BUDGET HIGHLIGHTS · BUDGET HIGHLIGHTS Financial Year 2009 Keeping Jobs, Building for the Future Misc. 2 of 2009 _____ Presented to Parliament by Command of

BBUUDDGGEETT HHIIGGHHLLIIGGHHTTSS Financial Year 2009

Keeping Jobs, Building for the Future

Misc. 2 of 2009 _________________

Presented to Parliament by Command of The President of the Republic of Singapore

Ordered by Parliament to lie upon the Table:

22nd January 2009

__________________

EXPLANATORY NOTES The revenue estimates in the Budget Highlights for FY2009 document include tax changes announced in the 2009 Budget Statement. These estimates, where they are affected by tax changes, supercede the estimates in the Revenue and Expenditure Estimates for the FY2009 document presented earlier to Parliament on 19th January 2009 as Paper Cmd No. 1 of 2009. Similarly, the expenditure estimates in the Budget Highlights for FY2009 document include Special Transfers announced in the 2009 Budget Statement, which the expenditure estimates in the Revenue and Expenditure Estimates for FY2009 document do not.

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[[II]] BBUUDDGGEETT HHIIGGHHLLIIGGHHTTSS 1

1 FISCAL UPDATE ON FINANCIAL YEAR 2008 3

1.1 Economic Performance in 2008 3

1.2 Expected Budget Outturn for FY2008 3

1.3 Operating Revenue 3

1.4 Total Expenditure 5

1.5 Special Transfers 5

1.6 Net Investment Income Contribution 6

2 FISCAL OUTLOOK FOR FINANCIAL YEAR 2009 7

2.1 Budget for FY2009 7

2.2 Operating Revenue 7 Box 2.1: Medium Term Revenue and Expenditure Trends 9

2.3 Total Expenditure 11

2.4 Key Changes in Taxes, Fees and Charges 11

2.5 Special Transfers 12

2.6 Budget Position 13 Box 2.2: Macroeconomic Impact of Recent Fiscal Policy 14

[[IIII]] FFEEAATTUURREE AARRTTIICCLLEESS 15

3 DISCRETIONARY FISCAL POLICY IN ECONOMIC DOWNTURNS 17

3.1 Smoothing Effect of Automatic Stabilisers 17

3.2 Discretionary Fiscal Policy in a Sharp Downturn 17

3.3 Limitations of Discretionary Fiscal Policy 18

3.4 Discretionary Fiscal Policy’s Role in Severe and Prolonged Downturns 18 Box 3.1: Conducting Fiscal Policy in a Downturn 19

3.5 Effectiveness of Discretionary Fiscal Policy in Singapore 19

3.6 Expansionary Budget 2009 20

3.7 Conclusion 21 Box 3.2: Fiscal Multipliers in Singapore 22

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4 MAXIMISING VALUE IN PUBLIC SECTOR PROJECTS THROUGH SMART PROCUREMENT 23

4.1 Procurement Policy – Cost Effectiveness and Value for Money 23

4.2 Smart Procurement 23

4.3 Achieving Greater Efficiency at the Whole-of-Government (WOG) Level 23 Box 4.1: What is SOEasy? 23

4.4 Optimising Value on a Whole Life Cycle Basis 24 Box 4.2: Public Private Partnership for Ulu Pandan NEWater Plant 25

4.5 Building Capacity for the Future 25 Box 4.3: Mitigating the Effects of Cost Hikes and Supporting Capacity Building in the Construction Sector 26

4.6 Promoting Innovation and Enterprise 27 Box 4.4: Adopting Smart Procurement Practices to Enable Private-Public Collaborations 27

4.7 Conclusion 28

5 COMPETITIVE TAX REGIME 29

5.1 Pro-business Tax Regime 29 Box 5.1: International Corporate Tax Rates 29

5.2 Starting a Business 30

5.3 Growing a Business 30 Box 5.2: Top Individual Income Tax Rates 32

5.4 Expanding and Internationalising a Business 32

5.5 Consolidating and Restructuring a Business 33

5.6 Low Effective Tax Rate (ETR) 33

5.7 Conclusion 33 Box 5.3: MOF / Ernst & Young Study 33

[[IIIIII]] SSTTAATTIISSTTIICCAALL AANNNNEEXX 37

Table 6.1: Overall Fiscal Position for FY2000 to FY2009 39

Table 6.2: Revenue Collections for FY2000 to FY2009 40

Table 6.3: Operating Expenditure by Sector for FY2000 to FY2009 41

Table 6.4: Development Expenditure by Sector for FY2000 to FY2009 42

Table 6.5: Total Expenditure by Sector for FY2000 to FY2009 43

Table 6.6: Total Expenditure by Expenditure Type for FY2000 to FY2009 45

Table 6.7: Headcount by Ministry for FY2000 to FY2009 46

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[[IIVV]] GGLLOOSSSSAARRYY 47

6 GLOSSARY OF TERMS 49

[[II]] BBUUDDGGEETT HHIIGGHHLLIIGGHHTTSS

♦♦ FF II SS CC AA LL UU PP DD AA TT EE OO NN FF YY 22 00 00 88 ♦♦ FF II SS CC AA LL OO UU TT LL OO OO KK FF OO RR FF YY 22 00 00 99

FISCAL UPDATE FOR FINANCIAL YEAR 2008

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1 Fiscal Update on Financial Year 2008 1.1 Economic Performance in 2008

The Singapore economy is expected to register real Gross Domestic Product (GDP) growth of 1.2%1 in 2008. This is lower than the 4.0% to 6.0% growth projected at the beginning of 2008, largely due to the rapid deterioration of global economic conditions beginning in the second half of the year. Sharp declines in global demand, trade and investments had hit our exports, tourism and the broader economy, especially in the fourth quarter. Inflation in 2008 was 6.5%, higher than initially projected owing to spiralling oil and commodity prices.

Compared to 2007, the manufacturing sector declined by 4.1% in 2008, mainly due to the persistent weakness in global demand for electronics, chemicals and biomedical products. The services sector registered modest growth of 5.0% in 2008, dampened by the demand slowdown in the second half of the year. The construction sector however continued to post strong growth of 17.9% in 2008.

The economy continued to create jobs. Employment increased by 200,400 in the first three quarters of 2008, primarily because of strong gains in the first half of the year. The pace of job creation slowed in the third quarter, with fewer jobs created compared to the same period in 2007. The overall unemployment in 2008 remained steady at 2.2%2, while the resident rate rose to 3.3%2 in the third quarter of 2008.

1.2 Expected Budget Outturn for FY2008

After taking into account Special Transfers before Top-Ups to Endowment and Trust Funds and before Net Investment Income Contribution (NIIC), the revised FY2008 position is a Basic Deficit of $2.8 billion (or 1.1% of GDP). This is an increase from the $11 million estimated at Budget 2008. After factoring in NIIC of $3.7 billion and Special Transfers of $7.4 billion, the Overall Budget Deficit for FY2008 is $2.2 billion (or 0.8% of GDP). The revised FY2008 revenue and expenditure estimates are summarised in Table 1.1.

1.3 Operating Revenue

FY2008 Operating Revenue has been revised upwards by $0.7 billion (or 1.7% higher) to $40.5 billion. While the recent economic downturn has dampened collections from Stamp Duty, Vehicle Quota Premiums, Other Taxes, and various Fees and Charges, these have been more than offset by higher collections from Corporate Income Tax and Personal Income Tax due to higher than expected profits and income in 2007.

1 Based on preliminary GDP and Sectoral Performance from MTI, released on 21st January 2009. 2 Third quarter 2008 Labour Market Report from MOM, released on 15th December 2008.

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Table 1.1: Fiscal Position in FY2007 and FY2008

Revised FY2008 Compared to Actual

FY2007 Estimated FY2008*

Revised FY2008 Actual

FY2007 Estimated

FY2008 $billion $billion $billion % change % change OPERATING REVENUE 40.37 39.84 40.50 0.3 1.7

Corporate Income Tax 9.25 9.19 10.10 9.2 9.9 Personal Income Tax 5.69 5.94 6.22 9.4 4.7 Statutory Boards’ Contributions 1.68 1.99 2.14 27.3 7.9 Assets Taxes 2.58 2.49 2.84 9.9 13.9 Customs and Excise Tax 1.99 2.01 1.99 0.1 (0.9) Goods and Services Tax 6.17 6.19 6.57 6.6 6.2 Motor Vehicle Related Taxes 2.19 2.00 2.05 (6.5) 2.2 Vehicle Quota Premiums 0.67 0.89 0.38 (43.8) (57.4) Betting Tax 1.71 1.80 1.81 5.6 0.6 Stamp Duty 3.68 2.40 1.45 (60.6) (39.6) Other Taxes 1.70 1.78 2.80 65.1 57.1 Other Fees and Charges 2.96 3.02 2.02 (31.7) (33.2) Others 0.11 0.13 0.13 12.2 (0.9)

Less: TOTAL EXPENDITURE 32.98 37.45 38.90 17.9 3.9

Operating Expenditure 25.95 29.00 29.25 12.7 0.8 Development Expenditure 7.03 8.45 9.65 37.3 14.2

PRIMARY SURPLUS/(DEFICIT)* 7.39 2.38 1.60

Less: SPECIAL TRANSFERS¶ 2.14 5.40 7.40 245.7 37.1

Special Transfers Excluding Top-Ups to Endowment and Trust Funds

1.34 2.39 4.39

Jobs Credit scheme@ - - 1.13 Growth Dividends 0.00 0.87 1.06 GST Credits 0.53 0.45 0.92 Senior Citizens’ Bonus 0.11 0.10 0.25 Workfare Bonus and Workfare Income Supplement Scheme 0.30 - - Workfare Income Supplement Scheme Special Payment - - 0.03 U-Save Scheme 0.15 0.13 0.20 S&CC and Rental Rebate 0.06 0.06 0.06 40th Anniversary NS Bonus 0.00 - - Top-Up to CPF Medisave Accounts 0.00 0.22 0.23 Top-Up to Post-Secondary Education Account 0.19 0.50 0.49 Other measures for Elderly and Lower Income# 0.00 0.01 0.01 Assistance to Small and Medium Enterprises (SMEs) 0.00 0.05 0.02

BASIC SURPLUS/(DEFICIT)^ 6.05 (0.01) (2.80)

Top-Ups to Endowment and Trust Funds 0.80 3.01 3.01 Top-Up to ComCare Fund - 0.20 0.20 Top-Up to Medifund 0.20 0.20 0.20 Top-Up to ElderCare Fund - 0.40 0.40 Top-Up to Lifelong Learning Fund 0.10 0.80 0.80 National Research Fund 0.50 0.80 0.80 CPF Deferment and Voluntary Deferment Bonus - 0.35 0.35 LIFElong Income (LIFE) Bonus - 0.26 0.26

Add: NET INVESTMENT INCOME CONTRIBUTION 2.40 2.22 3.65 51.9 64.4

OVERALL BUDGET SURPLUS/(DEFICIT) 7.66 (0.80) (2.15)

Note: Due to rounding, figures may not add up.

* Surplus/(Deficit) before Special Transfers and Net Investment Income Contribution (NIIC). ¶ Special Transfers include Top-Ups to Endowment Funds and Trust Funds. @ New programme introduced as part of Budget 2009 and to be implemented in Q1CY2009 (or Q4FY2008). # Consist of Senior Pensioners Grant Scheme, public transport vouchers and assistance through Citizens’ Consultative Committees, Self-Help Groups and Voluntary Welfare Organisations. ^ Surplus/(Deficit) before Top-Ups to Endowment and Trust Funds and Net Investment Income Contribution.

FISCAL UPDATE FOR FINANCIAL YEAR 2008

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Corporate Income Tax (CIT)

CIT collections are estimated at $10.1 billion or 9.9% higher than the budgeted FY2008 estimates. This is driven by higher profits booked by companies due to both strong economic growth in 2007 and higher than expected profit margins in recent years.

Personal Income Tax (PIT)

PIT collections are estimated at $6.2 billion or 4.7% higher than the budgeted FY2008 estimates, in line with the stronger wage growth boosted by higher than expected GDP growth in 20073.

Assets Taxes

Assets Taxes collections are estimated at $2.8 billion or 13.9% higher than the budgeted FY2008 estimates. This is attributed to the revision of Annual Values to reflect the rise in residential and commercial rents.

Goods and Services Tax (GST)

GST collections are estimated at $6.6 billion or 6.2% higher than the budgeted FY2008 estimates. Although GST collections are expected to have been adversely affected by weak spending in the second half of FY2008, they would be more than offset by higher than expected consumption growth in the first half of FY2008.

Motor Vehicle Related Revenues

Motor Vehicle Related Taxes estimates are revised slightly higher by $44 million (or 2.2%) to $2.0 billion. Vehicle Quota Premiums, i.e. receipts from Certificate of Entitlement (COE) premiums, are on the other hand expected to be significantly lower than budgeted by $0.5 billion (or 57.4%). This is primarily because of lower COE premiums on account of weaker demand for cars.

Stamp Duty

Stamp Duty collections are estimated at $1.45 billion or 39.6% lower than the budgeted FY2008 estimates. This is due to the significant decline in residential private house sales and fall in average transaction price as a result of a quieter property market.

1.4 Total Expenditure

Total Expenditure for FY2008 is expected to be $38.9 billion (or 15.3% of GDP). This is 3.9% higher than budgeted. The increase in Total Expenditure is mainly attributed to an increase of $1.2 billion in Development Expenditure to fund the higher construction costs for infrastructure projects. Operating Expenditure rose only marginally (0.8%) to $29.2 billion.

1.5 Special Transfers

A total of $7.4 billion in Special Transfers is expected to be disbursed in FY2008, including $2.4 billion in Top-Ups to Endowment Funds and Trust Funds. This is $2.0 billion higher than the $5.4 billion initially budgeted. 3 CY2007 GDP grew by 7.7%, higher than the 4.5% to 6.5% growth projected as at Budget 2008.

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Of the $2.0 billion increase in Special Transfers, $1.7 billion is due to front-loading of the Resilience Package in FY2008. $1.1 billion is for the Jobs Credit scheme announced in Budget 2009, for which the President has given in-principle approval to fund from the past reserves4. Another $0.6 billion is for the additional GST Credits, Senior Citizens’ Bonus and other assistance measures.

The rest of the increase in Special Transfers is primarily due to the extra tranche of Growth Dividends and enhancement of the U-Save rebates by 50% announced in August 2008, which will cost the Government $0.3 billion.

1.6 Net Investment Income Contribution

Net Investment Income Contribution (NIIC) for FY2008 is expected to be $3.7 billion, or $1.4 billion above the budgeted FY2008 estimate. This is on account of higher interest and dividend income from the investment of the Government’s financial reserves.

4 Actual approval for the draw on reserves would only be granted when the Supplementary Supply Bill for FY2008 has been passed by Parliament and assented to by the President.

FISCAL OUTLOOK FOR FINANCIAL YEAR 2009

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2 Fiscal Outlook for Financial Year 2009 2.1 Budget for FY2009

The FY2009 Budget is summarised in Table 2.1.

2.2 Operating Revenue

GDP growth is expected to range between -2.0% and -5.0% in 2009, with inflation expected to be between 0% and -1.0%. Based on these forecasts, Operating Revenue for FY2009 is projected at $33.4 billion, a significant decrease of $7.1 billion (or 17.5% lower) over the revised FY2008 estimates. FY2009 Operating Revenue is expected to be 13.4% of GDP, down from 16.0% of GDP in FY2008.

Corporate Income Tax (CIT)

CIT collections are expected to decline by 18.8% (or $1.9 billion) from the revised FY2008 estimates to $8.2 billion in FY2009. While sustained economic growth in 2007 and 2008 bolstered our tax base in 2009, this will be more than offset by the cut in CIT rate to 17% from YA20105 and other tax-related business assistance schemes announced in Budget 2009.

Personal Income Tax (PIT)

PIT collections are expected to decline by 2.6% (or $164 million) from the revised FY2008 estimates to $6.1 billion in FY2009. This is due to lower collections from self-employed income and withholding tax.

Assets Taxes

Assets Taxes collections are projected to decline by 63.7% (or $1.8 billion) from the revised FY2008 estimates to $1.0 billion in FY2009 due to both the weak property market outlook and assistance schemes in the form of property tax rebate and deferral.

Motor Vehicle Related Revenues

FY2009 collections for Motor Vehicle Related Taxes are estimated to decline by 22.1% (or $0.5 billion) from the revised FY2008 estimates to $1.6 billion in FY2009, due to lower Additional Registration Fee collections following the planned reduction in COE quota for 2009. Although lower COE quotas usually lead to higher COE prices, the current poor economic outlook will likely dampen the demand for cars and hence COE prices in general. Vehicle Quota Premium collections are hence expected to decline by 15.8% (or $60 million) from the revised FY2008 estimates to $319 million in FY2009.

Stamp Duty

Stamp Duty collections are projected to decrease by 31.8% (or $0.5 billion) to $1.0 billion in tandem with the expected decline in both the volume of transactions and average property prices.

5 Part of taxes assessed under YA2010 is collected as FY2009 CIT revenue.

BUDGET HIGHLIGHTS

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Table 2.1: Budget for FY2009

Note: Due to rounding, figures may not add up.

@ Incorporating measures announced in FY2008 Budget Statement. * Surplus/(Deficit) before Special Transfers and Net Investment Income/Returns Contribution. ¶ Special Transfers include Top-Ups to Endowment Funds and Trust Funds. δ This includes the new Bridging Loan Programme, Trade Credit Insurance Programme, and Loan-Insurance Scheme-Plus. # Consist of Senior Pensioners Grant Scheme, public transport vouchers and assistance through Citizens’ Consultative Committees, Self-Help Groups and Voluntary Welfare Organisations. ^ Surplus/(Deficit) before Top-Ups to Endowment and Trust Funds and Net Investment Income/Returns Contribution. Ω On 1st January 2009, revisions to the Constitution - to allow the Government to spend up to 50% of the expected long-term real returns on reserves invested by GIC and MAS - came into effect. On the remaining reserves, the existing NII framework applies. Effective from FY2009, the NIRC will reflect the total amount of investment returns that is taken into the Budget for spending.

Revised FY2008

Estimated FY2009@

Change over Revised FY2008

$billion $billion $billion % OPERATING REVENUE 40.50 33.43 (7.07) (17.5)

Corporate Income Tax 10.10 8.21 (1.90) (18.8) Personal Income Tax 6.22 6.06 (0.16) (2.6) Statutory Boards’ Contributions 2.14 0.31 (1.83) (85.5) Assets Taxes 2.84 1.03 (1.81) (63.7) Customs and Excise Tax 1.99 2.00 0.01 0.7 Goods and Services Tax 6.57 6.56 (0.01) (0.2) Motor Vehicle Related Taxes 2.05 1.59 (0.45) (22.1) Vehicle Quota Premiums 0.38 0.32 (0.06) (15.8) Betting Tax 1.81 1.86 0.05 2.8 Stamp Duty 1.45 0.99 (0.46) (31.8) Other Taxes 2.80 2.37 (0.44) (15.6) Other Fees and Charges 2.02 2.02 0.00 0.2 Others 0.13 0.11 (0.01) (11.2)

Less: TOTAL EXPENDITURE 38.90 43.62 4.72 12.1

Operating Expenditure 29.25 32.16 2.91 9.9 Development Expenditure 9.65 11.46 1.81 18.8

PRIMARY SURPLUS/(DEFICIT)* 1.60 (10.20)

Less: SPECIAL TRANSFERS¶ 7.40 6.15 (1.26) (17.0)

Special Transfers Excluding Top-Ups to Endowment and Trust Funds 4.39 4.74

Jobs Credit scheme 1.13 3.38 Special Risk-Sharing Initiative (SRI)δ - 0.39 Growth Dividends 1.06 - GST Credits 0.92 0.46 Senior Citizens’ Bonus 0.25 0.12 Workfare Income Supplement Scheme Special Payment 0.03 0.10 U-Save Scheme 0.20 0.12 S&CC and Rental Rebate 0.06 0.07 Top-Up to CPF Medisave Accounts 0.23 - Top-Up to Post-Secondary Education Account 0.49 0.00 Other measures for Elderly and Lower Income# 0.01 0.03 Assistance to Small and Medium Enterprises (SMEs) 0.02 0.02 R&D Incentive for Start-up Enterprises (RISE) - 0.05

BASIC SURPLUS/(DEFICIT)^ (2.80) (14.94)

Top-Ups to Endowment and Trust Funds 3.01 1.41 Top-Up to ComCare Fund 0.20 - Top-Up to Medifund 0.20 0.10 Top-Up to ElderCare Fund 0.40 0.10 Top-Up to Lifelong Learning Fund 0.80 0.10 National Research Fund 0.80 0.40 Top-Up to CPF Voluntary Deferment and Deferment Bonus Trust 0.35 0.45 LIFElong Income (LIFE) Bonus 0.26 0.26

Add: NET INVESTMENT INCOME/RETURNS CONTRIBUTIONΩ 3.65 7.67 4.02 110.0

OVERALL BUDGET SURPLUS/(DEFICIT) (2.15) (8.67)


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Box 2.1: Medium Term Revenue and Expenditure Trends Singapore’s government expenditure (annual Government Budget plus Statutory Board spending) has averaged about 16.5% of GDP from 2001 to 2007. Compared with that of other developed countries (refer to Chart 2.1), Singapore’s government expenditure has been low; however it is expected to rise significantly over the next few years, driven mainly by the following needs:

• Investing in Capabilities and Maintaining Competitiveness

• Making Singapore a Liveable Home

• Building an Inclusive Society

Chart 2.1: Singapore’s government expenditure is relatively low

18.3% 20.7% 21.2%

30.3%33.7% 34.5%

36.4% 38.0% 40.4%42.6%

53.7%

0%

10%

20%

30%

40%

50%

60%

Singapore HongKong

Korea Malaysia Ireland Australia US Japan Canada UK Denmark

% o

f GD

P

Source: IMF Government Finance Statistics Yearbook 2007.6

Investing in Capabilities and Maintaining Competitiveness To position Singapore for long-term growth, overall spending on research and development (R&D) will increase to $7.5 billion per annum by 2010, or 3% of GDP. Approximately one-third of this will be publicly funded R&D. Through the National Research Foundation (NRF), A*STAR and our academic institutions, we are developing new capabilities in research fields that will drive our future growth. Singapore is already emerging as a key R&D player in potentially high growth areas such as biomedical sciences, interactive and digital media, and environmental and water technologies. We will also be providing significant incentives for companies large and small to engage in R&D.

To maintain our competitiveness, we will have to continue investing in our most important resources - our people - through education, training and continuous learning. Education spending per student will be boosted to enhance the quality of education through better pupil-teacher ratios and single session schools. Cohort participation rates in tertiary education would also be raised from the current 23.6% to 30% by 2012. Our fourth university will start taking in students by 2011 and the Ministry of Manpower (MOM) and Workforce Development Agency (WDA) will also ramp up the annual Continuing Education and Training (CET) institutional capacity – from 50,000 to 250,000 training places in three to five years.

6 The data reflects average general government expenditures from 2001 to 2005 only. More recent data for other countries is not available through the IMF Government Finance Statistics Yearbook.

BUDGET HIGHLIGHTS

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Making Singapore a Liveable Home The Government will continue to invest in making Singapore a liveable home for Singaporeans, whilst remaining a global city that attracts and retains talent. Our investment in transport infrastructure is a key part of these plans. By 2020, we will have doubled the rail network, expanded our network of expressways, and integrated road and rail lines to improve both public and private transport. We will also invest to make our public transport system disability-friendly and elderly-friendly. To achieve these goals, transport spending will rise from 0.8% of GDP in 2008 to about 2.9% of GDP in five years’ time and be sustained at that level over the next five years.

Our housing estates will continue to be rejuvenated to enhance the quality of life and the value of homes owned by Singaporeans through the Home Improvement Programme (HIP), the Neighbourhood Renewal Programme (NRP), and the Lift Upgrading Programme (LUP). To transform Singapore into a City-in-a-Garden, the island-wide Park Development Programme will improve existing old parks and develop new ones including Gardens by the Bay. In addition, the Government will enhance our waterways through the ABC (Active, Beautiful, Clean) Waters programme.

Building an Inclusive Society Like many developed countries, Singapore's population is ageing, experiencing falling fertility rates, and facing a widening income gap. We will be addressing these elements so as to build an inclusive society.

Older citizens aged 65 and above as a share of citizen population would escalate from the current 9% to 23% in 2037. An ageing society imposes more pressure on our healthcare resources – the elderly accounts for around 40% of the hospitalisation stays in our public hospitals. Going forward, we expect the elderly to account for around two-thirds of our hospitalisation needs. An additional $2.3 billion will be spent over the next five years to boost hospital capacity and upgrade existing facilities, recruit and train manpower, and improve community hospitals and nursing homes. In constant dollar terms, we expect to more than double the Government’s healthcare expenditures over the next decade.

To address our low fertility rate, which sank to 1.29 in 2007, the Government will be committing an additional $700 million a year on the enhanced Marriage and Parenthood package of measures announced in August 2008. The package will provide more financial and workplace support for parents as well as improve the quality of child care centres and kindergartens.

Globalisation and rapid technological changes contribute to a widening income gap. To strengthen our social compact and ensure that no Singaporeans are left behind, we have implemented the Workfare Income Supplement Scheme (WIS) which seeks to bolster the incomes of low-wage workers on the principle that the best way to help people is to assist them in seeking and securing employment. In addition, support for the vulnerable, who are unable to take care of themselves, will be strengthened by enhancing social assistance and community support programmes such as the Home Ownership Plus Education (HOPE) scheme and Centre-based Financial Assistance scheme for Childcare (CFAC).


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Generating Adequate Revenue To meet these expenditure needs, the Government will require additional revenues equivalent to 3% of GDP each year over the next five years, and possibly more thereafter. Our ability to raise revenue through direct taxes will continue to be limited by the need to maintain Singapore’s attractiveness as a key business hub in Asia. The increase in GST of two percentage points in 2007 provided an additional 0.8% GDP equivalent of revenues. With the implementation of the Net Investment Returns Framework which allows for spending investment returns based on the long-term expected real returns on our reserves, the gap in revenues needed for the additional spending plans could be bridged.

Conclusion Our current composition of revenues will provide us with the resources over the medium term to meet our planned expenditure requirements, with enough fiscal space to deal with unanticipated needs and contingencies. Therefore, this year’s budget reflects our ability to continue with our long-term investment plans while dealing with the immediate needs arising from the severe economic downturn.

2.3 Total Expenditure

Budget 2009 will continue to provide for developing infrastructure and expanding provisions for education and healthcare despite lower operating revenues during this downturn.

FY2009 Total Expenditure is estimated to be $43.6 billion (17.5% of GDP), which is a significant increase of $4.7 billion (or 12.1% higher) from the revised FY2008 expenditure.

Operating Expenditure is projected to rise by $2.9 billion (or 9.9% higher) from the revised FY2008 estimate to $32.2 billion. The increase is primarily accounted for by spending on security and social development, especially health and education.

Development Expenditure is expected to increase significantly by $1.8 billion (or 18.8% higher) from the revised FY2008 estimate to $11.5 billion. The increase is primarily due to the Government ramping up the spending on infrastructure projects. These include road and rail works such as the Downtown Line and the Marina Coastal Expressway, hospital construction projects such as the Khoo Teck Puat and Jurong General Hospitals, and other industrial/commercial infrastructure projects such as the Seletar Airport Infrastructure Upgrade and Jurong Rock Cavern.

FY2009 expenditures are summarised in Tables 6.3-6.5 in the Statistical Annex.

2.4 Key Changes in Taxes, Fees and Charges

Budget 2009 introduces a Resilience Package to help cushion our businesses and households from the impact of the economic downturn. The measures include broad-based tax exemption schemes, tax deferral schemes, and tax rebates to help businesses and households tide over this difficult period. The Government will also extend the freeze on Government Fees and Charges for 2009.

BUDGET HIGHLIGHTS

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In addition, Budget 2009 will continue to put in place long-term tax measures to position our economy for growth. These include a Corporate Income Tax cut to 17% from YA2010 onwards to maintain Singapore’s attractiveness as a location for investments.

The net impact of these tax changes is expected to be a reduction in tax revenue of around $2.4 billion in FY2009 (see Table 2.2).

Table 2.2: Key Changes in Taxes, Fees and Charges

Tax Change Estimated Revenue

Gain/(Loss) per annum ($million)

Corporate/Personal Income Tax

• Corporate Income Tax cut to 17% from YA2010 onwards

• Accelerated write-down of Renovation and Refurbishment (R&R) expenses

• Enhanced fund management incentives

• Temporary expansion of Foreign-Sourced Income Exemption

• Accelerated write-down of capital allowances

• Extension of Loss Carrybacks to three preceding YAs and increase in cap

• Removal of Income Tax on Net Annual Value

• Personal Income Tax rebate

• Increased Tax deductions for donations to Institutions of Public Character (IPC)

(1,193)

Property Tax

• Rebate for industrial and commercial properties

• Tax deferral for land approved for development

• Rebate for owner-occupied residential properties

• Delayed increase in assessment rate for hotel rooms

(1,172)

Allow qualifying funds to claim input Goods and Services Tax (34)

Road Tax rebate (30)

Net Impact (2,429)

2.5 Special Transfers

Budget 2009 provides for $6.1 billion of Special Transfers, including transfers that are part of the Resilience Package. This includes:

(a) Jobs Credit scheme to help employers preserve jobs by providing cash credits based on wage bills. The total cost of the Jobs Credit is $4.5 billion, of which $1.1 billion has been front-loaded to first quarter of 2009 and paid out of FY2008 Budget. The balance of $3.4 billion in Jobs Credit would be paid in FY2009;

(b) Special Risk-Sharing Initiative, under which $0.4 billion is set aside as loan loss budgets for the Government to share the losses of bank loans under new loan and credit programmes for businesses.


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The President has given his in-principle approval to fund the cost of the (a) Jobs Credit scheme and (b) Special Risk-Sharing Initiative out of the past reserves7 in FY2009.

The Government continues to stay committed to set aside funds for long-term needs that require a stable source of funding. A total of $300 million is set aside to top up endowment funds. The Medical, Lifelong Learning and the ElderCare Endowment Funds will each be topped up by $100 million. $260 million is set aside for the LIFElong income (LIFE) Bonus and $450 million will also be used to top up the trust for future CPF voluntary deferment and deferment bonus payouts.

We will also transfer an additional $400 million to the R&D Trust Fund under the National Research Foundation (NRF) to fund projects that are targeted at boosting research and development activity in Singapore.

2.6 Budget Position

Before taking into account Top-Ups to Endowment Funds and Trust Funds, and before Net Investment Returns Contribution (NIRC), the Budgeted FY2009 position is a Basic Budget Deficit of $14.9 billion (or 6.0% of GDP).

On 1st January 2009, revisions to the Constitution - to allow the Government to spend up to 50% of the expected long-term real returns on reserves invested by GIC and MAS - came into effect. On the remaining reserves, the existing NII framework applies. Effective from FY2009, the NIRC will reflect the total amount of investment returns that is taken into the Budget for spending.

After factoring in the Top-Ups to Endowment Funds and Trust Funds, and NIRC of $7.7 billion, the estimated outturn for FY2009 is an Overall Budget Deficit of $8.7 billion (3.5% of GDP).

7 Actual approval for the draw on reserves would only be granted when the Supply Bill for FY2009 has been passed by Parliament and assented to by the President.

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Box 2.2: Macroeconomic Impact of Recent Fiscal Policy The macroeconomic impact of the Budget may be assessed through fiscal impulse, which estimates the first-order stimulus to aggregate demand arising from fiscal policy during a given period. It focuses on the change in fiscal stance from year to year. A positive fiscal impulse indicates a more expansionary fiscal stance compared to the previous year, while a negative fiscal impulse indicates a less expansionary (or more contractionary) stance. A budget deficit can thus still be contractionary (i.e. a negative fiscal impulse) if it is smaller than the deficit position in the previous year.

The appropriateness of the fiscal impulse is often assessed against the prevailing state of the economy. The latter can be measured by the output gap, which is the difference between the actual level of activity in an economy (as measured by GDP) versus the sustainable amount of activity given the capacity of the economy (i.e. the maximum level of GDP that can be sustained without creating inflationary pressures).

Chart 2.2: Strong fiscal stimulus projected amidst economic slowdown

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*The historical fiscal impulse series includes the impact of the New Singapore Shares Scheme announced in Budget FY2001

The fiscal impulse for FY2008 is expected to be much larger than what was estimated at the start of FY2008. This is due to the enhanced Growth Dividends and U-Save payouts, new Marriage and Parenthood measures and higher costs of infrastructure projects incurred during the financial year. In addition, part of the Government’s 2009 Resilience Package to help businesses and households cope with the economic downturn will be incurred in the last quarter of FY2008.

With the continual spillover of the global financial crisis to the real economy, growth in 2009 is expected to slow significantly, with the output gap reversing from positive to negative, falling to around -2.1% of potential GDP.

The fiscal impulse for FY2009 is estimated to be strongly positive, which will be appropriate given the large negative output gap. The bulk of the Resilience Package will be incurred in FY2009, which will help to preserve jobs, enhance business cash-flow, provide support for households as well as invest in infrastructure for the long-term. The Resilience Package will be on top of the continued payouts to households from the 2007 GST Offset package and the 2008 Surplus Sharing package.

Taken together, the fiscal stimulus in FY2008 and FY2009 will provide crucial support as the economy transits to a period of slow growth. The fiscal impulses in these two years are also significantly larger compared to the fiscal impulses during the previous downturns in FY1998 and FY2001.

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II NN EE CC OO NN OO MM II CC DD OO WW NN TT UU RR NN SS ♦♦ MM AA XX II MM II SS II NN GG VV AA LL UU EE II NN PP UU BB LL II CC

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♦♦ CC OO MM PP EE TT II TT II VV EE TT AA XX RR EE GG II MM EE

DISCRETIONARY FISCAL POLICY IN ECONOMIC DOWNTURNS

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3 Discretionary Fiscal Policy in Economic Downturns Fiscal policy refers to a government’s decisions on taxes and expenditures (either on the purchase of goods and services, or transfer payments). Together with monetary policy, it is one of the two traditional tools of macroeconomic management.

3.1 Smoothing Effect of Automatic Stabilisers

Procyclical Tax Collections Taxes typically work as an automatic stabiliser. During high growth years, tax revenues from corporate profits and personal incomes, as well as from consumption such as Goods and Services Tax tend to be higher. As taxes are extractions from the economy, the higher tax collections serve to dampen aggregate demand, thereby reducing inflationary pressures. Conversely, during years of low GDP growth or even contraction, tax collections would automatically adjust themselves to lower levels and reduce the extractions from the economy to mitigate the effect of slowing aggregate demand. In Singapore, most tax revenues are highly procyclical, which help to dampen economic cycles. This can be seen from the following Table 3.1.

Table 3.1: Correlation Coefficients of Key Revenue Sources with GDP8

All Revenues CIT PIT GST Stamp

Duty Property

Taxes Motor

Vehicle Taxes

0.92 0.98 0.97 0.93 0.68 0.78 0.53

Smoothing Government Expenditures in Singapore

In addition, the expenditures of most government ministries in Singapore are pegged to a seven-year moving average of past and projected GDP. Government expenditures are injections into the economy as they add to the aggregate demand for goods and services. Therefore, volatility in government spending is reduced by pegging government spending to a smoothed average of GDP growth. In years when actual GDP growth is high, government spending increases are muted to mitigate inflationary pressures. Conversely, government spending would not fall in tandem with sharp GDP contractions and exacerbate falling aggregate demand9 during a downturn.

3.2 Discretionary Fiscal Policy in a Sharp Downturn

Automatic stabilisers (viz. procyclical tax revenues and more stable Government expenditures) could be supplemented by discretionary fiscal policy especially during a sharp downturn. Discretionary fiscal policy includes measures to further reduce extractions from the economy such as providing additional tax rebates to effectively reduce tax collections, and measures to introduce injections into the economy such

8 Based on correlations of revenue, adjusted for rate changes for GDP between 1998 and 2007. 9 See Budget Highlights (2006) for a full description: http://www.mof.gov.sg/budget_2006/budget_speech/downloads/FY2006_Budget_Highlights.pdf

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as additional government spending on goods and services, and grants and tax credits to increase the incomes of households and businesses.

3.3 Limitations of Discretionary Fiscal Policy

Discretionary fiscal policy has several limitations which reduce its effectiveness as a countercyclical tool. Long Time Lags. It takes time for government agencies to implement discretionary fiscal policies. For example, additional government projects to be implemented in a recession needs to be designed, tendered out and evaluated for cost-effectiveness before the projects are awarded. In addition, where transfers are made to increase incomes of households and businesses, there is a time lag between their actual receipt of cash and actual expenditures into the economy. Leakages and Savings. The scope for using discretionary fiscal policy as a tool for macroeconomic stabilisation is more limited for countries with open economies due to import leakages. The effect of fiscal transfers on aggregate demand would also be blunted in economies with high savings rates because the injections into households or businesses are not fully spent but kept as precautionary savings. Fiscal Sustainability: Trading off Long-term Investments. Discretionary fiscal policy means running a larger deficit in a year of low growth. Such measures can lead to persistent deficits, and threaten long-term sustainability and competitiveness. This is because the deficits are typically financed by increased borrowing which would eventually be repaid through higher taxes. In addition, the Government’s borrowing could lead to higher interest rates and crowd out funds for private investments and in turn reduce long-term growth prospects.

3.4 Discretionary Fiscal Policy’s Role in Severe and Prolonged Downturns

There are however the following arguments for discretionary fiscal policy especially in a severe and prolonged downturn. Enhancing Fiscal Multipliers through Better Targeting and Timing. The effectiveness of discretionary fiscal policy can be enhanced if the measures are delivered in a timely manner and targeted at individuals and companies that would need them the most during a prolonged downturn. The probability of mistiming due to lags is also reduced in a prolonged downturn. Value in Providing Relief. Regardless of the economic impact, fiscal policy can do much to improve the well-being of households and individuals. It can reduce the loss of incomes of individuals and provide relief in a recession even if the fiscal impulse is weakened through “leakage”, e.g. by spending on imports. Improvement of Expectations. By providing help to counter a downturn, businesses and households would have more confidence that the economy would recover. This reduces the precautionary savings inclination that could further dampen consumption, and stem a downward spiral.


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Box 3.1: Conducting Fiscal Policy in a Downturn In a downturn, fiscal policy should ideally be: Targeted. Government measures should be targeted at individuals and companies that would need them the most. Their tendency to spend the resources provided to them will also enhance the multiplier of the fiscal measure. In addition, the measures should take into account the nature and dynamics of the downturn – for example, a downturn caused by a contraction of a specific sector such as tourism would warrant different measures from a downturn characterised by credit constraints. Timely. The measures should ideally have short implementation and effect lags. This means that it should not take too long to implement, and the time taken before the resources are spent within the economy should be minimal. Direct government expenditure into the economy that leverages on existing schemes and systems would have the shortest time lag. Temporary. The measures should be temporary to prevent them from becoming a permanent drain on resources in the long-term. It is important to ensure that the measures should not compromise long-term budgetary health. It should also be noted that the actual effect the same fiscal measure would have on the economy can differ across downturns because of the structure of the economy and the nature of the downturn. Taking into account the additional uncertainty in terms of the duration and severity of each downturn, discretionary fiscal policy in any downturn should comprise a broad spectrum of different measures.

3.5 Effectiveness of Discretionary Fiscal Policy in Singapore

Multiplier of Discretionary Fiscal Measures Not Insignificant In Singapore, the multiplier from previous applications has typically been positive but small, depending on how they are targeted (see Box 3.2 for the fiscal multipliers of various measures). Targeted transfers at the lower income tend to have a higher multiplier, as does the Government’s direct consumption of goods and services. For example, measures such as WIS, GST Credits and Government hiring plans would have a significant economic multiplier. While taxes and investments tend to have a lower multiplier, they tend to provide a longer term boost to economic growth. Short Implementation Lags The effectiveness of discretionary fiscal policy is enhanced by the short implementation lags in Singapore. This is due to our efficient tax and CPF systems that enable the Government to distribute transfers quickly. No Trade-Off on Long-Term Objectives Given Singapore’s policy of running a balanced budget over a business cycle, fiscal policy in Singapore tends to be financed from accumulated budget surpluses rather than from borrowing. This enhances the impact of temporary measures, as the Government is unlikely to need to finance fiscal policy through higher future taxes. Neither would the Government need to borrow to finance the deficit – therefore it would not draw on the credit in the market and crowd out private investments.

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Singapore has therefore made judicious use of discretionary fiscal stimulus measures to supplement the fiscal automatic stabilisers built into our system - Overall Budget Balance has been broadly countercyclical over the past ten years (see Chart 3.1 and Chart 2.2 of Box 2.2 Macroeconomic Impact of Recent Fiscal Policy).

Chart 3.1: Overall Budget Balance has been largely countercyclical

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3.6 Expansionary Budget 2009

Budget 2009 is a significantly expansionary budget given that Singapore could be entering the worst recession in the last three decades. We will therefore run a sizeable budget deficit, even after taking into account the higher investment returns of our reserves that we will tap on through the new Net Investment Returns framework (see Table 3.2). Table 3.2: Comparison of 2009 Overall Budget Balance and Basic Balance with

Previous Budgets

Overall Budget Balance Basic Balance (excludes Net

Investment Income and Endowment Fund Top-ups) FY

$ (Billions) % of GDP $ (Billions) % of GDP 1998 0.93 0.7 0.93 0.7 1999 4.88 3.4 5.19 3.6 2000 3.98 2.4 2.50 1.5 2001 (2.70) (1.8) (2.27) (1.5) 2002 0.19 0.1 (2.89) (1.8) 2003 (1.89) (1.1) (3.79) (2.3) 2004 (0.11) (0.1) (2.45) (2.3) 2005 (1.49) (0.7) (1.04) (0.5) 2006 (0.06) (0.0) (1.29) (0.6) 2007 7.66 3.1 6.05 2.4 2008 (2.15) (0.8) (2.80) (1.1) 2009 (8.67) (3.5) (14.94) (6.0)


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Components of Discretionary Fiscal Measures The Resilience Package of $20.5 billion as announced in Budget 2009 will have five components:

(i) Jobs for Singaporeans. $5.1 billion would be spent to help preserve jobs

through Job Credits Scheme and related programmes. These measures would have the additional benefit of helping businesses with costs and cash-flow as well.

(ii) Stimulating bank lending. Budget 2009 introduced the Special Risk-Sharing

Initiative that would be supported by $5.8 billion of government capital which will generate a potential $11 billion worth of credit. However, only a small fraction of this would eventually be expended as loan losses.

(iii) Enhancing business cash-flow and competitiveness. Various tax measures

and grants costing $2.6 billion would be put in place to help businesses with cash-flow and enhance competitiveness.

(iv) Supporting families. $2.6 billion would be allocated to support Singaporean

households this year, with lower-income households receiving more.

(v) Building a home for the future. The Government will commit $4.4 billion to infrastructure development. In the short term, this provides some fiscal stimulus; and in the longer term, it helps to position Singapore for any future economic recovery. The ability to continue such investments for the future is a key feature of Singapore’s fiscal strategy.

To minimise the implementation time lag, some measures of the package will be front-loaded beginning March 2009, thereby increasing the Overall Budget Deficit for FY2008. Fiscal Sustainability The Budget 2009 Resilience Package includes exceptional measures to cope with the global economic downturn. Such measures go well beyond normal countercyclical responses such as rebates, but are appropriate given the scale and nature of the downturn. The Government has thus decided to seek the President’s concurrence to fund two of the extraordinary measures – the Jobs Credit scheme targeted at preserving jobs during the downturn, and the Special Risk-Sharing Initiative aimed at stimulating bank lending.

3.7 Conclusion

The global economic and financial crisis has placed increasing emphasis on fiscal policy as a tool to manage economic cycles. This is because the transmission mechanism of monetary policy to the real economy has been weakened significantly due to the credit crunch resulting from the financial crisis. Many countries around the world have thus introduced fiscal stimulus packages to provide significant countercyclical boost to their economy. Singapore has also chosen to respond to this economic downturn with significant but temporary discretionary fiscal measures that would not come at the expense of fiscal

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sustainability. Bearing in mind our major trading partners in the US, Europe, and East Asian economies are also undertaking significant fiscal measures at around the same time, we expect the effectiveness of our fiscal measures to be enhanced despite the high leakages of the Singapore economy; ultimately the world is a closed economy. Although the fiscal actions are unlikely to forestall a recession, they would mitigate the impact and avert an even sharper downturn where more businesses fail and unemployment soars.

Box 3.2: Fiscal Multipliers in Singapore The budget balance shows the state of a government’s finances. During an economic downturn, a government tends to run a budget deficit as it spends more than the revenue it takes in order to bolster the economy. Fiscal multipliers measure how a government’s fiscal stimulus (i.e. the budget deficit) translates into economic stimulus i.e. how much does GDP change for every additional dollar in government spending or revenue.

Table 3.3: Studies on Singapore’s Fiscal Multipliers

Fiscal Policy Impact on GDP

MAS (2008)10 Abeysinghe and Choy (2007)11

Increase in Government Consumption High Moderate

Increase in Government Investment Low Moderate

Increase in Transfers to Lowest 40th Percentile of Households High -

Increase in Transfers to All Households Moderate -

Cut in Corporate Tax Rate Moderate -

There is large uncertainty over the size of fiscal multipliers; fiscal multipliers across the world range from less than zero to larger than four, depending on the methodology and assumptions used, the type of fiscal policy, and the country of interest12. They also seem to have declined over time with increasing globalisation. Studies for Singapore have shown that the fiscal multipliers for Singapore tend to be positive but fall in the lower range of international studies (see Table 3.3). The small fiscal multiplier is due to Singapore’s small open economy, and increases in spending are likely to leak out of the economy due to Singapore’s high reliance on imports. Our high savings rate also limits the impact of fiscal policy.

10 MAS’s Monetary Model of Singapore. 11 Abeysinghe and Choy (2007), “The Singapore Economy: An Econometric Perspective”, Chapter 8. 12 IMF (Dec 08) Staff Position Note SPN/08/01 “Fiscal Policy for the Crisis”.

MAXIMISING VALUE IN PUBLIC SECTOR PROJECTS THROUGH SMART PROCUREMENT

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4 Maximising Value in Public Sector Projects through Smart Procurement

4.1 Procurement Policy – Cost Effectiveness and Value for Money

The Government’s procurement policy has always been to achieve the greatest cost effectiveness and to derive maximum value for money. This is the enduring objective even as needs are becoming more complex and demands more sophisticated.

4.2 Smart Procurement

Over the past few years, government agencies have been progressively adopting “Smart Procurement” techniques underpinned by several key considerations:

(i) Achieving greater efficiency at the Whole-of-Government (WOG) level

(ii) Optimising value on a whole life cycle basis

(iii) Building capacity for the future

(iv) Promoting innovation and enterprise

4.3 Achieving Greater Efficiency at the Whole-of-Government (WOG) Level

Economies of scale can readily lead to big cost savings. Since 2003, the Public Service has been aggregating its procurement needs in areas ranging from electricity to stationery. But beyond the same commodity items commonly used by different agencies, other services that may at first blush appear unique to each agency offer opportunities too for WOG aggregation. It takes some effort to establish common standards and procedures without having to compromise the decision-making autonomy of the agencies. However the consequential benefits can be immense. A good example is the aggregation of infocomm technology (ICT) requirements across government agencies through a common platform known as SOEasy (see Box 4.1).

Box 4.1: What is SOEasy? Heterogeneous Environment for Similar ICT Needs Most public agencies have had considerable autonomy over the procurement and implementation of their ICT operating environment, which has resulted in a highly heterogeneous one. While agencies’ desktops and networks may perform similar functions, unwittingly they were implemented differently through the use of dissimilar software or configurations. Hence, there is a huge potential for seamless collaboration, savings and efficiency if the public sector can standardise its desktop and network applications.

Standardising ICT Platform via SOEasy Multinational companies (MNCs) such as Citigroup and Cisco have reaped substantial benefits from the implementation of the Standard Operating Environment (SOE). Similarly, standardising the ICT environment of the Singapore Public Service across the WOG would help reduce the time and costs required to introduce ICT innovations and implement new ICT services. For example, anti-virus patches can be distributed speedily to all desktops and servers in the event of a virus threat. With this in mind, the Government appointed the oneMeridian consortium in February 2008 to

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develop and implement SOE for the public sector, and has since renamed the standardised platform SOEasy.

Efficiency and Savings through SOEasy

SOEasy is expected to be implemented by 2010 and it will provide public officers across 74 agencies with an agile infocomm environment that promotes innovation and enhances productivity at work. This common ICT environment will not only improve operational efficiency, but also promote innovation and enhance work productivity for public sector. The integrated services and networking platform will also facilitate collaborative work amongst public officers and will translate into an approximate average savings of 28% over current infocomm expenditure for equivalent services13. SOEasy would enable and facilitate public officers to truly work as One Government.

4.4 Optimising Value on a Whole Life Cycle Basis

Great efforts have often been directed at establishing the specifications to clearly articulate the requirements of a project, particularly one that is large and complex. Evaluating the offers to choose the most cost effective candidate is just as challenging. However complicated and involved this may be, it is a mistaken belief that specifying the requirements and then considering the candidates on the initial capital outlays would lead to the best outcome. In fact, for most projects, the initial outlay constitutes but about one-third of the life cycle cost of the project. Government agencies are hence moving towards optimising the value of their projects on the whole life cycle basis. The challenge lies in assessing different business models and selecting the ones that would enable government agencies to extract the highest value over the life cycle and not be misled by the size of the capital outlay. To optimise value, agencies would have to be very clear what the needs are and take into account different factors in the procurement process, such as owning or leasing of buildings/equipment, and evaluating the merits of different types of financing options for large projects. Public Private Partnership (PPP) is one such option. Through long-term partnerships with the private sector, optimal risk-sharing could be achieved. The private sector partner could be motivated to introduce new technology and innovative practices, as well as find opportunities to open up the public facility where possible for commercial use to share the cost. As with any public sector projects, government agencies will continue to remain responsible for the supervision and successful implementation of the project within the stipulated life cycle cost. The Ministry of Finance (MOF) will continue working with agencies to examine the feasibility of PPP for the procurement of large projects, and adopting PPP models when they can generate greater value over the entire project life cycles.

13 “S$1.3b Standard ICT Operating Environment Tender Awarded to oneMeridian”, IDA news release, 28 Feb 2008.


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Box 4.2: Public Private Partnership for Ulu Pandan NEWater Plant The Ulu Pandan NEWater Plant (Ulu Pandan NP) is the fourth and largest NEWater plant in Singapore, supplying about half of the total NEWater supply for Singapore’s use. The other three NEWater plants are located in Bedok, Kranji and Seletar, and are owned and operated by Public Utilities Board (PUB). Unlike them, the Ulu Pandan NP was developed using the PPP model by the private sector service provider, Keppel Seghers, who will supply NEWater to PUB for a period of 20 years from 2007 to 2027.

Benefits of PPP for Ulu Pandan NP Leveraging on the respective strengths of the public and private sector partners, the PPP approach has resulted in a lower tariff for NEWater. The cost saving in the price of NEWater after the plant was put into operation was passed on to consumers. Other benefits of the PPP model include: Economic Optimisation. Under PPP, the design, construction, operation and maintenance are undertaken by the same company or consortium. Therefore, there is a strong incentive to factor in and optimise the operation and maintenance costs of the plant by taking on a life cycle perspective.

In the case of Ulu Pandan NP, Keppel Seghers adopted the “optimal lifecycle costing” approach instead of finding the cheapest way to build the plant. For instance, the use of several energy-saving features such as the variable speed drive adopted for the pumps could potentially translate into lower production costs and savings which are then passed on to consumers14 even though the initial capital outlay may be higher.

Greater Room for Innovation. For Ulu Pandan NP, the technical requirements specified in the contract are essentially based on performance/outcome with the quality and quantity of NEWater as the key performance criteria. This gives Keppel Seghers more flexibility to innovate and optimise the design of the plant instead of following pre-determined specifications so long as they are able to meet the key performance criteria.

Business Opportunities for the Private Sector. Under traditional procurement, PUB would contract the private sector to design and construct its facilities after which it will operate and maintain these facilities. With PPP, PUB is able to tap on the expertise and experience of practitioners in the water treatment and recycling industry to not just design and build but also to run and maintain the facilities. This opens up business opportunities for the private sector to be involved in service delivery to the public sector.

4.5 Building Capacity for the Future

In 2007 and 2008, the construction industry experienced steep cost hikes due to increases in material prices and capacity crunch within the industry. To relieve cost pressures on the construction sector, the Government deferred public projects estimated at $4.7 billion15. Apart from raw material cost increases that are beyond

14 NEWater Project Summary, MOF http://www.mof.gov.sg/policies/attachments/Public%20Info%20on%20PPP.Newater.final.pdf 15 “Government will not implement measures to stimulate property sector”, Channel NewsAsia, 26 Nov 2008, http://www.channelnewsasia.com/stories/singaporebusinessnews/view/392434/1/.html

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our control, capacity bottlenecks arising from manpower and equipment shortages have also contributed to such a situation. To alleviate such a situation in future, the Government will provide a long-term projection of its construction demands so the industry could better plan their capacity build up whether in manpower or equipment investments. Government spending in construction projects was approximately $10 billion in 2007. With our plans to further improve our infrastructure to create a high quality living environment, there are many major transport and housing projects in the pipeline. Expenditure on construction is estimated to average at least $6 billion per year over the next 10 years. Our construction industry should take advantage of this sustained demand to build up capacity. The Government would also benefit from smoother year to year expenditures without the supply-side bottlenecks.

Box 4.3: Mitigating the Effects of Cost Hikes and Supporting Capacity Building in the Construction Sector

The following measures illustrate how Government procurement can help to mitigate the effects of increased construction costs for public sector projects, and also build up the capacity of the construction industry in Singapore.

Tackling Cost Hikes (a) Price Fluctuation Clause in Construction Contracts The prices for construction materials tend to be volatile. In the absence of flexible contractual provisions, contractors would price in such risks in their bids, resulting in higher costs for public projects. Government agencies have been advised in 2008 to adopt price fluctuation clauses for key construction materials such as concrete and reinforcement bars. This way, contractors would be assured that they could be reimbursed for variations in prices, instead of pricing in such uncertainties in their bids.

(b) Demand Aggregation Demand Aggregation (DA) allows procuring organisations to leverage on volume to extract economies of scale. In the construction sector, the public sector can lower the cost of materials by aggregating common purchases across agencies. For example, the use of bulk tenders for the supply of concreting sand and aggregates has enabled the government to enjoy the benefits of DA for its public housing projects, in addition to achieving a key objective of buffering against supply glitches.

(c) Value Management

Value Management (VM) brings together decision-makers, technical specialists and other stakeholders to identify the purpose, importance and benefits of a project through a structured and collaborative process. It aims to maximise project value within given time and cost constraints through collaboration. Where used during the early development stages of projects, VM can help to identify and facilitate trade-offs that need to be made across agencies on different objectives (such as economic versus social benefits), and enable participants to achieve consensus on optimal solutions that provide the best value for money. Given the complexity and potentially high costs involved in construction projects, the application of VM offers immense potential for generating significant value whilst saving on construction costs.


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Capacity Building (a) Providing Longer Project Pipelines for Better Visibility

Contractors may submit higher bids when they are uncertain over prospects for new projects even though they currently have visibility of the government’s project schedule for the next year. But in reality, contractors often need longer-term information to work out the resources needed to bid for projects. The Building and Construction Authority (BCA) has therefore worked with MOF to gather more pipeline information on public sector construction projects over a three-year horizon (instead of the current year) and had shared these with the industry during BCA’s annual "Construction and Property Prospects Seminar" in January 2009. With more information of impending public projects over a longer time horizon, contractors and consultants can better plan their workload and resource requirements.

(b) Upgrading Local Capability

It is imperative for contractors to continually enhance their capabilities to remain competitive. This can be done by investing in capital assets such as construction equipment, or in human capital, by upgrading their skills in areas like project management, for example. On its part, the Government would review existing government procurement policies and processes to better support the construction sector. Collectively, these would build up the capacity of the construction sector that would allow it to seize new opportunities when the economy recovers.

4.6 Promoting Innovation and Enterprise

The Public Sector Innovation Framework (PSIF) was launched in 2008 to promote public-private collaborations in bringing about breakthroughs in the public services. Under the PSIF, public agencies can propose projects that address their needs through innovation when there are no off-the-shelf solutions to bring about desired outcomes. Innovation Platforms (InnoPlats) provide the collaborative framework to guide ideas from basic stage to realisation by bringing together user public agencies, industry promotion agencies, technology developers and private sector players in solving problems.

The Government has set aside $220 million for FY2008 to FY2010 as a seed fund for experimentation, test-bedding and building capabilities of the PSIF. Government procurement processes have also been refined to support this strategic shift and to allow government agencies to harness the full potential of public-private collaborations.

Box 4.4: Adopting Smart Procurement Practices to Enable Private-Public Collaborations

Existing procurement procedures allow public agencies to collaborate with the private sector to procure goods and services through limited tenders or open sourcing.

Limited Tenders For products that are not readily available in the market, agencies can use limited tendering so long as the intended government procurement satisfies certain conditions such as:

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(i) There is only a sole supplier. This would be a common situation for works of arts or for reasons connected to the protection of exclusive rights such as patents or copyrights.

(ii) For projects that are of R&D nature, government agencies may need to procure prototypes or a first product or service to support further research and experimentation.

Open Sourcing Where open sourcing is still the preferred option, several procurement approaches can be considered:

Request-For-Information (RFI): This process is essentially an information-gathering or market-testing stage. No formal price bids will be submitted under RFI.

Request-For-Proposal (RFP): This process is used when agencies specify the problem to be solved, rather than specifying a pre-determined product or solution, so to give flexibility to suppliers.

Spiral Contracting: For projects with potential benefits that are unclear at the on-set, the contracts can be structured into multiple stages which could be exercised as options when the preceding stage proves successful. For example, Stage 1 may call for Proof of Concept, Stage 2 for the development of prototype and Stage 3 for a pilot trial. When the project goes into commercial production, government agencies would generally open up the project for competition to enable more suppliers to participate.

In October 2007, the Ministry of Health (MOH), the Infocomm Development Authority of Singapore (IDA) and The Enterprise Challenge (TEC) adopted the RFP process to issue a joint Healthcare Call-for-Collaboration (CFC). This was to invite healthcare institutions and infocomm partners to form consortia to design, develop and test innovative solutions on improving the efficiency in the healthcare system and clinical care quality. This approach stemmed from the belief that the public sector can better leverage on infocomm technology to provide innovative solutions through closer collaboration with the private sector.

This CFC resulted in the commitment of $3 million from 2008-2010 to fund the development of a number of projects that would achieve this objective, such as an intelligent and real-time operating theatre dashboard system, an integrated children mental wellness system, and a healthcare information exchange portal. Where there is potential for further development and application of these innovative solutions, and there remain additional R&D elements or patent/copyright issues, the consortia may be appointed through limited tendering without infringing intellectual property rights.

4.7 Conclusion

The Government will continue to adopt a “Smart Procurement” approach to achieve the greatest cost-benefit and maximise value for money. It will continue to seek out new modes of procurement that would give it best value on a life cycle and sustainable basis.

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5 Competitive Tax Regime Singapore’s tax policy supports business creation and growth. The tax burden is kept competitive to encourage companies to set up and expand their businesses here. The competitiveness of businesses is hence sharpened, in turn creating jobs and other opportunities for a robust economy.

5.1 Pro-business Tax Regime

At 18%, Singapore’s headline corporate tax rate is internationally competitive. This headline tax rate however belies the much lower effective tax rate that companies actually pay. Our Partial Tax Exemption scheme for companies further reduces the effective tax burden by exempting up to $152,500 of chargeable income from tax.

The newly introduced 1% cut in headline rate, to be effective from Year of Assessment (YA) 2010, will sharpen our competitive edge further (see Box 5.1).

Box 5.1: International Corporate Tax Rates

12.5%

16.5%

17.0%

19.6%

26.0%

27.5%

28.0%

28.0%

30.0%

30.0%

30.0%

40.0%

40.7%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Ireland

HK

Singapore

Sw itzerland

Malaysia

Korea

Sw eden

Vietnam

Indonesia

UK

Australia

US

Japan

Cou

ntrie

s

Corporate Tax Rates (%)

*The chart shows how Singapore’s new corporate headline tax rate of 17% measures up against other key jurisdictions. Comparables’ headline rates were derived from KPMG’s Corporate and Indirect Tax Rate Survey 2008.

Other attractive features of Singapore’s tax regime are as follows:

Our territorial system of taxation means that only income sourced in Singapore, or income derived overseas but received in Singapore, is subject to tax.

Under our Foreign-Sourced Income Exemption regime, most foreign-sourced dividends, branch profits and service income that are remitted to Singapore by companies are exempt from tax.

Our loss transfer system of group relief allows a qualifying company to transfer its current year trade losses, capital allowances and donations to

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another company within the same group so that the overall tax burden of the group is reduced.

Companies are allowed to carry forward their unutilised trade losses and capital allowances indefinitely, subject to conditions. Unutilised donations can be carried forward for up to five years.

Current year unutilised trade losses and capital allowances of up to $100,000 may be set-off against assessable income of the immediate preceding year to get a refund of tax previously paid. For losses incurred in YA2009 and YA2010, the $100,000 cap is increased to $200,000 and the time limit for loss carryback has also been extended to three preceding years. These temporary changes aim to ease the cash-flow of businesses in this economic downturn.

Under our One-tier Corporate Tax System, dividends issued by tax resident companies are not taxed in the hands of shareholders.

Gains that are capital in nature are not taxable in Singapore.

Our wide network of Avoidance of Double Taxation Agreements (DTAs) facilitates cross-border trade and investment.

5.2 Starting a Business

A key challenge for budding entrepreneurs is the need to raise capital to finance the start-up costs for their business. To provide adequate capital for such start-ups, venture capital firms are given income tax exemption on income from qualifying investments to encourage such venture investments. The Enterprise Investment Incentive also allows investors of qualifying start-ups to get a deduction of their investment losses in approved investments, thus sharing the downside risks with investors.

To ease the cash-flow of start-ups, we have allowed pre-commencement expenses to be deductible if they are incurred from the first day of the same accounting year in which the company earns its first dollar. Such business expenses are usually only deductible after a company has commenced operation.

5.3 Growing a Business

Helping Small and Medium Size Enterprises (SME)

Qualifying start-ups enjoy full tax exemption on the first $100,000 of chargeable income and a 50% exemption on the next $200,000 of chargeable income during their first three YAs. Beyond the first three YAs, companies can still enjoy the broad-based Partial Tax Exemption scheme that aims to especially help SMEs, which allows for a 75% exemption on the first $10,000 of chargeable income and a 50% exemption on the next $290,000 of chargeable income. For a company with $300,000 of chargeable income, only 8.4% of this income will be taxed. This means SMEs in Singapore enjoy the lowest corporate tax rate among major jurisdictions.

Encouraging Innovation and R&D

A comprehensive set of new R&D tax measures was introduced in Budget 2008 to encourage pervasive innovation. Companies can now enjoy a tax deduction equal to 150% of qualifying spending on R&D done in Singapore. We also introduced a new


31

incentive that grants companies R&D tax allowances of up to $150,000 (computed based on 50% of their first $300,000 chargeable income) which can be utilised to offset their assessable income if they expend incremental expenditure on qualifying R&D activities in subsequent years. This scheme will especially help spur SMEs to do more R&D in Singapore.

Another scheme introduced in Budget 2008 was the R&D Incentive for Start-up Enterprises (RISE). Currently, start-ups can carry forward their losses indefinitely to offset against taxable income in subsequent years, subject to conditions. Under RISE, start-ups that have expended at least $150,000 in a year on qualifying R&D activities in Singapore have an additional option to convert their adjusted tax losses into cash grants of up to $20,250, during their first three YAs. R&D intensive start-ups, which commonly run losses in their initial years, will benefit most from the scheme.

Relieving Businesses of Running Costs

Singapore has an attractive regime for deductions and allowances. Most business operating expenses are deductible except for a small number of specific expenses that are statutorily disallowed. Capital expenditure for most plant and machinery are written-down over just three years under our current capital allowance regime. For certain prescribed fixed assets such as computers and automation equipment, the write-down period is further accelerated to only one year. Qualifying companies looking to base their intellectual property (IP) rights in Singapore will also gain from the automatic writing-down allowances for IP acquisition costs over a period of five years, which is comparable to key IP holding jurisdictions like the Netherlands and Switzerland.

In Budget 2009, we have introduced an accelerated capital allowance regime which allows businesses to write down over two years, instead of the present three years, plant and machinery acquired for the financial years ended 2009 and 2010. To further encourage businesses to acquire new equipment in these two years, the write-down rate will be 75% of cost for the first year with full write-down of the cost by the second year of claim.

To encourage SMEs to renovate their business premises, especially those in the service and retail sectors, we introduced a new Renovation and Refurbishment (R&R) allowance in Budget 2008 which allows businesses to write down their qualifying R&R costs over a period of three years. As announced in Budget 2009, the write-down period will be accelerated to one year for YA2010 and YA2011. This accelerated write-down will help businesses which intend to refurbish their premises in 2009 or 2010 during the slowdown.

Attracting Talent

Critical to any business is the ability to attract and retain talent. Our personal income tax regime is highly competitive (see Box 5.2). Estate duty was removed last year to encourage individuals to grow and manage their wealth from Singapore. Other tax schemes are available to help employers in their efforts to recruit global talents. For example, to help employers defray costs incurred in the recruitment and relocation of global talent, the Ministry of Manpower (MOM) and Inland Revenue Authority of Singapore (IRAS) administer a scheme that grants Double Tax Deduction for such expenses to qualifying businesses.

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Box 5.2: Top Individual Income Tax Rates

16.0%

20.0%

28.0%

35.0%

35.0%

35.0%

40.0%

40.0%

40.0%

41.0%

45.0%

50.0%

55.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

HK

Singapore

Malaysia

Korea

Indonesia

US

Sw itzerland

Vietnam

UK

Ireland

Australia

Japan

Sw edenC

ount

ries

Top Individual Income Tax Rates (%)

*Headline rates for comparables were derived from KPMG’s Individual Income Tax Rate Survey 2008.

Another example is the Equity Remuneration Incentive Scheme (ERIS). Many companies now use equity-based remuneration as a tool to motivate and incentivise their employees. ERIS helps to encourage employers to use such remuneration arrangements by providing employees with a partial income tax exemption on gains made on employee stock options or share awards. Employers may also get a deduction for qualifying costs incurred in respect of treasury shares.

5.4 Expanding and Internationalising a Business

Companies looking to expand overseas can tap on the Overseas Investment Development scheme which grants a double tax deduction for certain expenses incurred from exploring overseas investment opportunities (e.g. overseas project development office). In addition, local businesses venturing abroad can apply for the Overseas Enterprise Incentive, which offers tax exemption on qualifying income from their overseas projects for up to 10 years.

Singapore’s extensive network of DTAs – with a total of 60 comprehensive treaties in force to date – offers both local and foreign investors a competitive edge when doing business outside of Singapore. As companies venture into the global market in search of business opportunities, DTAs will help to relieve double taxation of income by providing certainty on taxing rights. Companies will also enjoy preferential withholding tax rate for dividends, interest and royalties derived from businesses in treaty countries.

For income derived from countries with which Singapore does not have a DTA, Singapore grants unilateral tax credits to offset the foreign taxes paid. These unilateral tax credits are available for all forms of Foreign-Sourced Income including rental and interest income. This has further enhanced Singapore’s status as an international business hub.


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5.5 Consolidating and Restructuring a Business

Companies often grow through mergers and acquisitions. The introduction of changes to the tax treatment of corporate amalgamations announced in Budget 2009 will help address another important aspect of a company’s growth cycle. Under the new tax framework, the tax consequences arising from an amalgamation will be minimised so that companies can readily restructure and position themselves for growth.

5.6 Low Effective Tax Rate (ETR)

Companies in Singapore enjoy low effective tax rates, taking into account the low headline tax rate, Partial Tax Exemption and where applicable, tax incentives to promote economic activity in high growth, high value-added sectors. In a recent study conducted by MOF and Ernst & Young, it was shown that our overall effective tax rates are most competitive (see Box 5.3).

5.7 Conclusion

Singapore’s tax regime has always been aimed at enhancing business competitiveness. The measures announced this year, particularly the cut in headline tax rate to 17%, bear further testimony to Singapore’s pro-enterprise philosophy and intent to be a preferred place for innovation and enterprise.

Box 5.3: MOF / Ernst & Young Study Objective In January 2008, MOF conducted a study with Ernst & Young to compare the effective corporate tax rates of companies in the manufacturing and financial sector vis-à-vis four other jurisdictions – Hong Kong, Shanghai, Dublin and Zurich. This was done by comparing the effective corporate tax rate computed for six company profiles of varying sizes from the manufacturing and financial sectors (see Chart 5.1) in each tax jurisdiction.

Methodology Profit and loss account and fixed asset information of the test profiles were developed from actual company data and transfer prices were benchmarked for consistency with industry norms. Tax computations for each profile were then prepared for each jurisdiction based on the specific tax laws of the jurisdiction. From the tax computations, the total effective corporate tax rates were derived (see Chart 5.2). This approach enables key aspects of the tax regime relevant to the company profile to be considered in the comparison.

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Chart 5.1: Base Profiles

A medium-sized local company

A large local conglomerate

Subsidiary of a large MNC

Industry 1: A manufacturing company

Industry 2: A financial services company(excluding deposit taking and

lending activities)

No foreign entities, export sales, limited IP

M1

A local group with manufacturing, R&D, sales and

distribution activitiesM2

Local subsidiary of a US MNC with regional HQ activities,

manufacturing, sales and R&DM3

Types of companies

Boutique firmFS1

Homegrown finance house with integrated services

FS2

Local subsidiary of global investment bank

FS3

A medium-sized local company

A large local conglomerate

Subsidiary of a large MNC

Industry 1: A manufacturing company

Industry 2: A financial services company(excluding deposit taking and

lending activities)

No foreign entities, export sales, limited IP

M1

A local group with manufacturing, R&D, sales and

distribution activitiesM2

Local subsidiary of a US MNC with regional HQ activities,

manufacturing, sales and R&DM3

Types of companies

Boutique firmFS1

Homegrown finance house with integrated services

FS2

Local subsidiary of global investment bank

FS3

The scope of the study was confined to corporate tax burden (including local surcharges and in the case of China, business tax) and excluded the effects of tax contributions from property tax, consumption tax and labour tax. Relevant tax incentives were also accorded to the appropriate company profiles.

Results Key findings from the study are as follows (results are summarised in Chart 5.2 below):

(1) Singapore is competitive, albeit we do not always offer the lowest ETR.

(2) Singapore is the most competitive jurisdiction in the case of the medium-size manufacturing company (i.e. M1). This is despite Singapore having a higher headline tax rate (at 18%) than Dublin. Our lower effective tax rates stem from our Partial Tax Exemption which is especially beneficial for companies with lower turnover.

(3) Singapore is also comparable with Hong Kong in competitiveness for the boutique firm (FS1) and the home grown finance house (FS2).

(4) Singapore has the most competitive tax regime for subsidiaries of MNCs in both the manufacturing and financial sector (i.e. M3 and FS3). Our lead is largely attributed to a combination of our tax incentives and our Foreign-Sourced Income Exemption regime.


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Chart 5.2: Effective Corporate Tax Rate

13.1%14.0%44.7%16.1%9.5%FS3

21.3%13.2%39.2%16.3%16.0%FS2

21.3%14.1%45.5%16.1%16.5%FS1

9.7%12.7%15.0%-4.8%M3

16.0%9.9%22.0%-12.6%M2

21.3%16.7%26.4%-14.3%M1

Total ETR

21.3%12.5%25.0%16.5%18.0%Headline Tax Rate

ZurichDublinShanghaiHong KongSingapore

13.1%14.0%44.7%16.1%9.5%FS3

21.3%13.2%39.2%16.3%16.0%FS2

21.3%14.1%45.5%16.1%16.5%FS1

9.7%12.7%15.0%-4.8%M3

16.0%9.9%22.0%-12.6%M2

21.3%16.7%26.4%-14.3%M1

Total ETR

21.3%12.5%25.0%16.5%18.0%Headline Tax Rate

ZurichDublinShanghaiHong KongSingapore

Notes 1. Total ETR = accounting tax charge divided by profit before tax. 2. Zurich headline rate of 21.3% takes into account federal, cantonal and communal (municipal) taxes. 3. In the case of Hong Kong, ETR for M1, M2 and M3 were not applicable as Hong Kong’s economy is dominated

by the financial and business sector, with manufacturing playing a lesser role.

.

[[IIIIII]] SSTTAATTIISSTTIICCAALL AANNNNEEXX

Table 6.1: Overall Fiscal Position for FY2000 to FY2009 ($million)

FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 (Revised)

FY2009 (Budgeted)

Operating Revenue 31,439 28,496 25,469 25,315 27,469 28,171 31,289 40,375 40,498 33,427 Tax Revenue 25,628 24,172 21,502 21,501 23,799 25,687 28,827 36,630 37,972 30,971 Fees and Charges 5,650 4,134 3,805 3,492 3,366 2,246 2,202 3,630 2,397 2,341 Others 162 190 162 321 305 238 259 115 129 115 Total Expenditure 27,908 27,305 27,152 28,499 28,957 28,634 29,905 32,982 38,901 43,622 Operating Expenditure 18,415 18,536 19,359 19,991 20,355 21,445 23,925 25,952 29,247 32,157 Development Expenditure 1 9,494 8,769 7,793 8,508 8,602 7,189 5,980 7,030 9,654 11,465 Primary Surplus/(Deficit) 3,531 1,190 -1,683 -3,184 -1,487 -463 1,384 7,393 1,597 -10,195 Special Transfers: 1,835 5,264 1,802 603 1,661 829 3,570 2,142 7,404 6,151

Special Transfers Excluding Top-Ups to Endowment and Trust Funds: 1,035 3,464 1,201 603 961 579 2,622 1,342 4,394 4,741

Jobs Credit scheme - - - - - - - - 1,125 3,375 Special Risk-Sharing Initiative2 - - - - - - - - - 388 New Singapore Shares - 2,450 - - - - - - - - Growth Dividends - - - - - - 1,362 0 1,055 - Economic Restructuring Shares - - 1,201 600 854 - 80 - - - GST Credits - - - - - - - 533 920 460 Senior Citizens’ Bonus - - - - - - - 109 245 121 Workfare Bonus Scheme Fund and Workfare Income - - - - - - 400 297 - - Workfare Income Supplement Scheme Special - - - - - - - - 33 100 Utilities-Save Scheme - - - - 8 63 64 148 205 118 Service and Conservancy Charges/Rental Rebates 3 - - - - - 59 36 64 65 73 40th Anniversary NS Bonus - - - - - - 201 0 - - CPF Top-Up 4 913 1,010 0 4 99 412 479 0 226 - Edusave Account and PSEA - - - - - 45 - 188 490 3 MediShield Scheme for the Elderly 108 4 - - - - - - - - Other Measures for Elderly and Lower income5 14 - - - - 0 - 2 9 32 Assistance to SMEs - - - - - - - 0 21 21 R&D Incentive for Start-up Enterprises - - - - - - - - - 50

Basic Surplus/(Deficit)7 2,496 -2,274 -2,884 -3,787 -2,448 -1,042 -1,238 6,051 -2,796 -14,936 Top-Ups to Endowment and Trust Funds: 800 1,800 600 0 700 250 948 800 3,010 1,410

Top-Up to Endowment Funds6/ Skills Development 800 1,800 600 - 700 250 448 300 1,600 300 National Research Fund - - - - - - 500 500 800 400 CPF Deferment and Voluntary Deferment Bonus - - - - - - - - 350 450 LIFE Bonus - - - - - - - - 260 260

NII/NIR Contribution7 2,287 1,375 3,675 1,900 3,043 2,777 2,131 2,405 3,654 7,673 Overall Budget Surplus/ (Deficit) 3,983 -2,698 191 -1,887 -105 1,486 -55 7,656 -2,153 -8,673

* Fiscal position may not be comparable across financial years due to reclassification of revenue and expenditure items. Figures may not add up due to rounding. 1 Development Expenditure excludes land-related expenditure from FY2001. 2 This includes the new Bridging Loan Programme, Trade Credit Insurance Programme, and Loan-Insurance Scheme-Plus. 3 Prior to FY2005, Service and Conservancy Charges and rental rebates were subsumed under Ministry of National Development’s Operating Expenditure. 4 Consist of CPF Ordinary Account, Pre-Medisave, Medisave and CPF Share Ownership Top-Up schemes. 5 Consist of Senior Pensioners Grant Scheme, public transport vouchers and assistance through Citizens’ Consultative Committees, Self-Help Groups and Voluntary Welfare Organisations. 6 Consist of Top-Ups to Edusave, Medical, Lifelong Learning, Community Care (formerly known as Community Assistance) and ElderCare Funds. 7 On 21 October 2008, Parliament passed the Bill to amend the Constitution to allow the Government to spend up to 50% of the expected long-term real returns on reserves invested by GIC and MAS. On the remaining reserves, the existing NII framework applies. Effective from FY2009, the NIRC will reflect the total amount of investment returns that is taken into the Budget for spending.

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Table 6.2: Revenue Collections for FY2000 to FY2009 ($million)

FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008

(Revised) FY2009

(Budgeted) Operating Revenue 31,439 28,496 25,469 25,315 27,469 28,171 31,289 40,375 40,498 33,427 Corporate Income Tax 8,316 7,821 6,822 5,921 6,107 7,340 8,474 9,250 10,100 8,205 Personal Income Tax 4,030 4,547 4,049 3,862 3,956 4,324 4,707 5,687 6,219 6,055 Statutory Boards’ Contributions 1,192 862 625 488 1,405 1,249 955 1,683 2,143 312 Assets Taxes 1,606 1,517 1,308 1,512 2,058 1,910 2,112 2,582 2,837 1,030 Customs and Excise Taxes 1,847 1,803 1,730 1,901 1,924 1,973 1,887 1,985 1,988 2,001 Goods and Services Tax 2,121 2,134 2,165 2,957 3,470 3,815 3,978 6,165 6,574 6,560 Motor Vehicle Taxes 2,506 1,972 1,446 1,486 1,392 1,432 1,745 2,189 2,048 1,595 Vehicle Quota Premiums 3,105 2,089 1,778 1,543 1,257 321 93 673 379 319 Betting Taxes 1,494 1,575 1,550 1,524 1,534 1,501 1,571 1,714 1,810 1,860 Other Taxes 1 2,516 1,939 1,809 1,851 1,952 2,143 3,399 5,375 4,253 3,354 Other Fees and Charges 2,545 2,045 2,027 1,949 2,109 1,925 2,109 2,956 2,018 2,022 Others 2 162 190 162 321 305 238 259 115 129 115

Table 6.2b: Revenue Collections for FY2000 to FY2009 (% of GDP)


(Revised) FY2009

(Budgeted) Operating Revenue 19.3% 18.7% 16.1% 15.3% 15.0% 14.2% 14.6% 16.1% 16.0% 13.4% Corporate Income Tax 5.1% 5.1% 4.3% 3.6% 3.3% 3.7% 3.9% 3.7% 4.0% 3.3% Personal Income Tax 2.5% 3.0% 2.6% 2.3% 2.2% 2.2% 2.2% 2.3% 2.5% 2.4% Statutory Boards’ Contributions 0.7% 0.6% 0.4% 0.3% 0.8% 0.6% 0.4% 0.7% 0.8% 0.1% Assets Taxes 1.0% 1.0% 0.8% 0.9% 1.1% 1.0% 1.0% 1.0% 1.1% 0.4% Customs and Excise Taxes 1.1% 1.2% 1.1% 1.1% 1.1% 1.0% 0.9% 0.8% 0.8% 0.8% Goods and Services Tax 1.3% 1.4% 1.4% 1.8% 1.9% 1.9% 1.9% 2.5% 2.6% 2.6% Motor Vehicle Taxes 1.5% 1.3% 0.9% 0.9% 0.8% 0.7% 0.8% 0.9% 0.8% 0.6% Vehicle Quota Premiums 1.9% 1.4% 1.1% 0.9% 0.7% 0.2% 0.0% 0.3% 0.1% 0.1% Betting Taxes 0.9% 1.0% 1.0% 0.9% 0.8% 0.8% 0.7% 0.7% 0.7% 0.7% Other Taxes 1 1.5% 1.3% 1.1% 1.1% 1.1% 1.1% 1.6% 2.1% 1.7% 1.3% Other Fees and Charges 1.6% 1.3% 1.3% 1.2% 1.2% 1.0% 1.0% 1.2% 0.8% 0.8% Others 2 0.1% 0.1% 0.1% 0.2% 0.2% 0.1% 0.1% 0.0% 0.1% 0.0%

* Figures may not add up due to rounding. 1 Consist of Stamp Duty, Foreign Worker Levy, etc. 2 Prior to the Constitutional amendments to protect 50% of NII in FY2000, interest on development loans was classified as ‘Others’.

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Table 6.3: Operating Expenditure by Sector for FY2000 to FY2009 ($million)


(Revised) FY2009

(Budgeted) Total 18,415 18,536 19,359 19,991 20,355 21,445 23,925 25,952 29,247 32,157 Social Development 6,654 7,770 7,946 8,615 8,500 8,778 10,520 11,472 13,118 14,826 Education 4,277 4,767 4,824 4,997 4,975 5,215 6,352 6,786 7,486 8,015 National Development 325 398 409 414 377 336 671 900 827 744 Health 1,072 1,445 1,451 1,904 1,604 1,680 1,840 2,019 2,416 3,084 Environment and Water Resources 390 414 448 453 479 408 414 453 618 748 Community Development, Youth and Sports 377 513 572 619 814 844 903 962 1,351 1,799 Information, Communications and the Arts 213 234 241 228 251 294 341 352 422 437 Security and External Relations 8,041 8,865 9,468 9,634 10,228 10,981 11,540 12,399 13,225 14,057 Defence 6,561 7,089 7,694 7,714 8,243 8,889 9,273 9,660 10,473 11,007 Home Affairs 1,300 1,580 1,563 1,708 1,752 1,825 2,010 2,428 2,407 2,683 Foreign Affairs 180 196 211 212 233 267 257 311 345 367 Economic Development 2,908 1,113 1,133 995 884 919 984 1,113 1,778 2,041 Transport 2,390 406 385 292 289 277 285 321 382 389 Trade and Industry 412 553 564 497 392 436 473 528 693 740 Manpower 107 130 156 158 161 166 188 227 673 856 Info-Communications and Media Development1 - 24 28 47 42 39 38 37 31 55 Government Administration 811 788 812 747 743 768 880 967 1,126 1,233 Finance 388 352 379 333 318 345 428 438 518 577 Law 120 112 103 96 97 100 106 107 126 135 Organs of State 170 173 186 182 187 186 195 247 257 278 Prime Minister's Office 134 151 143 135 141 136 151 176 225 243

* Figures may not add up due to rounding. 1 Media Development programme has been reclassified from social development to economic development.

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Table 6.4: Development Expenditure by Sector for FY2000 to FY2009 ($million)


(Revised) FY2009

(Budgeted)

Total1 9,494 8,769 7,793 8,508 8,602 7,189 5,980 7,030 9,654 11,465 Social Development 4,517 4,170 3,971 4,387 3,858 2,944 2,141 2,824 2,815 3,249 Education 1,591 1,473 1,774 1,218 1,239 867 608 742 760 687 National Development 2,069 1,770 1,089 1,865 1,153 1,010 675 1,187 1,127 1,172 Health 140 145 82 103 114 85 96 185 339 621 Environment and Water Resources 528 502 771 952 1,101 775 570 381 329 345 Community Development, Youth and Sports 92 118 112 90 97 97 103 234 113 155 Information, Communications and the Arts 97 162 143 160 155 110 89 95 148 270 Security and External Relations 1,585 1,362 1,068 1,020 899 869 840 828 758 870 Defence 861 730 509 524 377 363 355 349 330 440 Home Affairs 654 570 478 439 473 460 399 396 365 350 Foreign Affairs 70 62 81 57 49 46 86 83 62 80 Economic Development 3,147 2,906 2,255 2,615 3,016 2,746 2,786 3,189 5,774 6,841 Transport 1,130 1,508 1,203 1,115 1,776 1,617 1,518 1,621 3,426 4,252 Trade and Industry 1,820 1,293 1,009 1,421 1,154 1,055 1,207 1,516 2,286 2,531 Manpower 18 82 38 54 52 36 15 24 35 51 Info-Communications and Media Development2 179 23 5 25 33 39 46 28 27 7 Government Administration 245 331 499 486 828 630 213 189 307 504 Finance 57 70 100 214 308 350 10 44 127 279 Law 131 213 325 184 329 218 167 123 158 172 Organs of State 38 30 33 47 151 31 11 6 11 16 Prime Minister's Office 18 18 41 42 40 32 25 14 11 38

* Figures may not add up due to rounding. Expenditure on research and development has been reclassified as part of ministries’ expenditure for FY1998 to FY2000. 1 Development Expenditure excludes land-related expenditure from FY2001. 2 Media Development programme has been reclassified from social development to economic development.

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Table 6.5: Total Expenditure by Sector for FY2000 to FY2009 ($million)


(Revised) FY2009

(Budgeted)

Total1 27,908 27,305 27,152 28,499 28,957 28,634 29,905 32,982 38,901 43,622 Social Development 11,171 11,940 11,917 13,001 12,358 11,721 12,661 14,298 15,933 18,076 Education 5,868 6,240 6,598 6,214 6,214 6,082 6,959 7,528 8,246 8,701 National Development 2,393 2,167 1,498 2,278 1,529 1,346 1,347 2,087 1,953 1,917 Health 1,212 1,591 1,533 2,007 1,718 1,765 1,936 2,205 2,754 3,705 Environment and Water Resources 918 916 1,219 1,405 1,579 1,183 984 834 947 1,093 Community Development, Youth and Sports 469 631 684 709 912 941 1,006 1,196 1,463 1,954 Information, Communications and the Arts 311 396 385 388 406 404 430 448 569 707 Security and External Relations 9,626 10,228 10,536 10,654 11,127 11,850 12,380 13,227 13,983 14,927 Defence 7,422 7,819 8,203 8,238 8,620 9,252 9,628 10,009 10,803 11,447 Home Affairs 1,954 2,150 2,040 2,147 2,225 2,285 2,409 2,824 2,772 3,033 Foreign Affairs 250 258 293 270 282 313 343 394 408 447 Economic Development 6,055 4,020 3,389 3,610 3,900 3,665 3,770 4,301 7,552 8,882 Transport 3,520 1,914 1,588 1,408 2,066 1,894 1,803 1,942 3,809 4,641 Trade and Industry 2,232 1,846 1,573 1,918 1,545 1,491 1,680 2,043 2,979 3,271 Manpower 124 212 194 212 213 202 204 251 707 907 Info-Communications and Media Development2 179 47 33 73 75 78 83 65 57 63 Government Administration 1,056 1,118 1,310 1,233 1,571 1,398 1,094 1,155 1,433 1,737 Finance 445 422 479 547 626 696 438 482 645 855 Law 251 325 427 280 426 318 273 229 284 307 Organs of State 208 202 219 229 338 217 206 254 268 294 Prime Minister's Office 152 169 185 177 181 167 177 190 236 281

* Figures may not add up due to rounding. Expenditure on research and development has been reclassified as part of ministries’ expenditure for FY1998 to FY2000. 1 Development Expenditure excludes land-related expenditure from FY2001. 2 Media Development Programme has been reclassified from social development to economic development. S

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Table 6.5b: Total Expenditure by Sector for FY2000 to FY2009 (% of GDP)


(Revised) FY2009

(Budgeted)

Total1 17.2% 18.0% 17.1% 17.2% 15.8% 14.4% 13.9% 13.2% 15.3% 17.5% Social Development 6.9% 7.9% 7.5% 7.8% 6.7% 5.9% 5.9% 5.7% 6.3% 7.2% Education 3.6% 4.1% 4.2% 3.8% 3.4% 3.1% 3.2% 3.0% 3.2% 3.5% National Development 1.5% 1.4% 0.9% 1.4% 0.8% 0.7% 0.6% 0.8% 0.8% 0.8% Health 0.7% 1.0% 1.0% 1.2% 0.9% 0.9% 0.9% 0.9% 1.1% 1.5% Environment and Water Resources 0.6% 0.6% 0.8% 0.8% 0.9% 0.6% 0.5% 0.3% 0.4% 0.4% Community Development, Youth and Sports 0.3% 0.4% 0.4% 0.4% 0.5% 0.5% 0.5% 0.5% 0.6% 0.8% Information, Communications and the Arts 0.2% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.3% Security and External Relations 5.9% 6.7% 6.6% 6.4% 6.1% 6.0% 5.8% 5.3% 5.5% 6.0% Defence 4.6% 5.1% 5.2% 5.0% 4.7% 4.7% 4.5% 4.0% 4.3% 4.6% Home Affairs 1.2% 1.4% 1.3% 1.3% 1.2% 1.1% 1.1% 1.1% 1.1% 1.2% Foreign Affairs 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Economic Development 3.7% 2.6% 2.1% 2.2% 2.1% 1.8% 1.8% 1.7% 3.0% 3.6% Transport 2.2% 1.3% 1.0% 0.8% 1.1% 1.0% 0.8% 0.8% 1.5% 1.9% Trade and Industry 1.4% 1.2% 1.0% 1.2% 0.8% 0.7% 0.8% 0.8% 1.2% 1.3% Manpower 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.3% 0.4% Info-Communications and Media Development2 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Government Administration 0.6% 0.7% 0.8% 0.7% 0.9% 0.7% 0.5% 0.5% 0.6% 0.7% Finance 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.3% 0.3% Law 0.2% 0.2% 0.3% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% Organs of State 0.1% 0.1% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% Prime Minister's Office 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

* Figures may not add up due to rounding. Expenditure on research and development has been reclassified as part of ministries’ expenditure for FY1998 to FY2000. 1 Development Expenditure excludes land-related expenditure from FY2001. 2 Media Development Programme has been reclassified from social development to economic development.

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Table 6.6: Total Expenditure by Expenditure Type for FY2000 to FY2009 ($million)


(Revised) FY2009

(Budgeted) Total Expenditure 27,908 27,305 27,152 28,499 28,957 28,634 29,905 32,982 38,901 43,622 Operating Expenditure 18,415 18,536 19,359 19,991 20,355 21,445 23,925 25,952 29,247 32,157 Running Costs 15,047 16,387 17,051 17,295 17,797 18,874 19,666 21,710 23,511 25,402 Expenditure on Manpower 3,276 3,351 3,370 3,375 3,535 3,629 3,914 4,736 4,762 5,161 Operating Grant 3,031 3,735 3,858 4,042 4,039 4,244 3,918 4,211 4,827 5,381 Other Operating Expenditure 8,740 9,302 9,824 9,878 10,222 11,001 11,835 12,763 13,911 14,860 Capital Injections 0 0 0 0 0 0 0 0 11 0 Transfers 3,368 2,149 2,308 2,696 2,558 2,570 4,259 4,242 5,736 6,755 Social Transfers 309 394 491 457 485 546 611 665 1,369 1,595 Subventions 3,058 1,754 1,817 2,240 2,073 2,024 3,648 3,577 4,367 5,161 Development Expenditure1 9,494 8,769 7,793 8,508 8,602 7,189 5,980 7,030 9,654 11,465 Direct Development 5,462 4,503 3,962 4,221 4,349 3,522 2,760 3,086 3,591 4,658 Capital Grant 4,032 4,266 3,831 4,287 4,150 3,663 3,162 3,797 5,873 6,540 Capital Injections - - - 1 103 4 58 146 190 267

* Figures may not add up due to rounding. 1 Development Expenditure excludes land-related expenditure from FY2001.

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Table 6.7: Headcount by Ministry for FY2000 to FY2009

FY20001 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 (Revised)2

FY2009 (Budgeted) 3

Civil List 45 50 47 51 53 52 48 53 56 56 Attorney-General's Chambers 212 255 276 282 274 270 254 253 329 329 Auditor-General's Office 150 163 157 146 127 112 103 104 146 158 Cabinet Office 11 10 10 10 10 10 10 11 12 12 Judicature 739 707 678 716 571 540 513 537 798 796 Parliament 48 53 55 54 48 52 50 46 55 55 Presidential Councils 5 7 8 8 8 8 8 8 10 10 Public Service Commission 9 8 9 8 9 9 9 10 10 12 Community Development, Youth and Sports 3,968 4,054 4,194 4,009 3,719 3,709 3,708 3,760 4,265 4,393 Defence 1,525 1,526 1,527 1,524 1,525 1,524 1,525 1,525 1,524 1,524 Education 48,933 49,370 51,128 51,099 51,462 52,844 45,745 46,666 49,963 50,036 Environment and Water Resources 4,958 4,751 4,757 4,500 4,501 3,817 3,350 3,485 3,967 3,963 Finance 3,569 3,900 3,614 3,044 2,649 2,529 2,750 2,906 3,185 3,280 Foreign Affairs 1,062 1,081 1,082 1,111 1,074 1,121 1,138 1,149 1,317 1,315 Health 1,670 948 939 1,038 1,125 1,097 1,115 1,162 1,269 1,306 Home Affairs 18,135 18,928 19,373 20,173 20,965 20,899 20,510 20,994 22,395 23,153 Information, Communications and the Arts 1,454 2,002 2,058 2,063 2,547 2,530 2,592 2,684 3,144 3,408 Law 820 787 853 741 709 677 734 733 830 826 Manpower 1,020 1,069 1,208 1,277 1,327 1,397 1,606 1,701 2,083 2,196 National Development 10,601 10,596 10,259 7,391 7,136 6,666 6,679 6,673 7,476 7,476 Prime Minister's Office 558 421 425 421 415 450 475 468 534 564 Trade and Industry 1,970 2,487 2,545 2,503 2,491 2,544 2,539 2,607 2,879 2,998 Transport 3,977 3,822 3,756 3,776 3,623 3,534 3,520 3,547 4,074 4,247

Total 105,439 106,995 108,958 105,945 106,368 106,391 98,981 101,082 110,321 112,113

1 Numbers for FY2000 to FY2007 are for actual headcount. 2 Numbers for FY2008 are for revised establishments. 3 Numbers for FY2009 are for budgeted establishments. Note: Establishments reflect the number of officers that ministries could hire, but is not reflective of actual headcount, as establishments may not be filled by ministries even though they may be kept in anticipation of a future need. E.g. the revised establishments for FY2006, as reported in Budget Highlights 2007, was 115,974, but the actual headcount for FY2006, reported here, was only 98,981.

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GLOSSARY

49

6 Glossary of Terms Avoidance of Double Taxation Agreement (DTA) A DTA is a bilateral treaty entered into between two countries to avoid double taxation. It provides better certainty and lowers the burden to taxpayers by defining taxing rights of the source and resident countries and lowering source taxation for income earned from cross-border trade and investments. In addition, the DTA provides for relief against double taxation and an official channel for taxpayers to dispute cases of double taxation which may occur in contradiction to the DTA's arrangements. Automatic Stabilisers In macroeconomics, automatic stabilisers work as a tool to dampen fluctuations in real GDP without any explicit policy action by the Government. Best Sourcing A tool under the Economy Drive designed to determine the most economic provider of government services through market-testing, i.e. comparing in-house service provision with market alternatives, so that the Government can select the service channel and service provider that offers the best value for money. Block Budget Framework Under the Block Budget Framework, ministries’ budgets are capped as a fixed percentage of a smoothened measure of the nominal GDP. Their budgets therefore adjust in line with the overall state of the economy. Block budgets establish limits on spending by each ministry and by Government as a whole. Call for Collaboration (CFC) A process through which proposals that lead to collaborative work between two parties are solicited. Unlike a tender, where specific procurement parameters are laid out for bidders, CFCs spell out broad parameters around which a joint working relationship can be assembled.

Central Provident Fund (CPF) A fully-funded compulsory defined contribution scheme in which workers and employers set aside a portion of wages in individualised accounts for retirement. Centre-based Financial Assistance Scheme for Childcare (CFAC) A subsidy scheme for childcare fees, on top of the Government childcare subsidy, to encourage low-income families to place their children at childcare centres while the parents are at work. Chargeable Income The portion of income assessable to tax after accounting for exemptions, deductions and allowances. Continuing Education and Training (CET) CET refers to the education and training activities for adults who have left the formal school system. This fulfils the social and economic objectives of keeping our people employed in the changing economy. Countercyclical Moving in the opposite direction compared to the overall economic cycle: rising when the economy is weakening, and falling when the economy is strengthening. See also Procyclical. Customs Duty A tax on goods imported into Singapore. In Singapore, customs duty is principally imposed on stout and porter, beer and ale, medicated samsu and other samsu. Development Expenditure Generally refers to expenses that represent a longer-term investment and results in the formation of a capitalisable asset of the Government. Examples of spending areas are the acquisition of heavy equipments, as well as capitalisable assets, e.g. buildings and roads. Effective Tax Burden The amount of tax suffered by a taxpayer after accounting for the all relevant provisions of the tax system, and not just

GLOSSARY

50

focusing on a single characteristic such as the headline corporate tax rate. Estate Duty Duty charged on the assets of a deceased person. Excise Tax A tax on goods whether manufactured in Singapore or elsewhere. In Singapore, excise tax is imposed principally on tobacco, petroleum products, motor vehicles and liquor to achieve social and transport policy objectives. Fiscal Impulse (FI) A measure of the first-order impact of the Government’s net injection or withdrawal from the economy arising from its fiscal policy. If the Government extracts more revenue than it spends as compared to a previous year, it is subtracting from the aggregate demand pressures inherent in the economy, fiscal impulse would be deemed as contractionary. Conversely, if the Government extracts less revenue than it spends as compared to a previous year, this would be deemed as an expansionary fiscal impulse. Financial Year (FY) Singapore Government’s Financial Year 2009 is from 1 April 2009 to 31 March 2010. Goods and Services Tax (GST) Goods and Services Tax (GST) is a tax on domestic consumption of almost all goods and services in Singapore. The tax is paid when money is spent on goods or services, including imports. It is a multi-stage tax which is collected at every stage of the production and distribution chain. GST is often used inter-changeably with the Value Added Tax (VAT). Government Endowment Fund A fund established with an injection of Government monies as principal on which the income generated will be used to finance specific programmes on an ongoing basis. The 5 government endowment funds include the Lifelong Learning Fund, the Eldercare Fund,

Medifund, Edusave Fund and ComCare Fund. Gross Domestic Product (GDP) A measure of the total flow of goods and services produced by the economy over a specified time period, normally a year. It is obtained by valuing outputs of goods and services at market prices. Real GDP refers to GDP figures adjusted for inflation. Home Ownership Plus Education (HOPE) A package of comprehensive assistance to young low-income families and their children to help them break out of the poverty cycle. Intergenerational Equity In the context of endowment fund spending, it is the concept of striking a fair balance in wealth distribution between the present and future generations. Net Investment Income (NII) Under Article 142(4) of the Constitution, Net Investment Income (NII) refers to the dividends, interest and other income received from investing our reserves, as well as interest received from loans, after deducting expenses arising from raising, investing and managing the reserves. Net Investment Income Contribution (NIIC) As reflected in the budget statements, it is the part of NII that is taken into the budget to augment the Government’s revenues, and ensure a sustainable fiscal position. Net Investment Returns (NIR) The sum of: (1) the long-term expected real returns on the reserves invested by GIC and MAS and (2) the NII on the remaining reserves. Net Investment Returns Contribution (NIRC) As reflected in the budget statements, it is the part of NIR that is taken into the budget for spending.

GLOSSARY

51

Nominal Returns Nominal returns are the rate of return on an investment without adjustment for inflation. See also Real Returns. Operating Revenue Refers to Government receipts credited to the Consolidated Revenue Account and Development Fund Account excluding investment and interest income, capital receipts (lumpy and less regular in timing) and investment adjustments. The main components are Corporate Income Tax, Personal Income Tax and Goods and Services Tax. Operating Expenditure Generally refers to expenses incurred to maintain the operations and other regular activities of the Government. Components include expenditure on manpower (EOM) – for wages of public service officers, other operating expenditure (OOE) – for all other forms of expenditure incurred in the running of the Government, and operating grants to statutory boards and aided educational institutions, which support the day-to-day running of these agencies. Output Gap The difference between the actual level of activity in an economy (as measured by GDP) versus the sustainable amount of activity given the capacity of the economy (i.e. the level of GDP that the economy could potentially achieve without creating unhealthy inflationary pressures). It measures the degree of resource utilisation of the economy. The output gap is typically reported as a percentage of GDP to give a sense of the proportion with which the economy is over or under capacity. Where the output gap is negative (deflationary gap), the economy is not operating at full capacity, and may well be in danger of sliding into a recession if demand is not boosted. Where the output gap is positive (inflationary gap), it indicates that the economy is operating over-capacity, resources are stretched and inflation pressures are strong.

Past Reserves Refers to the reserves not accumulated by the Government during its current term of office, with reserves being the excess of assets over liabilities. Primary Budget Position The Primary Budget Position, defined as Operating Revenue less Total Expenditure, measures the ability of the Government to meet its annual expenditures through its regular collection of revenue (taxes, fees and charges). Procyclical Moving in the same direction as the overall economic cycle: falling when the economy is weakening, and rising when the economy is strengthening. See also Countercyclical. Public Private Partnership (PPP) A model under the Best Sourcing framework, Public Private Partnership (PPP) is a long-term partnering relationship between the public and private sectors to bring together the expertise and resources of the public and private sectors to provide services to the public more efficiently and effectively, particularly in those that require the use of new infrastructure assets. Real Returns Real returns refer to the gains from an investment over and above the rate of inflation. See also Nominal Returns. Stamp Duty A tax imposed on commercial and legal documents relating to unlisted stock and shares and immovable property. The Enterprise Challenge (TEC) An initiative driven by the Prime Minister's Office that provides funding for testing innovative ideas that have the potential to improve the delivery of public services Workfare Income Supplement (WIS) Scheme Targeted at older low wage workers, it complements the changes to CPF employer and employee contribution rates that came into effect on 1st July 2007. It

GLOSSARY

52

provides incentives for older low wage workers to find work and stay in work, while at the same time helping them to save for their longer term needs. Total Returns All the returns arising from an investment, including income from dividends and interest, as well as appreciation or depreciation in value of the investment. Total (Government) Expenditure Sum of Operating and Development Expenditure. It excludes Special Transfers unless otherwise mentioned. Year of Assessment (YA) Refers to the year in which tax on the income earned in the preceding year is assessed.

Documents

BUDGET HIGHLIGHTS · BUDGET HIGHLIGHTS Financial Year 2009 Keeping Jobs, Building for the Future Misc. 2 of 2009 _____ Presented to Parliament by Command of