Changi's T5, Cross Island Line to be partly funded through borrowing

The cost of huge infrastructure projects such as Changi East, which includes Terminal 5 (T5), and the Cross Island Line will be partly funded through borrowing, as will other infrastructure investments such as those to tackle climate change.

Finance Minister Heng Swee Keat noted: "For these large and lumpy expenditures where the benefits span many generations of Singaporeans, paying for them through some borrowing is fairer and more efficient."

But the Government will take a different approach to recurrent expenditures in areas like healthcare, pre-school education and security.

Here, spending will be funded by recurrent revenues such as the goods and services tax (GST).

Mr Heng noted that responsible and sustainable borrowing for large infrastructure investments helps instil financial discipline and distributes the share of funding more equitably across current and future generations.

The Government borrowed in the 1980s to build the first MRT lines. Statutory boards and government-owned companies have also financed many major infrastructure projects through borrowing.

Changi's T5 - being built as part of the Changi East development that includes other aviation-related facilities - is slated to open around 2030.

The first stretch of the Cross Island Line will be ready by 2029.

Changi Airport Group will operate T5 and take out loans to fund its share of the cost, Mr Heng said.

The Government, with the President's agreement, will provide a guarantee for the loans to lower financing costs, he added.

Passengers and airlines using Changi Airport have also been paying higher fees since last July to help fund the expansion plans, with the $34 fee to fly out of Changi raised by $13.30, and further hikes planned.

The Government is also studying the feasibility of using government debt as part of the financing mix for long-term infrastructure projects, Mr Heng said.

Singapore's ability to plan for the long term is its strategic advantage, but this can be realised only with a sound fiscal plan, he said, adding: "While our nation's needs are growing significantly, we must continue to take a disciplined and prudent approach."

He said recurrent social and security spending are "necessary expenditures - to take care of our elderly, give our children a good start in life, and keep Singapore safe and secure for our families".

Many countries fund these areas through borrowing, but such borrowing shifts the burden of paying for today's needs onto future generations. "That is not the Singapore way," he noted.

Mr Heng said a fairer and more robust approach is to meet recurrent spending with recurrent revenues, which is why Singapore must continually review its tax system to ensure its resilience.

The GST will be raised by two percentage points some time between 2021 and 2025. Mr Heng noted that when this happens, "we will ensure that our overall system of taxes and transfers remains fair and progressive".

The Government will continue to absorb GST on publicly subsidised education and healthcare, provide more help to lower-income households and the elderly, and cushion the impact of the increase for a period through an offset package that will benefit lower-and middle-income households more. Details will come later.

Mr Heng noted that Singapore's main indirect tax, the GST, is not high by international standards, even after it will be raised to 9 per cent. The Organisation for Economic Cooperation and Development average is 19 per cent.