Transcript Central Provident Fund Relieves budget sector from

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: MediFund
–
25
Total Revenue
20
15
Total Expenditure
% GDP
10
–
Budget Balance
5
0
-5
-10
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06 (Bud)
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