13th Parliament Recap: Budget
By Justin Chua
The Government's annual and supplementary budgets had dominated the news this year. There were four in total, which is unprecedented.
The Government spent heavily to tackle issues arising from Covid-19. Resources were allocated not only for frontline workers and agencies, but also for workers and businesses who were hit hard from the pandemic's economic fallout.
Despite the hefty expenditure this financial year, how did this term of government use our taxes in the previous years?
Singapore's economic strategies
The largest initiative on the economic front in the current term was the formation of the economic committees and councils. The Council of Future Economy (CFE), convened in January 2016 and co-chaired by Ministers Heng Swee Keat and S Iswaran, sets the Government's broad economic principles for the next decade.
Members of the committee hail from the Government, private sector and the labour movement.
After the CFE presented its report in February 2017, the Future Economic Council (FEC) was created. It was tasked to implement the committee's recommendations and took over the responsibilities of the previous economic council, the Council For Skills, Innovation And Productivity (CSIP).
The Government created economic committees from time to time if the need calls for it.
1985: When Singapore entered its first post-independence recession that year, then Minister of State for Defence and Trade and Industry Lee Hsien Loong chaired the Economic Committee to examine Singapore's post-recession exit strategy.
1997: To tackle issues after the Asian Financial Crisis, then Prime Minister Goh Chok Tong established the Economic Review Committee to restructure the economy and was chaired by then Deputy Prime Minister Lee.
2009: Then Finance Minister Tharman Shanmugaratnam chaired the Economic Strategies Committee to restructure the economy for the next decade.
The FEC and CFE have similar names but different functions. The CFE is a committee consisting of stakeholders from different backgrounds identified by the Chairman to prepare an economic report.
Rather than drafting reports, economic councils were mainly tasked to steer and implement economic strategies devised by the committees. The Government had established economic councils since at least a decade ago to tackle Singapore's future economic challenges. You can read about them here (link to stats and facts - seanthaparl_economic council)
Here are notable moments on the economic policy front:
Net Investments Returns Contribution (NIRC)
In 2016, the NIRC became the largest contributor to the Government's Budget for the first time. The NIRC comprises two components: half of the investment returns from Net Investment Returns (NIR) and another half from income received from the Net Investment Income (NII).
This is because Temasek was included into the Net Investment Returns (NIR) framework after the Constitution was amended in 2015. When the framework was first introduced in 2008, it was meant to include the portfolios of MAS, GIC, and Temasek.
However, the portfolios were not included in the NIR due to methodological issues in predicting the long term returns of Temasek's assets, which made it harder to assess the revenue available for government spending.
Former NMP Randolph Tan also said that Temasek's assets were riskier compared to the other two portfolios and had experienced a drop in overall net portfolio value from 2000 to 2003. As such, it was prudent of the government to exclude Temasek's assets from the onset.
The constitution amendment was eventually introduced in 2015 as a prediction model between Temasek and the Government was developed , as well as to raise revenue for higher expenditure required in the healthcare, education, and infrastructure sectors. According to then Finance Minister Tharman Shanmugartnam, adding Temasek's assets into the NIRC will increase revenue for the Government's budget from two per cent of GDP in 2015 to around three per cent until 2020.
Before the NIRC was included in the Government’s budget, corporate income tax was the chief source of revenue. The NIRC is expected to contribute $18.63 billion for the Government's operating revenue this year, around $4 billion more compared to $14.37 billion for Budget 2016.
Merdeka Generation Package (MGP)
First introduced during the 2018 National Day Rally and elaborated in the Budget last year, the Government announced a $8 billion Merdeka Generation healthcare package for 500,000 senior citizens born from 1950 to 1959.
The benefits provided by this package are mostly healthcare subsidies for citizens who are considered part of the “Merdeka Generation”. Singaporeans who were borderline left out from the earlier-introduced Pioneer Generation Package (PGP) can now be included in the MGP. The package is also extended to citizens who fell short from eligibility for the Pioneer Generation Package (PGP).
The PGP was introduced during the previous term of Parliament in 2014, to provide healthcare aid for these 450,000 senior citizens. The government expects to spend $9 billion on this package, which is $1 billion higher than the MGP.
Both packages have similar names and policy objectives: to express the nation's gratitude for the earlier generations’ contributions in nation-building and subsidise their healthcare.
However, Workers' Party chief Pritam Singh criticised the MGP as a political maneuver for the incumbent government to win elections.
A quick comparison below shows that both packages provide similar kinds of healthcare benefits but those under the PGP enjoy higher subsidies.
RELATED STORY: The Buzz over Healthcare Costs: Got money to see doctor?
Impending increase in Goods and Services Tax (GST)
The government collected $11.18 billion in GST in 2019, accounting for around 15 per cent of the Government's operating revenue. First introduced in 1994 at 3 per cent, the GST was last raised from 5 to 7 per cent in 2007. Then, in Budget 2018, Mr Heng announced that the tax will be raised in 2021, up to 9 per cent by 2025.
He said the increase is needed because “even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap.”
Due to Singapore’s weak economy from the Covid-19 fallout, Mr Heng announced in his Unity Budget speech that the impending GST hike will not take place next year.
At the same time, he laid out the government's future plans when the GST hike is confirmed. The Government has set aside a $6 billion dollar Assurance Package in the Unity Budget to mitigate the impact of the hike. The package will give eligible Singaporeans a cash payout ranging from $700 to $1,600 over five years. The GST-Voucher Scheme will also be enhanced to provide offsets to Singaporean households.
Raising GST can come at a political cost for governments, as noted by PM Lee, who cited the defeat of Malaysia’s former ruling coalition Barisan Nasional in the 2018 general election due to higher costs of living from a GST hike.
But Singaporeans empathise with the government for raising taxes to fund long-term needs, according to a survey by government feedback channel REACH. Around half of the citizens surveyed were concerned but supportive of the tax hike.
However, there were more nuanced arguments against the hike. Economist Donald Low suggested raising the NIRC limit to 60 per cent which would bring in an additional S$3 billion for the Government annually. This functions the same way as a 2 per cent tax hike.
The WP called for the release of more public information on government revenues so it can make a more informed judgment. All of its MPs voted against the 2018 Budget because of the GST hike and their position remains unchanged.
Although the GST will not be raised till at least 2022, GST for imported services has started since January this year. Companies with more than S$1 million in earnings and earn at least $100,000 worth of digital services from Singapore customers during a 12-month period will need to pay GST. These services used to be exempted from the tax.
Industry Transformation Maps (ITMs)
Industry Transformation Maps (ITMs) were first introduced as part of the $4.5 billion Industry Transformation Programme (ITP) in Budget 2016. These maps help industries to increase productivity by equipping workers with latest skills, adopting new technologies and helping companies to expand their outreach world-wide.
These 23 industries, which contribute 80 per cent of Singapore's GDP, were categorised into six sectors so that they can learn to work together and function more productively.
Different stakeholders such as the labour movement and trade associations will come up with strategies, and later carried out by a government ministry or statutory board.
The maps were released over two years with the latest plan, the Early Childhood Sector ITM, introduced in March 2018. These plans will also help to create more jobs. For example, the Infocomm Media ITM aims to hire around 30,000 more workers between 2017 and 2020.
During the Unity Budget speech, Mr Heng said the ITMs helped to increase productivity from 2.2 to 2.6 per cent annually from 2016 to 2019, which is higher than the previous three-year period.
In the same speech, Mr Heng also introduced the “Transformation and Growth” strategy, which helps small and medium enterprises to use digital technology for their businesses. Plans for 10 industries have been drawn up thus far.
RELATED STORY: Budget 2020 roundup
Drawing of Past Reserves
The Government will be permitted to draw up to $52 billion from the Past Reserves to fund economic programmes this financial year, which amount to more than half of the Government’s budgeted operating revenue for FY2020 and 13 times more than what it withdrew in 2009. The total budget is $92.9 billion.
This comes after the Government had President Halimah Yacob’s in-principle approval to use the resources. Three separate requests were made this year between March and May 2020 to fund programmes announced in the Resilience, Solidarity and Fortitude Budgets.
This was only the second time in the country's history that Past Reserves were drawn to fund the government's operating revenue for a financial year.
In 2009, $4 billion was drawn to fund programmes to mitigate the impact of the 2008 Global Recession. Then Finance Minister Tharman Shanmugaratnam announced the Resilience Package amounting to $20.5 billion based on five components, which was part of the state's annual budget that year :
Saving jobs ($5.1 billion)
Stimulate bank lending ($5.8 billion)
Enhancing business cash flow and competitiveness through tax grants ($2.6 billion)
Supporting families with payouts ($2.6 billion)
Investments on healthcare, education, and infrastructure ($4.4 billion)
The Government sought the President's in-principle approval to use the past reserves for two policies. It asked for $150 billion to back the Deposit Guarantee Scheme but was eventually not triggered.
It also sought approval to draw $4.9 billion to fund the Jobs Credit Scheme. Eventually, only $4 billion was withdrawn, marking the first time the Government dipped into the nation's fiscal stockpile.
It is expected that this time, the approximately nine-figure sum was drawn to prevent an output loss of five percentage points, or $23.4 billion per year, over 2020 and 2021.
What happens to the reserves after drawing them?
In 2011, the Government fully returned the Past Reserves it drew in 2009, which was still within the same term of Parliament. While there is no legal requirement for the Government to return money drawn from Past Reserves, Mr Tharman said it was only responsible and prudent for the Government to do so once its fiscal position is stable.
Said Mr Tharman: “This is the way to uphold the philosophy that has enabled us to build up and maintain our reserves, and derive from it income each year to meet our strategic needs.”
A strong economic recovery after the 2008 recession allowed the Government to fully return the reserves. Mr Heng noted that this time, economic recovery from the fallout of Covid-19 will be less certain.
With a bleaker post-crisis outlook compared to 2008, and with larger reserves drawn, the Government is now not “definitive” when and whether will reserves could be returned.
13th Government's Budget(s)
Unlike in the past, however, this government is expected to face a budget deficit by the end of FY2020.
SOURCE: MINISTRY OF FINANCE
Data from the Finance Ministry revealed a fiscal surplus of $18.67 billion from 2016 to the end of FY2019 accumulated by the Government. Initial estimates suggest that the Government could still have a $7.72 billion surplus even after including an estimated $10.95 deficit for this financial year.
But four budgets down the road, Singapore is expected to face a deficit of $74.3 billion instead.
This might be problematic for the current government as the Constitution bounds each term of government to keep a balanced budget. This means its current reserves — surpluses accumulated during the term of government — cannot have a deficit at the end of its term.
You can read HERE for more details on Budget allocation during this term of Parliament (link to stats and facts - seanthaparl_budget)
RELATED STORY: Budgeting is not just for working adults
Tackling Crises with Economic Packages
This financial year will be historical not only for the immense fiscal resources spent, but also for multiple off-budget supplementary packages.
The last time this happened was in 2001, when the Government announced two such packages amounting to $2.1 billion and $11.3 billion in May and October respectively, after the customary one in February — to help Singapore tide through a recession.
Before that, then Finance Minister Richard Hu also introduced two supplementary packages in 1998 in response to the Asian Financial Crisis: a $2 billion package in June and another $10.5 billion package in November.
The four supplementary packages introduced by the ninth parliament is the most ever issued by a single sitting Parliament in Singapore.
Two supplementary packages were issued by the 10th parliament. In 2003, the economy took a hit from the aftermath of the Iraq War and SARS. DPM Lee, who was also Finance Minister, introduced another two off-budget packages: a $230 million SARS Relief Package in May and a $1 billion Central Provident Fund Rebates Package in September.
This year, DPM Heng's supplementary budgets used the Past Reserves mainly to save jobs, households and the economy. Fiscal resources will be distributed through the Stabilisation and Support Package and the Care and Support Packages.
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After the second package was announced on 12 October 2001 by then Deputy Prime Minister Lee Hsien Loong, Parliament was dissolved six days later on October 18 and general elections were held on November 3.
This is similar to Singapore's current situation, as Singapore prepares to go to the polls on 10th July 2020.