BUDGETING IN SINGAPORE OECDAsian Senior Budget Officials Bangkok
BUDGETING IN SINGAPORE OECD-Asian Senior Budget Officials Bangkok, 14 December 2006 Jón R. Blöndal
To begin… • OECD Asian Centre for Public Governance –Government of Korea
Agenda • Outline the architecture of Singapore’s system of public finance • Discuss key features of Singapore’s budgeting system
Budget Concepts • Four Pillars –Budget sector –Central Provident Fund –Government investment agencies –Other special funds
Central Provident Fund • Relieves budget sector from financing various social services • Personal savings accounts –Mandatory –Payroll contributions from both employers and employees • 33% of payroll –Earn interest –Withdrawals for approved uses –Any remaining balances form part of estate • CPF “surpluses” invested in government bonds
Central Provident Fund (2) • Housing account – 20% –For down-payment and servicing mortgages • Retirement account - 6% –Regular withdrawals from age 62 • Medical account - 7% –For hospitalisation and major outpatient treatments
Government investment agencies • Huge reserves –Past budget surpluses and CPF “surpluses” –At least USD 160 billion • Invested in financial instruments and corporate shareholdings • Very limited disclosure –Portfolio size, composition and rate of return not disclosed • “To prevent market speculation” –Differentials in rates of return vis-à-vis interest paid on CPF account balances • “Ring-fenced” from budget sector
Other Special Funds • “Netting” funds –Example: Government Securities Fund • Endowment funds –Budget surpluses deposited in them –Subsequent annual investment income used to pay for good causes –Example: Medi. Fund –
Key Features • Fiscal rule • Block budgets • Reinvestment dividends – • Role of Parliament • Financial management • Government salaries
Fiscal Rules • Balanced budgets –Over government’s term of office • Limited use of investment income –Up to 50% of realised income • Enforcement –External monitoring not feasible –President as fiscal guardian –“Escape clause” –
Block Budgets • Five-year horizon –Advances and carry-forwards • Linked to GDP –Budget pegged to share of GDP • Ministry of Education = 4% of GDP –“Smoothened” GDP • Fungible –One block per ministry –Operating, transfer and capital expenditure all in one block –
Reinvestment Dividends • Across-the-board cuts in expenditure – 5% of all expenditure, i. e. including transfers and capital expenditure • Ministries make bids to “reinvest” the cuts –Innovative proposals –Inter-ministerial co-operation • Significant part of cuts not “reinvested” –
Role of Parliament • Specific restrictions –MPs can only make proposals for S$100 nominal cuts –MPs cannot make proposals for any increases or reallocations • Political environment
Financial Management • Accrual financial reporting –Greater awareness of non-cash costs in decision-making • Cash budgeting –Better control –Supplementary information on accruals available • NEV – Net Economic Value –Incorporates cost-of-capital
Government Salaries • Pegged to private sector equivalents –Ministerial salaries (USD 500, 000 -1, 500, 000) • Flexible wage system –Responsive to economic conditions • Strengthening link with performance • “Pure cash” wages
- Slides: 16