(Delivered in Parliament on 2 March 2017)

Justifying Revenue and Expenditure

When the Minister for Finance delivered the Budget Statement last week, the announcement which grabbed the most attention was the increase in the price of water by 30%.  Besides the quantum of the increase, what shook people was the suddenness of the announcement and the very short lead time from the announcement in February to its implementation in July.

Yesterday Minister for the Environment and Water Resources gave various reasons for the water hike.  But these reasons are long-standing.  The justifications such as increased costs of production, the need to build more desalination plants and so on, did not come up suddenly.  For the last 17 years that the water price was unchanged, did it not cross the government’s mind before this year that it would want to raise the price of water?

By contrast, there is a two-year lead time for the impending carbon tax, which the government is announcing ahead of its implementation in 2019.  This lead time is welcome, as it will enable businesses and consumers to prepare, such as by strategising and investing in energy-efficient measures.  Coming back to water, why was it not possible to prepare Singaporeans for the increase to take effect in July this year, with an announcement similarly two years ahead of time, in July 2015?  Perhaps July 2015 was not a good time to make such an announcement!

The other statement in the Budget Speech which caused insecurity and unease was at paragraph E.18 – that as we invest more in healthcare and infrastructure, the government would have to raise revenues through new taxes or raise tax rates.

Few people would quarrel with the need to invest more in healthcare and infrastructure.  Our healthcare system is still facing capacity shortages, as seen by the 20 hour waiting times for beds at certain public hospitals; I understand that the waiting times at some hospitals providing Long Term Acute Care are indefinite.  As for infrastructure, Singaporeans will benefit from a more comprehensive rail network which would hopefully ease traffic congestion and provide more efficient connectivity.

Measuring Effectiveness of Schemes, Avoiding Repeated Wastage

One legitimate question to ask, however, is whether there is an effective mechanism to assess whether expenditure that has been incurred has been effective in achieving desired outcomes.

Take for example, the Productivity and Innovation Credit scheme introduced in 2010.  I believe the government’s intention was to design an inclusive scheme with less red tape, which would be easy for businesses to access.  I am aware that businesses are supportive of the PIC scheme, but for various reasons not necessarily related to productivity.  For example, in a 2014 Post-Budget Survey conduced by KPMG, 58% of the 80 senior executives surveyed admitted using the PIC to defray operating expenses instead of using it to raise productivity.

I am not faulting the government for its system design at the outset, as it may not be possible to foresee initially all the ways in which a scheme may be gamed or exploited.   But now that the scheme has run for some years, how effective has the PIC scheme been in achieving its aim of boosting productivity?  The PIC is a huge scheme, with the government putting in billions of public funds.  Do we know whether the results were worth the huge cost?

As it turned out, millions of dollars were also sucked out of the system through fraudulent or dubious PIC claims.  What lessons have we learned from this?  We now read that the SkillsFuture scheme, launched just last year, has also been subject to a potential fraud of $2.2 million already paid out.  While I understand that designing schemes is not a simple process, what lessons has been learned in order to minimize such wastages of public funds?

This year, the Committee for the Future Economy (CFE) has come up with seven broad strategies to tackle the challenges ahead.  Minister Iswaran took us on a tour of some of the key thrusts on Monday.  We have also had such committees to review our economic strategies in the past.  Have we had any review of what had worked in the past and what had not?  For instance, in 2010, we had the Economic Strategies Committee.  The ESC had made recommendations to improve productivity, which the government accepted and implemented.  The aim was to grow productivity by 2 to 3 % per year over a decade, which should bring us to a 30% productivity increase by 2019.  However, after 7 years, productivity improvements are way off target and weak in domestically-oriented sectors like retail and food & beverage.  What lessons have we drawn from here, and can these lessons be applied to the CFE strategies?

After the Budget Statement, several economic roundtable discussions were held.  Various economists expressed concern about fiscal sustainability.  They called for greater accountability on the outcomes of public spending, which they felt was necessary before the need for additional revenues in new or higher taxes should be called for.  At the roundtable organised by the Economic Society of Singapore, SIM University economist Walter Theseira made the following observation: “Every few years, we have a big transformation package.  We spend a few hundred million dollars here, a billion dollars there on different kinds of programmes, but we never really found out years later whether those programmes were any good or not”. (ST 24 Feb 2017).

Since the government looks to the people to raise funds for such expenditures, publicly accounting for the outcomes of spending is warranted.

Fuller Recognition of Revenue

The other issue that has been raised from time to time is whether the government’s revenue from Land Sales should be factored into the budget as a source of revenue.  I raised this matter during the Budget debates 10 years ago, and am glad that other MPs also see the pertinence of raising this question in this year’s Budget debate.  Economists have recently also revived this question in their current discussions on Singapore’s fiscal sustainability.

At the time I made the speech 10 years ago, the revenue from Land Sales was in the region of $4 to $5 billion.  Today, we see the revised Land Sales figure for this financial year to be $11.8 billion, and the projection for the coming financial year to be $8.2 billion.

Tapping on Land Sales to fund annual budgets is internationally-accepted, and practised by other governments.  As our expenditures are expected to rise in the coming years, is it not reasonable to seriously think about utilizing Land Sales revenue to find the budget?  This will reduce the need to tax the people further.

Conclusion

As I mentioned at the start of my speech, few would quarrel with the need to spend more on areas such as healthcare and public transport infrastructure.  The legitimate questions being asked are whether we have done adequate reviews of past and current initiatives to weed out wasteful or ineffective expenditures.  The other issue is whether we have completely recognized our sources of revenue.  Doing so will help ensure that we do not place unnecessary tax burdens on the people.