Committee of Supply - Head M (Ministry of Finance)

The Chairman: Head M, Ministry of Finance. Mr Liang Eng Hwa.

Fiscal Sustainability

Mr Liang Eng Hwa (Holland-Bukit Timah): Mr Chairman, Sir, I beg to move, "That the total sum to be allocated for Head M of the Estimates be reduced by $100".

Sir, our spending has increased by about 2.5 times in the last decade with healthcare and infrastructure among the steepest growth.

On the other hand, our revenue inclusive of Net Investment Return Contribution (NIRC) grew by about two times in the last 10 years. If NIRC is excluded, our operating revenue would have only grown by about one time in the last one decade. Therein lies our fiscal implications.

Firstly, our total expenditures are growing at a faster rate than our operating revenue. In business budgeting, this phenomenon is known as the negative draw – that is when the rate of growth in expenditures exceed the rate of growth in revenue. If left unchecked, where expenditures continue to grow faster than revenues, we could end up with a ballooning deficit situation in the years to come.

Secondly, we are now dependent on the NIRC to balance the Budget; otherwise, our Budgets will run into structural deficits. NIRC now accounts for about one‐fifth of our total revenue, as the Minister for Finance has said earlier.

Thirdly, both the short‐term recurring expenditures as well as the long-term infrastructure spending have grown larger and are projected to increase further in the decades ahead. In particular, social and healthcare spending will rise as our population enters into faster pace of ageing and healthcare needs increase further.

In his Budget Statement speech, the Finance Minister spoke about pursuing differentiated fiscal strategy to fund our various spending, one approach for major infrastructural investments and another for recurrent social and security expenditures.

I agree with the Finance Minister that for recurrent spending like healthcare, security and other social expenditures where it directly benefits current generation, they should be funded with current taxation so that every generation pays its share. This approach would also instill the spending discipline as any further rise in recurring expenditures would have to be funded through more taxes. This in‐built discipline will not only help keep our operating Budget sustainable but also fairer as well across generations.

For long-term mega infrastructure projects with high capital outlays, the Government should as far as possible set aside surpluses where possible, to use the savings accumulated to pay part of the lumpy investment, which is what we have been doing in the past. This pre‐funding approach demonstrates commitment and ensures that there is sufficient funding for projects with very high capital expenditures such as the Cross Island MRT Line.

But I also agree with the Finance Minister that with the new financing approach for projects especially where they generate future economic returns, and those that are long-term in nature with some uncertainty where the entity that undertakes the project can look to borrow to finance the project and potentially could draw on Government's guarantee to lower the financing costs of this long-term borrowings.

The Government is a net creditor and actually does not need to borrow other than the issuance of Singapore Government Securities, which is there to help create a risk-free bond market U-curve. However, for the entity that builds the Government-invested infrastructure, borrowing at the project level does require higher financing cost because of the risks associated, such as construction risks. This could result in a negative carry situation from the Government's standpoint where the borrowing rates may be higher that the returns from investing the reserves. Hence, it makes smart sense to tap on Government guarantee to reduce the borrowing costs.

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I have a few questions for the Finance Minister.

Firstly, can I ask the Minister how would this differentiated fiscal strategy impact spending flexibility, for example, in the event of crisis or a severe recession where we need to inject an impactful assistance package?

Secondly, we know that spending, especially in social, healthcare and security areas will rise in the years to come. Can the Minister shed some light as to how MOF sees the spending trajectory in the next five to 10 years and how do we ensure fiscal sustainability?

Thirdly, as I have said earlier, our investment income from our reserves is now a significant source of Government revenue. How does the Government ensure that we will not be overly reliant on it, especially as the investment climate is getting more volatile?

And finally, in the midst of changing to this new approach, how do we also ensure that our tax regime remains progressive with the higher income earners shouldering more of the tax burden?

Question proposed.

Diversity and Resilience of Revenue Base

Ms Foo Mee Har (West Coast): Chairman, Sir, Singapore has been incurring more spending than its revenue base since 2015. We have come to rely heavily on contributions from Net Investment Returns (NIRC) as the top contributor to spending needs, providing 21% of total expenditure in 2018. This high dependency represents a significant vulnerability, given the volatility of any investment portfolio.

Experts are divided on how much risk corporate taxes – this is traditionally Singapore's largest source of revenue – pose to Singapore's fiscal sustainability. Most agree that it will be increasingly difficult to raise corporate taxes, especially as major economies such as the US lower them.

Personal income taxes are also expected to contribute less to revenue in the coming years, due to our greying population. Our ageing population will further demand higher spending in healthcare and to build elderly-friendly infrastructure.

So, to pay for our increasing needs, I urge the Government to study all possible streams of revenue, with the GST rate as a last resort, given its broad impact on society. Could the Government look instead at introducing e-commerce tax, a lift in gambling, tobacco and alcohol taxes, perhaps new sources of tax revenue from carbon and sugar, and more progressive personal income tax by introducing new and higher tax brackets, including those for the super high income earners and ultra-rich?

Tax increases are never easy to swallow. So, to address the fiscal sustainability, perhaps, we can also balance this with more focus on the "costs" line. It is always easy to call on the Government to do more and give more, usually with less consideration on how these expenditures are going to be paid for.

Sir, I am also hearing questions on the ground on whether big-ticket projects can be less glitzy, whether we can space these projects out a little more so that we can pace our spending a little better, and whether we can better prioritise Government initiatives and programmes. So, I would like to ask the Finance Minister about the process by large projects and programmes are prioritised, and whether Singaporeans can play a bigger role in influencing this process, so that they can feel included in the building of Singapore.

GIC Data

Mr Pritam Singh (Aljunied): Sir, probably, the largest contributor to the NIR component of the NIRC, the Government of Singapore Investment Corporation's mission is to preserve and enhance the long-term international purchasing power of the country's reserves. The size of the fund GIC manages has been estimated by some at well over hundreds of billions of dollars.

For the year ended 31 March 2018, GIC achieved the 20-year annualised rate of return of 3.4% above global inflation. The year before that, the rate of return was 3.7%, and for the year ended 31 March 2016, it was 4%. This constitutes three consecutive years of decline from the 4.7% at the end of 31 March 2015.

GIC's latest report states that the reason for this decline is that the high returns from the beginning of the tech bubble window have dropped out of the rolling 20-year return window while the post-tech bubble declines have remained. GIC foresees this decline in the rolling 20-year annualised rate of return to continue for a few years, although the same report states that in most recent years, the returns have been good.

In previous replies in Parliament on fund performance, office holders have stated that the Government's view is that GIC and Temasek have performed creditably in challenging market conditions. How does the Government ascertain this beyond the inputs of individuals who are on the boards of these funds? How does the public scrutinise fund performance and comparison to other fund managers with not too dissimilar or long-term mandates? What does the GIC mean when it states the returns from the recent years have been good? And what is stopping the fund from reporting its yearly performance so as to meaningfully allow the public to track its performance closely, as we see with Temasek today?

Restructuring Retirement Tax Reliefs

Assoc Prof Walter Theseira (Nominated Member): Mr Chairman, tax structure has an important role to play in retirement adequacy. We grant income tax reliefs for retirement savings and we do not tax income from retirement accounts, except for SRS at a concessionary rate.

These tax advantages are a hidden subsidy to retirement for the rich. Because the value of tax relief depends on Assessable Income, high income Singaporeans benefit much more than the low income do. The Minister stated recently that 90% of those making SRS contributions have Assessable Income above $80,000, and the average marginal tax rate there is about 15% for those making the contributions. As for CPF, my estimates suggest that CPF tax reliefs cost the Treasury about $1 billion annually.

We might accept this if tax relief was effective at increasing retirement savings. But the international evidence now suggests otherwise. A review by Bernatzi et al, published in Psychological Science in 2017, suggests tax incentives only generate a few dollars of incremental retirement savings for each tax dollar spent. This is an order of magnitude less cost‐effective than alternative policies such as simply providing targeted information on retirement planning. There are alternative, revenue neutral policies that could boost retirement adequacy for all.

Mr Chairman, may I have your permission to display a slide on the screen?

The Chairman: Yes, please. [A slide was shown to hon Members.]

Assoc Prof Walter Theseira: Thank you. CPF tax relief has retirement value because the tax savings can be used for retirement instead. Consider replacing CPF tax relief with a flat annual CPF top‐up of $250 and a 3% match on contributions. In terms of retirement income, this could give the lowest income deciles more than $200 a month, while cutting the benefit to the top decile from over $1,000 a month to about $500 a month. The numbers will, of course, have to be studied further.

So, my suggestions are: first, could the Ministry provide a regular update on the tax cost of the CPF and SRS tax relief system, and estimates of how effective SRS is at inducing additional retirement savings? Second, could the Ministry study revenue‐neutral alternatives, such as matching contribution credits to CPF, that would boost retirement adequacy for the broad middle class while increasing progressivity of the tax system?

Care-giver Levy Relief

Assoc Prof Daniel Goh Pei Siong (Non-Constituency Member): Chairman, the Foreign Maid Levy Relief is currently given to married, separated, divorced and widowed women with school-going children to claim relief for Foreign Domestic Worker levy paid for domestic workers they or their husband employed in the previous year. Singles and married men are not eligible, as are separated, divorced or widowed women with no children to claim child reliefs. This is severely limiting.

The policy objective is to encourage women to stay in the workforce. I urge MOF to expand the scope the levy generously to all Singaporeans who paid the foreign maid levy for domestic workers taking care of children, elderly parents or people with disabilities. This will then encourage all care-giving Singaporeans to stay in the workforce, regardless of gender and marital status.

Furthermore, the Government has announced it would expand the scope of the Foreign Domestic Worker Grant and replace it with the Home Care-giving Grant in recognition of the sacrifices made by care-givers and to support their care work. A universal Care-giver Levy Relief will be better aligned with this objective.

Tax Concerns

Mr Ang Hin Kee (Ang Mo Kio): Chairman, I declare my interest as an advisor to the taxi union and the private hire union. Taxi drivers pay daily rental fees of mostly over $100 a day for the vehicle they rent and operation costs have also risen. Even car wash costs more today. This is before the latest diesel tax hike and potential future GST increases. The situation is made dire because of stiff competition from private hire cars.

On the road today, there are now two private hire cars to one taxi, an alarming jump considering that five years ago, we had 28,500 taxis and no private hire cars. Today, we have only 20,000 taxis on the road.

I have raised this suggestion some years back. Will the Ministry consider a review or waiver for the GST that is levied on the daily rental of taxis that are borne by taxi drivers? Finance Minister Tharman back then had replied to my suggestion that one way is to get the taxi drivers to register for GST which would then allow them to charge customers for GST and they do the claims later. However, it is not a feasible solution since fares are set by their respective taxi operators. If waiver of GST on the daily rental of taxis through this channel is not a viable solution, perhaps the Government can consider other options so that the drivers can claim back the GST paid on the rental of the vehicle that they lease from the taxi operator.

Secondly, the annual Special Tax for diesel taxis by $850 helped to manage part of the cost increase. With 15,100 taxis running on diesel, the taxi drivers have shared with me that they may need to drive longer hours and longer distances to cover the higher diesel tax. That defeats the purpose of trying to cut down the use of diesel. But because of the cost increase and you cannot pass on the cost, they need to drive longer hours.

The rental costs of hybrid taxis are also not viable. Those are about $20 more expensive than the diesel-driven taxis per day. So, with 65,000 taxis and private hire cars on the road, the size of the daily hired trips only increased marginally from about about one million when we had 28,000 taxis to slightly over 1.2 million currently, meaning that the number of commuting public that took either taxis or private hire cars, did not grow in tandem with the growth in total vehicles serving them. Perhaps, in terms of the size of the MRT lines and the buses that we provided, the commuting size did not grow as much as for taxis and private hire cars.

One way I mentioned earlier during my Budget debate speech is to encourage operators to reduce rental for hybrid taxis or find a better booking system that reduces empty cruising for the taxi drivers or perhaps even consider reducing the pump price at their pump stations so that taxi drivers can manage the increase in diesel tax. I hope the Government agencies that issue operating licences to them or give permits to them to operate will ensure that everyone, not just the taxi drivers and the Government co-share the burden of diesel generated pollution.

Sir, I had earlier also suggested if the incumbents are not willing to do so, perhaps Government can consider letting the taxi union run such prime licences so that we can charge a lower fee to the drivers.

Even private hire drivers have told me that they are also in this dilemma because some of them use diesel vehicles. I hope that the licensing authority like LTA can track what is the size of the diesel fleet under private hire services. Perhaps, we should have no new private hire cars that use diesel vehicles because that is not going to help us solve the problem but increases the size of the the problem.

Finally, the private hire car drivers would suggest that can they be given a higher percentage of tax deductible of 80% instead of the current 60% to deal with the higher diesel tax?

Use Resources Efficiently and Effectively

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Chairman, we all know how rigid most corporations are when they spend money especially on big ticket items. I know MOF too have their process in place where they would ask Government Ministries to justify their spending. The process may be robust in seeking justification from Ministries seeking budget allocations, but how much deeper is the process so as to ensure that Government fund is well-spent, especially on big ticket items such as on Information Technology (IT), and on various research and development projects?

[Deputy Speaker (Mr Lim Biow Chuan) in the Chair]

This is especially in the case of IT projects where the innovations are making such rapid progress that even as we put an order for one equipment, a newer and improved version is in the making. And by the time we install the equipment it would before long be outdated. So, may I ask how do the evaluation process address this issue?

Secondly, how do we ensure that the projects benefit the country, businesses or the citizens? How do we know that the funds are spent effectively and efficiently? It is not uncommon, especially in IT, to find compatibility of equipment or programmes become an issue at some point if there is no proper planning.

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Next, what is the impact on our workforce? If I may borrow the thoughts of the late economist Sir Anthony Atkinson, he pointed out that the direction of technological change should be an explicit concern of policymakers. It should encourage innovation in a form that increases the employability of workers.

Next, I would like to touch on Government support for research projects. In the US, the federal government played a key role in the development of iPhone and many other technological breakthroughs like GPS, multi-touch screens, LCD displays and so on. I know research can be a bottomless pit, and at the end of the day, it may end up in the bin because the outcomes are not what were expected. Research is about exploring the unknown. May I ask the Minister when our Government supports any funding for R&D, what are the factors that are taken into consideration viz a viz financing, licensing, and regulating the project?

Enhance Policies and Processes to Support Businesses

Mr Liang Eng Hwa: Sir, today our economy is more innovative and technology driven and we do have a vibrant start‐up eco-system. We are seeing more new‐to‐economy activities that have also been developed in recent years such as the proliferation of FinTechs, deep tech ventures, sharing economy apps and others. While we continue to strengthen the eco-system for start‐ups to flourish, we are also encouraging smaller enterprises to innovate and to scale up.

Government policies, regulations and processes must therefore also keep up with the changes and stay abreast with the new business landscape.

On this note, I would like to ask MOF three questions. Firstly, how are the Government procurement policies and practices supporting innovation and enterprises while ensuring value-for-money in its purchases? Procurement rules need to be evolved from being prescriptive to being more principles‐based so as to better support innovation and enterprise.

Secondly, how is the Government tapping on digital technology to streamline corporate regulatory requirements? For example, can the Government consider allowing companies to conduct electronic or virtual AGMs to help them save costs?

And finally, also importantly, how does the Government help small enterprises and freelancers understand their obligations with regards to business band tax-filing? Some of the businesses may be still less tax savvy and may still require some more support.

Innovation and Value in Procurement

Mr Kwek Hian Chuan Henry (Nee Soon): Chairman, it is important for the Government to achieve value for money in purchases, especially in the face of anticipated rising public expenditure. There are many ways to achieve that. Let me provide two examples.

First, large projects, especially infrastructure projects have a long tail to their project life. We are at the cusp of funding some truly large infrastructure projects, and adjusting reducing manpower intensity of our economy. Could the Government adopt a life-cycle approach to evaluate more projects?

Second, our Budget has increased from around $40 billion in 2007 to around $80 billion this year. Therefore, I suggest that various Government agencies, when the need arises, be able to tap on even more industry experts to achieve excellent design and savings. At the same time, given the Government's role as one of the largest procurer of services, it can play the role of supporting innovation and enterprises, including from start-ups, which will benefit both citizens as consumers of these services, as well as the overall economy.

Therefore, it is important for the Government to be able to manage the balance between innovation and enterprise verses value for money. Can MOF share on how, moving forward, the Government intends to achieve this balance?

The Chairman: Second Minister, Mr Lawrence Wong.

The Second Minister for Finance (Mr Lawrence Wong): Mr Chairman, I thank the Members for their questions and comments for MOF. Members’ cuts covered three broad topics: First, fiscal sustainability, investment and other tax-related measures. Second, how to ensure that resources are employed efficiently and effectively. Third, our plans to strengthen support for businesses. I will address the cuts in the first topic and Minister Indranee will take the remaining two topics.

Mr Liang Eng Hwa and Ms Foo Mee Har asked how the Government ensures sustainability in our spending and resilience in our revenue streams. These are indeed very important issues. We ensure long-term fiscal sustainability in a few ways. First, the Government continues to spend within its means, so as to achieve a balanced Budget over the medium term. Second, we remain prudent in our spending and emphasise value for money in every programme. For development projects, especially the major ones, we have robust processes to scrutinise and ensure that they are prudently managed. Our overall Government expenditure is around 19% of GDP, less than half of what many governments of developed countries spend. Even so, we are able to deliver good outcomes in many areas such as healthcare, education, home ownership and public safety.

Third, we have and will continue to manage expenditure growth carefully, precisely because of concerns that Mr Liang highlighted on this rise in Government expenditure. In fact, we have tightened Government spending in recent years, by permanently reducing the budget caps of all Ministries and Organs of State by 2% from FY2017, and reducing the growth in Ministries’ annual budgets from FY2019. Even as we continue with these best efforts to manage our spending, we recognise that our needs will continue to grow, particularly in healthcare, security and infrastructure as the Finance Minister explained earlier today.

Already, our healthcare spending has more than doubled over the last decade to $10 billion in FY2018. This is close to what we collect from GST today. And over the next decade, we have projected that annual healthcare spending will increase by nearly 0.8 percentage points of GDP to around three percent of GDP. We will also be spending more in areas like security and pre-school education. So, overall, there is no doubt that our recurrent spending, despite our best efforts to manage expenditure, will continue to rise.

This is precisely why we need to ensure a diverse and resilient revenue base to meet these growing needs. And I share Mr Liang and Ms Foo’s concerns that we really need to ensure resilient revenues, adequate revenues to fund these recurrent expenditures and not rely too much on NIRC. As both Members noted, we would have had overall budget deficits in each of these last 10 years without the inclusion of NIRC.

In FY2018, NIRC and corporate tax contributed around 18% each to total Government revenue, followed closely by personal income tax and GST, each of which accounted for around 13% of total Government revenue. Property-related taxes make up another 10%. Several other items make up the remainder. Overall, our revenue base is a diversified one, and we are mindful not to be over-reliant on any single source. Even as the share of NIRC has grown over the last decade, we have taken steps to ensure and enhance the resilience of other revenue streams.

First, we keep GST broad-based while providing targeted help to lower and middle income households through GST Vouchers and other forms of transfers. In the recent Budgets, we introduced GST for imported services and revised the import GST relief limits for travellers to ensure that our GST base remains resilient with digitalisation and increasing travel.

Second, we have been looking at other possible streams of revenues, as Ms Foo highlighted. We looked across all possible streams and we have increased tax rates for personal income tax, property tax, and stamp duty in recent years. We have been careful to do so in a manner that ensures our overall system is fair and equitable, while keeping watch over our competitiveness.

For example, today, about half of our workers pay personal income tax and the top 10% of the taxpayers contribute 80% of our personal income tax. Around 40% of companies assessed by IRAS pay corporate tax and around 10% of these companies pay about 95% of our corporate income tax. It is a fair and progressive system. And we will continue to ensure that we have such a system including one with a diversified base of operating revenues, while at the same time borrowing prudently for major infrastructure projects. I think this is the best way to ensure we have a resilient system and also one where we can have maximum flexibility to deal with contingencies like a slow down or a recession as Mr Liang had highlighted.

Ultimately, and most importantly, sustainable government finances depend on whether we have a healthy and growing economy. With a strong economy, we will have more resources to create jobs for Singaporeans, and to meet the needs of our people. This is the key way to grow our revenues sustainably.

Next, Mr Pritam Singh highlighted the performance of GIC and asked for more information on GIC’s investments. Let me start by clarifying about how GIC has performed. The mandate that the Government has given GIC is to achieve good long-term returns, in order to preserve and enhance the international purchasing power of the reserves that GIC manages. Consistent with this mandate, GIC’s portfolio performance is evaluated not just on the returns within a single year, but on a continuing basis over the long term.

In particular, we look at the annualised rolling 20-year real rate of return of its portfolio, which GIC publishes every year. This 20-year return in recent years has been lower than that in previous years. Mr Singh has highlighted this and also highlighted the explanation that GIC has put out for this decline in the 20-year return. Which is firstly, because the high returns earned in the run-up of the tech bubble in the late 1990s have dropped out of the past 20-year period, while the subsequent bursting of the bubble and decline in asset values has remained within the 20-year window. So, that is one reason.

The second reason is that the investment environment in recent years has become more difficult, and that is so not just for GIC but for fund managers everywhere. Nevertheless, in these challenging market conditions, GIC has done creditably. Over a five-year timeframe, GIC’s nominal return was 6.6% in US dollar nominal terms. It has continued to generate positive returns on its portfolio.

What I have explained is published in the GIC annual report. Every year’s annual report includes an extensive write-up on how GIC manages the portfolio, including its investment methodology and risk management framework. While the relevant measure for its long-term mandate is the rolling 20-year return, which I just highlighted, GIC has also been putting out more information in its annual report. For example, it publishes other indicators including its rolling 10-year and five-year nominal returns, and how they compare against a typical market portfolio adopted by large global investors.

So, the information is there. Mr Singh would like even more short-term indicators; he has asked for annual indicators. But it is well accepted in the investment world that a requirement to report short-term performance leads to short-term investment behaviour by fund managers. And this is especially important because market booms and downturns are a common feature of global markets. For example, if there is a market downturn, a short-term investor will try to unwind its holdings to cut losses so as to limit the damage to its short-term performance. By contrast, a long-term investor will be able to look at fundamental valuations and ride through short-term market cycles so as to achieve better long-term returns. This is in fact a major strength that GIC has and it is important that we continue to preserve this long-term orientation. If GIC puts out annual indicators, there is the inevitable risk that this will incentivise its Fund Managers to be more mindful of short-term investment outcomes. And I think this will weaken and undermine GIC's strategic advantage as a long-term endowment fund.

I should also clarify that while the GIC reveals its past performance over five-, 10- and 20-year periods, this is categorically not the basis for estimating its future performance. As the Government has explained several times before in this House, including when the Constitution was amended for the NIRC framework, the process of estimating the long-term expected returns of the GIC, as well as that of the MAS and Temasek, rests on thorough professional assessments of the future investment environment. Such assessments are reviewed by MOF; the Government then proposes these long-term expected return rates to the President, who does a further independent check, as advised by the Council of Presidential Advisors.

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So, there is a robust system in place to determine and evaluate the long-term expected returns. And as we have explained in this House and the GIC’s Annual Report also highlighted, there are reasons to expect a weakening of investment returns for serious, diversified global investors over the next 20 years compared to the past and this is due to structural headwinds in the external environment, for example, demographics, elevated debt and lower productivity in many countries.

Next, let me touch on tax-related matters. Assoc Prof Walter Theseira asked about CPF and SRS tax reliefs. We do have a range of policies to address the retirement adequacy needs of different groups. Currently, SRS and CPF contributions are exempted from tax, subject to certain conditions, and the tax exemption is meant to encourage people to save for their own retirement. I know Prof Theseira has highlighted some international studies. In the case of SRS, in Singapore's context, for every $1 of tax savings enjoyed, $7 is contributed to SRS on average. In keeping with progressivity, the Government limits the tax benefits that higher income individuals receive from CPF and SRS.

First, the reliefs are not unlimited. For CPF, there is a salary ceiling and top-up limits that restrict the amount of contributions to the system and, consequently, the amount of relief claimable. For SRS, there is an annual cap on contributions. The SRS is a tax deferral scheme, and not fully tax-exempt like the CPF.

Second, these reliefs are subject to an overall personal income tax relief cap of $80,000. At the same time, the Government provides substantial support to help the lower- to middle-income achieve a more secure retirement. These include Workfare which helps to build up CPF savings, higher CPF interest for the first $30,000 and $60,000 of CPF balances, and top-ups to CPF and MediSave accounts. So, overall, our system of taxes and transfers remains progressive.

I do share Assoc Prof Theseira's objective of having a fair and equitable system to improve retirement adequacy for all Singaporeans. So, we will continue to review our schemes, taking in suggestions and feedback and ensure that the balance of support remains tilted towards the lower- and middle-income groups.

Assoc Prof Daniel Goh asked about the foreign maid levy relief. As he highlighted, this relief is quite specific, with an objective of encouraging women to stay in the workforce after marriage and child birth. He asked about broader support and, indeed, we do have a range of broad-based schemes in place today to support care-giving. Tax reliefs of up to $9,000 per parent or $14,000 per handicapped parent are available for the support of dependent elderly parents. There are similar tax reliefs of up to $4,000 per child or $7,500 per handicapped child for those who care for their dependent children. For these reliefs, the family has the flexibility to decide on the care arrangements for the child or elderly parent, which may not necessarily involve the hiring of a foreign domestic worker. Families which hire foreign domestic workers to take care of children, household members with disabilities or elderly family members pay a concessionary levy of $60 instead of the standard $265. The tax reliefs for the care of dependent children and aged parents, and the concessionary foreign domestic worker levy, are not dependent on the gender of the care-giver. So, these support measures are also on top of existing subsidies to the care recipient, such as subsidised healthcare.

Basically, we do want to do more to support care-givers and we will continue to review our policies regularly to ensure their relevance and effectiveness.

Mr Ang Hin Kee asked about GST waiver for taxi rentals. I think the Government has made clear its position. Singapore adopts a broad-based GST regime with few exemptions, and we chose this approach to keep our GST rate relatively low and administration simple. Nevertheless, we will certainly do whatever we can to help taxi drivers and private-hire car (PHC) drivers better manage their businesses as well as their regulatory compliance costs.

For example, last year, after a review with the National Private Hire Vehicles Association and the Ministry of Transport, MOF amended the Income Tax Act to allow private-hire car drivers to claim tax deductions for motor car-related expenses like car rental and petrol against their driving income for income tax purposes. Taxi drivers are already entitled to this but we extended it to private-hire car drivers. To further reduce record-keeping burden and administration costs, we allow both PHC and taxi drivers to claim tax deduction on a deemed expense ratio at 60% of their gross driving income. This percentage was decided after an extensive public consultation by MOF. And drivers, of course, can opt to claim tax deductions based on actual expenses incurred if their expenses exceed 60%. I hear Mr Ang, who has suggested raising the 60% to a higher figure, but I think we have had extensive consultations and we have arrived at this figure just very recently. MOF will continue to monitor and review and update the figure if and when necessary.

With regard to diesel duties, we have explained the need for this restructuring of the diesel regime from ownership to usage-based taxes which is necessary for a cleaner environment and better health. Besides the restructuring of diesel taxes, we also have a range of measures to encourage the shift towards cleaner vehicles, and taxi operators are, indeed, responding. We have seen strong growth in the number of cleaner taxis, and we now have more than 5,000 electric and hybrid taxis plying our roads, or about 30% of the entire taxi population.

To cushion the impact of the increase in diesel duties, we have provided some measures to help users, including taxi drivers, manage the transition. The Special Tax reduction for taxis is expected to permanently cover more than 75% of the cost impact to drivers. As Mr Ang is aware, the Government has been working with taxi companies to encourage them to pass down the savings from the Special Tax reduction to their drivers. And I am glad that all taxi companies have agreed to do so. Mr Ang had many other suggestions to work with companies and to help the drivers, including through licensing or through the pump prices that the companies offer. We will study these suggestions and we will continue to work with the taxi operators to see how best to improve the welfare of drivers.

Mr Chairman, let me conclude by reaffirming MOF’s commitment to ensuring the long-term sustainability of our fiscal system. We will continue to build a resilient and progressive tax and benefit regime to support our rising spending needs. I will let Minister Indranee address the other questions that have been raised.

The Chairman: Second Minister Ms Indranee Rajah. You have 10 minutes.

The Minister in the Prime Minister's Office, Second Minister for Education and Finance (Ms Indranee Rajah): Mr Chairman, let me now address Members’ questions on how the Government manages our spending, and how we support businesses.

Ms Foo Mee Har and Mr Saktiandi Supaat asked how the Government manages our infrastructure and info-communications technology (ICT) spending in the long run, and how we ensure that these programmes deliver value to citizens and businesses.

Over the past five years, total development expenditure amounted to $91 billion. This was 26% of the Government’s expenditure. On average, we expect that development expenditure will increase in the coming decade as we continue to invest in public infrastructure and adopt ICT to meet citizens’ needs and support our economy. We therefore place significant emphasis on identifying opportunities for cost savings and achieving better outcomes in these areas.

Before we embark on a project, there is a robust process to consult stakeholders and assess the need for the project, the broad scope and timeline, and the balance of benefits over costs. For a major project like the Changi East development, the Cabinet must first be satisfied of the need for the project before it can proceed further. We also conduct public consultations on our future infrastructure plans, such as the URA Master Plan and the Land Transport Masterplan.

All public infrastructure projects above $100 million are also carefully reviewed by a team of architects and engineers within MOF, before approval is granted by the Development Planning Committee or DPC comprising three Cabinet Ministers. Projects above $500 million are put through the Gateway process, where they are subject to additional scrutiny by the Development Projects Advisory Panel that includes senior public officers, academics and industry practitioners with deep technical expertise. Over the past five years, these reviews have led to design improvements and generated savings of about $3 billion or 6% of the initial estimated value of the projects reviewed. In one review, the design for an MRT station was improved such that two proposed underground links and entrances could be brought to ground level, yet without compromising the objectives of commuter accessibility and connectivity. This redesign reduced the amount of utility diversions, underground excavation and tunnelling works required, leading to an estimated cost savings of $54 million.

All major Government ICT projects are reviewed by a committee of experienced public sector officers and ICT practitioners before approval. This committee reviews the project scope and system design to ensure that our ICT projects are cost-effective and well-integrated across the Public Service. This has helped us save almost $800 million, or over 5% of our ICT spending, over the past five years.

Besides reviewing projects before granting approval, the Government also monitors existing services and programmes post-implementation. We actively seek ways to enhance cost-efficiency and outcomes. Improvements can arise by leveraging technology, improving processes and collaborating across agencies. For example, the National Library Board now uses robots and automatic sorting machines to help staff and volunteers with shelving work. Library users can also check out books without queuing by using a mobile app, and pick up reserved items at self-service lockers outside library operating hours. These have helped to achieve cost savings of $2 million annually, in addition to bringing convenience to citizens.

Agencies also tap on each other’s expertise to co-develop and co-deliver programmes that bring about better outcomes for citizens. For example, PSD mentioned in its COS that agencies at Our Tampines Hub (OTH) will be coming together to cross-train counter staff for better service to citizens. Besides counter services, People’s Association, Sports Singapore and the Health Promotion Board are also collaborating on joint programming opportunities at OTH. Just last Sunday, they organised “The Greater Singapore Workout” for more than 200 participants of all ages, achieving community bonding and healthy lifestyle promotion objectives simultaneously.

Finally, we are deepening capabilities in our agencies to ensure that spending translates into good outcomes and building a stronger culture where every public officer contributes towards better use of resources. Such efforts are bearing fruit, with agencies seeking ways to achieve greater value-for-money in their work. For instance, when constructing the Thomson-East Coast Line, LTA officers worked with the management corporation of a condominium to use some space within the condominium’s perimeter temporarily, so as to reduce the number of traffic diversions required from 10 to three. Residents experienced less inconvenience as construction time was shortened by two months, and this also generated cost savings of about $3.6 million. Such collaboration between public agencies and citizens is a good example of partnership at work. Value-for-money lessons learnt from one agency are shared across the Public Service so that they can be applied by others. MOF also guides agencies in applying different methodologies to quantify costs and benefits of their programmes, and setting outcome-based indicators to monitor their effectiveness.

Mr Henry Kwek and Mr Liang Eng Hwa asked how Government procurement policies support innovation and enterprise, in addition to ensuring value-for-money in Government spending.

Achieving value for money remains an important criterion in Government procurement decisions, but it does not mean awarding contracts only to the lowest quote. The Government has adopted price-quality evaluation as the default approach in tenders, where a balance of price and quality factors are considered. Today, about half of Government tenders are not awarded to the lowest bidder.

The Government has also stepped up the adoption of more outcome-based procurement, where tenderers have more flexibility to propose innovative solutions to meet the desired outcomes. For example, JTC adopted an outcome-based security contract for one of its business parks. As a result, JTC achieved better security coverage for the estate, alongside 25% security manpower reduction and projected cost savings of up to 40% over the contract period.

Apart from being open to good ideas and solutions, we also continually seek to make it easier for SMEs to participate in Government procurement. Last year, we removed the requirement for companies with less than $5 million turnover to submit audited accounts when applying for Government Supplier Registration (GSR). We now accept unaudited financial statements if the company’s Director certifies that their financial statements are accurate and true. About 3,900 GSR-registered suppliers have benefited from this.

This year, we will increase the upper limit for Quotations from $70,000 to $90,000. Smaller companies and start-ups without GSR can capture higher-value Government projects through Quotations, which come with simpler contractual terms and conditions and tend to be processed more quickly. We hope that many among the 12,000 suppliers who participate in Quotations but not Tenders will benefit from this.

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I agree with Mr Henry Kwek and Mr Liang Eng Hwa that the key here is balance. Government procurement can help to give a boost but, fundamentally, for companies to grow and be competitive, they must be innovative and offer value-for-money solutions.

Mr Liang Eng Hwa asked how Government taps on digital technology to streamline corporate regulatory requirements. The Government has continued to simplify and digitise corporate regulations. Over the past two years, a number of improvements have been made. We reduced the number of steps in the annual returns filing form for eligible companies. The simplified form is available on ACRA's mobile app and the online BizFile+ portal. Company directors and secretaries can receive SMS reminders to file their annual returns and meet statutory obligations on behalf of their companies.

Mr Liang Eng Hwa's suggestion on virtual AGMs is a good one. Fortune 500 companies like HP Inc and PayPal have adopted virtual AGMs, citing reduced cost. This year, we will review the Companies Act to expressly provide for the use of digital means for companies to conduct meetings and interact with stakeholders.

Mr Liang Eng Hwa also asked how Government can help small enterprises and freelancers understand their statutory obligations. ACRA's Directors Training Programme has helped new and aspiring company directors understand their statutory obligations under the Companies Act. In April 2018, ACRA worked with CPF Board, Enterprise SG, IRAS, MOM and the Singapore Institute of Directors to provide an online training programme for directors. Company directors can access the online programme anytime, anywhere, and more than 2,500 have done so since its launch. We have received positive feedback that the programme has helped company directors better understand their roles and responsibilities.

Some businesses may prefer to receive help in person. The Taxpayer and Business Service Centre located in Revenue House offers businesses one-stop Government services by co-locating taxpayer services.

Mr Chairman, as I have just a little bit more, may I seek your indulgence for a couple more minutes?

The Chairman: Yes, please. Go ahead.

Ms Indranee Rajah: Thank you. As I was saying, the Taxpayer and Business Service Centre co-locates taxpayer services, CorpPass, ACRA and Enterprise Singapore services. Businesses can meet staff from ACRA, IRAS, Enterprise Singapore SME Centre and CorpPass there for help with their questions about regulations and tax obligations, amongst other issues.

Mr Saktiandi Supaat asked about R&D spending. We take a portfolio approach. We support research, development and innovation through different schemes where we also require co-payment in order to keep them relevant. On the Government side, where the innovation has a long horizon, are higher-risk or involve manpower development like PhD training, then the Government takes a bigger role.

In R&D, we invest in areas that support current and future competitiveness, like digital technology, advanced manufacturing, urban solutions and sustainability, and health and medical solutions.

In conclusion, Mr Chairman, the Government will keep its focus on ensuring fiscal prudence, using resources efficiently and effectively, and enhancing our policies and processes to support businesses. We will continue to partner citizens, businesses and the community to achieve good outcomes with the resources entrusted to us.

The Chairman: We have a bit of time for clarification.

Mr Ang Hin Kee: I can sense that Mr Lawrence Wong understands the plight that the taxi drivers are facing. Unlike many countries where the digital disruption of Uber and Grab has caused a lot of chaos and there were strikes, fights and the burning of vehicles – even taxi drivers in some countries burn themselves to death just to show their protest – ours have been relatively supportive and they have seen the advent of technological disruption and tried to accommodate, everybody trying to make a living on the road. We have 65,000 taxis and private hires on the road, and only about 1.2 million-plus commuting traffic a day, which is less than 100% of the increase in the vehicle fleet size. I think the market probably cannot absorb so many vehicles. So, despite the diesel tax, there is really not a big market and we have many vehicles, and every driver trying to eke out a little living from this. Perhaps, the Ministry can consider that we may not need such a big size of vehicles on the road because it is not just technology; it is just the size of the market that is not big enough to accommodate —

The Chairman: Mr Ang Hin Kee, can you keep your clarifications short?

Mr Ang Hin Kee: So, I would like to ask the Minister if MOF would look at this kind of parameters rather than only on diesel tax as a way to manage the vehicles on the road.

The Chairman: Minister Lawrence Wong.

Mr Lawrence Wong: Mr Chairman, I can confirm to Mr Ang Hin Kee that it is not just a sense. I do share and understand what the drivers have to go through. That is why MOF works very closely with the private hire car drivers and the taxi drivers earlier on when we amended the Income Tax Act to allow for deductions and for it to be done on a deemed expense basis. So, as I have said, there are many ways in which we can look at this. Not all of the levers are with the Government. I think taxi companies and operators can do their part, too, as Mr Ang Hin Kee has suggested. So, the Government will continue to work with the companies, the associations and the unions to see how best we can help our drivers who are impacted.

The Chairman: Assoc Prof Walter Theseira.

Assoc Prof Walter Theseira: Mr Chairman, thank you. Minister Lawrence Wong noted that $1 of tax cost in SRS leads to about $7 of retirement savings. I want to ask if this estimate accounts for the diversion of retirement savings from taxable savings accounts to non-taxable? Because the international studies show that much of the response actually comes from this kind of diversion – movement from the taxed to the untaxed account. So, could the Ministry continue studying this with a view to understanding how the marginal new savings dollar is actually affected by the policy?

The Chairman: Minister Lawrence Wong.

Mr Lawrence Wong: Mr Chairman, I have to confirm. But I do not believe it has fully accounted for the effects that the Member has described. So, the Member is right. We do need to do more detailed studies and we will engage in this.

The Chairman: Mr Saktiandi Supaat.

Mr Saktiandi Supaat: Mr Chairman, I would like to ask a clarification from Minister Indranee Rajah. With regard to the Government's expenditure on infrastructure projects and also IT spending, I firmly believe that Government spending plays a big role in terms of giving direction in terms of technological change in the long run and also it is an explicit concern for policy-makers. So, my question is about balancing the value-for-money and cost-savings that the Minister mentioned and the outcomes. The Minister mentioned about the outcomes and my clarification is whether the issue of employability of workers in the long run is part of the outcomes as well, rather than in terms of what the Minister mentioned just now, of public sector concerns in terms of outcomes as another option or parameter. But in terms of outcomes, what is the Minister's definition of outcomes? Does it involve in the long run the impact on work, workers or jobs lost or gained? So, it is a clarification on that point.

Ms Indranee Rajah: When we look at outcomes, we look at a variety of things. Obviously, we want to look at efficiency, we want to make sure, depending on the project, reliability. If the question is: will we look solely at one factor, for example, "Does this result in employment of a certain group?", it cannot be seen in isolation. So, where we can, we try to encourage businesses to employ. But that is really done through the work of MOM and it cannot be a single type of factor driving the way that project requirements are structured, because then you might have all sorts of other unintended outcomes.

The Chairman: Mr Liang Eng Hwa.

Mr Liang Eng Hwa: Sir, I am not sure whether the Minister has the figures, but I just thought I want to ask about the Pioneer Generation Package, that is, the $8 billion that we have set aside. Given the consumption rate and so on, is the $8 billion that was set aside ahead of utilisation or are we still in good shape in terms of the funding for the whole Pioneer Generation Package?

The Chairman: Mr Lawrence Wong.

Mr Lawrence Wong: Mr Chairman, actually I believe we had answered a Parliamentary Question on this some time back. I have not looked at the latest data, but at that time of the question, when we looked at the figures, the utilisation rate was indeed in line with projections as of that time. But these things can change. We make assumptions on these projections and so we will continue to monitor the utilisation, the assumptions that we have used and whether they are still relevant, and we will continue to do so.

The Chairman: As there are no other clarifications, Mr Liang, would you like to withdraw the amendment?

Mr Liang Eng Hwa: Sir, as always, MOF has done it again very prudently and efficiently with not just the financial resources but time resource as well! I believe we have a pretty good accumulated surplus for our COS time now. [Laughter.]

Sir, I want to thank the Finance Minister for a very caring Budget, especially the very strong commitment to our workers and seniors in this Budget, and also to Minister Lawrence Wong and Minister Indranee Rajah for their replies and also to the hardworking MOF team. With that, I beg leave to withdraw the amendment.

The Chairman: In light of the surplus that we have, is the hon Member given leave to withdraw the amendment?

Amendment, by leave, withdrawn.

The sum of $839,636,400 for Head M ordered to stand part of the Main Estimates.

The sum of $152,563,600 for Head M ordered to stand part of the Development Estimates.