Short and Long Term Impact of Cancellation of High Speed Rail Project on Singapore Government's Revenues and Expenditures09 Jul 2018
Parliamentary Question by Mr Pritam Singh:
To ask the Minister for Finance with regard to Malaysia's decision to cancel the High Speed Rail (HSR) project (a) what implications does the cancellation have on the Government's decision to raise the Goods and Services Tax (GST) sometime between 2021 and 2025; and (b) what was the Government's total expenditure estimate for the HSR project up to its originally envisaged inauguration around 2026.
Parliamentary Question by Assoc Prof Daniel Goh Pei Siong:
To ask the Minister for Finance what are the short-term and longer-term impact of the suspension of the Kuala Lumpur-Singapore High Speed Rail project on Government revenues and expenditures.
Parliamentary Reply by 2nd Minister for Finance, Mr Lawrence Wong:
1. Mr Pritam Singh and Associate Professor Daniel Goh asked about the financial implications should the High Speed Rail (HSR) project be cancelled or suspended. Let me stress that, as stated by the Minister for Foreign Affairs and the Minister for Transport, Singapore has yet to receive an official response from the Malaysian government on its position on the project. Unless the project is terminated, Singapore has to meet our obligations under the legally binding HSR Bilateral Agreement (BA) and will continue to incur costs in this regard. In the event that Malaysia causes the project to be terminated, Singapore will exercise our rights under the BA and international law, including with respect to compensation for costs.
2. Mr Singh has tried to link the prospect of the HSR project being cancelled to the Government announcement to raise GST. But these are two separate matters. The increase in GST was never meant to finance lumpy investments in infrastructure in the first place. We have already made this clear in the Budget Statement. Let me reiterate the key points.
3. The main drivers for rising government expenditure in recent years, and into the future, are healthcare, security and social spending. Healthcare in particular is expected to rise sharply over the coming years due our rapidly ageing population. These are broad-based, structural increases in recurrent spending. So we have to raise recurrent revenues, of which the planned GST increase is one component, to pay for these ongoing needs year after year. This is the responsible way to ensure that every generation pays for its own spending in a sustainable manner.
4. We take a different approach to financing lumpy investments in infrastructure. First, where possible, we will save ahead and set aside funding for such investments through initiatives like the Changi Airport Development Fund and the Rail Infrastructure Fund. Second, we will finance infrastructure through borrowing by Statutory Boards and Government-owned companies. This will apply to larger investments that can generate economic benefits over many years, like the Changi Terminal 5, the HSR and the JB-Singapore Rapid Transit System Link.
5. Therefore, the underlying rationale for the GST rate increase is not affected by the outcome of the HSR project. Our population will continue to age. More Singaporeans will need support to care for their loved ones. Ultimately, the government will require more recurrent sources of revenue to support these needs.
6. Both Associate Professor Goh and Mr Singh asked about the specific expenditure impact of the HSR project. The Government’s practice is not to reveal the costs of projects until tender processes are over, as doing so could affect the behavior and pricing strategy of bidders. As the Minister for Transport indicated earlier, pending confirmation from Malaysian government about its position on the project, Singapore is continuing to fulfill our obligations under the HSR agreement. Hence it will not be appropriate for me to highlight the figures at this time.
7. The Government’s fiscal approach is sound and sustainable for the long-term. We will continue to manage our public finances prudently, while ensuring we look after the needs of our citizens and our economy in a responsible manner.