BUDGETING IN SINGAPORE

1. BUDGETING IN SINGAPORE 27thAnnual Meeting of Senior Budget OfficialsSydney, 6 June 2006 Jón R. Blöndal

2. To begin… “Profile” More descriptive OECD Asian Centre for Public Governance Government of Korea

3. Agenda Outline the architecture of Singapore’s system of public finance Discuss key features of Singapore’s budgeting system

4. Budget Concepts Four Pillars Budget sector Central Provident Fund Government investment agencies Other special funds

5. Central Provident Fund Relieves budget sector from financing various social services Personal savings accounts Mandatory Payroll contributions from both employers and employees 33% of payroll Earn interest Withdrawals for approved uses Any remaining balances form part of estate CPF “surpluses” invested in government bonds

6. Central Provident Fund (2) Housing account – 20% For down-payment and servicing mortgages Retirement account - 6% Regular withdrawals from age 62 Medical account - 7% For hospitalisation and major outpatient treatments

7. Government investment agencies Huge reserves Past budget surpluses and CPF “surpluses” At least USD 160 billion Invested in financial instruments and corporate shareholdings Very limited disclosure Portfolio size, composition and rate of return not disclosed “To prevent market speculation” Differentials in rates of return vis-à-vis interest paid on CPF account balances “Ring-fenced” from budget sector

8. Other Special Funds “Netting” funds Example: Government Securities Fund Endowment funds Budget surpluses deposited in them Subsequent annual investment income used to pay for good causes Example: MediFund

10. Key Features • Fiscal rule • Block budgets • Reinvestment dividends • Role of Parliament • Financial management • Government salaries

11. Fiscal Rules Balanced budgets Over government’s term of office Limited use of investment income Up to 50% of realised income Enforcement External monitoring not feasible President as “fiscal guardian”

12. Block Budgets Five-year horizon Advances and carry-forwards Linked to GDP Budget pegged to share of GDP Ministry of Education = 4% of GDP “Smoothened” GDP Fungible One block per ministry Operating, transfer and capital expenditure all in one block

13. Reinvestment Dividends Across-the-board cuts in expenditure 5% of all expenditure, i.e. including transfers and capital expenditure Ministries make bids to “reinvest” the cuts Innovative proposals Inter-ministerial co-operation Significant part of cuts not “reinvested”

14. Role of Parliament Specific restrictions MPs can only make proposals for S$100 nominal cuts MPs cannot make proposals for any increases or reallocations Political environment

15. Financial Management Accrual financial reporting Greater awareness of non-cash costs in decision-making Cash budgeting Better control Supplementary information on accruals available NEV – Net Economic Value Incorporates cost-of-capital

16. Government Salaries Pegged to private sector equivalents Ministerial salaries (USD 500,000-1,500,000) Flexible wage system Responsive to economic conditions Strengthening link with performance “Pure cash” wages

17. BUDGETING IN SINGAPORE 27thAnnual Meeting of Senior Budget OfficialsSydney, 6 June 2006 Jón R. Blöndal