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Speech by Mr Raymond Lim,Acting 2nd Minister for Finance at the Committee of Supply Debate 2005 in Parliament, 2 March 2005

03 Mar 2005

1. I would like to thank members for their comments and suggestions.

2. The environment in which we conduct fiscal policy has become more challenging. Going forward, our revenue growth will be slower as economic growth moderates. Against that, spending needs will rise, particularly in the areas of healthcare and help for vulnerable workers and the elderly. More than ever, we need to husband our resources carefully and spend prudently. We must continue to:

- establish limits on our spending through budget ceilings;
- maximise discretion;
- ensure value for money; and
- measure performance

Establish Limits through Budget Ceilings

3. I agree with Mr Inderjit Singh that we should have stringent cost control constantly look at ways to keep government lean and trim.

4. Singapore's public spending as a share of GDP is already among the lowest in the world. Our total expenditure is about 17% of GDP, very low compared to 40% in the UK, 54% in France, 50% in Denmark, and 55% in Sweden. Unlike many other countries, we have been able to prevent public spending from spiralling upwards by setting pre-determined caps for the overall government budget. This means establishing limits by setting ministries' budgets as a percentage of GDP.

5. Our operating revenues have averaged about 16-17% of GDP in recent years, and we expect this to be the case over the medium-term. Thus, the limit we have set for total expenditure is also about 17% of GDP. This global limit sets the parameters for establishing the block budget caps of the ministries.

6. We have cut the budget caps of ministries across-the-board like Inderjit said by a total of 5% - 2% in FY04 and a further 3% in FY05. Inderjit brought up a point on why not permanent cut to the budget allocations of ministries. If we were to do that, it means a real cut in ministries spending and an absolute reduction in the amount of resources available to ministries to carry out their functions. Government is a "people-intensive" operation. Costs and wages tend to track GDP growth rather than "last year's costs". Ministries also require some certainty and stability in their budgets to carry out their operations. Commitments in infrastructure, for example, require sustained investments over a few years. If we chop and change budgets from year to year, ministries will not be able to plan properly for the future. It is far better that they have a formula they can work to, but which at the same time makes plain that their budgets will go up and down with the state of the economy. This forces Ministries to optimise their allotted resources.

7. Ultimately, we have to determine the appropriate size of the government in relation to the size of the economy. If the economy is growing, it is not possible for the public sector to shrink in absolute terms because the demands on the public sector will grow as the economy grows. But we will strive to keep the growth of government spending within nominal GDP growth, so that government spending remains bounded at a constant percentage of GDP.

Maximise Discretion

8. If we expect to be firm on budget ceilings, we must provide ministries maximum discretion in how they spend their budgets. This makes sense because ministries know their business far better than MOF can or should. By maximising discretion, we also prompt ministries to seek more innovative and cost-effective ways of achieving their desired outcomes within their budgets.

9. As part of maximising discretion, we have introduced "budget flexibilities" such as:

- Carry-forwards, which allow ministries to carry forward to future years budgets they are entitled to but do not need for that year;
- Advances, which allow ministries to borrow against their future year budgets to meet more urgent current needs; and
- Automatic rollovers, which allow ministries to bring up to 5% of their unspent budgets for that year to the following year.

10. Because of these budget flexibilities, the year-end spending spree that has at times been a problem with ministries has been alleviated. With carry-forwards and automatic rollovers, there is really no need for ministries to rush to spend their monies at the end of the financial year. Nevertheless, we must recognize that expenditures in the last quarter will tend to be higher than in previous quarters. This is a natural outcome of conservative management of expenditure budgets. Where it is necessary to spend on an item, but there is some flexibility on timing, it makes sense for the Ministry to delay its expenditure to later in the year. This is because it can never be sure there will not be some urgent unplanned expenditures in the course of the year. However, as the risk of unexpected events abates towards the end of the financial year, the Ministry can then proceed to spend on items which were not so pressing, but still necessary.

Ensure Value for Money

11. Public expenditure management is not just about getting our allocations right. The Government also has a responsibility to continually seek the best value for taxpayers' monies.

12. This is why we have put in place initiatives such as best-sourcing, the Manpower Management Framework (MMF), the Economy Drive and the Cut Waste Panel. The Prime Minister has already addressed concerns on best-sourcing and the Manpower Management Framework.

Manpower Management Framework (MMF)

13. I agree with Mr Teo Yoke Ngee's concerns. We accept that the ongoing efforts in restructuring, computerisation, streamlining internal processes and best-sourcing in the public sector might lead to redundancies. In these instances, communication with affected staff is of utmost importance. Agencies will continue working closely with the unions, consulting them regularly. They will give early notice to staff affected and, as far as possible, re-deploy them within the agency. Retrenchments should only be a last resort, and affected staff will be released from the service on fair and reasonable terms. In addition, agencies will assist staff in their transition to new jobs, by working with the Workforce Development Agency, for example.

Economy Drive

14. The results from the Economy Drive, now in its second year of implementation, continue to be encouraging. Public agencies have been actively implementing Economy Drive initiatives that will result in savings of nearly half a billion dollars in FY2004.

15. Dr Loo Choon Yong asked if there is a more cost-effective way to carry out government's public relations and exercises (PRE), say, by centralising all such functions under MICA. Our PRE expenditure covers a whole range of things: official visits by foreign dignitaries; conferences, workshops and seminars organised or funded by the public sector; campaigns and public education exercises such as Total Defence; and mass media programmes.

16. The biggest users of our PRE expenditure are MHA, PMO, MTI, MICA, MFA, MCYS and MINDEF. I know that Dr Loo will agree with me that in each of these instances, the demands for government to do more by way of public education and communications have increased. Post September 11, MHA's public education efforts on civil defence and MINDEF's messages on total defence obviously have to be stepped up; diplomacy and trade promotion efforts that come under MFA, MTI and PMO also have to be increased as we build up our relations with other countries. And our public education campaigns under MICA and MCYS are essential for social and community development. There is a wide variety of public communications messages and activities, and it would simply not be practical or wise to bring them all under one agency.

17. Dr Loo also asked about our spending on mass media expenses. Our expenses are actually very low about 7% of public relations expenditure. On the media carrying public education messages for free, we must be realistic and not expect the media to do advertising and promotion for free: the media are doing their part in communicating the messages to the public through their news reports and commentaries.

Cut Waste Panel

18. Mr Inderjit Singh also brought up the Cut Waste Panel and asked if the Panel has sufficient traction. As of 1 Feb 2005, Cut Waste Panel has received more than 3,100 suggestions. It has agreed with the points or feedback raised in 85% of the suggestions relating to wastage in the public sector. Of this 85%, 3% contain new ideas which will be implemented, 24% raise ideas that the public agencies are already doing, and 58% contain feedback which the agencies have already taken into account in current practices and policies.