subpage banner

Media Articles

Budget planners on fiscal policy, tax and role of reserves

15 Feb 2020

(15 Feb, Business, Pg C2)

Grace Ho Senior Political Correspondent

Each year, during Budget season, there is public debate on the hows and whys of Singapore's fiscal policy. The Straits Times speaks to officers at the Finance Ministry to find out more.

At The Treasury - home to the Ministry of Finance - the coronavirus has been the subject of marathon meetings over the past month, many of which fiscal policy director Peter Lim has been intimately involved in.

He emerged from what one assumes was such a meeting, an hour late for this interview. That same week, Deputy Prime Minister and Minister for Finance Heng Swee Keat would announce that a relief package was in the works, to help the transport and tourism sectors hardest hit by the viral epidemic.

But even before news of the coronavirus broke, the 38-year-old Mr Lim and his colleague - land and infrastructure programmes director Mark Tan, 41 - had been swept up in a whirlwind of 30 pre-Budget consultations with political office-holders, trade associations, economists and the social sector on other issues.

Mr Tan is one of two directors who helmed planning for the Budget statement last year and, before that, in 2016 and 2017.

The talks, which Mr Lim describes as intense, go down to the wire. In some years, the final product is tied up only on Budget Day itself.

Expectations this year have been raised, with talk of an impending general election and last year's Bicentennial Bonus still fresh in Singaporeans' minds.

But Mr Lim stresses that all Budgets are more than one-off "hongbao", or Chinese red packets. The bulk of each Budget is spent on "structural, permanent" support in transport, healthcare and education that all Singaporeans enjoy, he says.

Long-term planning prevents costly remedial action too. He cites the investment in pre-schools and quality education as a critical factor in boosting median wages that elsewhere in the world have remained stagnant.

Even hot-button topics like climate change, Mr Tan points out, have had a fairly long runway. The issue made an appearance in the last three Budgets - from tackling vehicle emissions and carbon tax to coping with rising sea levels.


For some older Singaporeans, the case for tapping more of the nation's reserves goes like this: We worked hard to build the economy, "paid for" its reserves, and hence should reap the benefits.


• 50%

Percentage of expected long-term real rates of return on past reserves that the Government is allowed to spend.



We spread the expenditure burden over a much longer timeframe, instead of concentrating it on one particular cohort.

MR MARK TAN, land and infrastructure programmes director at the Ministry of Finance, on how intergenerational equity plays out in multi-year infrastructure projects like Changi East.


Every small gesture matters, and each of us can make a difference. There's scope to integrate more views in policymaking, including how we debate ideas and policies.

MR PETER LIM, fiscal policy director at the Ministry of Finance.


Mr Lim acknowledges that earlier generations had vastly different educational, employment and wage growth prospects. This is why the Government rolled out the Pioneer and Merdeka Generation packages, enhanced the Central Provident Fund scheme and gave Silver Support cash supplements, he says.

But just as a family has to save for future needs, the Government can spend only up to 50 per cent of the expected long-term real rates of return on past reserves.

In addition, it can draw on past reserves only in very exceptional situations, such as the global financial crisis of 2009. "If you take the full income, then the purchasing power of that income will decrease over time," Mr Lim explains.

The ability to tap 50 per cent of investment returns has enabled the Net Investment Returns Contribution to form the single largest source of revenue, ahead of any tax category. Some have pointed out that raising the 50 per cent cap is hardly financial profligacy, not when a cool sum of $17 billion was chalked up last year.

But Mr Lim sounds a cautionary note, given that countries around the world, including Japan, have not fully aged and will see healthcare costs spike in the coming years.

The Organisation for Economic Cooperation and Development has estimated that by 2030, most advanced economies will see another 1.5 per cent of their gross domestic product go to healthcare costs.

For Mr Tan, the issue of intergenerational equity also plays out in lumpy - involving hefty upfront investments - multi-year infrastructure projects like Changi East, where the future Terminal 5 is being built.

By funding such projects through a mix of savings and borrowing, past, present and future generations and airport users "pay their share", says Mr Tan. "We spread the expenditure burden over a much longer timeframe, instead of concentrating it on one particular cohort."


With economists like Dr Thomas Piketty and United States politicians like Ms Elizabeth Warren promoting a wealth tax, is re-introducing estate duties and capital gains tax in Singapore the socially equitable thing to do?

Mr Lim says the lack of broad-based income growth drives much of the anxiety behind such sentiment, but financial compensation can only do so much in an age of technological disruption. "There is a lot of scope to give people the opportunity to succeed by investing in capabilities and social capital."

He is referring to measures like Workfare, which tops up the salaries of low-income workers, SkillsFuture and school-level interventions that target those who start off disadvantaged in life. "Looking at our overall tax and transfers system, it has become more progressive over the years," he says.

There is also a limit to how much the Government can raise revenue by increasing taxes, adds Mr Tan. "There has already been much public reaction to the GST increase. And if we raise other taxes, like corporate taxes, we may become uncompetitive."

The goods and services tax is set to go up 2 percentage points to 9 per cent between next year and 2025.

While the details of each Budget vary, what remains constant for Mr Tan is the need to balance the needs of different groups as well as today's needs with those of the future.

The ministry is also interested in learning from other countries how to improve the quality of government spending, and to work with the people and business sectors to find out what is happening on the ground.

What excites Mr Lim is the prospect of engaging new partners in areas such as environmental sustainability, recycling and waste management.

"Every small gesture matters, and each of us can make a difference. There's scope to integrate more views in policymaking, including how we debate ideas and policies."