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Budget 2019: Govt to fund large projects through borrowing, using taxes for recurrent needs

SINGAPORE — Announcing that the Government will provide a guarantee for loans to fund the development of Changi East, Finance Minister Heng Swee Keat said in his Budget speech that borrowing in a responsible and sustainable manner will help instil financial discipline and distribute the share of funding “more equitably across current and future generations”.

Singapore needs to continue to take a “disciplined and prudent” approach to its spending needs, given that it will be growing significantly, Finance Minister Heng Swee Keat said.

Singapore needs to continue to take a “disciplined and prudent” approach to its spending needs, given that it will be growing significantly, Finance Minister Heng Swee Keat said.

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SINGAPORE — Announcing that the Government will provide a guarantee for loans to fund the development of Changi East, Finance Minister Heng Swee Keat said in his Budget speech that borrowing in a responsible and sustainable manner will help instil financial discipline and distribute the share of funding “more equitably across current and future generations”.

He told the House on Monday (Feb 18) that the Government is further studying the option of using its debt as part of the financing mix for long-term infrastructure projects which it takes on directly.

This will be part of a “differentiated fiscal strategy” — one approach for major infrastructure investments, and another for recurrent expenditures in areas such as healthcare, pre-school education and security.

As Singapore’s spending needs are growing significantly, the Government must continue to take a “disciplined and prudent” approach, Mr Heng stressed.

BORROWING FOR INFRASTRUCTURE PROJECTS

For major infrastructure projects such as the Changi East development, which includes the construction of the airport’s fifth terminal, and the new Cross Island Line for the MRT network, the Government will pay for them through “some borrowing”.

Mr Heng said this is “fairer and more efficient” as these are “large and lumpy” expenditures that will benefit future generations of Singaporeans.

While Changi Airport Group will be taking up loans to fund its share of infrastructure investments for the development of Changi East, Mr Heng said the Government will provide a guarantee for Changi East borrowings with the concurrence of President Halimah Yacob, so as to lower its financing cost.

“This allows us to tap the strength of the Government’s balance sheet to back this strategic investment,” he added.

This will not be the first time that the Government is adopting the borrowing approach to finance large-scale infrastructure projects.

Mr Heng pointed out that it borrowed in the 1980s to build the country’s first MRT lines. Statutory boards and other government-owned companies have also continued to finance major infrastructure projects through borrowings.

TAXES TO FUND RECURRENT SPENDING

For recurrent spending needs in areas such as healthcare, pre-school education and security, the Government will meet these with recurrent revenues, such as taxes. These spending needs are necessary, so they should not be funded through borrowing, Mr Heng said.

“Many countries have taken the easier route by funding these recurrent expenditures through borrowing. We must not do this, as such borrowing shifts the burden of paying for today’s needs onto future generations.” 

To fund recurrent spending and ensure the resilience of the tax system amid rising international travel, Mr Heng announced changes to import relief for Goods and Services Tax (GST) for travellers, as well as alcohol duty-free concession.

In the last Budget, he had announced a 2 percentage point hike in GST — from the current 7 per cent to 9 per cent — which is expected to be implemented some time between 2021 and 2025.

Mr Heng said that the Government will still continue to absorb GST on publicly subsidised education and healthcare.

Despite the need to raise revenues to meet higher social spending, Mr Heng said that the “core of (Singapore’s) fiscal system” is to “keep the overall tax burden low”.

This is so that workers and firms can keep as much of their earnings, as well as to ensure that Singapore remains an attractive place for investments and talent.

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