Govt cannot rule out further changes to tax system, use of returns from investing reserves

Against a backdrop of an ageing population and the shift towards greater social spending, the Government cannot rule out making further refinements over the next five to 10 years to the tax system and the basis for drawing on the country's net invest
Against a backdrop of an ageing population and the shift towards greater social spending, the Government cannot rule out making further refinements over the next five to 10 years to the tax system and the basis for drawing on the country's net investment returns for curent spending, said Law Minister K. Shanmugam on Wednesday, July 9, 2014. -- PHOTO: ST FILE

Against a backdrop of an ageing population and the shift towards greater social spending, the Government cannot rule out making further refinements over the next five to 10 years to the tax system and the basis for drawing on the country's net investment returns for curent spending, said Law Minister K. Shanmugam on Wednesday.

This is why the Government still does not intend to bring Article 5(2A) of the Constitution into force, he said in response to Nominated MP and law academic Eugene Tan.

The article states that if Parliament wants to amend certain elements of the Constitution, including any provisions relating to the President's powers, it must seek a national referendum and get the support of at least two-thirds of voters. It has not been put into force since the Constitution was amended in 1991 to establish the Elected Presidency.

Mr Shanmugam said the "complex and novel" nature of the changes that came along with the Elected Presidency meant that its provisions had to be revised and fine-tuned along the way. The experience shows that adjustments and refinements must be put in place and fully ironed out before the scheme can be safely entrenched, he said.

"To bring Article 5(2A) into force before that would otherwise potentially trigger a national referendum each time we needed to make a further refinement or adjustment," he said. "Our view is that we should give ourselves more time, before entrenching the provisions."

Mr Shanmugam also explained that the Constitution had been further amended in 2008 to introduce a new Net Investment Returns framework to improve how the Government can use the returns from investing the nation's reserves for spending. Currently, the Net Investment Returns Contribution makes a "substantial contribution" of about $8 billion a year - some 2 per cent of the gross domestic product - to the Budget.

The Government's intention then was to operate according to the revised spending rules for a number of years and consider entrenching them after that if no additional major changes proved necessary, said Mr Shanmugam.

However, the Government will need to strengthen its revenue base to support the demographic and policy changes in the coming years, he said. Close to 1 million Singaporeans will reach retirement age in the next 20 years or so, while the Government has made major policy shifts that will significantly increase spending on infrastructure and social services, he added. Healthcare spending alone is projected to increase three-fold to about $12 billion by 2020.

Hence, the Government cannot rule out changing the tax system and the rules that govern the use of net investment returns. "We cannot decide today precisely how this should be done," said Mr Shanmugam, adding that the Government must preserve its ability to make necessary adjustments so that it can maintain Singapore's strong financial position and a fair and progressive tax and transfers system.

Associate Professor Tan also asked if the Government could bring into force two provisions of Article 5(2A) relating to fundamental liberties and general elections. Mr Shanmugam reiterated the Government's previous position that it cannot do so. Article 5(2A) cannot be implemented in a staggered fashion as it would go against the intent that it should operate as a package, he said.