Media Division, Ministry of Information and The Arts,

2. Before I highlight the salient features of this year’s expenditure budget, I would first like to recap on the FY99 Budget.
3. The FY99 Budget was worked out based on the circumstances as at end 1998 and beginning 1999. Then, we were in the midst of a recession and were expecting negative growth for the year as a whole. With operating revenue estimated at $24.1 billion and a planned expenditure of $29.2 billion, the outcome would be a budget deficit of $5.1 billion. Operating revenue had been estimated on the basis of falling revenue while expenditure was planned on greatly increased Government spending, particularly in development spending, to stimulate the economy.
4. Fortunately, events turned out quite differently as the economy rebounded strongly after the first quarter of 1999 and growth in 1999 turned out to be a respectable 5.4 per cent. The strong rebound is expected to raise operating revenue by about $4.8 billion. The increase has come mainly from stronger COE and income tax collections. On the other hand, total expenditure is expected to be some $3.4 billion less, mainly because of lower development spending. This was because strong competition for projects forced bid prices down, and because some lower priority projects were rescheduled.

 

5. The combined impact of higher revenue collection and lower expenditure is that instead of a large budget deficit of some $5 billion, a surplus of $3.2 billion is expected in FY99. With a budget surplus now expected, the Government will within FY99 make a $100 million contribution to Medifund, to bring Government’s total contribution in the Fund to $700 million. In addition, the Government will also make a $200 million contribution to the ElderCare Fund approved by Parliament on 22 February 2000.
6. While transfers to Medifund and the ElderCare Fund are ways to share the surplus, they benefit Singaporeans indirectly. The Government appreciates that workers had accepted the CPF and wage cuts as part of the package to deal with the recession. However, the CPF cut can only be restored gradually so as not to increase business costs abruptly, thereby stalling economic recovery. As an additional gesture, the Government will make a special CPF top-up of $250 to the Ordinary Account of every Singaporean CPF member aged 21 years and above on 31 December 1999, who had made at least one CPF contribution within the period 1 January 1998 to 31 December 1999. More than 1.5 million Singaporeans are expected to benefit. The top-up will be credited in March 2000. Details will be released separately by the CPF Board. This top-up will amount to $385 million.

PROJECTED FY2000 FISCAL POSITION

7. Operating revenue for FY2000 is estimated at $31.4 billion, an increase of 8.6 per cent over FY99. As a percentage of GDP, the increase is from 18.8 per cent in FY99 to 19.0 per cent in FY2000. The rise in revenue collection is mainly due to the good economic growth forecast for 2000. With total FY2000 expenditure budgeted at $29.0 billion, a budget surplus of $2.5 billion or 1.5 per cent of GDP, is projected. However, the surplus will not be achieved at the expense of cutting back on essential spending. In fact, total expenditure in FY2000 is expected to rise by more than 12 per cent, with a substantial increase of 21 per cent in development spending.
8. We are thus back in the happy position of being able to add to our reserves, whilst continuing to invest in and upgrade our economic infrastructure and human resource capabilities. The economic crisis has however amply demonstrated the importance of living within our means and the need to accumulate budget surpluses in good years so as to have the resources to deal with economic downturns.
9. I will now highlight the salient features of the FY2000 expenditure budget.

FY2000 EXPENDITURE ESTIMATES

10. Total Government expenditure for FY2000 is estimated at $29.0 billion or 17.5 per cent of GDP, a rise of 12.5 per cent over expenditure in FY99. Development expenditure is projected to grow 21.1 per cent to reach $12.9 billion. Operating expenditure, on the other hand, is estimated to increase by 6.4 per cent to $16.1 billion, a rate of increase that is lower than the nominal GDP growth rate. The lower rate of increase of operating expenditure, as compared to that for development expenditure, underlines Government’s commitment to keep recurrent cost increases within sustainable limits. Operating and development expenditure account for 9.7 per cent and 7.8 per cent of GDP respectively.

Operating Expenditure

11. Operating expenditure in FY2000 is estimated at $16.1 billion or 9.7 per cent of GDP, an increase of $969 million or 6.4 per cent over FY99. 92 per cent of operating expenditure is for ministries’ running costs while the remaining 8 per cent is for transfer payments to members of the public and outside organisations.
12. Total running costs are projected to increase by 6.9 per cent to $14.8 billion because of higher manpower costs, increases in other operating expenditure, and larger grants to the statutory boards. Expenditure on Transfers is estimated at $1.3 billion, the main items being subventions to the restructured hospitals and town councils.
13. Manpower expenses are estimated at $3.3 billion, an increase of $323 million or 10.8 per cent. The increase is due to restoration of the salary cut imposed service-wide in 1999, partial restoration in employers’ rate of CPF contributions and normal salary increments. In addition, there is also a net increase of some 2,400 posts, mainly in MOE to cater for increased student intakes.
14. Other operating expenditure is expected to increase by 4.1 per cent to $8.8 billion.

 

15. Grants-in-aid to statutory boards will increase by 12.1 per cent to $2.7 billion, mainly because of larger grants to higher educational institutions and aided schools to cater to increased student intakes and restoration of salary cuts.

Development Expenditure

16. Development expenditure is projected at $12.9 billion or 7.8 per cent of GDP, an increase of $2.2 billion. This includes a provision of $979 million for new priority projects that may materialise in the course of FY2000. Of this, $200 million is held centrally by MOF while the remaining $779 million is allocated out to ministries based on their projected needs.
17. The largest share of capital grants to statutory boards (excluding public housing subsidy) goes to the LTA for extension of the MRT system, construction of the North East Line, the Bukit Panjang and Sengkang LRT systems and road construction and improvement programmes. Other main recipients are educational institutions and aided schools for upgrading programmes and the National Science & Technology Board for financing and administering R&D projects.
18. Capital expenditure for Public Housing is projected at $2.2 billion or 1.3 per cent of GDP. The bulk of the subsidy is for the HDB Upgrading Programmes, development of infrastructure within HDB New Towns and financing of HDB’s bottom-line deficit.

 

EXPENDITURE PRIORITIES

Social & Community Services

19. Overall, as in the past years, the largest share of Government’s expenditure budget goes to the Social & Community Services sector. It accounts for 39.6 per cent of total expenditure. In absolute terms, the sector’s allocation of $11.5 billion is an increase of $856 million over FY99. Education, Community Development & Sports, and Health will all get substantial increases in their budget allocations.
20. Spending on educating our young continues to take up the lion’s share within the Social & Community Services sector, with $6.0 billion or 52 per cent going to MOE. This represents an increase of $881 million or 17 per cent compared to FY99. Within MOE, the General Education Programme undertaken by the Government, Government-aided, special education and independent schools account for $3.1 billion or 53 per cent of its total budget. The three universities take up $1.2 billion or 19 per cent while the four polytechnics and the Institute of Technical Education (ITE) account for $585 million (or 10 per cent) and $167 million (or 3 per cent) respectively. The balance of $915 million is for the remaining programmes of MOE. In terms of development expenditure, the bulk of the $2.0 billion allocated will be used to build new schools, rebuild and improve existing schools, as well as to expand the teaching facilities in the tertiary institutions.
21. Public Housing takes up the next largest slice of $2.3 billion of the budget allocated to the Social & Community Services sector. Funds for Public Housing will be used to pay the subsidy for HDB’s bottom-line financing, the Selective En-Bloc Redevelopment Scheme, as well as the various HDB upgrading programmes. MOH (with $1.2 billion), ENV (with $972 million), MCDS (with $610 million), and MITA (with $379 million) round up the budget for this sector. MCDS and MOH will get substantial increases of 38 per cent and 10 per cent respectively in their FY2000 budgets. Within MCDS, the Elderly Development Programme will have its allocation increased by 55 per cent to $12.3 million. Expenditure on this programme will increase further when more of the recommendations put forward by the Inter-Ministerial Committee on the Ageing Population are implemented.

Security & Defence

22. The second largest sector is Security & Defence, which takes up $9.6 billion or 33 per cent of total Government expenditure. Of the $9.6 billion, $7.4 billion will go to MINDEF to fund defence programmes. The remaining $2.2 billion will be for MHA and Civil Defence programmes. MINDEF’s budget will make up 4.5 per cent of GDP, well within the ceiling of 6 per cent of GDP set for MINDEF.
23. Of the $2.2 billion allocated to MHA (including Civil Defence), $1.0 billion or 47 per cent will be for the Police Programme while $351 million or 16 per cent will go to Civil Defence. Development expenditure will be mainly for the MHA Complex, Cantonment Complex, Civil Defence Shelters Programme, redevelopment of the Gurkha Cantonment, SCDF HQ Complex and Neighbourhood Police Centres.

Economic & Infrastructural Development

24. Economic & Infrastructural Development forms the third largest sector, taking up $5.9 billion or 20 per cent of total Government expenditure. Within the sector, MCIT has the largest share of $2.2 billion, followed by MTI with $1.9 billion. MND is allocated $584 million, but this excludes Public Housing which is funded separately. MOM will receive $171 million. The remaining $978 million allocated to this sector is used to fund all the R&D programmes undertaken by ministries.
25. Economic development will continue to take a three-prong approach: investment in infrastructure, creation of new economic activities to achieve sustainable growth and comprehensive development of our workforce to meet the challenges of economic restructuring. Infrastructure investment is achieved mainly through projects undertaken by MCIT, MTI and MND. MCIT will spend $1.2 billion to make rail-based improvements to the land transportation system and a further $260 million to make road-based improvements. MTI will spend $780 million to develop projects on Jurong Island and a further $380 million for reclamation at Changi East, Sentosa Cove, Southern Islands and infrastructure works at Kaki Bukit and Tuas View.
26. EDB and TDB together will undertake the task of creating new economic activities. EDB is allocated $309 million for this purpose while TDB will receive $38 million. MOM will be responsible for the development of our workforce and is allocated a sum of $171 million. This represents a 68 per cent increase from the FY99 allocation.

General Services

27. The General Services sector, comprising MFA, organs of state, and the central ministries, continues to take up the smallest share of the total Government expenditure at 7 per cent. Our intention is to keep central administration lean, and let the operational ministries have the bulk of the resources.

 

FINANCIAL REFORM - RESOURCE MANAGEMENT

28. Although the economic crisis has passed and our economy is now back on track, the budgetary positions in the years to come are expected to remain tight. There are two main reasons for this. First, as the Singapore economy matures, economic growth will slow down and revenue growth will also moderate. Second, with increasing globalisation and the lowering of investment barriers, competition for high value-added economic activities will become keener. This means that as we lower our tax rates to keep our tax system competitive, there will be downward pressure on revenue. The combined impact of these developments is that we can expect operating revenue growth to slow down over time.
29. On the other hand, with rising affluence, the public will demand more and better services. However, as the budgetary outlook is expected to be tight, ministries can only meet these increasingly sophisticated expectations through more effective use of existing resources rather than through the employment of more resources. In other words, officers in the ministries would have to be managers rather than just staff officers.
30. From the budgeting angle, the system in the past has been one based on giving more resources on the promise of increased output. However, this has the tendency to get MOF involved in the micro-management of the ministries. The budgeting paradigm has since been shifted to one of encouraging the ministries to get the most out of their allotted resources. Within that budgeting framework, ministries are assured of a built-in increase for their base budget which is dependent on the GDP growth rate. Any increase in budgetary provision beyond that would have to be justified on the basis of the priority of their programmes against others. In tandem with this, ministries have also been moved to looking at the desired outcomes that their programmes are intended to achieve rather than just looking at the outputs generated by the programmes.
31. This in essence is the next phase of financial reform which MOF has undertaken to ensure that the Government makes the best use of its resources. It will require ministries to look at the total cost of providing services rather than just the cash cost alone. To achieve this, the concept of resource accounting within ministries will be introduced. Over the next couple of years, other resource management concepts and practices will also be introduced in stages.
32. It is important that we continue to innovate and improve on the way we manage our resources. We have no choice. To remain competitive, we must keep Government expenditure as a percentage of the GDP low. Yet, there are more and more that we have to do in order to cater for the economic and social aspirations of Singaporeans. We can meet these seemingly contradictory requirements only if we continuously innovate and improve on the management of our resources.