Singapore's spending needs will keep growing in the years ahead, even as it becomes tougher to raise revenue in a maturing economy, Finance Minister Heng Swee Keat said yesterday.
The population is ageing, and infrastructure needs are rising too.
This means that besides spending prudently and effectively, the Government will have to grow revenue through new taxes or raising tax rates over time, he told Parliament in his speech rounding up the three-day Budget debate.
He said that any decision to raise taxes "will not be taken lightly". "We will study all options carefully," he added.
Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) and Mr Yee Chia Hsing (Chua Chu Kang GRC) had asked how the Government intends to review its tax system.
Mr Heng assured members: "We will ensure that our tax system continues to be fair and sustainable."
DISCIPLINED AND PRUDENT
With higher spending needs, it is ever more critical for us to ensure that we spend within our means to get the outcomes we want.
MR HENG SWEE KEAT, Finance Minister.
He outlined three principles.
One, the tax system must be fair and progressive, with the better-off contributing more.
Two, a sustainable tax system is also one that rewards effort by individuals and enterprise by companies. He noted that Britain has lowered the corporate tax rate from 30 per cent to 20 per cent over the past 10 years, and plans to further lower it to 17 per cent by 2020. The new United States administration has indicated plans to cut corporate tax rates too.
"We must ensure that Singapore continues to be an attractive place to work and do business, so we have a thriving and vibrant economy."
Three, sustainability entails striking the right balance between current and future generations.
Addressing a suggestion by Ms Sylvia Lim (Aljunied GRC) to use proceeds from land sales, he said such proceeds go to past reserves.
"It is because of this prudence that we are able to build up our reserves, and we can use part of these returns for our expenditure.
"We must remain disciplined and prudent in spending the returns of our reserves, so that they remain a stable and sustainable source of revenue over the long term," he said.
Singapore must ensure it has the capacity to invest in critical programmes and infrastructure for the long term, in a way that is equitable to current and future generations.
Mr Heng said the challenge of raising revenues for growing needs is not unique to Singapore.
He cited, for example, how Hong Kong announced in its recent budget that it would be setting up a tax policy unit to review its tax system.
He noted that Singapore's Budget spending has been higher than operating revenues since FY2015.
The Government anticipated this and raised revenues ahead of spending needs - by increasing the goods and services tax in 2007 and introducing the net investment returns framework, which allows it to spend up to half the long-term expected real returns of GIC, the Monetary Authority of Singapore and Temasek Holdings, in 2008. Other moves included raising duties for betting, liquor and tobacco, and raising top marginal rates for personal income tax.
"But beyond this decade, we can expect the fiscal situation to become more challenging as our expenditures exceed revenues in the longer term," Mr Heng said.
"With higher spending needs, it is ever more critical for us to ensure that we spend within our means to get the outcomes we want."
Funding policies for ministries have been designed to get agencies to operate efficiently and effectively, and this was further reinforced by a 2 per cent downward adjustment to ministries' budget caps.
He said scrutiny of major infrastructure projects is also being tightened, and subsidies are targeted at the right groups - those in need.