By Chris Kuan
The Straits Times reported that 10 out of 26 MPs who spoke during the Parliamentary Budget debate on 4 April 2016 repeatedly called for cautious spending. They expressed concerns that the healthy balance sheet, which projects a surplus of $3.45 billion, could inflate expectations among Singaporeans for more spending in the future.
So here we go again. No doubt these MPs are brandishing their credentials as fiscal conservatives but every year, the Budget debate appears to be conducted in a fog, where the true substance of the Budget and hence the government’s actual fiscal position is masked from view.
The Budget Unmasked
The Budget, presented on 24 March 2016, like every Budget, provides the total revenue and expenditure of the government, including the net investment returns contribution, derived from 50% of the expected long-term rate of real returns on the net assets of the reserves, which is a revenue, and special transfers to endowments, which are expenditures. The annual Budget position is provided in the following table.
This is what the government presented to Parliament, hence the public.
However, in 2015, Singapore’s fiscal position received an IMF assessment under the Article IV consultations (see here: https://www.imf.org/external/pubs/ft/scr/2015/cr15199.pdf). The findings are represented as a percentage of GDP—the table below converts the ratio into dollars and provides the difference between the Budget and the actual fiscal position; the face behind the mask so to speak.
The actual fiscal position showed that the government is running much greater surpluses than it presented in the Budget and this has been the case at least since 1990, the furthest back the data series ran in the IMF website.
Total revenues expressed as ratios to GDP are provided in the following table in which I have added the net investment returns contribution to the operating revenues in comparison to total revenues reported by the IMF assessment.
This shows that the Budget has understated the total amount of revenues by a wide margin. This is largely due to the omission of what the IMF termed as net acquisition of non-financial assets, which is land sales revenue in Singapore speak.
Next, total expenditures expressed as ratios to GDP in which I have added special transfers to total expenditures in the budget.
The series shows that the Budget has mostly overstated expenditures, although in recent years it has understated marginally. This is due to the treatment of special transfers to endowments which is represented as an expenditure in the Budget. However, since only interests earned in the endowments are spent, then the special transfers to endowments are really savings not expenditures. This is certainly the view of Mukul G. Asher and Chang Yee Kwan at the Lee Kuan Yew School of Public Policy when they wrote:
……government transfers to various endowment funds are reported as a component of fiscal expenditure. Again, this is an anomaly, as such transfers accrue to national savings and only those actually spent in a given fiscal year should be classified as expenditure.
In the Article IV consultation, the IMF wrote
there is scope to provide more clarity of the coverage and meaning of the reported fiscal balance. Several items including the government’s investment income and intra-government transfers via special funds and programs and land sales, require adjustments to be made to the fiscal balance to obtain a macro-economically relevant measure of the fiscal position.
policy discussions could be enriched by supplementing the budget presentation with an alternative based on the overall fiscal balance in line with the GFSM. This would clarify the additions to the government’s fiscal reserves implied by the budget. In so doing, it would reveal the budget’s implications for fiscal sustainability and evolution of fiscal reserves.
In other words, without the crucial supplementary information and necessary adjustments required of the extremely large items affecting the overall fiscal position, any debate or discussion in or out of Parliament of the effect of revenues and expenditures on the nation’s finances is a akin to “sailing through a fog”.
Hence I found the quality of the debates desperately wanting. Debates which have invariably led to calls for control on spending in the name of prudent budgeting and fiscal sustainability, less Singaporeans develop the nasty habit of enjoying government handouts. And yet, given the actual fiscal position, there has been no debate about the socio-economic costs of huge budget surpluses, low social expenditures, or simply that prudent budgets and increased social expenditures can both be achieved by spending re-allocations and increased taxes for the top percentile who are favoured by the present tax regime of barely taxed capital income.
Understandably, one cannot debate what one does not know. However, this cannot be the basis for a sound debate and hence selection of long-term socio-economic policy choices. In the interest of those choices to attain a fair and secure future, if your humble scribe is able to access the necessary information, then so can your well-remunerated MPs.