Singapore has regularly reported considerable surpluses in its annual fiscal budget. Budget surpluses have been an essential part of the country’s growth strategy (Asher et al. 2015) as they are perceived to provide a signal of sound public sector financial management to foreign investors, key stakeholders in Singapore’s development planning.
By Mukul G. Asher and Chang Yee Kwan
(via Asiapathways, ADBI)
Image Attribute:
The Helix Bridge, Singapore. Source: Jimmy McIntyre, flickr, used under a
creative commons license.
Singapore has
regularly reported considerable surpluses in its annual fiscal budget. Budget
surpluses have been an essential part of the country’s growth strategy (Asher
et al. 2015) as they are perceived to provide a signal of sound public sector
financial management to foreign investors, key stakeholders in Singapore’s
development planning. Budget surpluses also enable the corporate income tax
rate to be kept among the lowest in the world, at 17%. Other policies—such as
having a relatively large inflow of foreign workers that depresses at the lower
end and almost no taxes on most forms of capital gains and domestic interest
income—contribute to the high share of capital income in national income at
around 55%, with labor’s share at around 40%–42%, in contrast to the pattern in
OECD countries.
The annual
government budget projects the intended mobilization and utilization of
economic resources by the public sector for each fiscal year. Besides
allocation and distribution, other key objectives of the budget are to smooth
economic volatility, reduce uncertainty, and facilitate public policy
discourse. However, a closer examination of Singapore’s budgetary documents by
Kwan et al. (2015) reveals several pertinent details that could be potentially
counterproductive to the budget’s objectives as well as to sound public
financial management.
Budgetary
reporting: Issues and implications
Firstly, fiscal
marksmanship has been poor, with consistent underestimation of both the primary
and the overall budget balances between 2006 and 2013. Over the period, the
difference between the initial budget estimates and the budget outturn ranged
from just under 1% to over 3% of GDP. The difference between the revised
estimates and the budget outturn was between 0.1% and 0.8% of GDP. These are
large enough differences to impact on the quality of fiscal debates, both
domestically and abroad.
Secondly, the
realized surpluses arise primarily from underestimating revenue receipts and
overestimating expenditure. These shortfalls in accuracy can have wider
macroeconomic effects. If the budget’s purpose is to complement and raise
economic activity, smaller realized expenditures can potentially limit the
impact of government spending. In contrast, as income and other taxes form
approximately 89% of all reported tax revenue, higher revenue receipts can have
social costs by disrupting business planning and exacerbating inequality. The
latter is the case if the tax burden is unevenly shared between labor and
capital—and nearly all capital income is tax exempt in Singapore.
Forecasting
errors are inevitable, but a unidirectional trend raises questions about whether
the errors from the budgeting process are indeed random and arise from
unforeseen events. Instead, this may indicate that the forecasting model used
by policy makers (which is not publicly available) and/or the decisions
involved in publishing the budget data are inadequate, suggesting a
reevaluation is necessary. Of greater concern is that such regular
unidirectional errors may be perceived skeptically as a premeditated reporting
practice by the authorities.
The budget also
demonstrates reporting peculiarities, such as the non-inclusion of land sale
income in the government’s operating revenue. This is unusual by international
reporting standards, since in Singapore, land parcels are released for
development under time-denominated leases. There are no actual transfers of
ownership. So these are complicated excise taxes and not non-recurring revenue
requiring special classification. Also, 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.
The need for
greater reporting and transparency
The budget has
been reported as being near-balanced or has registered marginal deficits in
recent years. With a more internationally consistent treatment of these
budgetary entries, the fiscal space available is larger than what is officially
reported. Subsequently, this constrains the scope of useful and constructive
public policy debate as policymakers are unlikely to be accessing data and
information of sufficient quality and quantity from current budgetary reporting
practices. This is well illustrated by the continued reluctance (Asher and Kwan
2015) to introduce social safety nets, such as budget-financed social pensions
for the elderly and the disabled on the basis of fiscal sustainability.
The potential
for the budget to be able to effectively facilitate quality policy discourse
hinges on the amount of information that is presented in the budget, and the
extent to which stakeholders are aware of the reporting conventions used and
their limitations. Singapore’s budget reporting is arguably short on both,
impeding its ability to facilitate policy debate and potentially raising
uncertainty among stakeholders.
A fragile and
uncertain global economic climate has heightened concerns of economic
insecurity, public sector transparency and accountability, and loss of trust in
established institutions. All these are relevant as Singapore adjusts to a
lower trajectory of core growth of 2%–3% in the coming years from the 6%–7%
previously recorded.
There is
considerable room for improving the informative scope of the budget documents
with some simple amendments. For instance, tax concessions are a common
instrument to encourage investment. However, they are not expenditures and
should not be reported as such in the budget. A tax
expenditure statement should be reported instead. This details the expected expense
of such concessions and potentially improves the assessment of the government’s
revenue and expenditure estimates.
Another avenue
is greater disaggregation of the various stocks and flows in the budget
accounts, particularly of investment income from government-linked investment
entities. The current practice is to report just the amount contributed, but
there are no details on what the true size of returns are, or how the funds (an
undefined proportion of which is reported to be transferred from employee
provident fund contributions by the deputy prime minister and finance minister)
are utilized. The balance sheet side of the budget is also too cursory and
aggregative to be of much analytical significance.
Broader
relevance
Despite the
country-specific focus, the concerns discussed apply broadly to all fiscal and
budgetary authorities. In particular, developing economies need to be pay even
more attention as confidence in the public sector, perceived or otherwise, is
often more volatile with more far-ranging socioeconomic impacts.
In general, the
want and need for strong commitments to transparency and accountability by the
public sector is increasingly evident. Greater accuracy and disclosure in the
government’s annual budget is one avenue through which this can be
demonstrated. Equal (and greater) emphasis is needed on the details of what is
reported and how the various budgetary data and aggregates are constructed.
About the Author
Mukul G. Asher
is a professorial fellow, National University of Singapore, and Director,
Public Policy, Global Village Foundation, Delhi.
Chang Yee Kwan
is an independent researcher.
_____
References:
Asher, M. G., A.
S. Bali, and C. Y. Kwan. 2015. Public Financial Management in Singapore: Key
Characteristics and Prospects. Singapore Economic Review 60(3):
1550032.
Asher, M. G., and C. Y. Kwan. 2015. Tentative but No Fundamental Change in Singapore. East Asia Forum. 10 January (accessed 15 February 2016).
Kwan, C. Y., A. S. Bali, and M. G. Asher. 2015. What Do Government Budgets Tell Us? Organization and Reporting of Singapore’s Budgetary Accounts. Lee Kuan Yew School of Public Policy Research Paper No. 15-30. Singapore.
Singapore Business Review. 2016. Should Singapore Brace for Another Deficit in Budget 2016? 9 February (accessed 15 February 2016).
Straits Times. 2014. CPF Issue: GIC Manages CPF Monies Along with Other Govt Funds: DPM Tharman. 8 July (accessed 15 February 2016).
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