No slack in Singapore's Budget, says DPM Lawrence Wong

SINGAPORE — There is no "slack" in Singapore's Budget and, in fact, without the tax moves announced in 2022 and 2023, Singapore would not be able to meet its spending needs, Deputy Prime Minister and Finance Minister Lawrence Wong said on Friday (Feb 24).

The minister was responding to assertions from some quarters during the Budget debate that the Government is taking too much and giving back too little.

In particular, Progress Singapore Party (PSP) Non-Constituency MP Leong Mun Wai had said that the Government had billions of "excess fiscal resources" each year.

As $72 billion had been spent to fight Covid-19, of which $40 billion came from past reserves, Leong inferred that there was $32 billion of spare resources lying around.

"But that is mistaken," said Wong, saying that Singapore's tight fiscal position is very much a reality over the medium term, and this is why the Government decided to proceed with the second step of the increase in goods and services tax (GST) from eight per cent to nine per cent in 2024 as planned.

"Deferring this will only store up more problems for the future and will leave us with less resources to take care of our growing number of seniors," he added.

Explaining why there is no fiscal slack, he said that during the pandemic, projects were deferred, and many planned and budgeted activities could not be carried out.

Hence, the Government reallocated these resources towards the more urgent task of fighting Covid-19.

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Now that Singapore is in Disease Outbreak Response System Condition green, these funds have to be channelled back to what they were originally meant for, he added.

Leong had also pointed to the injection of $24 billion into endowment and trust funds in the 2022 and 2023 financial years as more proof that there was "slack" in the Budget.

Again, this is not accurate, said Wong.

All spending in the Budget, be it direct expenses or top-ups to funds, are resources set aside to meet real needs — be it to strengthen safety nets, improve productivity or build up critical infrastructure.

He added that funds are set up to meet specific funding commitments that are needed today and are stretched out over multiple years.

For example, the GST Voucher fund and Progressive Wage Credit Scheme fund require top-ups when the parameters of the underlying schemes are enhanced, as was done in 2022, and in 2023's Budget.

The monies in these funds are already being drawn down today, and not just in the future.

The broader trend

Wong urged the House to assess Singapore's fiscal position not by considering the year-to-year changes, but the broader medium-term trend.

In this regard, government spending is expected to reach 20 per cent of gross domestic product (GDP) by 2030, up from the current 18 per cent, he said.

In fact, over the past decade, government spending had risen by about three percentage points of GDP from around 15 per cent to 18 per cent today.

So, to keep it at 20 per cent of GDP by the end of the decade already requires some moderation in spending increase compared with past trends, he added.

He said this would not be easy to do, and the projections have not yet taken into account additional spending that may arise from new policy initiatives.

Wong also rebutted Leong's suggestion that the Government had not been prudent in its spending, because expenditure has exceeded $100 billion compared with the pre-Covid-19 levels of about $85 billion.

"What a large increase, he says. But surely he must understand that nominal spending will increase with inflation and with a growing economy," the minister added.

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Other revenue options

He also went through the other revenue options suggested by MPs, such as wealth tax, corporate tax and land sales revenue.

On a net wealth tax suggested by the Workers' Party, he said that many countries had done away with such a tax as it was difficult to implement effectively.

The very wealthy were able to avoid paying such taxes through tax planning, he added.

This is the case even in Switzerland, which is often cited as a model for such taxes, he said.

Wong also noted that the Swiss collect about two per cent of GDP in revenues through such taxes, which is comparable with what Singapore collects in wealth taxes from property tax and stamp duties.

As for increasing corporate taxes, he said that with the Base Erosion and Profit Shifting global agreement to reform international tax rules set to kick in, multinational enterprises (MNEs) are already asking the Government what incentives Singapore can offer to keep them here.

"This is not just a hypothetical worry. The MNEs are already making this clear to us in our consultation sessions with them," he added.

"We cannot afford to price ourselves out of the competition, or else Singapore and Singaporeans will end up the biggest loser."

PSP Non-Constituency MP Hazel Poa had also suggested spending the proceeds from land sales by treating it as revenue divided over the period of the lease.

To this, Wong said it is not likely to generate more revenue than what is already obtained today from land sales over a period of time.

Currently, when the state sells land, the financial proceeds go into the past reserves and are invested to generate a stream of income into the Budget through the Net Investment Returns Contribution (NIRC).

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He said: "The effect is that we will be able to spend more than one per cent of the proceeds each year, because the reserves are being prudently invested and generate long-term returns, half of which we get to spend as revenue.

"And we believe this is a more sustainable way of deriving value from the land we own, through the NIRC that benefits us now and in the future."

But Poa, speaking at the debate, said this was possible only with a 200 per cent return from investing the reserves. 

To this, Wong said Poa's suggestion may bring more returns in the short term and result in a "sugar rush", but the NIRC framework, which allows the Government to spend up to 50 per cent of the net investment returns managed by Singapore's investment entities, would yield more in the long run and be more sustainable.

"I have gone through three alternative revenue options. But the fact remains that it is very hard for any of them to replace the GST. And given our growing needs, it is not a matter of choosing between GST and any of these alternatives," he said.

"Contrary to what the Workers' Party believes, we will need all of them and a mix of taxes — on income, consumption and assets — to provide sound and stable public finances in Singapore. "

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This article was first published in The Straits Times. Permission required for reproduction.