Government spending must be sustainable and not burden future generations

Basant Kapur ("Let Budget surplus fund health insurance", 25 June 2008), argues for health insurance to be subsidised from current budgetary surpluses, and for the Government to finance more of its longer-term development expenditure by borrowing from its reserves so as to free up current revenues for social spending.

Social subsidies should always be evaluated on their merits, and the ability to sustain them without burdening future generations. We should not expand social subsidies simply because we currently have a budget surplus. Spending needs are growing in many areas, including social spending, and we expect the government budget to be tight. Our challenge will be to manage the increase in social spending as our population ages, and focus subsidies on those most in need.

This is particularly important for health care, where adopting the wrong approach on pricing and subsidies will balloon expenditures without significantly improving health outcomes. We should be mindful of the experiences of some developed countries, which spend much larger percentages of their GDP on healthcare, yet with life expectancy and health standards that are no better than Singapore's.

Public spending on healthcare in Singapore is carefully calibrated, so as to provide for the medical needs of our citizens in the best possible way. Our 3M system combines personal savings (Medisave), catastrophic medical insurance (MediShield), and government welfare for the truly needy (Medifund). We continue to review and improve the 3M system as the population's needs change. For example, within Medifund, we now have Medifund Silver to provide means-tested socialised care more generously, with full subsidy in some cases, for the elderly needy.

We have also provided Medisave top-ups (which can be used to pay for MediShield premiums and treatment costs) as and when our fiscal position allows. This year the Government will be providing $226 million in such Medisave top-ups for the elderly. MediShield today covers more than 90% of the working population and almost 80% of the population, and we are extending this coverage through auto-cover for children and youths. Taken together, this is a more focused and sensible approach, and will be far less costly on future generations than an automatic system of subsidised health insurance.

As for funding longer-term development expenditure via borrowing, the Government is already doing so - many public infrastructure projects are financed through a combination of government grants, loans and user fees. The Government is also exploring possible ways to further leverage on our reserves, by drawing a sustainable stream of net investment income from our reserves. However, it would be irresponsible and unfair for the Government to borrow more and leave behind a large bill for successor Governments and future generations to pay through higher taxes.

MS KAREN TAN
DIRECTOR, CORPORATE COMMUNICATIONS MINISTRY OF HEALTH

MS CHIN SAU HO
DIRECTOR, CORPORATE COMMUNICATIONS & SERVICES
MINISTRY OF FINANCE