Singapore 'has lean govt, lighter tax burden'

Madam Ho Ching, chief executive and executive director of Temasek Holdings.
Madam Ho Ching, chief executive and executive director of Temasek Holdings.ST PHOTO: DESMOND WEE

Impact on economy compares well to that of most other developed nations: Temasek chief

Singapore has a "lean government" which imposes a much lighter tax burden on the economy than most other developed countries, Temasek Holdings chief executive Ho Ching said yesterday.

In a series of Facebook posts about the government Budget, Ms Ho also said Singapore cannot be "careless or wasteful" and must continue to allocate its Budget and guard its reserves judiciously, especially since government spending is expected to rise.

The governments of most developed economies collect an average of over 30 per cent of their gross domestic product (GDP) in taxes, said Ms Ho.

Scandinavian countries like Denmark have high tax burdens of almost 50 per cent, and even Norway, with its sovereign wealth fund from oil and gas, has a tax burden of over 40 per cent, she noted.

In comparison, the Singapore Government collected about 15 per cent of the country's GDP in taxes between 2009 and last year.

This percentage was higher - at about 20 per cent - before 2000, but has fallen since because the economy grew faster than government revenues and expenditures over the past 15 years, said Ms Ho.

"Looks like (the Singapore Government) is a pretty lean government with a much lighter tax burden than most other developed economies, no?"

Ms Ho, the wife of Prime Minister Lee Hsien Loong, generally keeps a fairly low profile but has made several public statements via Facebook during the election campaign.

She also put up a Facebook post about the management of Singapore's reserves on Monday.

Government Budget surpluses go into the reserves, she noted in her posts yesterday. The Government ran a Budget surplus of about 3 per cent from 1997 to 1999, "as there were small amounts of special transfers and top-ups for those years". The surplus fell to about zero to 1 per cent from 2000 to last year.

Singapore is likely to see smaller surpluses in future, given rising government expenditures and its competitive tax structure, Ms Ho said. This means reserves will also be accumulated at a slower rate.

"If we don't want to see higher tax burdens, we should not be careless or wasteful in our spending. (This is) as important for Government as for all of us as a people."

In her series of posts, Ms Ho also pointed out two "special categories" in the Singapore Budget not usually found in the budgets of other governments - special transfers and top-ups, as well as net investment income/net investment returns (NIR) contributions.

Net investment income refers to real cashflow into the government coffers. It includes actual dividends received, such as from Temasek Holdings, and also interest and dividends received by the Government from investing its reserves through GIC in bonds, shares and so on.

The NIR framework, which allows the Government to draw from investment entities' expected rather than actual returns, means contributions to the national coffers are less volatile, unlike actual dividends from realised profits. It also provides leeway for the Government to "lean against the wind", by spending more during downturns and saving more in good times, she added.

While the NIR approach offers advantages, estimates of expected returns must be used with caution since "it's not cash in the bank".

"The long-term expected return is an estimated number, which is dependent on various assumptions and scenarios. These include economic growth and inflation assumptions in the various major economies, which may or may not come true," said Ms Ho.

"There may also be temptation to fudge such estimates and overspend, especially if we do not take our role with absolute seriousness as stewards for past, present and future generations."

Special transfers and top-ups include items such as multi-year funding for GST credits for lower-income families, and the Pioneer Generation Package.

Setting aside these funds "ensures we do not create unfunded entitlement programmes and spend beyond our means", said Ms Ho.

"This also ensures that promises made by one particular government do not burden future governments, and more importantly do not burden future generations of taxpayers, like what we often see around the world."

A version of this article appeared in the print edition of The Straits Times on September 09, 2015, with the headline 'S'pore 'has lean govt, lighter tax burden''. Print Edition | Subscribe