Media Articles

The Singapore way behind the Budget

Media: The Straits Times

Zakir Hussain

News Editor

Several key principles underpin how the Government spends and raises revenue for the future

Give a man a fish and you feed him for a day; teach him how to fish and you feed him for a lifetime.

This commonly cited proverb may sound trite, but it is mirrored in Singapore's approach to spending on its people where education, healthcare and other social spending are concerned.

The "Singapore way", as Finance Minister Heng Swee Keat termed it, entails three broad principles: Government putting people at the centre of its strategies; planning for the long term and adapting to changing circumstances; and working in partnership with people, businesses and others.

These have also enabled tax rates to be lower than in other developed economies, while keeping overall taxes fair and progressive.

"These principles reinforce each other, and have allowed us to do more with less," Mr Heng told Parliament in a speech rounding up three days of debate on Budget 2019 last Thursday. "For instance, in the areas of education, healthcare and policing, we have achieved very credible outcomes despite spending less than what other countries do."

The minister displayed a series of charts that show Singapore spends less than half what Nordic countries do on education, as a percentage of GDP, and slightly over half the average share countries in the Organisation for Economic Cooperation and Development (OECD) spend. Yet in a test of 15-year-old students' performance in science, Singapore consistently performs better.

In healthcare, Singapore spends less than half the OECD average, as a proportion of GDP. Yet its people live longer, apart from those in Japan. As society ages, expect the share of healthcare spending to increase considerably.

In policing, the Republic spends slightly above 0.6 per cent of GDP. The Nordic countries spend less, yet Singapore is ranked among the safest countries.

How are these outcomes achieved despite spending less?

INVESTING IN PEOPLE

The Republic recognises that the best way to help people cannot just be through what Member of Parliament Saktiandi Supaat termed a "Robin Hood-style of social transfers". It believes the best way to take care of people is to build their capacity.

For the young, this means a strong educational foundation.

Education is affordable, and at a high quality, across the board. Parents pay just $13 a month, per child, in primary school fees.

Yet a child entering Primary 1 last year would have been subsidised over $130,000 by the time he completes four years of secondary school. This means over $11,000 a year in primary school, and some $15,000 a year in secondary school.

Those in post-secondary education get $15,000 to $22,000 for every year in ITE, junior college, polytechnic or university.

For workers, there are opportunities to upgrade, learn new skills and move up the wage ladder through schemes like SkillsFuture for adult learners, Adapt and Grow for displaced workers to reskill and find jobs, and Workfare to support and top up wages of the low income.

For those who fall behind, there are more targeted helping hands.

These include more housing subsidies, and targeted schemes like KidStart so their children get help to level up from an early age, and Silver Support and ComCare for those with low incomes.

For the elderly, there is help as they navigate their silver years.

By 2025, Singapore will become a super-aged country, with 21 per cent of the citizen population aged 65 years and older. But it hopes to redefine ageing and help seniors stay active through the Action Plan for Successful Ageing, and the National Silver Academy which offers courses for seniors.

This year's $6.1 billion set aside for the Merdeka Generation Package will give seniors born in the 1950s added assurance to help cover their healthcare bills over their lifetimes, on top of current schemes and subsidies.

That quantum - $6.1 billion - is also what the Health Ministry expects to spend this year alone to subsidise patient bills through existing schemes for all citizens.

LONG-TERM PLANNING

Even though rising sea levels are projected to impact the island between 2050 and 2100, Singapore has begun looking at infrastructural plans to protect its coastline.

The long time horizon makes it difficult to project these spending needs, but Singapore is planning early to see what it can do.

While the long gestation period for projects like airport and port expansion exposes them to risks, it is also an impetus for bold planning.

By 2025, Singapore will become a super-aged country, with 21 per cent of the citizen population aged 65 years and older. But it hopes to redefine ageing and help seniors stay active through the Action Plan for Successful Ageing, and the National Silver Academy which offers courses for seniors.

Policies have also been tweaked to help an ageing society better prepare for retirement, such as CPF Life and the Lease Buyback Scheme, as well as MediShield Life and CareShield Life to cover health and long-term support needs.

Such advance planning also means the Merdeka Generation Package is not likely to be replicated in future. Mr Heng noted that this cohort, like the Pioneer Generation, did not benefit from today's social safety nets. They had fewer educational opportunities, and earned less. Today, over nine in 10 Singaporean youth go on to post-secondary education. This is compared with less than two in 10 among the youngest in the Merdeka Generation, and about one in 10 for the Pioneer Generation.

WORKING WITH OTHERS

Whether at home or abroad, Singapore seeks to build stronger partnerships in order to achieve mutually beneficial outcomes, from free trade agreements to defence pacts to tie-ups like the Chongqing Connectivity Initiative, the building of Amaravati, as well as Kendal Industrial Park in Central Java and Iskandar Malaysia.

At home, this involves tripartism - working closely with unions and workers on training and reskilling, among other things. Schemes are also available for firms keen to scale up and venture abroad, or adopt digital technology solutions. The new Bicentennial Community Fund also seeks to catalyse more giving.

RESILIENT REVENUES, FAIR TAXES

The Singapore way has helped shape a resilient range of revenue streams and ensure that taxes are equitable, with middle-income earners paying far less in taxes than they would in other developed economies.

But there is a need to raise revenues to fund rising needs in areas like healthcare. The Health Ministry's expenditure for FY2008 was $2.7 billion. For FY2018, it was $10.6 billion - close to the over $11 billion collected in goods and services tax (GST).

Among OECD members, public health expenditure is projected to rise by almost 5 percentage points of GDP between 2018 and 2060. The median OECD government is estimated to need additional revenues of 6.5 percentage points of GDP by 2060, Mr Heng noted.

By comparison, Singapore expects to raise about 0.7 percentage point of GDP with a planned 2 percentage point hike in the GST rate to 9 per centbetween 2021 and 2025, to fund recurrent spending.

This relatively low rate is possible because Singapore is able to tap returns from its reserves, that were built up over the years as a result of long-term planning whereby surpluses were set aside for a rainy day and future cohorts.

These made possible the fiscal space for the $6.1 billion Merdeka Generation Package. The ability to tap 50 per cent of investment returns also enables the Net Investment Returns Contribution to form the single largest source of revenues ahead of any tax category. It has also enabled the tax system to stay progressive and competitive.

As Second Finance Minister Lawrence Wong noted during the debate on the ministry's budget on Thursday, today, about half of Singapore workers pay personal income tax, and the top 10 per cent of the taxpayers contribute 80 per cent of personal income tax.

Around 40 per cent of companies assessed by the Inland Revenue Authority of Singapore pay corporate tax and around 10 per cent of these companies pay about 95 per cent of corporate income tax.

Taken together, the various elements of the Singapore way have enabled the economy to grow at a steady pace. As Mr Wong noted: "With a strong economy, we will have more resources to create jobs for Singaporeans, and to meet the needs of our people."

This, ultimately, is key to achieve maximum bang for the Republic's buck - and to continue ploughing it back to the people, for the long term.