Short- and Longer-term Impact of Cancellation of High Speed Rail Project on Singapore Government’s Revenues and Expenditures

5 Mr Pritam Singh asked the Minister for Finance with regard to Malaysia's decision to cancel the High Speed Rail (HSR) project (a) what implications does the cancellation have on the Government's decision to raise the Goods and Services Tax (GST) sometime between 2021 and 2025; and (b) what was the Government's total expenditure estimate for the HSR project up to its originally envisaged inauguration around 2026.

6 Assoc Prof Daniel Goh Pei Siong asked the Minister for Finance what are the short-term and longer-term impact of the suspension of the Kuala Lumpur-Singapore High Speed Rail Project on Government revenues and expenditures.

The Second Minister for Finance (Mr Lawrence Wong) (for the Minister for Finance): Mr Speaker, with your permission, I would like to take Question Nos 5 and 6 together.

Mr Speaker: Please do.

Mr Lawrence Wong: Sir, Mr Pritam Singh and Assoc Prof Daniel Goh asked about the financial implications should the High Speed Rail (HSR) Project be cancelled or suspended. I will iterate and reiterate at the outset that, as stated by the Minister for Foreign Affairs and the Minister for Transport, Singapore has yet to receive an official response from the Malaysian government on its position on the project. Unless the project is terminated, Singapore has to meet our obligations under the legally binding HSR Bilateral Agreement (BA) and will continue to incur costs in this regard. In the event that Malaysia causes the project to be terminated, Singapore will exercise our rights under the BA and international law, including with respect to compensation for costs.

Mr Pritam Singh has tried to link the prospect of the HSR project being cancelled to the Government announcement to raise the Goods and Services Tax (GST). But these are two separate matters. The increase in GST was never meant to finance lumpy investments in infrastructure in the first place. We have already made this clear in the Budget Statement. So, let me reiterate the key points.

The main drivers for rising Government expenditure in recent years, and going forward into the future, are healthcare, security and social spending. Healthcare, in particular, is expected to rise sharply over the coming years due to our rapidly ageing population. These are broad-based, structural increases in recurrent spending. So, we have to raise recurrent revenues, of which the planned GST increase is one component, to pay for these ongoing needs year after year. This is the responsible way to ensure that every generation pays for its own spending in a sustainable manner.

We take a different approach to financing lumpy investments in infrastructure. First, where possible, we will save ahead and set aside funding for such investments through initiatives like the Changi Airport Development Fund and the Rail Infrastructure Fund. Second, we will finance infrastructure through borrowing by Statutory Boards and Government-owned companies. This will apply to larger investments that can generate economic benefits over many years, like the Changi Airport Terminal 5, the HSR and the JB-Singapore Rapid Transit System (RTS) Link.

Therefore, the underlying rationale for the GST rate increase is not affected by the outcome of the HSR Project. Our population will continue to age. More Singaporeans will need support to care for their loved ones. Ultimately, the Government will require more recurrent sources of revenue to support these needs.

Both Assoc Prof Daniel Goh and Mr Pritam Singh asked about the specific expenditure impact of the HSR Project. As Minister Khaw said earlier, the Government's practice is not to reveal the costs of projects until tender processes are over, as doing so could affect the behaviour and pricing strategy of bidders. And as he had indicated earlier, pending confirmation from the Malaysian government about its position on the project, Singapore is continuing to fulfill our obligations under the HSR agreement. So, it will not be appropriate for me to highlight the figures at this time.

Mr Speaker, the Government's fiscal approach is sound and sustainable for the long term. We will continue to manage our public finances prudently while ensuring we look after the needs of our citizens and our economy in a responsible manner.

Mr Speaker: Mr Pritam Singh.

Mr Pritam Singh (Aljunied): Mr Speaker, with regard to the question on Government financing, can I confirm, in the event the HSR is terminated, does the Ministry of Finance envisage lowering the Net Investment Returns Contribution (NIRC) contributions to the Government’s Budget, as a result of not having to pay for HSR, at least the Singapore portion of the HSR?

Mr Lawrence Wong: Mr Speaker, again, I think Mr Singh is trying to link things that are clearly of no relationship at all. The NIRC is a separate matter. It is the largest source of revenue for the funding of our overall Budget, and so, that will be seen in the context of funding of our overall budgetary needs. As I mentioned earlier, with regard to infrastructure projects like HSR, we are financing them separately through borrowing. It is the right thing to do because these infrastructure projects are long term in nature, and borrowing will help us to smoothen the expenditure of these projects over the longer period to better match the benefits of the project, which will also be for a long period of time.

I would also say this, that even if the HSR Project were to be terminated, even if that were to happen, the trend of our overall expenditures rising will continue and, in particular, the trend of our recurrent expenditure rising will continue. And I have explained why this will happen, because, primarily, in the case of healthcare, our population is ageing and we will be having to spend more on healthcare.