come at a price. So while the country focuses on restructuring and productivity, ensuring fiscal prudence will always be at the fore of Singapore's economic agenda.

Indeed, a national debate on the issue is now more active than ever.

For the Budget in February, the Ministry of Finance forecast an overall deficit of $6.67 billion for the 2015/16 financial year. If realised, this would be the biggest deficit in the country's history.

Investment in human capital through schemes such as SkillsFuture is necessarily the cornerstone for an economy perpetually constrained by its ageing demographic.

The jump in the overall deficit - up from $130 million last year - is due to funding support for major programmes such as SkillsFuture schemes and the development of a fifth terminal at Changi Airport.

In his Budget speech, Deputy Prime Minister Tharman Shanmugaratnam said spending is set to hit 19 per cent to 19.5 per cent of the gross domestic product on average in the next five years.

The Government has moved to include Temasek Holdings in the Net Investment Returns framework to widen its potential revenue pool. This has triggered concern among the public as well as within the Government. Some wonder if the country is spending beyond its means despite repeated assurances by Mr Tharman that sustainability remains the core principle underlying Singapore's current and future fiscal policies.

Part of the theme for Budget 2015 was "Building Our Future". But what is the right balance between spending and saving for the future?

There will be no quick and direct answer to that question, even as the spending seems very well justified.

The fifth terminal at Changi Airport, for instance, will make Singapore a premier aviation centre, giving the country a tremendous strategic edge over regional cities in the race to become Asia's hub.

Meanwhile, investment in human capital through schemes such as SkillsFuture is necessarily the cornerstone for an economy perpetually constrained by its ageing demographic.

Yet, the fear of overspending - of depleting resources for the future - is also valid, and more than a few Members of Parliament have raised the Greek debt crisis as a cautionary lesson. The debate is likely to carry on long into the future. But for now at least, we can take comfort in knowing that decades of fiscal prudence have put Singapore in a strong position to build its economic future.

"We can draw confidence from the fact that we have considerable fiscal resources. Indeed, we should view our reserves as a transfer of savings from the baby boom generation to the state and to future generations of Singaporeans," said Mr Donald Low in his book, Hard Choices.

"Continuing with a strategy of growing our reserves implies a negative discount rate.

"It is neither sensible from an economic perspective nor equitable from an intergenerational one."

Wong Wei Han

A version of this article appeared in the print edition of The Straits Times on July 20, 2015, with the headline 'Fiscal prudence a key debate for economic future TheSingaporePerspective'. Print Edition | Subscribe