BUDGETING IN SINGAPORE

27th Annual Meeting of Senior Budget OfficialsSydney, 6 June 2006

Jón R. Blöndal

To begin…

•“Profile”–More descriptive

•OECD Asian Centre for Public Governance–Government of Korea

Agenda

•Outline the architecture of Singapore’s system of public finance

•Discuss key features of Singapore’s budgeting system

Budget Concepts

•Four Pillars–Budget sector

–Central Provident Fund

–Government investment agencies

–Other special funds

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

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

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

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

-5

0

5

10

15

20

25

FY86 FY88 FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 (Bud)

Total Expenditure

Total Revenue

Budget Balance

% G

DP

Key Features

–

•Fiscal rule•Block budgets•Reinvestment dividends•Role of Parliament•Financial management•Government salaries

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”–

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–

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”

–

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

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

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

BUDGETING IN SINGAPORE

27th Annual Meeting of Senior Budget OfficialsSydney, 6 June 2006

Jón R. Blöndal