Budget 2018 was passed in Parliament on Thursday (Mar 1), with 89 Members of Parliament (MPs) voting for it, and eight MPs from the Workers’ Party (WP) voting against it. WP chief Low Thia Khiang was not present for the vote.
In his speech wrapping up the Budget debate in Parliament, Finance Minister Heng Swee Keat addressed issues and concerns on the Budget raised by MPs over two and a half days.
Noting that some had asked if the Government’s increased spending for the future could be funded with a "windfall surplus", like the S$9.6 billion one in FY2017, he said the Government's plans to secure Singapore's future cannot be funded on the basis of "episodic windfalls".
He pointed out that the FY2017 surplus was largely due to “one-off, exceptional factors” that the Government does not expect to occur every year.
“If we are fortunate to have these occasional windfalls, we should do the responsible thing and save most of it for future needs,” he said. “We should not plan for our future in the hope that markets will always continue to move in Singapore’s favour.”
He explained that this is why the bulk of the FY2017 surplus will be reserved for future needs like the MRT development plans and ElderShield subsidies.
THREE WAYS OF FINANCING SINGAPORE’S NEEDS
In his speech, Mr Heng outlined the Government’s approach to financing Singapore’s needs, pointing out three ways of doing so: Raising taxes, borrowing or drawing on reserves.
"Each of these methods serves a purpose; each involves risks and trade-offs," he said. "We have decided on our approach only after deep and serious study – firstly of our spending needs, followed by the options available to fund them."
In explaining why the Government has decided to raise taxes, Mr Heng stressed that this is not an option that has been taken lightly.
“Not just because raising taxes is unpopular, but because the Government should as far as possible avoid taking people’s hard-earned money and deciding on their behalf how the money should be spent, unless it has to do so for critical social, economic or national needs,” he said.
He added that the Government should not shy away from addressing the need for taxes, where it sees areas of collective need that can be better met by Government provision. This, he said, includes areas like healthcare, supporting the elderly and retirees, investing in people through preschools and SkillsFuture, and strengthening Singapore’s security.
“Many members in this House have fought for the Government to do more in these areas,” he said. “But we should also consider the costs and how to fund them.
“Looking ahead, we have needs that occur year after year. The responsible way for us to fund such spending is to raise taxes.”
Mr Heng also noted that borrowing – which he said is the second way of financing Singapore’s needs – is a “reasonable option for major long-lived capital investments with high capital expenses”. This is because the benefits of these assets are enjoyed mainly by future generations.
He explained that this is an option the Government is pursuing for major long-term projects like Changi Terminal 5.
But Mr Heng stressed that it is important to live within our means, and not over-borrow and over-burden future generations with unsustainable debt.
“The stark difference is that unlike some other countries, we borrow not to spend on recurrent needs like healthcare, education and security, but to invest in long-term infrastructure,” he said. “Such long-term investments will continue to yield economic benefits and position Singapore well far into the future.”
He added that the Government is “strategically leveraging” the strength of its financial position to optimise its borrowing. To reduce financing costs, Mr Heng said the Government is considering the provision of guarantees to back borrowings by statutory boards and Government-owned companies.
“This way, we tap on the Government’s triple-A credit rating and the strength of our reserves without directly using it,” he said. “This is how we are helping the current and future generations.”
But he stressed that the Government is only able to do so because it has planned its finances soundly and accumulated strong reserves. “We are one of only 11 countries in the world, and the only Asian country, who have a triple-A credit rating, which represents the solid foundation and safety net that our forefathers left for us,” he said.
“We do not and cannot take our credit rating for granted.”
AMENDING RULES ON LAND SALES, NIRC CAP AS FIRST RESORT IS “ILL-DISCIPLINED AND UNWISE”
Mr Heng also explained the Government’s rationale for protecting the reserves.
“Our reserves have been painstakingly built up over half a century by our pioneers and previous generations,” he said. “We have inherited this nest egg and must act as responsible stewards.”
He explained Singapore has, over the years, “carefully deliberated” and developed a comprehensive set of rules to safeguard and manage the use of its reserves.
He pointed out that contributions from reserves are already the largest contributor to revenues. “If we did not introduce the Net Investment Returns (NIR) framework, we would have had to double our personal income tax collection or our GST collection to raise the same amount of revenues,” he said.
“Yet, some have suggested increasing the Net Investment Returns Contribution (NIRC) spending cap from the current 50 per cent to 60 per cent, or using a portion of land sale proceeds for recurrent social spending.
“All these sound very tempting – it seems relatively painless to do so compared to raising taxes,” he added. “But is it the right thing to do? No.”
Under the NIR framework, the Government can spend up to half of the expected long-term investment returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC.
Stressing the importance of not giving into the temptation to “chip away at our strategic national asset”, Mr Heng noted that rules on land sales and the 50 per cent NIRC cap were deliberately introduced, “so we do not succumb to the temptation to draw more from our reserves to fund current expenditure or eat into the principal sum.”
“To amend the rules as a first resort is ill-disciplined and unwise. This would defeat the purpose of enshrining the 50 per cent cap in our Constitution,” he said. “Moreover, if as soon as we need more money, the first thing we do is to relax the rules, that is the surest way to change Singapore’s basic orientation – from saving and building for the future, to living for today and letting tomorrow look after itself.”
He said that the constitutional arrangements for the use of reserves represent the discipline the Government has set for itself. “As the Prime Minister said in 2008, it is about “our commitment to continue growing our reserves, while allowing the Government to tap on part of the investment income for current spending”,” he explained. “Deviating from these rules in a sustained way will put this critical balance at risk, and may compromise the long-run health of our reserves.
“Be it NIRC or land sale proceeds, we must uphold the discipline in tapping on our reserves in a sustainable way.”
Prime Minister Lee Hsien Loong said in a Facebook post on Thursday night that Budget 2018 laid out the Government's mid- to long-term plans clearly.
"Raising taxes is never easy, but we are announcing this raise well in advance to give everyone ample notice of what’s to come," he wrote.