The virtue of fiscal sustainability

Amid the plaudits for Silver Support and other social schemes, there have been concerns voiced about the long-term impact of the schemes on public finances. It is a point worth pondering.

Perceptions of a tilt to the left in policies are liable to be overdone if one does not properly acknowledge the state's continuing emphasis on fundamental tenets such as market-driven growth, individual self-sufficiency and collective responsibility.

In tandem, there is an enhancement of the social safety net which entails weighing the implications of schemes of a permanent nature to support the lower 20 to 30 per cent of society, like Silver Support (in which eligible seniors are automatically enrolled) and Workfare (introduced eight years ago).

Though benefits are modestly structured now, there will be demands over time for adjustments to keep pace with inflation; and any attempts to cut back in the future to help balance budgets would almost certainly be met with resistance. Thanks to foresight and good governance, Singapore is able to tap surpluses and draw part of the investment returns of substantial reserves to help fund increased social spending. Nonetheless, with major development needs looming, one cannot rule out the need to raise additional revenue in the future if the payouts are to continue.

Some countries guard against this through an annual fiscal sustainability review. Once an issue "only for underdeveloped and emerging market economies... concern about fiscal sustainability has (now) spread to advanced countries", according to a commentary in the OECD Journal on Budgeting. The United States analyses the long-term sustainability of social security and Medicare every year, and periodic fiscal sustainability reports do attract attention in Britain and Australia.

Thankfully, Singapore has always kept its eye on the long term when doing its fiscal planning. That financial discipline, a hallmark of the pioneer generation, must never be relaxed. Adopting a longer horizon helps forge public consensus on the different dimensions of sustainability - namely, solvency (the reality of matching expectations to means), stability (the ability to meet future obligations with current revenue), inter-generational fairness (taking into account what taxpayers would have to bear to maintain social programmes), and policies that promote growth.

As we enter the annual Budget debate season this week, there will be many well-intentioned ideas thrown up for the state to extend its helping hand still further. Such calls for more comprehensive Budget benefits must meet the test of sustainability, especially as the task of balancing budgets can be expected to get more challenging in the future.