The Singapore Commentator

The Singapore Budget 2005 parliamentary debate has begun. Channel NewsAsia reports: “MPs have called for help for local businesses as well as the elderly and the poor on the first day of parliamentary debate on the 2005 Budget.”

Everyone wants a handout, it seems. Not everyone would deserve one though. The Singapore government has limited fiscal resources and has to prioritise its expenditure.

As least, that seems to be what Chua Mui Hoong of The Straits Times is saying. She writes in today’s edition:

[Y]esterday, the first day of debate on the Government’s Budget philosophy. Most chose to speak on policies close to their hearts... When it comes to financial policy, though, it’s hard to gainsay the facts. And they show that the Government faces a Budget crunch.

As [Tanjong Pagar GRC MP] Prof Koo [Tsai Kee] notes, the Government is collecting less in revenue... [T]ax rates have been falling... Even as it’s collecting less, the Government is facing pressure to spend more. Why?

For one, the population is ageing, and medical spending is likely to rise... Also, as the economy restructures, a large segment of the population won’t be able to cope and will need help when they lose their jobs or fall into poverty.

In 2000, there were 12.6 per cent or 116,300 households with incomes below $1,000 a month. That translates into about half a million people who need some form of support in cash or in kind.

Harvard economist Dani Rodrick, in the book Has Globalisation Gone Too Far?, found a correlation between government spending and openness of an economy in the 1980s: the more globalised and open an economy, the greater the level of government spending. He postulates that citizens in a globalised, open economy can’t be shielded from competition...and so need more social assistance like the dole and welfare.

Singapore has an open economy, but has so far kept its spending low. But, as Prof Koo notes, it may not be able to hold that line for too long...

The fiscal future is a serious, if rather, boring issue. It deserves far more attention than it received yesterday.

The priorities mentioned above look about right to me. I’ve posted on some of these issues on this blog (see, for example, “Unemployment woes for mature graduates”).

So yes, the Singapore government has many pressing fiscal concerns to address. However, is it actually facing a “budget crunch”, as claimed by Chua?

I know that in The Straits Times front page report by her colleague on the budget debate, an MP was cited as saying that “operating expenditure was still higher than operating revenue”. But I have never personally seen actual figures showing such a thing. It is only total expenditure — operating expenditure plus development expenditure — that has exceeded operating revenue. This is how the government defines its basic balance (the overall budget balance adds in special transfers and investment income). See, for example, the Ministry of Finance’s (outdated) figures for the 2003 budget on its website.

Comparing operating revenue against total expenditure is hardly apple-to-apple comparison. So the deficit figures that are mentioned actually don’t give an accurate picture of the fiscal outlook for the government.

Now I’d be the first to admit that omitting development expenditure wouldn’t either. The fact is, getting an accurate picture of the government’s fiscal position takes some work. Thankfully, credit rating agency Standard & Poor’s has done some of that work and here’s how UPI quoted it in a report last year:

“Singapore...may benefit from a re-examination of some of its fiscal principles, especially in light of its strong performance during the difficult past 6 years,” [ said analyst Ping Chew.] “In particular, it may be useful for the government to examine whether its already ample resources are sufficient for further rainy days, and whether funds could be more efficiently managed if they are released into the private sector.”...

... [O]ver the past 6 years...Singapore managed to stay in the black with an average general government surplus of 5.8 percent. S&P figure contrast with that of the government which said in its last budget it was running a small budget deficit of 0.45 percent of GDP.

“Most governments around the world go to some trouble to re-jig their numbers to present deficits as surplus. Singapore tends to disguise surplus as deficit. If you look at the numbers in an international standardize way, Singapore is actually delivering a very large surplus once again,” Paul Coughlin told reporters. “This leaves open the question of whether the government could have done more to cushion its economy from the shocks,” he added.

So before anyone concludes that the Singapore government is facing a budget crunch, better go crunch the numbers again.