Singapore Budget 2019: Borrowings to partly fund cost of major infrastructure projects like Changi T5 and Cross Island Line

Changi's Terminal 5 - which is being built as part of the Changi East development (above) that also includes other aviation-related facilities - is slated to open around 2030, while the first stretch of the Cross Island Line will be ready by 2029.
Changi's Terminal 5 - which is being built as part of the Changi East development (above) that also includes other aviation-related facilities - is slated to open around 2030, while the first stretch of the Cross Island Line will be ready by 2029.PHOTO: ST FILE

SINGAPORE - The cost of huge infrastructure projects like Changi East and the Cross Island Line will be partly funded through borrowing.

The same strategy will also apply to other infrastructure investments such as projects 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 for recurrent expenditures in areas such as healthcare, pre-school education and security.

Spending in these areas will be funded by recurrent revenues such as the goods and services tax (GST).

Mr Heng added that when borrowing for large infrastructure investments is done in a responsible and sustainable manner, it helps instil financial discipline and distribute the share of funding more equitably across current and future generations.

He also noted that the Government had 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 Terminal 5 (T5) - which is being built as part of the Changi East development that also includes other aviation-related facilities - is slated to open around 2030, while 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 concurrence, 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.

The $34 fee to fly out of Changi was raised by $13.30, with 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 noted that 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 have taken the easier route by funding these areas through borrowing but "we must not do this, as such borrowing shifts the burden of paying for today's needs onto future generations. That is not the Singapore way."

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.

On that note, Mr Heng said he will tighten the GST import relief for travellers starting on Feb 19, given rising international travel.

People who spend fewer than 48 hours outside Singapore can claim GST relief on goods of up to $100 that were purchased overseas, down from $150.

The relief for travellers who spend 48 hours or more outside Singapore will be reduced from $600 to $500.

Drinkers will feel the pinch as well from April 1 when the alcohol duty-free concession will be reduced from three litres to two.

As announced in last year's Budget, 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.

More details will be announced later.

Mr Heng pointed out that Singapore's main indirect tax, the GST, is not high by international standards, even after the planned increase to 9 per cent.

The Organisation for Economic Cooperation and Development (OECD) average is 19 per cent.

He said: "Ultimately, a competitive tax regime helps us to attract and retain investments and talent. These in turn help to bring in good jobs for Singaporeans."

Read Mr Heng's full speech.