Budget slice

Budget caps for ministries lowered to set prudent tone

Mr Heng Swee Keat, Minister of Finance at the Parliament House on the first day of budget, on Feb 20, 2017. PHOTO: KELVIN CHNG

The budget caps set for ministries and organs of state will take a 2 per cent downward adjustment in the new financial year starting April 1.

The move is to signal the need for prudence as Singapore faces higher healthcare and public infrastructure costs in the years ahead.

Another change that appears set to take place is with the goods and services tax (GST) regime. The Government is studying other countries' GST practices for e-commerce.

Finance Minister Heng Swee Keat said: "Like all finance ministers before me, it is my duty to take the long view. Our domestic needs will grow over time and the global environment will shift. We must study the implications and prepare our options early."

In the last five years, Singapore's annual healthcare spending has more than doubled to reach around $10 billion in financial year 2016.

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A large part of it is due to subsidies being enhanced and services expanded to meet the needs of an ageing population.

Public infrastructure spending has risen too.

Work is under way to double the MRT network to 360km by 2030. This is expected to cost more than $20 billion in the next five years.

And the new Terminal 5 at Changi Airport is expected to cost tens of billions of dollars.

Expenditure needs are poised to rise rapidly in the coming years, said Mr Heng, so leaner ministry budgets will help keep public spending prudent and effective.

Exceptions will be made for the Home Affairs, Health and Transport ministries, which are expanding their services significantly, as well as the Defence Ministry, which serves security needs.

For these four ministries, the 2 per cent budget cap reduction will be phased in over the next two financial years.

Prudent spending is one half of the equation and Singapore must also grow its revenue base in a sustainable way, Mr Heng said.

"We will have to raise revenues through new taxes or raise tax rates. We are studying the options carefully," he said.

  • 2%

  • Permanent downward adjustment to the budget caps of ministries from the 2017 financial year

The taxman must respond to domestic needs as well as shifts in the global environment, he indicated.

One global development affecting tax systems worldwide is the Base Erosion and Profit Shifting project, Mr Heng said.

This is a revamp of international tax rules by developed nations in a bid to ensure companies are taxed fairly, based on where their substantive economic activities are performed.

"We are, in consultation with businesses, refining our schemes and implementing the relevant standards," the minister said.

Another trend is that of countries adjusting their GST systems to account for a rise in e-commerce and digital deals, to ensure a level playing field between local businesses that are GST-registered, and foreign-based ones which are not.

"We are studying how we can do likewise," Mr Heng said.

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A version of this article appeared in the print edition of The Straits Times on February 21, 2017, with the headline Budget caps for ministries lowered to set prudent tone. Subscribe