MOF Committee of Supply Debate 2017 by Senior Minister of State for Finance Ms Indranee Rajah

A. Accountability

Office of Budgetary Responsibility

A1         Madam Chairperson, Mr Low Thia Khiang suggested that we set up an independent Office for Budget Responsibility (OBR), such as those in other countries, and he referred specifically to the OBR in the UK.

A2         While it is always useful to look at what other countries do, it is important to remember that what is done in one country is not always necessary or relevant to another. In determining whether to adopt institutions similar to those elsewhere, it is also important to understand the context in which those institutions were established.

A3         The OBR was set up in the UK in 2010. And the context in which it was set up was as follows:

a.    The new Conservative-Liberal Democrat coalition government had just taken over from the Labour government after the general election. They were burdened by a huge deficit inherited from the previous government. There was little confidence in government economic and fiscal planning.

b.    This can be seen from the speech of the then Chancellor, Mr George Osborne, when he announced the setting up of the OBR. This is what he said:

c.    “So today, less than a week after taking office, I want to explain some of the early arrangements for dealing with the fiscal crisis left by the last Government.

First, let me just tell you some of the stark facts.

Last year, our budget deficit was the largest ever it has been in our peacetime history.

This year, it is set to be among the largest in the world.

According to the IMF and the European Commission, it will be the largest in the G7 and the largest in the European Union.

This is the legacy of thirteen years of fiscal irresponsibility.”

Mr Osborne went on to highlight the urgent need to tackle the deficit and said that the first part of their approach was to boost credibility and confidence in the UK’s fiscal framework.

In that context, he said the UK urgently needed a full, independent assessment of how bad their problem really was.

He went on to say, and I quote:

“Over the last 13 years the public and markets have completely lost confidence in government economic forecasts.

The last government’s forecasts for growth in the economy, over the past ten years, have on average been out by [GB]13 billion.

Their forecasts of the budget deficit three years ahead have on average been out by [GB]40 billion.

Unsurprisingly, these forecasting errors have almost always been in the wrong direction.

The conclusion is clear.

We need [a] long-lasting change in the way we put together the budgets in this country.

The final decision on the forecast has always been made by the Chancellor, not independent officials.

And that is precisely the problem.”

Mr George Osborne’s view was that a significant part of the problem in the UK was because “the temptation to fiddle the figures, to nudge up a growth forecast here or reduce a borrowing number there to make the figures add up ha[d] proved too great”.

A4         So there you have, in the words of the UK Chancellor, the context of the OBR and why the UK set it up – which is huge deficits and unreliable budgeting.

A5         Likewise, a number of OECD countries^[1] have set up budget offices or fiscal councils in the aftermath of the global financial crisis “…as the surge of government deficits and debts” left those countries worried that fiscal rules were insufficient and “governments wanted to boost the credibility of their [financial] promises”^[2] to financial markets.

A6         That is not the case here in Singapore. Our situation is very different. Our Government has a strong track record of sound finances.

a.    While many other countries are in a net debt position^[3], we have consistently spent within our means and achieved a balanced budget in each successive term of Government. A good example is the Pioneer Generation Package, announced in Budget 2014. We set aside $8 billion dollars from Current Reserves to help fund this.

A7         To ensure the long term sustainability of our expenditures, this Government has consistently also taken the approach of preparing ahead for spending needs.

a.    This Budget is a good example of this approach. Minister for Finance has highlighted the longer term increase in healthcare and infrastructure needs and has signalled that we will be reviewing revenue measures to meet this expenditure. This is the right approach – spending prudently and effectively, and growing our revenues fairly and sustainably.

A8         We have in place a strong system of fiscal rules and safeguards to ensure fiscal sustainability. This is provided for in our Constitution.

a.    The Government is required to seek Parliament’s approval for its expenditures during each year’s Budget.

i.          The annual Budget Debate and the Committee of Supply provide the opportunity for MPs to raise questions and scrutinise Government policies and programmes.

ii.        Parliament is supported by the Estimates Committee^[4], which examines the Government's budget.

b.    The Elected President, advised by the Council of Presidential Advisors, holds the second key to our reserves. At each year’s budget, the President may veto the Budget if he is of the opinion that it is likely to draw on Past Reserves. This effectively instils discipline for the Government to achieve a balanced budget over each term of office.

c.    The Government’s accounts are audited by the Auditor-General’s Office (AGO).

i.          The AGO’s findings are reported to the Public Accounts Committee, which can call on the relevant agencies to explain lapses or take corrective actions.

A9         The net result is that markets have confidence in our system. And this can also be seen from the fact that we are among the few countries today that continue to enjoy AAA credit rating. ^[5]

Government-linked Companies

A10      I move on to Mr Leon Perera’s cut. He had referred to the recruitment of former civil servants in Government-Linked Companies (GLCs). I should at the outset explain that the GLCs operate as commercial entities. The Government does not get involved in the recruitment of their senior management. That is something which they do very much as a matter of their own needs.

A11      So GLCs, like other companies, recruit senior managers based on their circumstances and their need. At the more senior levels, experience can cover a wide range of domains. It may mean industry-specific knowledge, or functional expertise, like recruiting a finance professional to be the CFO. It may encompass broader management experience in organisational transformation, or leadership qualities.

A12      At the end of the day, it is for each company to decide what is most relevant or useful for it.

A13      Mr Perera might have been under the impression that GLCs recruit only from the public sector, but that is not the case. If you just take a sampling, for example:

a.    We have seen leaders who are promoted from within organisations, such as Singtel’s Group CEO Ms Chua Sock Koong, who first joined Singtel in 1989. And then we have SIA’s CEO, Mr Goh Choon Phong, who joined SIA in 1990. These are people promoted from the ranks.

b.    Then you also have lateral recruitment. There are leaders who are recruited from other companies, like Mr Tan Chong Meng, who was with Shell before joining PSA, and Mr Piyush Gupta who held various senior management roles at Citigroup before joining DBS Group as CEO. Also Mr Neil McGregor, who will succeed Mr Tang Kin Fei as Sembcorp Group President and CEO with effect from April 2017. Mr McGregor is currently the Senior MD and Head of Energy and Resources at Temasek International. He was previous CEO of Singapore LNG Corporation and MD of YTL PowerSeraya.

A14      As you can see, GLCs recruit from diverse sources. The civil service may be one of those sources, but it is not the only source. At the end of the day, GLCs recruit just as other companies do – which is that you look for the right talent for the right need, and you recruit based on merit.

B. Social

B1         I move on now to some of the other cuts. Some of the Members have also asked how we set the eligibility criteria for our social schemes. Mr Edwin Tong and Mr Murali Pillai asked if our means-testing criteria are sufficiently flexible to accommodate diverse circumstances. Assoc Prof Randolph Tan asked if our schemes can be made more targeted. The queries raised by the three members reflect the wide and diverse views on how social schemes can be designed.

B2         In designing our social schemes, we are guided by a few key principles.

a.    First, what is the objective of the scheme? If it is a scheme to support the needy, the eligibility criteria will be set to target the intended beneficiaries. If it is meant to benefit more, the criteria will have to be set for a broader coverage.

b.    Second, is the scheme design fair and progressive? We want to make sure that those with less receive more support. But at the same time, we want to design the scheme in a way that does not erode our societal values of family and community support and more importantly, the value of a strong work ethic that Singaporeans share.

c.    Third, is the scheme sustainable? We have a responsibility to ensure that each generation does not burden the next with unsustainable spending.

B3         That is why we have schemes with different objectives to support Singaporeans in different circumstances and with different needs. This is our approach of providing gradated tiers of support, so that every Singaporean can benefit from our social schemes in one way or another.

B4         We have schemes that support strategic objectives, such as better education and health outcomes. These cover all Singaporeans, regardless of income or wealth. Those with lower incomes receive more assistance, which should be the case, but Singaporeans across the board receive some support.

a.    For example, eligibility for the SkillsFuture Credit, the Pioneer Generation Package, and the Marriage and Parenthood Package is not dependent on income or wealth.

b.    For schemes such as child care, education, and some healthcare subsidies, all Singaporeans can receive benefits, but those with lower incomes generally receive more assistance, which should be the case.

B5         We also have schemes that are more targeted. Some provide benefits not just to the lower-income, but also the middle-income – for example, subsidies for housing and intermediate and long-term care. Others are more tightly scoped for those who need more help. These can range from MOE’s Financial Assistance Scheme, the Workfare Income Supplement, and the Silver Support Scheme. By the way, the Silver Support Scheme is not for all HDB dwellers, but only for seniors who have had low income through life, and now have little family support. Likewise, ComCare and MediFund are safety nets for those in need.

a.    Assoc Prof Tan spoke about the “broad” coverage of the GST Voucher (GSTV). The GSTV has different components, each with a different objective. For instance, the GSTV – Cash payment is meant to help the lower-income offset some of the cost of daily living. The eligibility criteria are deliberately set such that coverage is broader than schemes like ComCare and MediFund which target only the very needy. In this way we can cover more Singaporeans with lower income.

b.    Meanwhile, the GSTV – U-Save is meant to help both lower and middle-income households offset some of their utilities expenses. By extending the benefit to eligible HDB households, we cover about 70% of properties, including the middle-income group.

B6         If we put together all our different social schemes, we have a progressive social system where support is extended to all, but those with greater need receive more. I agree with Prof Tan’s caution that we need to avoid a creep towards all schemes giving something for everyone. By careful design, we can have a system that is sustainable.

B7         Mr Murali and Mr Edwin Tong raised thoughtful points about our current means-testing system. Broadly speaking, our means-testing criteria consider income or wealth, or a combination of both, in order to determine how much support to give. For some schemes, we also consider the number of dependents in a household, with per-capita means-testing criteria. This is fair, and helps us target our schemes at those who need more assistance.

B8         Nonetheless, we recognise that no criterion is perfect. Each come with trade-offs. For instance, a wealth criterion that requires an individual to report his personal savings may be a more accurate assessment of his wealth, but that would require the citizen to apply for benefits rather than to receive them automatically. The Annual Value of property criterion, which does not need to be separately reported, allows us to deliver benefits automatically.

B9         Different trade-offs arise with other means-testing criterion. I thank Mr Murali Pillai for pointing out the limitations of using household income and for his suggestion to migrate to family means-testing.  Even if data analytics can map our family trees based on administrative data like births, deaths, marriages, and divorces, it may not fully capture family relationships, which can be complex and fluid. The Government is also not privy to family dynamics.

B10      Hence, to date, the household income remains the best available proxy for family support. But we will keep in mind good and practical ideas on how to improve on this, and I thank the members for their suggestions.

B11      There is another benefit of household means-testing. It enables us to make it more convenient for Singaporeans to benefit from our social schemes, as applicants do not need to provide information on family members who do not stay with them.

B12      Mr Edwin Tong also spoke about schemes that do not apply to those who live in private housing.

a.    Our underlying principle is to provide support according to need, and those in private housing are generally better off than those in public housing. Nevertheless, there are schemes which extend to those in private housing.

i.          For example, all Singaporeans, including those who live in private housing, can receive retraining support, subsidies for inpatient and outpatient care, and preschool and education subsidies. Education can be quite significant. For instance, a child entering primary school in 2016 would stand to benefit from over $100,000 (in today’s terms) in education subsidies by the time he or she completes secondary school.^[6]  With post-secondary education, it is even more.

b.    When property is taken into consideration, many schemes consider the Annual Value or AV, with a threshold of $13,000 and/or $21,000. The AV is reviewed annually.

B13      An AV threshold of $13,000 already covers all HDB flats, while the AV threshold of $21,000 covers about 80% of residential properties, including some lower value private properties. This means only those who live in private properties with AVs in the top 20% are excluded. In short, while there is always room for improvement, what we have today is a system that is fair and inclusive.

B14      At the same time, we exercise flexibility and will consider appeals on a case-by-case basis. Those in genuine need of help, will receive help.

a.    Mr Edwin Tong highlighted cases in which a resident may be living in a private property under extenuating circumstances, for instance, renting only one room or living with friends in a private property on goodwill terms. For these, if they have specific needs, the best approach would be to appeal to the relevant agencies, which will consider the various cases on a case-by-case basis and on their merits. There may also be schemes at the constituency level that can be tapped on, and these can be checked at the respective constituency offices.

B15      Mr Edwin Tong has also highlighted that “HDB dwellers receive on average about 4 times the amount of Government transfers when compared to private estate dwellers in 2016”. I would like to clarify that this is correct if you compare the transfers received by 1 and 2 room HDB flat residents with those living in private properties. That is a reflection of our progressive system. But if you take into account other 3, 4, 5 roomers, then the percentages or ratios will be different.

B16      We have been able to achieve good social outcomes, including when compared to other countries:

a.    For example, we have one of the highest home ownership rates in the world. More than 90% of Singaporeans, including many young Singaporeans, are homeowners.

i.          Compare this to Britain, for example, where the rate of homeownership among those aged 25-34 years has fallen by about 20% in the past decade, from 59% to 37%^[7].

b.    Our education system provides our students with a good foundation. Our students consistently do well in many international education rankings. But besides developing our students intellectually, we have also placed a lot of emphasis on values and character development, as part of holistic education.

c.    Our healthcare system is recognised for providing good quality and affordable care in a sustainable way. The Bloomberg Healthcare Efficiency Index, which considers life expectancy, and total healthcare costs per capita and as a percentage of GDP, places us near the top consistently.^[8] We don’t claim to have the best system, but we have done quite well over the years.

i.          Going forward, we will need to manage rising healthcare costs, while helping older Singaporeans age well.

B17      The government will continue to improve our social programmes and schemes to foster a caring and inclusive society. But the government cannot achieve this outcome alone. As the Finance Minister has stressed in his Budget speech, we will need to work in partnership with community organisations and individuals, especially since many of our social challenges are complex and multi-dimensional.

C. Conclusion

C1        Madam, allow me to conclude.

C2        One key theme has recurred in these discussions. It is about the role of Government in catalysing growth and building a strong and resilient society. And we will do this within a credible and trustworthy system of checks and balances.

C3        We have made good progress in these areas, and will continue to refine and improve. We are committed to work in partnership with our businesses, the unions and citizens in this journey.

C4        Thank you. 

^[1] Source: Pg 11 - http://www.oecd-ilibrary.org/governance/principles-for-independent-fiscal-institutions-and-case-studies_budget-15-5jm2795tv625?crawler=true

^[2] Source: Pg 2 - https://budgetresponsibility.org.uk/docs/dlm_uploads/Lecture_May-2013.pdf

^[3] A positive net debt position is where liabilities exceed assets

^[4] It examines the Government's budget and reports what economies, improvements in organisation, efficiency or administrative reforms consistent with the policy underlying the estimates, may be effected and suggests the form in which the estimates shall be presented to Parliament.

^[5] The UK’s current credit rating is AA from Fitch and S&P, and Aa1 from Moody’s. It was downgraded from AAA by S&P in Jun 2016 (after Brexit), Fitch in Apr 2013, and Moody’s in Feb 2013. The downgrade from AAA came even after the set-up of the OBR in 2010.

^[6] FY2016 cost.

^[7] Source: Pg 10 – “Fixing our broken housing market”, Department for Communities and Local Government, UK.

^[8] https://www.bloomberg.com/news/articles/2015-11-30/health-care-check-up-whose-system-is-least-efficient-