A FISCALLY SUSTAINABLE FUTURE
Long-Term Fiscal Planning
- Singapore’s ability to plan for the long term is our strategic advantage.
- But the best-laid plans to develop our people and transform our city can only be realised with a sound fiscal plan.
- Our fiscal discipline and prudence gave us the resources to respond decisively to unexpected challenges, such as the 2008 global financial crisis. We must not take this for granted.
Preparing for the Future
- While our nation’s needs are growing significantly, we must continue to take a disciplined and prudent approach.
- We will pursue new investments using a differentiated fiscal strategy, taking one approach for major infrastructure investments, and another for recurrent social and security expenditures.
- First, infrastructure investments.
- Some of these are major, long-term projects, such as the development of Changi East and rail projects such as the Cross Island Line.
- Others, such as infrastructure to protect us against climate change, are contingent on the future state of the world. It is challenging to predict their exact timing and requirements.
- For these large and lumpy expenditures where the benefits span many generations of Singaporeans, paying for them through some borrowing is fairer and more efficient.
- Borrowing, done in a responsible and sustainable manner, will help instil financial discipline and distribute the share of funding more equitably across current and future generations.
- In the 1980s, the Government borrowed to build our first MRT lines.
- Our Statutory Boards and Government-owned companies have also continued to finance many major infrastructure projects through borrowings.
- For the development of Changi East, the Changi Airport Group will be taking up loans to fund its share of the infrastructure investments.
- To lower financing costs, the Government, with the President’s concurrence, will provide a guarantee for Changi East borrowings. This allows us to tap on the strength of the Government’s balance sheet to
this strategic investment. This lowers the cost of borrowing.
- The Government is further studying the option of using government debt as part of the financing mix for long-term infrastructure projects that the Government will be taking on directly.
- Second, for recurrent spending needs in areas such as healthcare, pre-school education and security.
- We must recognise that these are necessary expenditures – to take care of our elderly, give our children a good start in life, and keep Singapore safe and secure for our families.
- Many countries have taken the easier route by funding these recurrent expenditures through borrowing.
- We must not do this, as such borrowing shifts the burden of paying for today’s needs onto future generations.
- That is not the Singapore way.
- A fairer and more robust approach is to meet recurrent spending with recurrent revenues. Hence, we must continually review our tax system to ensure its resilience.
- GST is a broad-based tax that contributes significantly to our fiscal resources.
- Last year, I announced the introduction of GST on imported services to make sure GST collections remain fair and resilient in a digital economy.
- This year, I will tighten the GST import relief for travellers, given rising international travel. For travellers who spend less than 48 hours outside Singapore, the value of goods bought overseas that can
GST relief will be reduced from $150 to $100. For travellers who spend 48 hours or more outside Singapore, the relief quantum will be reduced from $600 to $500. This will take effect from tomorrow. (Refer to Annex E.)
- I will also tighten the alcohol duty-free concession for travellers from three litres to two litres. This will take effect from 1 April 2019. (Refer to Annex E.)
- As I had announced at the previous Budget, we will raise GST by two percentage points sometime in the period from 2021 to 2025.
- When we raise GST, we will ensure that our overall system of taxes and transfers remains progressive and fair.
- We will continue to absorb GST on publicly subsidised education and healthcare.
- We will provide more help to lower-income households and the elderly by enhancing the permanent GST Voucher scheme.
- We will also cushion the impact of the GST increase for a period through a GST offset package. Lower- and middle-income households will get more.
- More details will be announced later.
- Notwithstanding the need to raise revenues in the future, at the core of our fiscal system is our commitment to keep the overall tax burden low.
- We want workers and firms to keep as much as possible of what they earn. This leaves our citizens free to choose how they spend, save, or invest.
- Our main indirect tax, the GST, is not high by international standards, even after the planned increase to 9%. The OECD average is 19%. Among Asia-Pacific countries, many have standard GST rates that exceed 9%.
- Ultimately, a competitive tax regime helps us to attract and retain investments and talent. These in turn help to bring in good jobs for Singaporeans.
- A competitive tax regime is a key anchor to our economic growth, and the best way to sustainably increase tax revenues. I will extend and strengthen tax incentives to enhance our business competitiveness.
to Annex E.)
- At the same time, I will make some adjustments to further enhance the progressivity and resilience of our tax system. The details of these changes are in the Annex. (Refer to Annex E.)
- The Government will continue to plan ahead for the long term. My commitment to Singaporeans is that our overall taxes and transfers system will always remain fair, progressive, and pro-growth.
FY2018 Budget Position
- Let me now summarise our overall budget position.
- For FY2018, we expect an overall budget surplus of $2.1 billion, or 0.4% of GDP. This is a $2.7 billion increase from the $0.6 billion deficit forecasted a year ago. This was due to the unexpected two-year suspension of the
Kuala Lumpur-Singapore High-Speed Rail Project and higher-than-expected Stamp Duty collections.
- When we exclude the Government’s top-ups to funds and Net Investment Returns Contribution from past reserves, we expect a basic deficit of $7.0 billion, or 1.4% of GDP. FY2018 was hence an expansionary budget.
FY2019 Budget Position
- For FY2019, our budget position remains expansionary, with a basic deficit of $7.1 billion. Ministries’ total expenditures are expected to be $80.3 billion, 1.6% higher than in FY2018. We are setting aside funds to meet
Singaporeans’ long-term needs, including $6.1 billion for the Merdeka Generation Package and $5.1 billion for long-term care support. On the whole, we expect an overall budget deficit of $3.5 billion, or 0.7% of GDP. (Refer to Annex F.)
- We have sufficient fiscal surplus accumulated over this term of Government to fund the overall deficit in FY2019. There is no draw on past reserves.