Ministry of Finance Committee of Supply Debate 2017
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MINISTRY OF FINANCE COMMITTEE OF SUPPLY DEBATE 2017 SPEECH BY SENIOR MINISTER OF STATE (FINANCE) A. ACCOUNTABILITY Office of Budgetary Responsibility A1 Madam Chairperson, Mr Low Thia Khiang suggested that we set up an independent Office for Budget Responsibility (OBR), such as those in other countries, and he referred specifically to the OBR in the UK. A2 While it is always useful to look at what other countries do, it is important to remember that what is done in one country is not always necessary or relevant to another. In determining whether to adopt institutions similar to those elsewhere, it is also important to understand the context in which those institutions were established. A3 The OBR was set up in the UK in 2010. And the context in which it was set up was as follows: 1 a. The new Conservative-Liberal Democrat coalition government had just taken over from the Labour government after the general election. They were burdened by a huge deficit inherited from the previous government. There was little confidence in government economic and fiscal planning. b. This can be seen from the speech of the then Chancellor, Mr George Osborne, when he announced the setting up of the OBR. This is what he said: c. “So today, less than a week after taking office, I want to explain some of the early arrangements for dealing with the fiscal crisis left by the last Government. First, let me just tell you some of the stark facts. Last year, our budget deficit was the largest ever it has been in our peacetime history. This year, it is set to be among the largest in the world. According to the IMF and the European Commission, it will be the largest in the G7 and the largest in the European Union. 2 This is the legacy of thirteen years of fiscal irresponsibility.” Mr Osborne went on to highlight the urgent need to tackle the deficit and said that the first part of their approach was to boost credibility and confidence in the UK’s fiscal framework. In that context, he said the UK urgently needed a full, independent assessment of how bad their problem really was. He went on to say, and I quote: “Over the last 13 years the public and markets have completely lost confidence in government economic forecasts. The last government’s forecasts for growth in the economy, over the past ten years, have on average been out by [GB]13 billion. Their forecasts of the budget deficit three years ahead have on average been out by [GB]40 billion. Unsurprisingly, these forecasting errors have almost always been in the wrong direction. 3 The conclusion is clear. We need [a] long-lasting change in the way we put together the budgets in this country. The final decision on the forecast has always been made by the Chancellor, not independent officials. And that is precisely the problem.” Mr George Osborne’s view was that a significant part of the problem in the UK was because “the temptation to fiddle the figures, to nudge up a growth forecast here or reduce a borrowing number there to make the figures add up ha[d] proved too great”. A4 So there you have, in the words of the UK Chancellor, the context of the OBR and why the UK set it up – which is huge deficits and unreliable budgeting. 4 A5 Likewise, a number of OECD countries1 have set up budget offices or fiscal councils in the aftermath of the global financial crisis “…as the surge of government deficits and debts” left those countries worried that fiscal rules were insufficient and “governments wanted to boost the credibility of their [financial] promises” 2 to financial markets. A6 That is not the case here in Singapore. Our situation is very different. Our Government has a strong track record of sound finances. a. While many other countries are in a net debt position3, we have consistently spent within our means and achieved a balanced budget in each successive term of Government. A good example is the Pioneer Generation Package, announced in Budget 2014. We set aside $8 billion dollars from Current Reserves to help fund this. 1 Source: Pg 11 - http://www.oecd-ilibrary.org/governance/principles-for-independent-fiscal-institutions- and-case-studies_budget-15-5jm2795tv625?crawler=true 2 Source: Pg 2 - http://budgetresponsibility.org.uk/docs/dlm_uploads/Lecture_May-2013.pdf 3 A positive net debt position is where liabilities exceed assets 5 A7 To ensure the long term sustainability of our expenditures, this Government has consistently also taken the approach of preparing ahead for spending needs. a. This Budget is a good example of this approach. Minister for Finance has highlighted the longer term increase in healthcare and infrastructure needs and has signalled that we will be reviewing revenue measures to meet this expenditure. This is the right approach – spending prudently and effectively, and growing our revenues fairly and sustainably. A8 We have in place a strong system of fiscal rules and safeguards to ensure fiscal sustainability. This is provided for in our Constitution. a. The Government is required to seek Parliament’s approval for its expenditures during each year’s Budget. i. The annual Budget Debate and the Committee of Supply provide the opportunity for MPs to raise questions and scrutinise Government policies and programmes. 6 ii. Parliament is supported by the Estimates Committee 4 , which examines the Government's budget. b. The Elected President, advised by the Council of Presidential Advisors, holds the second key to our reserves. At each year’s budget, the President may veto the Budget if he is of the opinion that it is likely to draw on Past Reserves. This effectively instils discipline for the Government to achieve a balanced budget over each term of office. c. The Government’s accounts are audited by the Auditor- General’s Office (AGO). i. The AGO’s findings are reported to the Public Accounts Committee, which can call on the relevant agencies to explain lapses or take corrective actions. 4 It examines the Government's budget and reports what economies, improvements in organisation, efficiency or administrative reforms consistent with the policy underlying the estimates, may be effected and suggests the form in which the estimates shall be presented to Parliament. 7 A9 The net result is that markets have confidence in our system. And this can also be seen from the fact that we are among the few countries today that continue to enjoy AAA credit rating.5 Government-linked Companies A10 I move on to Mr Leon Perera’s cut. He had referred to the recruitment of former civil servants in Government-Linked Companies (GLCs). I should at the outset explain that the GLCs operate as commercial entities. The Government does not get involved in the recruitment of their senior management. That is something which they do very much as a matter of their own needs. A11 So GLCs, like other companies, recruit senior managers based on their circumstances and their need. At the more senior levels, experience can cover a wide range of domains. It may mean industry-specific knowledge, or functional expertise, like recruiting a finance professional to be the CFO. It may encompass broader management experience in organisational transformation, or leadership qualities. 5 The UK’s current credit rating is AA from Fitch and S&P, and Aa1 from Moody’s. It was downgraded from AAA by S&P in Jun 2016 (after Brexit), Fitch in Apr 2013, and Moody’s in Feb 2013. The downgrade from AAA came even after the set-up of the OBR in 2010. 8 A12 At the end of the day, it is for each company to decide what is most relevant or useful for it. A13 Mr Perera might have been under the impression that GLCs recruit only from the public sector, but that is not the case. If you just take a sampling, for example: a. We have seen leaders who are promoted from within organisations, such as Singtel’s Group CEO Ms Chua Sock Koong, who first joined Singtel in 1989. And then we have SIA’s CEO, Mr Goh Choon Phong, who joined SIA in 1990. These are people promoted from the ranks. b. Then you also have lateral recruitment. There are leaders who are recruited from other companies, like Mr Tan Chong Meng, who was with Shell before joining PSA, and Mr Piyush Gupta who held various senior management roles at Citigroup before joining DBS Group as CEO. Also Mr Neil McGregor, who will succeed Mr Tang Kin Fei as Sembcorp Group President and CEO with effect from April 2017. Mr McGregor is currently the Senior MD and Head of Energy and Resources at Temasek 9 International. He was previous CEO of Singapore LNG Corporation and MD of YTL PowerSeraya. A14 As you can see, GLCs recruit from diverse sources. The civil service may be one of those sources, but it is not the only source. At the end of the day, GLCs recruit just as other companies do – which is that you look for the right talent for the right need, and you recruit based on merit. B. SOCIAL B1 I move on now to some of the other cuts. Some of the Members have also asked how we set the eligibility criteria for our social schemes. Mr Edwin Tong and Mr Murali Pillai asked if our means- testing criteria are sufficiently flexible to accommodate diverse circumstances. Assoc Prof Randolph Tan asked if our schemes can be made more targeted. The queries raised by the three members reflect the wide and diverse views on how social schemes can be designed.