MOF Committee of Supply Debate 2018 by Second Minister of Finance Mr Lawrence Wong

A. INTRODUCTION

A1. Mr Chairman, I thank the members for their comments and questions for the Ministry of Finance.

A2. Members’ questions covered four areas:

a. First, our fiscal position, and our financing and surplus-sharing approach;
b. Second, the Government’s efforts in ensuring value-for-money in our spending and procurement;
c. Third, our plans to create opportunities for businesses and enhance citizen experience with technology; and
d. Fourth, the role of shareholders and some tax-related matters.

A3. I will address the cuts on the first two topics and Senior Minister of State Ms Indranee will take the other cuts.  

FISCAL POSITION

B1. On our fiscal position, Mr Cedric Foo asked about the proportion of capital investment compared to recurrent spending or operating expenditure. Let me start by elaborating on our overall funding approach.

Our Financing Approach

B2. In fact, this is what our Finance Minister had explained in his Budget speech, that we fund recurrent needs through taxation, and we will consider borrowing for major infrastructure projects.

B3. Even as we consider borrowing, we will only do so prudently and on a selective basis. We should borrow for the right projects – those that are bankable and generate adequate future revenue streams to repay the borrowing. One example that we are looking at is Changi Airport Terminal 5.

B4. If we are not careful and selective in borrowing, we may end up overly-burdening ourselves with rising interest costs and that is not what we intend to do.

B5. Therefore, even as we borrow, there will still be capital projects that we continue to fund through development expenditure from the annual budget.

B6. For FY2018, the share of development expenditure of the total budget is around 28%. It is slightly higher than what it used to be, but it is in the ballpark.

a. Looking ahead:
i. We expect development expenditures will rise as we continue to invest in more capital projects.
ii. But at the same time, operating expenditures are also going to increase, especially in areas as highlighted in the Budget like healthcare, security and other social spending.
iii. Overall, both will go up, but we expect the share of development spending to continue to rise slightly in the coming years.

B7. We will continue to monitor the share between operating and development needs. It is an important balance.

a. If we spend too much on recurrent, then we are not investing enough in the future, we are not building capabilities for the future.

b. If we spend too much on capital, then we may end up with a long tail of future spending for maintenance and replacement.

c. So it is critical to get the balance right, and that is what we are doing. Water Infrastructure Financing

B8. Many of the capital projects in Government are undertaken by our Statutory Boards.

B9. Mr Pritam Singh asked about the harmonisation of accounts because our Statutory Boards use accrual basis for their accounts, and Ministries use cash. This is the approach we have taken because we believe that cash accounting allows for better control of spending and is a more prudent way of fiscal management. That is not just us, many governments also do cash accounting for their Ministries.

a. For Statutory Boards, they use accrual for their accounts because Statutory Boards are set up as separate legal entities with their own financial statements. Some even go to the markets to borrow. We want our Statutory Boards to be subject to the same discipline as the private sector. That is why they use accrual accounts like what the private sector companies do.

B10. The important thing is this, regardless of whether the work is carried out by a Ministry or Statutory Board, we take a whole-of-government approach on how we finance our infrastructure. The water network is a case in point.

B11. Briefly put, PUB collects revenue and pays for the investment and operations and maintenance of the water supply system (this includes our reservoirs, treatment plants and pipelines) and also the water reclamation plants for the treatment of used water.  

a. If there are any surpluses in the accounts, PUB will plough them back into investments in infrastructural works, such as the upgrading of waterworks, water reclamation plant expansions and investment in water treatment processes, as well as research and development.

b. For FY2012 to FY2016, PUB has transferred $1.3 billion of surpluses into its capital reserves. However, this is still not sufficient to fully cover the $4 billion that PUB will be investing in additional water infrastructure between FY2017 and FY2021.

c. And because there is this gap in financing cashflows, PUB borrows for its capital investments. This is what happens within the PUB accounts.

B12. On top of this, the Government funds the drainage system that helps to manage flooding risk, the sewerage network system that helps to safeguard public health, and projects to help strengthen the resilience of our water supply. These assets are part of our total water loop, but they also provide benefits to all citizens. So the Government pays for these assets and we do not recover the cost directly from consumers.

B13. Indeed from FY2012 to FY2016, Government’s investment in drainage and sewerage totalled $2.1 billion, far in excess of the Water Conservation Tax revenue. In the next decade, we are also building Phase 2 of the Deep Tunnel Sewerage System, which costs more than $4 billion. These are costly but important investments that we need to make.

B14. Expenditure in our water system is thus recorded in both PUB’s accounts and in the Government’s budget, because of how we structure the payments between the consumer and the taxpayer. While they use different bases for accounting, as I have explained, each is appropriate for its use. What remains important is sound fiscal and financial management to ensure timely and adequate investments in our public infrastructure and assets. We do this for water, we do this for all other public infrastructure as well.  

C. FISCAL PRUDENCE

Value-For-Money (VFM) in Government’s Spending

C1. Several members, Mr Liang Eng Hwa, Ms Foo Mee Har, Dr Tan Wu Meng, Mr Henry Kwek and Ms Sun Xueling spoke about the need to be prudent, efficient and effective in our spending. I fully agree with them. This is indeed an area of continuing emphasis for MOF.

C2. I was a budget officer in MOF way back in 2000 – I’ve seen first-hand how our budgeting system has evolved over the years. MOF officers scrutinised every project, even back then. We had robust processes in place for budgeting. We check against cost norms, we make the necessary cuts in the budgets of Ministries and agencies. It is not work that endears ourselves to colleagues in other Ministries, I assure you. They see MOF as blocking their projects or delaying their projects, but we take these in our stride and we do the work.

C3. Now, almost 20 years later, I can say that our processes for budgeting and ensuring value-for-money have developed further and become even more rigorous.

C4. We have put in place various systems and controls to ensure that our monies are spent effectively:

a. First, the Block Budget Framework sets a spending limit for Ministries. Within the budget given to them, each agency optimises its spending and channels resources to worthwhile programmes.

i. The 2% reduction to the budget cap announced at the last Budget, and reduction to the annual growth of the block budgets announced recently by the Finance Minister will further encourage fiscal discipline among government agencies.

ii. We have the Budget Utilisation Framework which encourages Ministries to budget as closely as possible to their expenditure needs. This is to ensure that they do not set aside more than they require, and as a result deprive other meritorious needs of funding. But I would assure Ms Foo Mee Har that Ministries do not spend for the sake of meeting the budget during the end of the year. If there is under-utilisation of the budget due to reasons which are beyond the Ministries’ control, there would not be reductions to their future budgets.

iii. We also have mechanisms to give Ministries budgeting flexibility, so they can roll over part of the savings from the operating budget to the next financial year. On top of all this, we conduct regular reviews of Ministries’ budgets to make sure that they continue to be right-sized and ensure that every Ministry uses its allocated resources efficiently and effectively.

b. Second, for large infrastructure projects, we have the Gateway Process – this is something that we have shared in this House. It is a rigorous multi-stage process that scrutinises the requirements, the scope and design of the projects at key milestones before funding approval is given. This process includes reviews not just by senior public officers, but by academics and industry practitioners where necessary, especially practitioners with deep technical expertise.

c. Third, MOF works with agencies to conduct Value-For-Money Reviews to assess if our programmes are achieving their intended outcomes in a cost-effective manner. These best practices, guidelines and case studies from the reviews are shared across the Public Service.

d. Fourth, the performance of key programmes are published by the ministries for their respective areas. These performance indicators are also consolidated and reported in the Annual Revenue and Expenditure Estimates and in the Singapore Public Sector Outcomes Review, which is published once every two years.

C5. Ms Foo Mee Har asked if agencies conduct productivity reviews to ensure their operating efficiency. Indeed, that is done. Ministry have processes in place to more effectively allocate resources within their budgets and to extract productivity dividends from their departments and Statutory Boards.

C6. We also have a Manpower Management Framework to keep public sector manpower growth at a sustainable rate in line with the resident labour force growth. This framework allows for manpower to be re-deployed to implement new programmes or deliver enhanced services, while preventing the over-expansion of public sector manpower over time.

C7. Mr Liang Eng Hwa and some was concerned that the economy drive would impact on public services. I would like to assure them that Ministries would be more resource-effective, without comprising service delivery.

a. Even with the announced measures to constrain expenditure growth, overall Ministry budgets in dollar terms are still expected to grow, albeit at a slower rate. Agencies are given time to adjust to the budget changes and will have the resources to fulfil their missions and maintain service levels.

C8. Achieving value-for-money goes beyond cutting costs. It is also about creating greater value, while we carefully manage the costs. Government agencies have sought to achieve value-for-money while improving service delivery and outcomes in various ways.

Adopting a Systems Approach for Infrastructure Development

C9. For infrastructure in particular, something that Ms Foo Mee Har, Dr Tan Wu Meng and several others spoke about, we have stepped up efforts to manage our infrastructure spending. Let me elaborate on some of these measures.

C10. First, we adopt a systems approach when we plan and design projects. a. We do not look at each project in isolation, but we consider how they affect one another, and the potential synergies of multiple projects collectively. We look for opportunities for infrastructure integration, which allows us to achieve better outcomes or reap savings.

i. The Finance and Transport Ministers have shared one example, which is LTA’s innovative 4-in-1 depot that saved the Government $2 billion.
ii. Another example is the integration of PUB’s Tuas Water Reclamation Plant with NEA’s Integrated Waste Management Facility which brings about a number of synergies, while optimising land-use. Within this integrated facility, the co-digestion of food waste from NEA’s facility with the used water sludge from PUB’s facility generates more biogas, and enhances energy production. These allow both facilities to be self-sufficient in energy. The two plants will also enjoy other synergies such as the sharing of common administrative facilities.

C11. Adopting a systems approach is useful and creates more value, maximise synergies, and that is what we are doing. It also allows us to take a lifecycle perspective when planning and designing our infrastructure, which several members spoke about as well.

Managing Lifecycle Costs

C12. Dr Tan Wu Meng and Ms Sun Xueling highlighted the need to ensure value-for-money over the lifecycle of our infrastructure. This is indeed an area we are placing greater emphasis on.

a. Dr Tan talked about design. We typically associate architects and designers with aesthetics. They do produce very beautiful buildings. I think the architecture profession too is very conscious that they cannot just design for aesthetics. Structure alone is not enough, they also have to design for functionality and maintainability. And that shift is happening.

b. BCA issues guides to help architects and designers better understand how they can design buildings to achieve safer, more labour-efficient and more cost-effective maintenance downstream. BCA is also helping the industry and the architecture profession to make this shift towards better designs for functionality and maintainability.

c. Public sector agencies like HDB and JTC have incorporated these guidelines into their checklist when they do procurement, and when they do projects. You will see a lot more consciousness in lifecycle considerations and, in good design, when projects are being done.

d. With a lifecycle approach, we don’t just look at the upfront price of a project but we look at the overall lifecycle cost.

i. One example is when we do a building project to achieve the Green Mark Platinum standard, we in fact incur a cost premium of 3% to 5%.

ii. But the additional upfront costs are more than offset by downstream savings from reduced energy and water consumption. So it makes sense from a lifecycle cost perspective.

C13. Apart from such efforts, we are building up core engineering capabilities within the Government, as highlighted by Ms Sun Xueling, to achieve Value-for-Money for public projects from a lifecycle perspective.

a. The Centre of Excellence for Building and Infrastructure was set up in 2016 under JTC. This is a shared service centre to help build and sustain in-house engineering capabilities across the Public Service, from planning, design, project management to facilities management.

b. One example is JTC’s efforts to roll out smart facilities management solutions for its industrial properties. By monitoring and analysing real-time data from its buildings centrally, JTC is able to better optimise building performance and respond to faults quickly.

i. After piloting this approach on three of its properties, JTC estimates it can achieve a 15% improvement in productivity and energy savings . JTC is sharing its experiences and lessons learnt with the rest of the public sector.  

Doing More with Less

C14. To maximise value from limited resources, Government agencies look for new and innovative ways to ‘do more with less’. We continue to challenge the status quo and make use of technology to enhance work effectiveness while achieving manpower savings.

C15. One example is the Parking.sg app. I’m sure many members would have heard about this or are already using this today.

a. We have been trying to do away with parking coupons for some time.

b. The original thinking was to achieve this through ERP2. But this would have taken some time and it would have been a very complex system.

c. Last year, GovTech, HDB and URA. A team of officers came together to develop the Parking.sg app.

d. So now we have a quick and convenient way to pay for short-term parking – drivers are only charged on a per minute basis and can extend their parking sessions remotely, instead of having to return to their vehicles to add more coupons.

e. Since the app was launched in October last year, about 250,000 vehicles have used it on more than 2 million parking sessions.

Partnering Businesses and the Community

C16. Delivering value for every dollar spent is the responsibility of each and every Public Service officer. But it should not be limited to government agencies alone. Through greater partnership with businesses and the community, we have worked hand-in-hand to deliver better outcomes for Singapore and Singaporeans.

a. An example is IRAS’ hackathon to crowdsource solutions to make it an easier experience for companies and individuals to file their taxes. Filing taxes is never a pleasant experience, but we can make the process streamlined and convenient for everyone. Through this hackathon, this group of individuals, who called themselves TinkerTax, was one of the winners in the hackathon. It is an online application that helps SMEs prepare for the submission of their corporate income tax return. With TinkerTax, companies can convert accounting income to taxable income for their income tax returns in 3 easy steps. This innovative solution helps small companies as it allows them to complete their tax return filing more easily.

b. Our libraries are also a good example of partnering the community to encourage everyone to contribute towards a shared journey of lifelong learning.

i. Volunteer-run spaces in libraries have increased by over 300% in the past three years. For example, an entire floor of the Tampines Regional Library is run by volunteers. There is also a dedicated library space for volunteers to gather and plan activities to promote reading to other library users.

ii. Together with the re-engineering of its library spaces and services to introduce more automation and self-service, NLB has been able to increase its staff productivity. Library space managed per library staff has more than doubled from 88 square metres per staff to 183 square metres today. VFM in Procurement

C17. Next let me talk about procurement. Ms Sun Xueling and Mr Henry Kwek raised important points about ensuring value-for-money in our procurement. I will explain our approach to achieving this.  

C18. First, the Public Service operates on a common procurement policy framework. b. Every agency also procures through a central procurement portal, GeBIZ, and most suppliers submit invoices electronically through a platform called Vendors@Gov. i. This allows government agencies and suppliers to reap efficiency gains.

C19. Second, we consider both price and quality factors when we do procurement. There is a perception out there that the Government purchases only on price alone. That is not the case.

a. About half of all government procurement today are not awarded to the lowest-priced bidder, because they are put out on a price and quality methodology.

b. Quality factors include reliability, innovativeness, expertise of the vendor, its track record and much more.

c. For construction-related tenders, which makes up more than half of our annual procurement value, BCA has enhanced the frameworks to place even greater emphasis on quality from this year onwards.

i. For example, consultancy tenderers are now required to provide a breakdown of the manpower deployment and rates so that agencies can better assess whether the proposed resources are commensurate with the quoted fees.
ii. For building projects, the weightage of quality has increased from a maximum of 40% to a maximum of 50%.
iii. BCA has also introduced consultants and contractors’ past performance as a mandatory criterion for tender evaluation. This provides a quality feedback loop to recognise firms that have performed well in previous projects.

C20. Third, the public sector seeks to centralise our procurement wherever appropriate. a. One way is by aggregating the demand for common purchases across agencies. One agency calls a bulk tender on behalf of others. This minimises administration costs and enables quantity discounts.  

i. Today, there are over 70 types of bulk contracts, accounting for about one-third of government spend in goods and services. The commonly-purchased categories include office equipment, graphic design, travel-related services, and infocomm-related products and services, all on bulk tender.

C21. There is however a limit to how much centralisation or standardisation is optimal. Overdoing this can create other problems.

a. For example, we risk vendor capture if many agencies buy from a single supplier and we are locked in to the same supplier for subsequent maintenance and replacements.

b. We also need to be mindful of providing sufficient opportunities for SMEs. Indeed, many members often ask about giving more opportunities for small firms to bid for government projects. If we have too large a contract, it is more likely to be taken up by the big suppliers only.

c. Too much centralisation or standardising also limits flexibilities or variations to meet unique needs of agencies or situations.

d. So we need to strike a judicious balance.  

C22. Finally, we continue to strengthen procurement capabilities to enable our officers to obtain value-for-money and innovative solutions from the market.

a. We are stepping up procurement training for our officers. Members are aware of this. We have partnered the Singapore University of Social Sciences (SUSS) and DSTA for this purpose.

b. Lead agencies with deep procurement capabilities are providing advice and solutions to the rest of the public sector.

c. We are also building up our capabilities to enable negotiations to be carried out in a fair way that achieves value-for-money and win-win outcomes for both buyers and suppliers.  

D. SUPPORT FOR THE CONSTRUCTION INDUSTRY

D1. Mr Yee Chia Hsing asked about the support for the local construction sector. Mr Yee asked if we can require foreign companies to form a joint venture with local firms to bid for our construction contracts. This is not permitted under WTO rules.

D2. He talked about price-diving by foreign firms. We are aware that this happens, but it is not limited to foreign firms. The fact is that the construction industry is in a downturn, many companies are bidding for projects and there is price-diving. But as I have highlighted earlier, price is not the only factor used in evaluating government tenders. We are placing greater emphasis on the quality factors. We have also introduced measures to deter price-diving. Because we want to avoid the situation where a company, local or foreign, tries too hard to secure a contract, dives the prices and ends up not being able to deliver, or worse, compromise on quality just to get the project done within the price. So for construction tenders, various agencies have adopted practices to identify abnormally low bids and scrutinise the contractors’ ability to deliver the project at such prices.

D3. We also continue to ensure our construction contracts remain accessible to local companies that may be smaller in size.

a. About four-fifths of all our construction contracts are below $650,000 in value, which smaller local firms without a track record can participate in.

b. Where suitable, we have broken up some of our bigger projects into smaller contracts, to give local companies a better opportunity to participate.

D4. Encouragingly, some local companies are also partnering foreign companies to undertake bigger projects. Not by mandating it, but they are voluntarily doing so.

a. One example is Woh Hup, which has been partnering Shanghai Tunnel Engineering to construct an MRT line and station. These are positive examples. There will be technology transfer in future so that our local firms can bid for these projects on their own.

D5. Our approach is not to restrict competition but help our companies level up their capabilities so that they are competitive on their own merits and we have a whole series of programmes and schemes in place to do this, including the Industry Transformation Map for the built environment sector, which we will discuss more in MND’s COS.  

E. SURPLUS DISTRIBUTION

E1. Finally, let me address Mr Azmoon Ahmad’s suggestion to share more of FY2017’s Budget surplus with Singaporeans.

E2. We should not look at the SG Bonus in isolation. In fact, the entire surplus is given back to all Singaporeans in different ways, not just through the SG bonus.

a. The $5 billion we set aside for the Rail Infrastructure Fund to build future MRT lines. This will benefit all MRT commuters.

b. Another $2 billion is for subsidies on ElderShield premiums and other related support when the ElderShield review is complete, and that will be happening soon. These premium subsidies for lower- and middle-income Singaporeans will ensure that the enhanced ElderShield scheme remains affordable, and the premium subsidies will directly benefit individuals and families.

E3. So you have to look at the surplus in totality. We don’t save surpluses, we give them all back to Singaporeans, but we give back in different forms. Some will be for spending for future needs, some will be for spending for current needs, like the ElderShield premiums, and some will be through a direct transfer, like the SG Bonus.

a. And if we look at the direct transfers, we should also recognise that, besides the SG Bonus itself, there are other social transfers in the Budget. Like the GST Voucher, the U-Save Rebate and the S&CC Rebates. In fact the support we provide to Singaporeans who need help goes beyond the SG Bonus and these direct transfers schemes.

E4. In various areas like housing, healthcare, education and childcare, we have enhanced the support provided by our permanent schemes over the years, with more assistance targeted at the lower-income.  

F. CONCLUSION

F1. Mr Chairman, against the backdrop of rising needs, the Government will continue to fund our expenditure wisely and manage our spending prudently. We will ensure that our policies and processes for budgeting, procurement and evaluation, help us to optimise resources and achieve value-for-money. We will partner the private sector and the community to create a better future for Singapore. Thank you.