Budget 2019 is a reflection of the "Singapore way" of governance.
This was the essence of Finance Minister Heng Swee Keat's round up speech to the Budget 2019 debate, on Feb. 28. in Parliament.
Heng outlined the "Singapore way" of governing to be as such:
- A people-centred approach to plans, strategies and programmes;
- Planning for the long-term while having an adaptive approach to changing circumstances and needs;
- Working together in partnership.
Heng said these principles which were behind Budget 2019, adding that they informed how the government spent and funded spending.
Heng elaborated on the "Singapore Way" budget by breaking it down into three main areas -- how the government implemented its taxes, handled its surpluses and reserves, and borrowed.
How taxes are implemented
The GST hike
On this issue, Heng noted a suggestion by MP Foo Mee Har to postpone the GST hike for as long as possible.
Foo's rationale provided was that the funds set aside for packages, such as the Merdeka Generation Package (MGP) and the planned borrowing for future infrastructure expenditure, could provide enough fiscal space to postpone the need for a GST increase.
In response to this, Heng stated that:
- GST needed to be increased to support increased spending in areas such as healthcare, pre-school education and security.
- Such spending was on a “completely different scale” compared to one-off cohort spending like the MGP.
Heng added that the government had yet to decide on when the GST increase should be implemented, noting that the government would exercise care when doing so.
Heng also responded to a suggestion by MP Saktiandi Supaat for a tiered GST rate to reduce the tax burden for the lower income families, by giving three reasons as to why it was inefficient.
- The difficulty in drawing a line on which goods were considered a necessity, such as the difficulty in deciding if white bread, wholemeal bread, or bread sold at artisan bakeries would be considered necessities.
- Better-off households spending more in absolute terms stood to benefit more from a reduced GST rate.
- The implementation of the tiered GST in many countries raised administrative and compliance costs, which were ultimately passed on to consumers.
Heng explained that as such, Singapore’s GST Voucher scheme provided more help to lower-income households and seniors, and was more targeted with those who need help most getting it directly.
In response to MP Cheryl Chan's call for a wealth tax to be introduced to address growing wealth inequality, Heng said Singapore took the approach of taxing fixed assets.
This was because the majority of Singapore's household wealth is held in the form of housing assets.
Heng explained this taxation approach:
- Stamp Duty and Property Tax on properties have both been made more progressive over the years;
- Owner-occupied properties enjoying a concessionary property tax rate, which rises the more expensive the home is;
- Higher property tax rates for residential properties that have been left vacant or rented out by their owners;
- The introduction of a new tier for the Buyer's Stamp Duty in Budget 2018, for properties in excess of a million dollars.
Turning to concerns raised by MP Dennis Tan on whether better environment resilience was worth the increased business costs, Heng replied that beyond being a simple trade-off, the issue was essentially about taking a longer-term approach towards the issue of vehicular emissions.
Laying out the harmful effects of diesel on human health, with its increased risks of lung cancer and respiratory infection, Heng stated that it was necessary to send a price signal in encouraging diesel users to turn to cleaner and more sustainable alternatives.
On MP Gan Thiam Poh's suggestion that vehicles and machinery with no non-diesel alternatives be excluded from the tax, Heng stated that it went against the government's intention of nudging businesses that are heavy diesel users towards better efficiency.
As a potential solution, Heng said:
"For example, companies can consider adopting consolidated logistics and use better routing applications to optimise their deliveries."
In the meantime, however, the government would help companies with the costs via a transitionary offset package provided until 2022.
Taxi drivers would also receive help in the form of all taxi companies having since pledged to pass their Special Tax reductions onto the drivers, and incentives in switching to petrol hybrid taxis.
Handling surpluses and reserves
Heng highlighted surpluses were not a given due to the difficulties of economic forecasting.
Heng made his point by rebutting WP MP Pritam Singh's suggestion that the surpluses were the result of Temasek being introduced into the Net Investment Returns Contribution (NIRC) framework.
Rather, Heng stated, the surpluses were the result of:
"The volatilities and uncertainties in revenues and expenditures...account for most of this surplus."
Heng cited the examples of surprise surpluses that came from areas such as Stamp Duty collections performing better than usual (because of the property market), and the two-year suspension of the KL-Singapore High Speed Rail Project.
Heng added that it appeared Pritam preferred to look backwards to rely on unexpected revenue upsides, which did not sit well with the the government's better approach of looking forward and planning ahead.
As for how the government intended to use the surpluses, as questioned by MP Liang Eng Hwa, here's what Heng said:
- Surpluses do not "disappear" but rather, become part of the reserves that are invested to generate NIRC.
- Surpluses are also stored in the event of business cycle downturns, so that they might be used as support for targeted segments.
- Heng added that in the event of major crises, the Past Reserves can also be utilised, such as in the case of Global Financial Crisis in 2008, where three-quarters of the S$20.5 billion Resilience Package was funded by accumulated savings and the remainder by the Past Reserves.
- The government should also not have the mentality of spending everything before the end of the government's term, but rather have financial resources on hand for long-term planning.
Heng then segued into his next point about reserves
Heng stressed that the reserves were especially crucial since:
"Our reserves are our strategic asset. We are a small country, exposed to global forces beyond our control. Our reserves will allow us to tide over a crisis, without being reliant on others."
Additionally, with an economy worth nearly S$500 billion a year and devoid of natural resources, it was crucial that Singapore have a rainy-day fund, to protect people's livelihoods and futures.
To make his case in point, Heng brought up his tenure running the Monetary Authority of Singapore with ESM Goh Chok Tong as its Chairman, during the Global Financial Crisis.
"...some of the biggest financial institutions, were taken completely by surprise by the speed and scale of the turn in the markets and the global economy. Many things could have gone wrong. We not only rode through the crisis well, but emerged stronger. Having our reserves as a strategic asset played a key role in this."
Heng also highlighted that the NIRC was also the largest contributor of revenues, without which taxes such as the personal income tax or GST would have to be doubled to even attempt raising the same amount.
Heng stated this was why discipline in using returns was key, elaborating:
"Today, we take up to 50% of the expected returns for spending, and plough back at least 50% to grow the principal and generate more returns."
Why the government borrows
On this matter, Heng stated that the government was looking at engaging in significant investments in Singapore's infrastructure to improve connectivity and create new opportunities for the future.
Heng explained that because such projects had lumpy upfront costs with multigenerational benefits:
"borrowing can be a fair and efficient tool to finance and spread out these costs, instead of raising taxes sharply to fund them."
On Pritam's question on Feb. 26 of how borrowing would impact revenues available for future recurrent spending, Heng replied that borrowing did not create new revenues for recurrent spending.
Rather, borrowing simply converted a concentrated amount of spending in a few years into smoother means of loan repayment with interest.
Heng also stressed that borrowing was simply a financing tool, to be used sustainably in helping build a better future for Singapore.
If anything, Heng added:
"...it is irresponsible for a Government to borrow to spend on recurrent needs such as healthcare and security. Such borrowing shifts the burden of paying for today’s needs onto future generations."
Top image from gov.sg YouTube