Budgets that built a nation

Singapore's first post-Independence Budget was delivered in December 1965, as the country grasped its national purse strings for the first time. Fiona Chan and Marissa Lee chart the story of Singapore's growth and prosperity through 50 years of annual Budget statements.

Since 1965, Singapore’s annual revenue and spending have grown tenfold. But even as the economy powered from Third World to First, the Government was always careful to balance its Budgets.

BARELY four months after Singapore was abruptly turfed out of the Malaysia federation, the new nation's first Finance Minister rose in Parliament on Dec 13, 1965, to deliver its inaugural Budget.

On the face of it, it was an unenviable task. Newly independent Singapore faced stiff economic challenges: despite having no natural resources and no more hinterland, it had to create jobs and better housing for its citizens, which required policies enabling trade and industrialisation.

Yet, in a speech that lasted for an hour and 20 minutes, Mr Lim Kim San revealed that Singapore was well-placed financially to face its uncertain future.

Its official foreign reserves were 15 times its external debt - "a position which is strong by any international standard", he said.

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Although it had been only six years since the island obtained full self-government in 1959, this was due to "prudent budgeting and careful allocation of resources" in that time.

External debt stood at 59 million Malaya and British Borneo dollars - the currency Singapore shared with Malaya, Brunei, North Borneo Sarawak and Riau at that time - while foreign reserves were more than 15 times that, at M$914.7 million.

Fifty years later, as Singapore prepares for its Golden Jubilee Budget on Feb 23, this financial fortitude has not wavered.

The country has gone from Third World nation to First World metropolis - with per capita gross domestic product (GDP) shooting up from just $1,734 in 1966 to more than $69,000 in 2013 - and has done so without running large deficits or incurring external debts.

Its coffers bulge with decades of budget surpluses - the result of 50 years of judicious Budgets, as well as revenue from land sales and some income from investing the national reserves.

The latter two are not included in the yearly budget position presented to Parliament.

Yet ask any Singaporean what they expect in the upcoming Budget, and few will mention these economic intricacies.

Rather, many view it as a lottery of sorts where they might get goodies such as one-off cash payouts, depending on the "lucky" target group each year.

In the 1980s, taxpayers and companies cheered a series of tax cuts, while in the last decade, the Budget has been generous to low-wage workers and the needy in particular.

"The focus of the man in the street tends to be on what the Budget presents immediately, whether goodies or specific policy announcements," says former Nominated MP Laurence Lien, chairman of the Lien Foundation and previously director of governance and investment at the Finance Ministry.

Role of the Budget

BUT that is to ignore the big picture, as Mr Lien notes.

Over the last 50 years, the initiatives unveiled during the annual Budgets have driven Singapore's economic development and formed the cornerstone for its success in many other areas.

In the early years after Independence, most spending was earmarked for bread-and-butter issues essential to economic survival, such as job creation, and developing the infrastructure for a self-sufficient nation.

"Unemployment has always been the central economic problem of Singapore," said then Finance Minister Goh Keng Swee in his 1967 Budget speech.

He pushed for industrialisation to step up a gear from the easygoing "shoes and ships and sealing wax" phase to the deliberate selection of high-growth, labour-intensive industries such as engineering and metal fabrication.

Funds were also set aside in those early Budgets to seed the institutions Singaporeans take for granted today.

In 1972, Mr Hon Sui Sen allocated $10 million to develop Sentosa as a tourist attraction. In 1979, Mr Goh Chok Tong, standing in to deliver the Budget for Mr Hon, gave $393 million to develop Changi Airport and roads.

With manufacturing and tourism powering growth in the 1970s, the emphasis in the 1980s shifted towards upgrading the economy over the longer term.

More was spent to grow research and development, expand the services sector and raise productivity - strategies that remain relevant today.

The Budget purse was also used to keep the economy vibrant amid slowing workforce growth over the years. Baby-making incentives swelled, as finance ministers tried to get parents to have more children and to have them earlier.

Meanwhile, several Budgets told the story of a struggle to balance allowing more foreign workers in to spur growth, and avoiding over-reliance on them.

In 1970, Dr Goh outlined Singapore's "open-door policy", which would "ensure rapid growth right from the start". A decade later,

Mr Goh Chok Tong highlighted the need for skilled professionals, including from abroad, to develop Singapore into a modern industrial economy.

But by 1982, Dr Tony Tan Keng Yam - who is now President - was saying Singapore aimed "to free ourselves from reliance on foreign labour by the end of this decade" - mainly by keeping more women and seniors at work and raising productivity.

Yet the need for foreign workers did not disappear. In 1990, Dr Richard Hu decided to allow them to work in more sectors, including retail and banking.

Walking the tightrope continues till today, with the most recent Budgets heading in the direction of tightening the tap once again and lifting domestic productivity.

Another consistent theme has been the steady reduction in income taxes over the last 50 years, as Singapore sought to improve its competitiveness and provide a friendly environment for companies and workers.

In 1978, Mr Hon started the ball rolling by changing the personal income tax brackets so that the top rate of 55 per cent affected much fewer people. A series of tax cuts, for both companies and individuals, followed over the decades.

To balance out the lower income taxes, Dr Hu announced the Goods and Services Tax (GST) in 1993. It started at 3 per cent and has risen to 7 per cent today.

The Budget today

RECENT Budgets, though, may be unrecognisable to the pioneer finance ministers.

Under a new generation of leaders, the Budgets have become less about the hard numbers and what the economy needs, and more about a softer approach to what people want.

"In the earlier years, our Budgets tended to focus on the economic developments and infrastructure building," says MP (Holland-Bukit Timah GRC) Liang Eng Hwa, who sits on the Government Parliamentary Committee for Finance and Trade and Industry.

"In more recent years, emphasis has shifted towards more social development and people's well-being."

Citizens' demands are very different now from 50 years ago, notes Bank of America Merrill Lynch economist Chua Hak Bin.

"The earlier generation was just happy with a job," he says.

"Today's generation has more aspirations, about the education, jobs and wages they expect."

He adds that the Budget has become more responsive to social needs, for instance in spending more on expanding public transport and housing.

Building health-care infrastructure, rewarding pioneers and planning ahead for an ageing population are some recent Budget policies that "go beyond dollars and cents", agrees OCBC economist Selena Ling.

Another big shift has been in the area of social transfers.

The thinking that dominated the first four decades was that everyone should take responsibility for their own livelihood.

In 1974, Mr Hon had laid out this guiding principle, saying subsidies provided by higher earners would encourage more freeloading "passengers".

This position has evolved since then. Prime Minister Lee Hsien Loong, who was Finance Minister from 2001 to 2007, gave Economic Restructuring Shares to all Singaporeans in 2002 to help them adjust to changes in the economy.

Recent moves to top up the incomes of lower-wage workers - through schemes such as Workfare in 2007 and the Wage Credit Scheme in 2013 - also mark a "quantum leap", says Ms Ling.

"In the past, that whole concept of direct cash transfers, even if tied to wages, was never done before," she says. The proactive policies in this area have helped bring about a "meaningful" reduction in income inequality.

The Government has also changed the way it uses public funds - being more careful to save some income on the reserves for a rainy day, yet willing to open the reserves umbrella when it pours, as it did during the 2009 recession.

Finance Minister Tharman Shanmugaratnam asked to tap Singapore's formidable reserves for the first time, in offering a massive $20.5 billion package to save jobs and companies amid the onset of a global recession.

The state is also freer with its chequebook for worthwhile causes, such as a recent multi-year programme to support lower- and middle-income Singaporeans.

"Previously, the priority was to save for a rainy day. Now there's more willingness to say 'Okay, this is worthwhile', even if it's not a rainy day," Ms Ling says.

Some things stay the same

STILL, there are many core principles that have not changed in Budget speeches over the years. One is the emphasis on careful spending, which has been reiterated by every finance minister.

Another steadfast philosophy is self-reliance, not just for individuals but for the nation as a whole.

In 1965, Mr Lim said Singapore could tap external loans but should not over-rely on them.

Singapore's aim was "more trade, not more aid", he said. "By this, we retain our freedom of action and self-respect."

The third Budget constant is the undying belief in a better future for Singapore - a note on which many Budget speeches have ended.

Back in 1965, Mr Lim had concluded his Budget speech by saying that "Singapore has never before failed to seize any opportunity for its advancement".

"I am sure they will not let slip this golden opportunity to build themselves into a great and prosperous nation, a spur for like-minded neighbours to achieve for themselves."

His words set the tone for 50 years of prudent Singapore Budgets, which helped build a nation that can well afford to celebrate its economic success today.

fiochan@sph.com.sg

marilee@sph.com.sg