MOF Committee of Supply Debate 2021 by Second Minister for Finance Mr Lawrence Wong

A. INTRODUCTION 

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

A2. The cuts by Members cover four broad areas:

a. First, fiscal sustainability and accountability;

b. Second, managing our investments and reserves, and tax-related matters;

c. Third, supporting social and environmental outcomes; and

d. Fourth, supporting businesses, citizens and community, and enhancing public service capabilities.

A3. I will speak on the first and second areas, and my colleague, Second Minister for Finance Indranee will cover the other two areas, and the proposal for an independent fiscal council.

B. FISCAL SUSTAINABILITY AND ACCOUNTABILITY 

B1. Mr Liang Eng Hwa and Ms Foo Mee Har raised important points and asked how the Government ensures prudent and effective allocation of resources, especially in such challenging times. I want to assure both Mr Liang and Ms Foo that we take these issues very seriously, especially on securing good value-for-money and good outcomes for the resources that we have.

B2. First, we continually prioritise and reallocate funds to key areas of greater needs across the whole-of-government, so that it is not just about additional spending, but also about reprioritisation. As an example, in the October 2020 Ministerial Statement, DPM highlighted that MOF had re-directed funding of about $8 billion from areas with reduced spending, such as development projects that were delayed due to COVID-19, towards funding our fight against COVID-19. Clearly, this was something which was of priority.

B3. Second, we have joint budgeting arrangements for cross-cutting domains, to better align priorities and reduce duplication of resources across different agencies. Joint budgets have been set up in the areas of jobs and skills, vaccines and therapeutics, Smart Nation and Digital Government, as well as in Research, Innovation and Enterprise. 

B4. Ms Foo asked how we evaluate the return on investment for support schemes directed towards new areas of development. As with all Government programmes, we monitor the output and outcomes of our programmes and schemes to ensure that their purposes are met. We also review whether to scale, refine, or sunset programmes depending on their outcomes.  

a. For example, for digitalisation programmes, we look at digital adoption rate and digital readiness across the sectors. 

b. For enterprise development programmes, we monitor the growth of benefitting companies, like revenue, to holistically assess how well the scheme objectives are met. 

c. For R&D, we continuously seek to refine the way by which we assess and monitor the impact of our investments. We currently track a basket of indicators, which include Business Expenditure on Research and Development, the number of successful start-ups supported by Research, Innovation and Enterprise or RIE programmes, and the number of research projects that are undertaken in collaboration with the industry. 

B5. In this regard, Mr Leon Perera asked about enhancing the economic impact of research spending. This is an area where we share common objectives. We too, in finance, would like to enhance the economic impact of everything that we spend. We want to achieve an A score, not just for effort, but for outcomes too. We want to have As in all areas. 

B6. So we continue to place a strong focus on ensuring that RIE investments develop the capabilities needed to catalyse economic growth. At the same time, we recognise that some investments in basic research are essential and are important, and they should continue to be maintained for laying the foundations of downstream breakthroughs.  The nature of such basic research is that they may not always have direct translational outcomes, or even if they do, the outcomes take time to materialise and manifest themselves. Mr Perera highlighted some examples in America. Indeed, if you look at the American examples, or even in Israel, some of the basic research is done with very little direct and immediate outcomes, because these economic outcomes bear fruit many years later. 

a. In Singapore, we have a similar example of our biomedical sciences. We started investing in R&D, in biomedical sciences in 2000. More than 20 years have passed. The initial years were not easy, but we stayed the course. We had patient capital, and today, our investments have set the stage for the flourishing biomedical science sector, as DPM mentioned just now in his round-up speech. The biomedical sector in Singapore today makes up about 4% of our GDP, and four of the world’s top 10 drugs by global revenue are made in Singapore.

B7. Our RIE activities have also helped to catalyse private sector research and innovation activity, and to establish a vibrant innovation and enterprise ecosystem. 

a. We have created high quality jobs. The number of industry research scientists and engineers, or RSEs, has tripled. Industry RSE, not government. Industry RSE has tripled from about 6,500 to over 19,000, in the 20 years from 1998 to 2018. Beyond the immediate impact on RSEs, our RIE investments have also indirectly contributed to good jobs in the rest of the economy, by keeping industries and businesses competitive globally.

b. In the same period of time, Business Expenditure on R&D has increased by more than two-and-a-half times, from $1.5 billion in 1998 to approximately $5.6 billion in 2018. These are the outcomes we have achieved, and we will continually strive to do better. 

B8. In response to Mr Liang’s question on accountability for spending outcomes, we continue to strengthen governance and accountability over the outcomes of our spending, including strengthening the value-for-money culture across all government agencies.

B9. Infrastructure projects are evaluated for their worthiness and cost-effectiveness, before Government embarks on them. For larger projects, Ministries’ proposals and MOF’s evaluations are further scrutinised by the Development Projects Advisory Panel, which comprises technical experts from the private sector and academia. Over the past five years, these processes have led to design improvements and generated savings of about $4 billion in total, or about 5% of the capital costs.  

a. For example, MOF worked with the Land Transport Authority (LTA) to improve the proposed design for the Sengkang West multi-storey bus depot-cum-dormitory, including right-sizing the space for housing Mechanical & Electrical equipment and common areas, and green roof areas. These changes helped to reduce the estimated cost by about $70 million. 

B10. For day-to-day operational spending, public agencies also proactively look out for ways to spend prudently. For example, MOH’s Agency for Care Effectiveness evaluates the clinical-effectiveness and cost-effectiveness of medicines, vaccines, and medical technologies, and then negotiates fair prices with companies. This has delivered total cost savings of $300 million between 2016 and 2020. 

B11. I also thank Mr Edward Chia for his suggestion on making greater use of design to optimise cost effectiveness over the life span of infrastructure projects. 

B12. Indeed, the Government adopts a life-cycle cost perspective during upfront planning and design of infrastructure projects. This improves visibility of long-term resourcing requirements. It also allows us to optimise the combination of upfront costs and downstream maintenance and operating costs. In this way, we avoid having projects, be it buildings or infrastructure, that may be cheaper to build but are expensive to maintain and operate, and in fact, on an overall basis, end up being more expensive. By taking this approach, we expect to bring about savings of 2% to 5% in total life-cycle costs over the long-term, which is a significant sum given that we spend about $15 billion to $20 billion each year on capital expenditure alone. 

B13. Ms Foo spoke about the need for governance and accountability over the use of public funds, even as we were responding to the COVID-19 situation. Indeed, when coming up with support schemes, agencies do make full use of a whole range of tools. They considered the possibilities of fraud, and unintended beneficiaries upfront in scheme designs. They deployed various monitoring mechanism and safeguards, at pre-disbursement and post-disbursement stages, to ensure that funds are disbursed to the appropriate beneficiaries. 

B14. Specifically on the Jobs Support Scheme (JSS), this was introduced at the start of the crisis when the public health and economic situation was highly fluid, and when firms were facing immediate cashflow issues. The priority then was to ensure that all firms received timely support, so that they can focus on retaining their workers and sustaining their operations. So the JSS was implemented as a broad-based scheme then, without the need for onerous applications. This was especially helpful for SMEs. 

B15. As the economic situation improved and with accurate data on sectoral and firm performance, we then stepped down our broad-based support measures and pivoted towards more targeted, sector-specific measures. 

B16. In fact, we began tapering JSS support levels from September 2020. 

a. And for sectors that managed well, we ceased JSS support after December 2020. 

b. In this Budget, we extended the JSS for Tier 1 sectors like aviation and tourism by six months. And for Tier 2 sectors like land transport and retail, we extended the JSS by three months. 

c. And for sectors that remain hard-hit, we also introduced additional targeted measures like the SingapoRediscovers Vouchers to stimulate domestic tourism, and extended sector-specific support like the Aviation, Point-to-Point Support Packages and the Arts and Culture Resilience Package.

B17. This tiered approach has enabled us to bring targeted relief to business owners and the workers they are responsible for. 

B18. We will continue to monitor the outcomes and effectiveness of COVID-19-related schemes. 

a. For example, MOF has published its interim assessment of the initial effects of the Government’s measures to reduce business costs, save jobs and support families. 

b. Preliminary data suggests that the Jobs Support Scheme has reduced job losses in vulnerable firms, while loan schemes have supported over 20,000 firms in accessing loans. 

C. MANAGING OUR INVESTMENTS AND RESERVES 

C1. Next, let me talk about managing our investments and reserves. Mr Perera asked about the performance of our investment entities. We had this debate before. This question has been raised multiple times. And I have explained that both GIC and Temasek are long-term investors. Their remit is to secure good sustainable returns on a total portfolio basis over the long-term. So the relevant performance measure for them is not the year-to-year return, which can fluctuate because of market volatility, but sustained long-term returns over and above global inflation. 

C2. If you look at that measure, both GIC and Temasek have indeed performed creditably over the long term. Their results are published in their annual reports, and there is a full write up, explaining their decisions, the performance and evaluation of their performance. Take GIC as an example. GIC, in recent years, has recognized high uncertainty in the equity markets, as well as high valuations, which can lead to large permanent portfolio impairment. As a result, GIC has undertaken pre-emptive measures to reduce portfolio risk. Nevertheless, despite reducing its risk exposure, GIC’s returns on its portfolio, compared to a reference portfolio comprising 65% equities and 35% bonds, has been equal if not better than the reference portfolio. This has been so over the 20-year rolling period. It has also been so over a more intermediate period, like a 10-year and 5-year time frame.

C3. So, I think if you look at the overall performance on the broader longer term, not just year-to-year, I think both GIC and Temasek have done creditably well in a very challenging investment environment. Going forward, how do we ensure that such performance continues? There is never any guarantee in investments. All the processes are in place:

a. For the Boards to supervise management; and

b. Between MOF and the Boards to review the performances of these entities, in discussions with external parties as well as investment advisory panels. Very prominent names in the investment community sit on these advisory panels to help us guide our two entities. 

C4. On green investments, we have explained that both GIC and Temasek operate on a commercial basis. So their individual investments are independent of the Government. 

C5. Nevertheless, both entities acting on their own accord, emphasise sustainability in their investment activities. And that is because they recognise that good sustainability practices are good for business, and can have a positive impact on long-term returns. Conversely, companies with poor sustainability practices carry business and reputational, as well as environmental, social and governance risks. 

a. GIC and Temasek integrate sustainability considerations holistically into their investment processes across all asset classes, so that they protect and enhance the long-term value of their investments. Both entities take a strong interest in not only understanding sustainability-related challenges, but also the opportunities for innovation, business growth and new investments.

b. Both entities also support efforts by the Financial Stability Board’s Task Force for Climate-related Financial Disclosures (TCFD) to develop an internationally accepted framework on climate reporting. This provides a framework for companies to disclose their climate-related strategies, and for investors to incorporate climate change considerations into long-term investment decisions.

C6. Both entities have also published comprehensive statements on their approach to sustainability, and they will continue to review what information can be put out in their annual reports. 

C7. In response to Mr Perera’s question about reserves spending, let me just explain how the Government executes the spending of reserves during economic crises.

C8. The fiscal framework in the Constitution requires the Government to spend within its means. 

a. So a draw on Past Reserves occurs if our revenues and surpluses accumulated during the current term of Government are unable to support our current spending.

b. We have clear rules on what constitutes a draw on Past Reserves.

C9. But where the Government obtains the cash to pay for the expenditures is a different matter – that’s part of the Government’s overall cashflow management, it’s an operational issue, and is separate from the budgeting process.

C10. For purposes of cashflow management, the Government has a range of liquidity sources it can tap on, and this will include tax revenues which come in at different times of the year, funds raised outside the budget, like proceeds from land sales. Constitutionally, these do not contribute to the budget and do not count as government revenues, but they are part of the cash flow the Government receives. It also includes Government deposits which we can tap on for purposes of cash flow reasons. So all of these sources of cash flows are pooled together, and we manage cash flow on a disciplined and integrated basis. On top of these different sources, I have highlighted earlier in this house, that the Government will be issuing Cash Management Treasury Bills. This is part of the Government’s ongoing efforts to expand our cash management toolkit.

C11. With regard to the specific question asked by Mr Leon Perera to pay for expenditures in FY2020, the Government was able to tap on all available sources of cash under the toolkits which I had just described. So GIC was not put in a position where it had to liquidate investments under time pressure.

D. TAX-RELATED MATTERS 

D1. Finally, let me address Mr Louis Chua’s questions about the Additional Buyer’s Stamp Duty, or ABSD, remission for Singaporean married couples. 

D2. The aim of ABSD, I think we all know, is to moderate demand, and to ensure a stable and sustainable residential property market. 

D3. To be effective as a measure to moderate demand for property, ABSD has to be applied consistently and to all buyers.

D4. Only one exception is made, and namely that is for Singaporean married couples. A Singaporean married couple may need to change home due to changing family needs, such as when they have children, when their children are growing up, or when the couple needs to right-size in their senior years. It is in this context that we have an ABSD concession for Singaporean married couples buying a second residential property.

D5. Under this concession, we allow Singaporean married couples to claim a refund of the ABSD paid on their second property, provided they sell their first property within six months after the purchase of a completed property, or the Temporary Occupation Permit date of an uncompleted property.

D6. Singaporean married couples who are purchasing a HDB flat or a new Executive Condominium unit are granted upfront ABSD remission as Mr Chua highlighted. This is because they are subject to HDB regulations which require them to not own other residential property, or to dispose of their existing residential property within HDB’s stipulated timeframe. There are no such regulations for private residential properties.  And that is the reason why for such private residential property purchases, ABSD remission is only granted upon the sale of the first property within the required timeline, unlike the case of HDB.  

E. CONCLUSION 

E1. Mr Chairman, MOF is committed to ensuring that our overall fiscal system is fair and progressive, achieves good value-for-money outcomes, and importantly sustainable over the long term. 

E2. I will let Second Minister Indranee address the other questions raised. Thank you.