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 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:

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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.

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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.

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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 . 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.

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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.

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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 ’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

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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 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.

B2 In designing our social schemes, we are guided by a few key

principles.

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a. First, what is the objective of the scheme? If it is a scheme to

support the needy, the eligibility criteria will be set to target the

intended beneficiaries. If it is meant to benefit more, the criteria

will have to be set for a broader coverage.

b. Second, is the scheme design fair and progressive? We want to

make sure that those with less receive more support. But at the

same time, we want to design the scheme in a way that does not

erode our societal values of family and community support and

more importantly, the value of a strong work ethic that

Singaporeans share.

c. Third, is the scheme sustainable? We have a responsibility to

ensure that each generation does not burden the next with

unsustainable spending.

B3 That is why we have schemes with different objectives to support

Singaporeans in different circumstances and with different needs.

This is our approach of providing gradated tiers of support, so that

every Singaporean can benefit from our social schemes in one way

or another.

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B4 We have schemes that support strategic objectives, such as better

education and health outcomes. These cover all Singaporeans,

regardless of income or wealth. Those with lower incomes receive

more assistance, which should be the case, but Singaporeans

across the board receive some support.

a. For example, eligibility for the SkillsFuture Credit, the Pioneer

Generation Package, and the Marriage and Parenthood

Package is not dependent on income or wealth.

b. For schemes such as child care, education, and some

healthcare subsidies, all Singaporeans can receive benefits, but

those with lower incomes generally receive more assistance,

which should be the case.

B5 We also have schemes that are more targeted. Some provide

benefits not just to the lower-income, but also the middle-income –

for example, subsidies for housing and intermediate and long-term

care. Others are more tightly scoped for those who need more help.

These can range from MOE’s Financial Assistance Scheme, the

Workfare Income Supplement, and the Silver Support Scheme. By

the way, the Silver Support Scheme is not for all HDB dwellers, but

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only for seniors who have had low income through life, and now

have little family support. Likewise, ComCare and Medifund are

safety nets for those in need.

a. Assoc Prof Tan spoke about the “broad” coverage of the GST

Voucher (GSTV). The GSTV has different components, each

with a different objective. For instance, the GSTV – Cash

payment is meant to help the lower-income offset some of the

cost of daily living. The eligibility criteria are deliberately set such

that coverage is broader than schemes like ComCare and

Medifund which target only the very needy. In this way we can

cover more Singaporeans with lower income.

b. Meanwhile, the GSTV – U-Save is meant to help both lower and

middle-income households offset some of their utilities

expenses. By extending the benefit to eligible HDB households,

we cover about 70% of properties, including the middle-income

group.

B6 If we put together all our different social schemes, we have a

progressive social system where support is extended to all, but

those with greater need receive more. I agree with Prof Tan’s

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caution that we need to avoid a creep towards all schemes giving

something for everyone. By careful design, we can have a system

that is sustainable.

B7 Mr Murali and Mr Edwin Tong raised thoughtful points about our

current means-testing system. Broadly speaking, our means-testing

criteria consider income or wealth, or a combination of both, in order

to determine how much support to give. For some schemes, we also

consider the number of dependents in a household, with per-capita

means-testing criteria. This is fair, and helps us target our schemes

at those who need more assistance.

B8 Nonetheless, we recognise that no criterion is perfect. Each come

with trade-offs. For instance, a wealth criterion that requires an

individual to report his personal savings may be a more accurate

assessment of his wealth, but that would require the citizen to apply

for benefits rather than to receive them automatically. The Annual

Value of property criterion, which does not need to be separately

reported, allows us to deliver benefits automatically.

B9 Different trade-offs arise with other means-testing criterion. I thank

Mr Murali Pillai for pointing out the limitations of using household

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income and for his suggestion to migrate to family means-testing.

Even if data analytics can map our family trees based on

administrative data like births, deaths, marriages, and divorces, it

may not fully capture family relationships, which can be complex

and fluid. The Government is also not privy to family dynamics.

B10 Hence, to date, the household income remains the best available

proxy for family support. But we will keep in mind good and practical

ideas on how to improve on this, and I thank the members for their

suggestions.

B11 There is another benefit of household means-testing. It enables us

to make it more convenient for Singaporeans to benefit from our

social schemes, as applicants do not need to provide information on

family members who do not stay with them.

B12 Mr Edwin Tong also spoke about schemes that do not apply to those

who live in private housing.

a. Our underlying principle is to provide support according to need,

and those in private housing are generally better off than those

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in public housing. Nevertheless, there are schemes which

extend to those in private housing.

i. For example, all Singaporeans, including those who live in

private housing, can receive retraining support, subsidies

for inpatient and outpatient care, and preschool and

education subsidies. Education can be quite significant. For

instance, a child entering primary school in 2016 would

stand to benefit from over $100,000 (in today’s terms) in

education subsidies by the time he or she completes

secondary school. 6 With post-secondary education, it is

even more.

b. When property is taken into consideration, many schemes

consider the Annual Value or AV, with a threshold of $13,000

and/or $21,000. The AV is reviewed annually.

B13 An AV threshold of $13,000 already covers all HDB flats, while the

AV threshold of $21,000 covers about 80% of residential properties,

including some lower value private properties. This means only

those who live in private properties with AVs in the top 20% are

6 FY2016 cost. 16

excluded. In short, while there is always room for improvement,

what we have today is a system that is fair and inclusive.

B14 At the same time, we exercise flexibility and will consider appeals

on a case-by-case basis. Those in genuine need of help, will receive

help.

a. Mr Edwin Tong highlighted cases in which a resident may be

living in a private property under extenuating circumstances, for

instance, renting only one room or living with friends in a private

property on goodwill terms. For these, if they have specific

needs, the best approach would be to appeal to the relevant

agencies, which will consider the various cases on a case-by-

case basis and on their merits. There may also be schemes at

the constituency level that can be tapped on, and these can be

checked at the respective constituency offices.

B15 Mr Edwin Tong has also highlighted that “HDB dwellers receive on

average about 4 times the amount of Government transfers when

compared to private estate dwellers in 2016”. I would like to clarify

that this is correct if you compare the transfers received by 1 and 2

room HDB flat residents with those living in private properties. That

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is a reflection of our progressive system. But if you take into account

other 3, 4, 5 roomers, then the percentages or ratios will be different.

B16 We have been able to achieve good social outcomes, including

when compared to other countries:

a. For example, we have one of the highest home ownership rates

in the world. More than 90% of Singaporeans, including many

young Singaporeans, are homeowners.

i. Compare this to Britain, for example, where the rate of

homeownership among those aged 25-34 years has fallen

by about 20% in the past decade, from 59% to 37%7.

b. Our education system provides our students with a good

foundation. Our students consistently do well in many

international education rankings. But besides developing our

students intellectually, we have also placed a lot of emphasis on

values and character development, as part of holistic education.

7 Source: Pg 10 – “Fixing our broken housing market”, Department for Communities and Local Government, UK. 18

c. Our healthcare system is recognised for providing good quality

and affordable care in a sustainable way. The Bloomberg

Healthcare Efficiency Index, which considers life expectancy,

and total healthcare costs per capita and as a percentage of

GDP, places us near the top consistently.8 We don’t claim to

have the best system, but we have done quite well over the

years.

i. Going forward, we will need to manage rising healthcare

costs, while helping older Singaporeans age well.

B17 The government will continue to improve our social programmes

and schemes to foster a caring and inclusive society. But the

government cannot achieve this outcome alone. As the Finance

Minister has stressed in his Budget speech, we will need to work in

partnership with community organisations and individuals,

especially since many of our social challenges are complex and

multi-dimensional.

8 https://www.bloomberg.com/news/articles/2015-11-30/health-care-check-up-whose-system-is-least- efficient- 19

C. CONCLUSION

C1 Madam, allow me to conclude.

C2 One key theme has recurred in these discussions. It is about the

role of Government in catalysing growth and building a strong

and resilient society. And we will do this within a credible and

trustworthy system of checks and balances.

C3 We have made good progress in these areas, and will continue

to refine and improve. We are committed to work in partnership

with our businesses, the unions and citizens in this journey.

C4 Thank you.

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