SINGAPORE - The Government has taken steps to manage its expenses even as spending needs continue to grow, particularly in healthcare, security and infrastructure, said Mr Lawrence Wong, Second Minister for Finance, on Thursday (Feb 28).
The growth in ministries' annual budgets will be reduced, starting from this financial year, said Mr Wong. This comes on top of a move to permanently cut the budget caps of all ministries and organs of state by 2 per cent from April 2017.
"We have and we will continue to manage expenditure growth carefully," said Mr Wong, who is also National Development Minister, during the debate on the budget for the Finance Ministry.
Mr Wong was responding to MPs Liang Eng Hwa (Holland-Bukit Timah GRC) and Foo Mee Har (West Coast GRC) who raised concerns about fiscal sustainability.
Ms Foo said that Singapore has come to rely heavily on the Net Investment Returns Contribution (NIRC) framework, which paid for about a fifth of the Republic's total spending in 2018.
The NIRC framework allows the Government to spend half of the long-term investment returns generated by the Monetary Authority of Singapore, Temasek and GIC, the three entities tasked to manage and invest the reserves.
Ms Foo said: "This high dependency represents a significant vulnerability, given the volatility of any investment portfolio."
Mr Liang pointed out that spending has increased by about 2.5 times in the past 10 years while revenue, including the NIRC, has grown by about two times in the same period.
If NIRC is excluded, operating revenue would be even lower, he said.
"If left unchecked, where expenditures continue to grow faster than revenues, we could end up with a ballooning deficit situation in the years to come."
Mr Wong said that other revenue streams have been strengthened, including keeping the GST broad-based and increasing tax rates for personal income tax, property tax and stamp duty in recent years.
Corporate tax and the NIRC were the biggest contributors to the total government revenue in the last financial year, with each accounting for 18 per cent.
Personal income tax and GST made up 13 per cent each while property-related tax contributed about 10 per cent. Several other items make up the remainder, Mr Wong said.
"Overall, our revenue base is a diversified one, and we are mindful not to be over-reliant on any single source," he added.
Mr Wong also addressed MP Pritam Singh's (Aljunied GRC) request for more information on GIC's performance during the debate. Mr Singh asked about the decline in GIC's 20-year returns in recent years, among others.
A reason for the decline, he said, is that the high returns earned in the run-up of the tech bubble in the late 1990s have dropped out of the past 20-year period, while the subsequent bursting of the bubble and decline in asset values has remained in the 20-year window.
The investment environment has also become more difficult for fund managers everywhere, not only GIC, he noted.
"Nevertheless, in these challenging market conditions, GIC has done creditably," Mr Wong said, pointing out GIC's nominal return of 6.6 per cent in the greenback's terms over a five-year timeframe.