BUDGETING IN SINGAPORE

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BUDGETING IN SINGAPORE

• OECD-Asian Senior Budget OfficialsBangkok, 14
  December 2006
• Jón R. Blöndal

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To begin

• OECD Asian Centre for Public Governance
• Government of Korea

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Agenda

• Outline the architecture of Singapores system of
  public finance
• Discuss key features of Singapores budgeting
  system

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Budget Concepts

• Four Pillars
• Budget sector
• Central Provident Fund
• Government investment agencies
• Other special funds

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Central Provident Fund

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

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Central Provident Fund (2)

• Housing account 20
• For down-payment and servicing mortgages
• Retirement account - 6
• Regular withdrawals from age 62
• Medical account - 7
• For hospitalisation and major outpatient
  treatments

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Government investment agencies

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

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Other Special Funds

• Netting funds
• Example Government Securities Fund
• Endowment funds
• Budget surpluses deposited in them
• Subsequent annual investment income used to pay
  for good causes
• Example MediFund

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Key Features

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

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Fiscal Rules

• Balanced budgets
• Over governments term of office
• Limited use of investment income
• Up to 50 of realised income
• Enforcement
• External monitoring not feasible
• President as fiscal guardian
• Escape clause

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Block Budgets

• Five-year horizon
• Advances and carry-forwards
• Linked to GDP
• Budget pegged to share of GDP
• Ministry of Education 4 of GDP
• Smoothened GDP
• Fungible
• One block per ministry
• Operating, transfer and capital expenditure all
  in one block

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Reinvestment Dividends

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

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Role of Parliament

• Specific restrictions
• MPs can only make proposals for S100 nominal
  cuts
• MPs cannot make proposals for any increases or
  reallocations
• Political environment

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Financial Management

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

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Government Salaries

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