Speech excerpts

Extracts from Heng Swee Keat’s Budget 2018 speech: Preparing Singapore for future challenge

This is an extract from the 2018 Budget speech by Finance Minister Heng Swee Keat

While addressing near-term concerns, the Budget must be a strategic and integrated plan to position Singapore for the future, said Mr Heng Swee Keat. ST PHOTO: LIM YAOHUI
While addressing near-term concerns, the Budget must be a strategic and integrated plan to position Singapore for the future, said Mr Heng Swee Keat.
While addressing near-term concerns, the Budget must be a strategic and integrated plan to position Singapore for the future, said Mr Heng Swee Keat. ST PHOTO: LIM YAOHUI
The Waterways Watch Society mobilises volunteers to remove debris from rivers and reservoirs. Local concrete and cement firm Pan-United invested heavily in R&D, creating new products to meet customer needs and cementing its position as a market leade
The Waterways Watch Society mobilises volunteers to remove debris from rivers and reservoirs. PHOTO: MINISTRY OF FINANCE
The Waterways Watch Society mobilises volunteers to remove debris from rivers and reservoirs. Local concrete and cement firm Pan-United invested heavily in R&D, creating new products to meet customer needs and cementing its position as a market leade
Local concrete and cement firm Pan-United >invested heavily in R&D, creating new products to meet customer needs and cementing its position as a market leader. PHOTO: MINISTRY OF FINANCE
The Waterways Watch Society mobilises volunteers to remove debris from rivers and reservoirs. Local concrete and cement firm Pan-United invested heavily in R&D, creating new products to meet customer needs and cementing its position as a market leade
Madam Esah, 61, has stayed relevant at her job in the assembly line at Infineon for 42 years by continuously upgrading her skills. ST PHOTO: ALVIN HO
Retrenched after 17 years as a systems engineer, Mr Alvin Koh took up TeSA’s programme for cyber security and joined ST Electronics as a white hat hacker. PHOTO: MINISTRY OF FINANCE

Riding on the global upturn, Singapore's economy picked up last year.

Our GDP grew by 3.6 per cent, up from 2.4 per cent in 2016. This exceeded the Government's forecast of 1-3 per cent at the start of 2017.

Our productivity growth was 4.5 per cent as measured by real value-added per actual hour worked, and 3.8 per cent as measured by real value-added per worker. These are the highest figures since 2010.

The good productivity growth has enabled firms to pay higher wages while staying competitive.

Real median income for Singapore citizens rose by 5.3 per cent last year.

For 2018, the Ministry of Trade and Industry (MTI) expects growth to be more broad-based across sectors, but moderated from the high of 2017.

The positive near-term outlook shows that the hard work of employers, workers and the Government is paying off. With the support of businesses, Trade Associations and Chambers (TACs) and unions, we have launched 21 of the proposed 23 Industry Transformation Maps (ITMs). The remaining two will be launched by the end of March. The tripartite Future Economy Council (FEC) is now overseeing the implementation of these ITMs and the strategies laid out by the Committee on the Future Economy (CFE).

Though new, the ITMs are helping to prepare our companies for a new phase of growth. For instance, as part of the Precision Engineering ITM, several companies in the sector, like Univac Precision Engineering and Globaltronic Precision, have undertaken projects to make better use of digital technologies in their manufacturing processes. This has enabled them to stay competitive and take advantage of the global economic recovery.

We recognise, however, that some sectors, such as construction and marine and offshore engineering, continue to face headwinds.


While we address such near-term concerns, the Budget must be a strategic and integrated plan to position Singapore for the future. Strategic because it should identify future needs and issues, and propose early preparations to meet them.

And integrated because it should pull together resources and integrate efforts across all stakeholders - workers, businesses, VWOs, Government and our citizens - to build a better Singapore for everyone.

We must prepare for three major shifts in the coming decade.

First is the shift in global economic weight towards Asia. This will be accompanied by broader shifts in the global order.

In recent years, several advanced economies have turned their attention inward in reaction to domestic pressures. For example, Brexit has put a cloud of uncertainty over the UK and its trade with the EU (European Union) and the world. And the US' recent tax changes and review of trade pacts will intensify competition and economic nationalism, fuelling anxieties worldwide.

Meanwhile, Asia will play a larger role in global trade and investment flows. China has set up a regional infrastructure bank and laid out bold plans under the Belt and Road Initiative. India is reforming its economy, easing restrictions on foreign investments. Closer to home, Asean countries are moving up the value chain and their middle-class population is growing rapidly.

All these developments represent significant opportunities for our firms and people. Our economy must be geared to ride on and contribute to Asia's growth.

However, there are also potential threats to the stability and growth of our region.

Tensions on the Korean peninsula and in the South China Sea can dampen investor confidence, while the threat of terrorism across the region remains very real.

The second shift is the emergence of new technologies.

Robotics and digital technologies are changing the way we live, work and play. They have already enabled the shift to Industry 4.0, and the rapid rise of e-commerce and a sharing economy.

These are interacting with traditional businesses in different ways - sometimes as competing substitutes, sometimes as complementary enablers.

New technologies are reshaping the economy and jobs. Firms will compete increasingly not on physical assets, but on intangible assets, such as intellectual property (IP), data, and user networks.

First mover advantage and time to market will be key.

Securing better jobs and higher wages will not just be about how well we did in school, but also how well we continue to learn, relearn, adapt and grow throughout our lives.

The third shift is ageing.

We are well placed in Singapore to make the most of the collective wisdom of our seniors, but we must also be prepared for the challenges of an ageing society. There will be a significant increase in healthcare and social expenditure, placing greater demands on families and the Government.

Also, our resident workforce will shrink, tightening our labour market and slowing economic growth further - unless we remain dynamic in our outlook, are increasingly productive in the way we work and supplement our workforce with a calibrated inflow of workers from abroad.

In addition to an ageing population, there are other forces that can strain our social fabric.

We need to keep a close watch on income inequality and social mobility. We want growth to uplift all Singaporeans and deepen our social compact. That is why we will continue to invest in education and skills upgrading, to give every Singaporean the best chance to realise his or her potential.

We will also promote sports, arts and heritage, and volunteerism and philanthropy, to build common interests and shared activities.

For instance, food delivery firms like Foodpanda, Deliveroo and Uber Eats have allowed our brick-and-mortar restaurants to go beyond their catchment areas and seating capacity.


These three shifts will not operate in isolation, but interact together to affect us in profound ways. Some of these interactions will bring new opportunities. For instance, technology will help our older workers to stay productive, and assist our caregivers to care for seniors.

With many Asian consumers at the frontier of technology adoption, there are also many opportunities for companies to meet the demands of these tech-savvy consumers. But these shifts can also bring new challenges.

The rapid pace of technological change may lead to older workers feeling marginalised.

In some advanced economies, there is rising discontent over globalisation and technological disruptions. And as technology becomes more pervasive, the risk of cyber attacks and online radicalisation will also increase.

Singapore is in a good position to guard against such challenges and capture the opportunities.

Geographically, we are well connected to the world, with flights to over 400 cities and shipping routes to over 600 ports globally.

Within Asia, we have extensive connectivity to over 100 Asian cities by air and more than 250 Asian ports by sea. Digitally, we are connected to the world with over 500 terabits per second of potential capacity. And we will continue to enhance our connectivity by investing in digital infrastructure, as well as land links such as the KL-Singapore High Speed Rail.

As an economy, we are free and open, with strong trade links and free trade agreements with many economies in the region and beyond. As a society, we are multiracial with an international outlook, enabling us to operate in the culturally diverse Asian and global environments. Our people are also well-educated and tech-savvy.

Budget 2018 will build on this strong position.

First, we will develop a more vibrant and innovative economy.

We must anchor Singapore as a Global-Asia node of technology, innovation and enterprise, welcome investments, talent and ideas to Singapore, and be bold in venturing out into new markets.

To do this, we must make innovation pervasive in our economy, develop deep capabilities in our firms and workers, and establish strong partnerships locally and abroad.

The shifts in the global economy and the emergence of new technologies are to our advantage, because they allow us to seize opportunities beyond our borders.

Second, we will build a smart, green and liveable city.

We should take full advantage of the latest technology to improve Singaporeans' quality of life. This is what our Smart Nation movement seeks to achieve. To improve our liveability as a city, we must also enhance our urban sustainability and enable our economy to be more carbon-efficient.

Third, we will continue to foster a caring and cohesive society. This requires our collective effort.

The Government will continue to strengthen our social safety nets and supports, especially in the face of demographic challenges like ageing. We must also remain a society where all of us - as individuals, members of families, and citizens - take pride in caring for ourselves, our children and seniors, and one another.

Finally, we will continue to plan ahead for a fiscally sustainable and secure future. Preparing for the longer-term shifts will require more resources - to take care of our families, keep our people safe, invest in capabilities, and develop new infrastructure. And we must do this amid a period of greater geopolitical uncertainty and increasing tax competition.

It is therefore our duty and responsibility to plan ahead and ensure that we have enough resources to do all that we need to do.


Let me start with building a vibrant and innovative economy.

We must support our firms and workers to overcome near-term challenges, as well as prepare them to capture future opportunities. I will address each of these in turn.

First, overcoming near-term challenges. Though our economy picked up last year, some firms remain concerned about business costs. A key driver of this is wage growth. But wage growth is good for Singaporeans. To sustain wage growth and keep business costs manageable, our firms must continue to improve productivity and achieve quality growth.

We will also strengthen support for our workers. We have been supporting those facing career transitions to stay employed and employable, through the Adapt and Grow initiative.

For example, the Professional Conversion Programmes have helped more than 3,700 mid-career individuals take up new jobs last year. This year, we will strengthen employment support for lower-to middle-income workers in various ways. This includes upgrading the current Work Trial scheme into a Career Trial programme, with higher funding support for workers to try out new careers.


Let me now move on to our longer-term transformation strategies.

To capture future opportunities, our economy must transform in response to the three major shifts I mentioned earlier - the shift in global economic weight to Asia, the emergence of new technologies and our demographic transition. What changes do we have to make?

New technologies mean that the ways in which companies do business, create value and organise themselves will change, and change quickly. Our companies must keep up, and our workers must adapt as the nature of jobs and the skills required evolve.

Asia's growth means new markets, with new needs to be met.

Changing global patterns of production and consumption, together with new technologies, will bring new opportunities, but also greater competition. Our businesses and workers must differentiate themselves, and continue to venture abroad.

And with an ageing population, we need to find ways to reduce manpower demand, while enabling our older workers to continue contributing.

We have made a good start through the ITMs. In the next phase of our ITM journey, we will take a more cluster-based approach - to reap synergies and strengthen linkages across multiple industries and to explore new opportunities.

And we must strengthen the three key enablers that lay the foundation for all the ITMs - innovation, capabilities and partnerships.

First, we must foster pervasive innovation throughout our economy, so that we can make the best use of technology, adapt quickly and create new value to differentiate ourselves.

Second, we must build deep capabilities in our firms and our people, so that we compete not on costs, but on the value and skills we bring.

Third, we must forge strong partnerships both locally and abroad, so that our firms and people can work together to address common challenges and access new opportunities in our region and beyond.

By strengthening these three enablers, we can anchor Singapore as a Global-Asia node of technology, innovation and enterprise.


Let me start with the first enabler - innovation. Supporting firms in their innovation journeys With the rapid pace of change and greater competition, we must make innovation pervasive throughout our economy. Firms in every sector and of every size need to embrace innovation, and make the best use of new technologies as a competitive advantage.

Take Pan-United, a local concrete and cement company. It has invested significantly in R&D, innovating new products to meet customer needs.

For example, it has developed a new type of flexible concrete that can cushion the landing impact of aircraft, reducing wear and tear of airport runways. This concrete complies with the latest specifications set by the US Federal Aviation Administration. Pan-United also has a range of concrete varieties catering to different specifications, including one that shields against proton radiation.

Such product innovations have helped Pan-United expand into regional and global markets.

Pan-United, you might say, is a concrete example of how innovation can help a firm cement its position as a market leader.

This Budget, we will support more firms to innovate across the entire value chain - whether they buy new solutions, build their own, or partner others to co-innovate.

Industry partners, like the Singapore International Chamber of Commerce and the Big Four accounting firms, have given us useful suggestions. We have studied and will implement some of them.

Finally, to help businesses find partners to co-create solutions,we will pilot the Open Innovation Platform this year.

This is a virtual crowdsourcing platform, where companies can list specific challenges that can be addressed by digital solutions.

They will then be matched with info-communications technology (ICT) firms and research institutes to co-develop solutions.

Besides supporting our firms to innovate, we will do more to harness our national research capabilities, to enhance our economic competitiveness.

We have built a strong research and knowledge base in our universities and A*Star institutes, which provides a solid foundation for an innovative economy. To maintain this competitive edge, we have sustained our public sector R&D spending at 1 per cent of GDP annually.

To improve our labour productivity, we will also expand the National Robotics Programme (NRP), to encourage wider use of robotics in the built-environment sector, particularly in construction.

Building deep capabilities Let me move on to the second key enabler - building deep capabilities in our firms and workers.

In particular, capabilities to internationalise, digitalise and be more productive will be critical.

For our firms, we will provide more targeted support to help them build capabilities to meet their needs. Broad-based measures such as the PIC scheme have been useful in kick-starting a wider movement to improve productivity and to innovate. I am heartened that many firms have embarked on this journey. We will now build on this base and take a more targeted approach, to help firms deepen the capabilities they need to continue growing.

As digital technologies transform our economy, all firms must develop digital capabilities.

Besides our firms, we must train our people in digital skills.

Industry partners, like the Association of Small and Medium Enterprises, have brought this up.

Since we launched the TechSkills Accelerator (TeSA) in 2016, over 27,000 training places have been taken up or committed.

Alvin is one of those who took up the training. Retrenched after 17 years as a systems engineer, he took up TeSA's programme for cyber security, which equipped him with the skills needed to join ST Electronics as a white hat hacker - that is, someone who tests ICT systems for security loopholes.

We will expand TeSA into new sectors like manufacturing and professional services, where digital technologies are increasingly important. TeSA will also support more people to learn emerging digital skills, such as in data analytics, artificial intelligence, the Internet of Things and cyber security.

We will set aside an additional $145 million for TeSA over the next three years.

Besides digital capabilities, we must also build deep skills for workers of all ages. There must be depth in whatever we do, because this gives us the foundation to innovate, and the ability to compete.

This is the essence of SkillsFuture. Industry partners have a big role to play here. Ultimately, the capabilities of a firm depend on the capabilities of its people.

I recently visited Infineon, a semiconductor manufacturer, which takes training very seriously.

Infineon plans its employee training and technology adoption in parallel, so that employees acquire relevant skills, and new technologies are used effectively.

I was pleased to meet Madam Esah. Madam Esah started out doing manual work in the assembly line 42 years ago. As Infineon upgraded its production processes, it also redesigned her job, and trained her to use new machines.

When I spoke to Madam Esah, she told me cheerfully: "I'm happy, I'm confident, I can do new things."

Madam Esah's example shows that enterprise capabilities and human capital must be developed in tandem, and be integrated with a company's overall growth strategy.

We will continue to work with industry partners, to help the whole spectrum of our workforce develop deep skills.

This will help our people to stay relevant and develop the cross-cultural skills needed to capture opportunities in the region and beyond.

To plug these gaps quickly, we are piloting the Capability Transfer Programme (CTP), to support the transfer of skills from foreign specialists to Singaporean trainers and trainees.

Forging strong partnerships The third key enabler is to forge strong partnerships. Competition is not the only driving force in our economy. Cooperation is also key.

Where synergies exist, we can achieve more when we work together, and draw on one another's strengths to address common challenges and capture bigger and better opportunities.

We will also strengthen our partnerships with overseas counterparts and anchor Singapore as a Global-Asia node of technology, innovation and enterprise.

This way, our firms and people can remain plugged into the latest developments all over the world, and create new ideas by interacting with people from diverse backgrounds.

In particular, as Asia's growth will raise infrastructure demand, we seek to forge stronger partnerships in infrastructure development and enhance connectivity in the region.

Our Trade Associations and Chambers (TACs) play an important leadership role in forging partnerships and driving industry-level advancements.

Through close interactions with their members, TACs understand their industries' challenges and opportunities better than the Government can.

We have seen various examples of TAC leadership and partnerships, which have helped their members uplift capabilities and overcome resource constraints.

Mr Speaker Sir, ultimately, all our firms and workers face the same major shifts in the global environment, which will bring greater competition and a faster pace of change.

The specific challenges and opportunities will differ from industry to industry, which is why we have taken a sectoral approach for the ITMs.

But the key enablers in every industry and ITM are the same - innovation, capabilities and partnerships.

By fostering pervasive innovation throughout our economy, building deep capabilities in our firms and people, and forging strong partnerships locally and abroad, we can succeed in our economic transformation. We can create and sustain a more vibrant and innovative economy.


Mr Speaker Sir, a strong economy is not an end in itself. It is a means to build a better home and provide a better quality of life for all our people. We will therefore continue to improve our living environment and make Singapore a smart, green and liveable city.

Our Smart Nation movement aims to make the best use of these new technologies to improve our city, uplift our quality of life, enhance our economic competitiveness, and promote social inclusion.

This transformation will require a national effort by the Government, together with the private and people sectors. The Government is embarking on several strategic national projects to lay the foundation for Smart Nation.

Besides building a Smart Nation, we are also collaborating with academics and corporates in research and innovation, to take Singapore's sustainable development story to the next level.

One of the strategic domains in our Research, Innovation and Enterprise (RIE) 2020 plan is Urban Solutions and Sustainability.

To improve our living environment, we must also address one of the most pressing challenges the world faces - climate change.

Climate change is more than just record-breaking temperatures, dry weather or more intense rain.

As a low-lying island, Singapore is particularly vulnerable to rising sea levels. This is why the Government has invested significantly to improve our infrastructure, including protecting our coasts and critical assets, building a weather-resilient water supply and redesigning our flood management system.

We must play our part to address the underlying cause of climate change - to make Singapore a more liveable and sustainable city, and as a responsible member of the international community.

Over the years, we have made various efforts to manage our greenhouse gas emissions.

The Energy Conservation Act was enhanced last year to improve the energy efficiency of our industries. We are investing in public transport to make Singapore car-lite, and green-certified buildings have become a hallmark of our urban landscape.

Our early measures to be a green city have shown results.

Singapore produces less carbon emissions per dollar of GDP than most countries. We intend to further reduce our emissions intensity, to make a bigger effort to combat climate change.

To encourage companies to further reduce emissions, I announced last year that we intend to implement a carbon tax from 2019.

I will proceed with a carbon tax on all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year.


Ultimately, measures like the carbon tax, along with our R&D programmes and Smart Nation investments, are to make Singapore a more liveable and sustainable city.

In this effort, everyone has a role to play.

I am heartened to see various community efforts in this area.

For example, the Community in Bloom movement has brought together 36,000 gardening enthusiasts to cultivate more than 1,300 gardens all over Singapore, beautifying our landscape and fostering community spirit.

And the Kayak River Clean-Up Programme, run by the non-profit Waterways Watch Society, brings volunteers together to remove debris from our rivers and reservoirs while raising environmental awareness.

In ways big and small, we can all contribute to building a smarter, greener and more liveable city for all Singaporeans to enjoy.

Mr Speaker Sir, I earlier spoke about how we will grow our economy and improve our city.

What ultimately matters is having a united people with a common purpose - to build the kind of society we want to live in and pass on to our children to improve.

When I first entered politics, one of my first projects was Our Singapore Conversation. It gave me and my colleagues a unique opportunity to converse with Singaporeans about their aspirations for themselves and for Singapore.

One of the things that struck me was the deep sense of responsibility that Singaporeans felt and shared - a responsibility towards the future of their family, community and country.

As Singapore undergoes demographic and societal changes that place greater demands on families, the community and the Government, we must face these changes together, and respond collectively as one.

Over the past decade, the Government has increased support for our citizens, providing greater assurance through schemes like MediShield Life and the Pioneer Generation Package, while giving extra help to those with less through Workfare and Silver Support. The Government will continue to strengthen social safety nets for those in need.

At the same time, individuals, families and the community play an important role in looking out for and supporting one another.

This is why we launched the SG Cares movement.

Budget 2018 will build on the SG Cares movement in three ways.

First, we will support individuals and families to better prepare for the future and care for one another.

Second, we will strengthen partnerships between the Government and the community to support our seniors and those in need.

And third, we will encourage a spirit of giving in our people. SUPPORTING OUR SENIORS I just spoke about how the Government will support our people to prepare for their future and care for one another. Let me now speak about how we will strengthen the Government's partnership with the community to better care for our seniors and those in need.

Our community partners play an important role in this.

Being on the ground, they are more attuned to the specific needs of local communities, and can respond more nimbly and quickly.

At the same time, the efforts of the Government and our community partners need to be well coordinated. Our "many helping hands" have to work "hand in hand".

In 2016, I announced the pilot of the Community Networks for Seniors (CNS). CNS brings together government agencies and community partners to do ABC.

A is for Active Ageing, to encourage seniors to remain active and stay healthy.

B is for Befriending, to link up lonely seniors with new friends.

And C is for Care, for frail and vulnerable seniors.

The CNS pilot also showed us how we can streamline and improve the delivery of services to our seniors. Social and healthcare needs are closely inter-related and both have an impact on the well-being of our seniors. To enable these services to be planned and delivered holistically, we will consolidate social and health-related services for seniors under the Ministry of Health (MOH).

Besides improving support for our seniors, we will also improve the delivery of social services to other groups in society.

Over the next five years, we will strengthen the role and capabilities of our Social Service Offices (SSOs) to better coordinate the efforts of government agencies, VWOs and community partners in providing more holistic and citizen-centred support to those in need.

Our SSOs will work with these partners to harness and optimise community resources, and identify areas where volunteers can complement service delivery.

Even as we strengthen support for our seniors and the vulnerable, at the core of a caring and cohesive society are people who have the heart to give back to the community and make a difference to the lives of others.

Take Madam Patma, for example.

Madam Patma has been a member of the Choa Chu Kang Residents' Committee for almost two decades. She also volunteers as a befriender with Fei Yue Community Services. Madam Patma looks out for her neighbours, cares for sick and lonely seniors, and organises activities that bring the community together. Many of her neighbours look forward to the delicious home-cooked food she brings to the Cosy Corner at her HDB block. In the process of helping others, Madam Patma has found a stronger sense of fulfilment and purpose in life.

To foster this spirit of giving in our people, we will enhance support for measures that encourage everyone to contribute to the community.

At the same time, we will encourage corporates to support their staff to volunteer or donate.


For this decade, from 2011 to 2020, we are on a sound fiscal footing. That is because we planned ahead early, and made necessary moves well before the decade began.

We raised GST from 5 per cent to 7 per cent as early as 2007, and introduced the Net Investment Returns (NIR) Framework in 2008.

These changes allowed us to enhance our healthcare, transport and social support systems, in the first half of the decade, from 2011 to 2015. During this period, we introduced MediShield Life and the Pioneer Generation Package, and enhanced Workfare.

In 2015, we made further revenue moves to include Temasek in the NIR framework, and raise personal income tax rates for the top income brackets. These changes enabled us to sustain our spending for the second half of the decade, from 2016 to 2020. All in all, we were able to fund a significant increase in overall government expenditures from $55 billion in FY2011 to an estimated $89.1 billion in FY2018.

As the Government has stated before, we have ensured that we have sufficient resources to meet our spending needs till 2020.

This is a result of careful and prudent planning.


But in the next decade, between 2021 and 2030, if we do not take measures early, we will not have enough revenues to meet our growing needs.

We expect our spending needs to continue growing across all sectors, with some rising faster and more than others. Let me highlight a few.

One key area of expenditure growth will be healthcare.

Since the start of this decade, we have more than doubled our healthcare spending, from $3.9 billion in FY2011 to an estimated $10.2 billion in FY2018. This increase went into building and operating more hospitals and other healthcare facilities, and enhancing healthcare subsidies. In the coming decade, with an ageing population and an increasing chronic disease burden, the demands on families and the Government will rise. We will need to spend even more on healthcare.

Today, the average annual government healthcare subsidies received by an elderly person is more than six times that of a younger person, or about $4,500 more.

By 2030, the total number of elderly will increase by about 450,000, to 900,000.

We will have to build new healthcare capacity to meet the rising demand, and also invest in new medical technologies to improve care quality.

Within the next five years, we will build six more general and community hospitals, four new polyclinics, and more nursing homes and eldercare centres across the island.

All in all, we expect our average annual healthcare spending to rise from 2.2 per cent of GDP today to almost 3 per cent of GDP over the next decade. This is an increase of nearly 0.8 percentage point of GDP, or about $3.6 billion in today's dollars. Within the next decade, healthcare spending is expected to overtake education.

The Government will do its part to spend wisely and ensure greater value for money in our healthcare spending. Everyone has a role to play too, by taking care of our health, and saving up for our own and our families' healthcare needs.

Another key area of expenditure increase will be infrastructure.

We have increased our infrastructure spending from $8.5 billion in FY2011 to an estimated $20 billion in FY2018.

We are building and upgrading flats, expanding and maintaining our rail and bus networks, and keeping public transport fares low for Singaporeans.

Over the next five years, the annual subsidies for keeping our buses and trains running will be comparable to the amount we spend on pre-employment training in polytechnics and ITE. This does not even include the cost of building public transport infrastructure.

Over the next decade, we will need to spend more to develop new infrastructure:

• We will expand our rail network by over 100km;

• Redevelop different parts of Singapore - Jurong Lake District, Punggol Digital District and Woodlands North Coast; and

• Rejuvenate our ageing infrastructure such as water pipes, and HDB flats and lifts.

• We will also build Changi Airport Terminal 5 (Changi T5), Tuas Port and the KL-Singapore High Speed Rail so as to ready ourselves for long-term economic trends.

These are massive investments to anchor Singapore as the centre for economic activity in the region, create jobs, enhance liveability and serve as a foundation for future growth. As my colleague, the Minister for National Development, has said: "We are not done building Singapore yet."

Third, we will also have to invest more in security to keep Singapore safe. The terrorism threat to Singapore is at its highest in recent years. The range of threats we face is also wider, from major cyber attacks to online self-radicalisation.

To counter these threats, we will need to:

• Enhance the operational preparedness of our officers;

• Leverage technologies to enhance our response; and

• Partner the community, so that we are all well equipped to respond in emergencies.

Besides healthcare, infrastructure and security, we will also have to sustain our investments in education to give our young a good start.

Even though our student cohorts are falling, we are spending more per child, and dedicating more resources to help everyone reach his or her potential.


Our fundamental strategy is to grow our economy. With a strong economy, we will have more resources with which we can meet the needs and aspirations of our people. The work of the FEC and the strategies I laid out earlier are therefore critical.

At the same time, we must continue to manage our expenditure growth carefully and get the best value for every dollar we spend.

At 19 per cent of GDP, our estimated overall government expenditure in FY2018 is leaner than most developed economies.

For our infrastructure investments, the key challenge is that certain expenditures can be very lumpy, with hefty upfront investments. Yet, the benefits are enjoyed many years down the road.

To address this challenge, we will do two things. First, where possible, we will save ahead in preparation for these lumpy investments.

This will help to reduce the burden in future years.

In 2015, we set up the Changi Airport Development Fund to start saving for Changi T5. We now have $4 billion in the fund.

This year, we will set up a new Rail Infrastructure Fund to save up for major rail lines ahead.

We will start with an injection of $5 billion in FY2018. This can be topped up in future years when our fiscal position allows.

Second, we are looking at borrowing by statutory boards and Government-owned companies which build infrastructure.

This will help spread the cost of certain larger investments over more years.

These infrastructure projects, once completed, will generate economic returns over many years.

The borrowing arrangements for these projects will hence help distribute the share of funding more equitably across generations.

For example, the National Environment Agency will look at borrowing to finance the upcoming Integrated Waste Management Facility. LTA will also look at borrowing for upcoming projects such as the KL-Singapore High Speed Rail and the JB-Singapore Rapid Transit System Link. The Changi Airport Group, too, will look at borrowing for Changi T5.

Besides spreading out the costs to better match when the benefits of the investments accrue, such long-term borrowings will also help to develop our bond market.

To help lower the financing cost, the Government will consider providing guarantees for some of these long-term borrowings for critical national infrastructure.

A government guarantee will enhance the confidence of creditors.

This is another way to use the strength of our reserves to back our infrastructure projects, without directly drawing on the reserves. The reserves can then remain invested to generate returns. We are studying this carefully and discussing it with the President and the Council of Presidential Advisers.

Through both saving ahead and borrowing, we expect to smooth out and be able to meet our major infrastructure needs.


For healthcare, security and other social spending, the increases will be recurrent, will benefit Singaporeans broadly and will directly benefit current generations.

The responsible way to pay for them is through taxation so that every generation pays its share.

We should not borrow for recurrent spending, because that will put the burden of recurrent spending on future generations.

Therefore, to support these recurrent needs, the Government plans to raise GST by two percentage points, from 7 per cent to 9 per cent, sometime in the period from 2021 to 2025. The exact timing will depend on the state of the economy, how much our expenditures grow and how buoyant our existing taxes are. But I expect that we will need to do so earlier rather than later in the period.

This GST increase is necessary because even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap.

This boost in revenues will be vital in closing this gap. We will continue to manage our expenditures and the need for other future revenue measures carefully, and plan ahead early for our overall revenue and expenditure needs.

We will implement the GST increase in a progressive manner, as we have always done in the past.


When we mention the need to raise taxes, a natural question is: Why don't we tap more on our reserves instead? Indeed, we have been doing so over the last decade.

I mentioned earlier that we introduced the NIR framework in 2008. This started out with the reserves managed by GIC and Monetary Authority of Singapore (MAS).

Temasek was then included in the framework in 2015.

Through this framework, we now spend on the basis of total returns on our reserves, including both realised and unrealised capital gains.

Over the last 10 years since the implementation of the NIR framework, the NIR contribution (NIRC) has more than doubled from $7 billion in FY2009 to an estimated $15.9 billion in FY2018.

The NIRC is now the largest contributor to our revenues, larger than any single tax, including GST, and corporate and personal income taxes.We are able to supplement our revenues with the NIRC today because our predecessors judiciously set aside the savings from the strong growth during Singapore's earlier stage of economic development.

Now that our economy is maturing, and our population is ageing, we must husband this resource carefully, prudently and responsibly.

Currently, we spend up to 50 per cent of expected net investment returns, and keep the remainder in our reserves. This allows our reserves to grow with our economy.

If instead, we used 100 per cent of the returns, the principal sum of reserves will stagnate over time, and the NIRC as a share of GDP will consequently fall as our economy grows. The impact of this will not be trivial, given that our Budget now relies on the NIRC as our largest source of revenue.

In a more extreme scenario, if we spent more than our investment returns, we will eat into our nest egg. Doing so would mean that our reserves will shrink over time, generating a progressively smaller stream of income in the years that follow, till eventually our reserves are exhausted.

As a small and open economy, we will always be vulnerable to fluctuations in the global economy and financial markets. We can never predict where or when the next crisis will come. But we know, when the next crisis hits, we will be able to weather the storm because we have our reserves.


I will now introduce other changes to make our tax system more progressive, fair and resilient.

First, I will enhance progressivity. One common suggestion is to tax the rich and higher income more, or introduce wealth taxes like a capital gains tax.

This reflects a desire for a progressive system, with those with more contributing back to society.

This is fair, and is precisely what we have done over the years.

We increased personal income tax rates for our top income brackets in 2015, and imposed a cap on personal income tax reliefs in 2016.

We also introduced a progressive property tax system for residential properties in 2010, and made it more progressive in 2013.

This year, I will raise the top marginal Buyer's Stamp Duty (BSD) rate for residential properties from 3 per cent to 4 per cent.

Next, to make sure that our tax system remains fair and resilient in a digital economy, I will introduce GST on imported services with effect from Jan 1, 2020.

Today, services such as consultancy and marketing purchased from overseas suppliers are not subject to GST. Local consumers also do not pay GST when they download apps and music from overseas. This change will ensure that imported and local services are accorded the same treatment.

For the import of goods, there are international discussions on how GST can apply.

We will review this before deciding on the measure to take.

Budget 2018 is about laying the foundation for our nation's development in the next decade.

It seeks to support our transformation into a vibrant and innovative economy, by fostering pervasive innovation, building deep capabilities, and forging strong partnerships. It seeks to build a smart, green and liveable city, so that Singaporeans can enjoy a high-quality living environment.

It also seeks to further our collective efforts to foster a caring and cohesive society, by harnessing the sense of community and the spirit of giving in our people.

And finally, it lays out plans for our expenditures and revenues in the next decade, to ensure a fiscally sustainable and secure future for Singapore.

At its heart, the Budget is a strategic and integrated financial plan to position Singapore for the future.

It is a means for us to achieve the aspirations of our people, a road map for us to achieve our vision for Singapore.

Our path ahead will not be easy, especially in the light of the major shifts happening around us - a changing global economic landscape, the emergence of new technologies and our own demographic transition.

But we have confronted graver challenges in the past, and have always been able to overcome them, using our wits and relying on the solidarity of our people.

We are now in a much stronger position than we have been in the past. We have a diversified and well-connected economy, a highly motivated and educated workforce, a cohesive and resilient society. Together, we will marshal our resources and chart our course - to come together, to work together, to make our aspirations today the reality tomorrow.

This way, we can build a better Singapore for everyone.

Together, we can make a better future for all of us.

Mr Speaker Sir, I beg to move.

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A version of this article appeared in the print edition of The Straits Times on February 20, 2018, with the headline Extracts from Heng Swee Keat’s Budget 2018 speech: Preparing Singapore for future challenge. Subscribe