This is an excerpt of Finance Minister Heng Swee Keat's speech in Parliament yesterday, rounding up 3 days of debate on Budget 2019.
I have spoken about the Singapore way - our way - with people at the heart of our policies, planning for the long term while adapting to near-term circumstances, and doing it together, working in partnership. Our Budget reflects these principles, not just in the way we spend, but also in the way we fund our spending.
Many MPs in this House have called for more "M&Ms". Not the sweet chocolate candy, but "more & more". I, too, like M&Ms. But our resources are finite, and our needs are growing and diverse. To square the circle, we need to use the right tools for the right needs, with these principles in mind. And we need all of these tools, to balance our Budget in the medium term.
First, taxes. As individuals, we can all accept that we should pay for what we use. Similarly, each generation should pay for their own needs.
There have been some reservations raised over the approach and timing of our plans to raise taxes going forward.
Ms Foo Mee Har (West Coast GRC) urged the Government to postpone the GST hike for as long as possible. Let me assure her and members of this House that the decision to raise GST was not made lightly. As the Government, it is our responsibility to anticipate and plan ahead for future needs. When doing so, we need to distinguish between one-off factors, and underlying structural increases.
The GST increase is needed to support structural increases in healthcare spending, among other important needs like pre-school education and security. Such healthcare spending is of a completely different scale and nature from the cohort-based package set aside for the Merdeka Generation or Pioneer Generation.
The Government has systematically laid the foundation of a broad-based healthcare system that supports not only seniors, but also all Singaporeans, regardless of their age and income.
We now provide significant subsidies in all care settings - up to 80 per cent in public hospitals and for long-term care services, up to 70 per cent for specialist outpatient services, and up to 75 per cent for polyclinics.
The Ministry of Health expects to spend $6.1 billion this year to subsidise patient bills through existing permanent schemes that all Singaporeans enjoy. This does not even include spending to enhance healthcare facilities, and to research more effective treatments.
We should not underestimate the need for a rainy-day fund. Singapore faces particular vulnerabilities, given our lack of natural resources. With an economy worth nearly $500 billion a year, we should set aside enough to protect it and our people's livelihoods and future. So, let us stay disciplined.
Now as our population ages, spending on permanent healthcare schemes and other parts of the healthcare system will continue to increase structurally. Funding this requires a structural increase in our operating revenues. In other words, the base of our healthcare spending is rising, and over and above this rising base, we have special packages set aside for our Pioneers and Merdeka Generation.
Every ageing society faces similar structural spending pressures. A recent OECD paper highlighted that in the median OECD country, public health expenditure is projected to increase by almost 5 percentage points of GDP between 2018 and 2060.
The OECD's recommended approach is no different from ours. To address the growing fiscal burden from higher healthcare spending and demographic change, without further ballooning of public debt, there is a need for these governments to raise primary revenues.
The median OECD government is estimated to require additional revenues of 6.5 percentage points of GDP by 2060. To put it in perspective, we expect to raise about 0.7 percentage point of GDP with the planned 2 percentage point GST increase. So, you compare 6.5 percentage points to the 0.7 percentage point of GDP that we have. And you see the scale of the issues in many places.
We have yet to decide on the exact timing of the GST increase and we will exercise care when doing so. We will continue to monitor the prevailing economic conditions, trends in expenditure and buoyancy of our revenues carefully. We will also be preparing a transitional package when this comes in.
I should also put into perspective the surpluses accumulated so far in this term of government.
Forecasting is an inherently difficult exercise. Some revenue items are volatile, especially those dependent on sentiment-driven markets, such as stamp duty or vehicle quota premiums. For instance, in FY2018, we had estimated that stamp duty collections would be lower because of property market cooling measures. But the property market defied our expectations.
There can also be surprises on the expenditure side. The two-year suspension of the KL-Singapore High Speed Rail Project is a case in point.
The unexpected surpluses over the last few years are not due to the introduction of Temasek into the Net Investment Returns (NIR) framework, as suggested by (Workers' Party chief and Aljunied GRC MP) Pritam Singh. The volatilities and uncertainties in revenues and expenditures, as I had just explained, account for most of this surplus.
While the Government's approach is to look ahead, plan ahead and prepare for the unexpected, it seems that Mr Singh would prefer to look backwards to find unexpected revenue surprises, and count on them to keep happening. I am afraid such an approach of hoping for the best is not how we secure Singapore's future.
While there is room for improvement, the accuracy of our revenue and expenditure projections has been reasonable, and respectable by international standards.
Actual revenue and expenditure figures have generally been within plus/minus 4 per cent of our original estimates.
The Ministry of Finance is constantly looking for ways to improve our forecasts. But the experience of other countries shows that this is not easy to do. Japan's revenue estimates, for example, had a margin of error of about 11 per cent over the past five years. Hong Kong, a small open economy like us, averaged slightly better, at 8 per cent. Nonetheless, we will see how we can continue to improve.
Mr Liang Eng Hwa (Holland-Bukit Timah GRC) asked how the Government intends to use the accumulated surplus.
First, let me clarify that any surpluses we have do not simply "disappear" at the end of the term. They become part of our reserves which are invested to generate returns, part of which will form Net Investment Returns Contribution (NIRC). When our economy grows, we have an obligation to contribute to the reserves to be used for the uncertainties of the future.
We should bear in mind that the business cycle can turn, and having some surpluses on hand can allow us to provide targeted support to segments that need help to tide over the downturn. For a major crisis, we can turn to past reserves.
During the global financial crisis in 2008, our accumulated savings allowed us to fund $15.6 billion, or three-quarters of the $20.5 billion Resilience Package, with the remainder being funded from past reserves. So $15.6 billion, out of $20.5 billion, were from current reserves.
In 2017, to support the construction industry to tide over a period of cyclical weakness, the Government brought forward about $1.4 billion of public sector infrastructure projects to start in FY2017 and FY2018.
In planning for FY2019, we were also faced with the global economic outlook being downgraded by the IMF, as global trade tensions grew.
More fundamentally, we should not have the mentality of trying to spend everything that we have, before the end of each term of government. As part of our long-term approach, we continue to review our plans for the long term and will deploy financial resources where necessary.
So on this note, let me briefly reiterate the role of our reserves.
Today, the NIRC is already the single largest contributor of our revenues - larger than any category of taxes we collect. If we did not have the NIR framework, we would have had to double our personal income tax collection or our GST collection to raise the same amount of revenues. In fact, we would not even be able to raise the same amount of revenue because it is now the largest category and doubling all the rest does not give you that same amount.
Our reserves are our strategic assets. We are a small country, exposed to global forces beyond our control. Our reserves will allow us to tide over a crisis, without being reliant on others.
We should not underestimate the need for a rainy-day fund. Singapore faces particular vulnerabilities, given our lack of natural resources.
With an economy worth nearly $500 billion a year, we should set aside enough to protect it and our people's livelihoods and future.
So, let us stay disciplined. Today, we take up to 50 per cent of the expected returns for spending, and plough back at least 50 per cent to grow the principal and generate more returns. In this way, both the current and future generations benefit from the reserves, and we can be confident of our future.
Now, Mr Pritam Singh referred to a Business Times article and asked for more data on our reserves "so that Singaporeans can crunch the numbers themselves, and better understand Budget policy trade-offs".
He has also filed a cut on transparency on GIC's performance, which will be answered at the Ministry of Finance's Committee of Supply. But let me explain why he is misinformed. Our reserves comprise assets invested by the Monetary Authority of Singapore (MAS), GIC and Temasek Holdings. The size of MAS' and Temasek Holdings' assets is public information. Only the GIC portion is not disclosed and that is because with the GIC figure, you get the complete picture of our reserves.
I was running MAS during the global financial crisis, with Emeritus Senior Minister Goh Chok Tong as chairman. And let me tell you that - in a crisis where the most powerful central banks in the world, and even some of the biggest financial institutions, were taken completely by surprise by the speed and scale of the turn in the markets and the global economy.
Many things could have gone wrong. We not only rode through the crisis well, but emerged stronger. And having our reserves as a strategic asset played a key role in this. Let us not squander this strategic advantage that we have.
Our reserves also serve as a strategic defence, to deter parties who wish to undermine the interests of Singapore and Singaporeans.
Such moves go beyond currency speculation attacks, to other types of threats. Our reserves, like our investments in defence and security, give us the confidence to plan long term, knowing that we will have the ability to take care of our people, and defend our sovereignty.
Lastly, let me talk about borrowing.
Over the next decade, we are making significant investments in our infrastructure to enhance connectivity and create new growth opportunities for tomorrow. The Government is studying the option of borrowing carefully, as a tool to finance major, long-term infrastructure, and will announce our plans in due course.
In my Round-Up Speech last year, I mentioned a number of infrastructure projects which our statutory boards and government-owned companies are looking to borrow to finance. This included the Integrated Waste Management Facility by the National Environment Agency, and the JB-Singapore Rapid Transit System Link, by the Land Transport Authority.
In this year's Budget Speech, I mentioned our long-term infrastructure needs. We also have to plan ahead for our ageing infrastructure. And all these are long-term needs that have to be studied carefully. When ready, we will share more.
Now, as these projects have lumpy upfront costs and benefits that span many generations, borrowing can be a fair and efficient tool to finance and spread out these costs, instead of raising taxes sharply to fund them. In this regard, there is a simple answer to Mr Pritam Singh's question about how borrowing will impact revenues available for future recurrent spending. It does not.
Borrowing does not create new revenues for recurrent spending. It merely converts a concentrated lump of spending in a few years into a smoother stream of loan repayment with interest. And we must have every intention to pay back what we borrow.
In fact, it is irresponsible for a government to borrow to spend on recurrent needs such as healthcare and security. Such borrowing shifts the burden of paying for today's needs onto future generations. This goes against the same principles of intergenerational equity.
If we proceed to use government debt, we will make sure that this is done in a disciplined and prudent manner. Safeguards will be put in place to ensure that the debt, its interest and repayment are sustainable, and in line with the Reserves Protection Framework.
Borrowing or not, it does not change the fact that all government projects should be cost-efficient, well-managed and must yield economic or social benefits. Borrowing is a financing tool. If used sustainably, it allows us to build a better living environment for our people, and to make Singapore a dynamic and liveable city.
FAIR AND EQUITABLE SYSTEM
As we calibrate our fiscal tools, the ultimate goal is three-fold: to remain pro-growth; ensure that our overall system of taxes and transfers will remain fair and equitable; and keep the tax burden on the middle income low.
Some asked me: "What about me? There did not seem to be anything in this Budget for me."
Even if there's nothing new for you this year, you and your family have certainly benefited from every one of our Budgets. We must not look at our Budgets in isolation. One Budget builds on another.
Let me outline how our Budgets benefit different groups.
Our young people have benefited from stronger support in education, housing and parenthood. They also benefit from the opportunities that a vibrant economy brings.
We provide up to $80,000 in grants for new BTO flats and $120,000 for resale flats, and invest even more later on when estates undergo upgrading.
Parents can receive a maximum of between $18,000 and $32,000 in marriage and parenthood benefits for each eligible child, on top of paid maternity and paternity leave, tax benefits and pre-school subsidies.
Our middle-income families, especially those feeling "sandwiched" supporting retiree parents and schoolgoing children, would benefit from many schemes. For example, their children receive significant education subsidies. Without these subsidies, families would have to pay more than 60 times the current fees for their children in school. University fees would also be four times what Singaporean students currently pay. And this is for a world-class education.
The Pioneer and Merdeka Generation packages ease healthcare costs for their parents, and in so doing, help with their families' overall expenses.
This year, many will receive a number of top-ups, such as to their children's Edusave or Post Secondary Education Accounts, and their parents' CPF accounts. And all who pay personal income tax will receive a rebate.
Some middle-income and upper-income families also commented that the tax rebate of $200 is insignificant and of not much benefit to them. But we must not forget that overall, income taxes are kept low, so that they can keep a large part of what they earn.
I shall share a story of a recent encounter with a Singaporean who came back from a developed country. He told me: "Mr Heng, I am very happy to be back in Singapore. First, I am very happy to be back with my parents and family. But I am also very happy I got a 32 per cent pay raise." I said: "Wow! Your new employer has been most generous." He said: "No, my employer who sent me back from the headquarters kept my salary the same, but when I added up all the taxes I paid in that country - at the city level, state level and federal level - it added up to 32 per cent of my pay."
I thought that was a powerful story. You can look up the tax rates of many countries that have extremely generous welfare systems. But the moment you take your pay cheque, more than half is gone. So let us not forget this point.
We must not see the Budget as simply a "bag of benefits that serves some people in one year or the other". It is our strategic financial plan for the future.
And because we take a long-term approach, we cannot see each year's Budget in isolation. One Budget builds on the foundation of earlier Budgets. We have a multi-year plan, which tackles the priorities as systemically as we can. We plan ahead, like setting out the strategy for mitigating and adapting the impacts of climate change. We look at the needs of different groups of people, as needs evolve and grow.
And we invest in growing our economy and in our people, so that we have the resources to do more for our people, and their children, and their children later.
Budget 2019, and our previous Budgets, are to build a better Singapore for all of us.
A version of this article appeared in the print edition of The Straits Times on March 01, 2019, with the headline 'Taxes and fiscal sustainability - the Singapore way'. Print Edition | Subscribe
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