TODAY: Marksmanship and forecast skills

Budget surplus of $6.4b comes under vigorous debate

LOH CHEE KONG AND LIN YAN QIN
cheekong@mediacorp.com.sg

IT WAS called a “happy mistake” and even “pleasantly embarrassing” by some.

While a few Members of Parliament (MPs) felt the Government’s unexpected $6.4-billion surplus – an “astronomical difference” from its earlier forecast of a $700 million deficit – would hurt its credibility, others said it should be commended for turning the expected hole in the budget into an “astonishing surplus”.

The question many had, though, was how the forecast went awry – and was the Goods and Services Tax (GST) hike last June, on hindsight, warranted? Should the Government also be doing more to help businesses and Singaporean households plagued by inflation?

Yesterday, as Parliament reconvened to debate the Budget, the spotlight fell on the eye-popping surplus that Finance Minister Tharman Shanmugaratnam attributed largely to the unforeseen property bull run, with state coffers boosted spectacularly by stamp duties.

Ang Mo Kio MP Inderjit Singh described the $7-billion swing from deficit to surplus as a “pleasantly embarrassing” outcome for the Finance Minister, who had “defended very strongly the 2-percentage-point GST increase last year, citing reduction of Government income from other sources”.

“In light of the booming economy, which should have been visible by mid-2007, the Government could have made the late decision to hold off the GST rise by a year or two,” Mr Singh said.

Workers’ Party chief Low Thia Khiang said the large surplus vindicated his argument last year that the Government could have afforded the Workfare Income Supplement scheme – cited as another key justification for the GST hike – without upping the tax.

“Was the Government too conservative in its initial forecast because it wanted sufficient reasons to justify the GST hike?” he asked.

Like Mr Low, Nominated MP Gautam Banerjee suggested that the GST be put back at 5 per cent “as soon as is practicable and until such a time that there is a real need to increase government revenue from indirect taxation”.

But others, including Hong Kah MP Amy Khor, said the Government should be commended for a job well done. She added: “It is this far-sightedness and prudence, as well as the many timely and astute policies implemented, that have played a major role in bringing about such a large surplus.”

For Mr Banerjee, executive chairman of auditing giant PricewaterhouseCoopers Singapore, the issue lay more in whether a better job could be done with forecasts.

The Finance Ministry’s key performance indicators, he said, should give more weight to “realistic preparation of estimates”, than be “unduly weighted towards prudence”.

Nominated MP Eunice Olsen, who noted that one of the ministry’s KPIs was its “Budget marksmanship”, asked “why did the Government not anticipate revenue figures more accurately, especially when it is in control of various factors such as immigration numbers?”

In an ironic observation, she noted that Hong Kong, too, was expected to announce on Wednesday a surplus four times higher than initially projected – after public outcry forced its legislature to scrap a proposed sales tax, a fact that might spur critics of Singapore’s GST hike.

“There are worrying voices on the ground that say it would be hard to believe the Government the next time it says more revenue is needed for spending,” Ms Olsen said, adding that such sentiments are “often accompanied by references to the billions of dollars” the Government of Singapore Investment Corporation spends on buying stakes in foreign banks.

As to some Singaporeans’ disappointment with Budget goodies dished out, Yio Chu Kang MP Seng Han Tong said the media had created unrealistic expectations by asking various quarters for their Budget wishlists. In fact, the Government “should stop the practice of giving out surpluses during the Budget”.

But other MPs, such as Pasir Ris-Punggol’s Michael Palmer, called for more direct aid for Singaporeans to cope with inflation.

Businesses, too, needed more help, in the form of tax relief on rentals, as a cushion against the rising rental costs, he added.

To keep property prices in check, Mr Singh said the Government should have better managed the property bubble.

It should have, for example, staggered the construction of the two Integrated Resorts or released the land for the Business and Financial Centre in Marina Bay earlier.

He also suggested the Government scrap its land sales programme and put in place permanent anti-speculative measures, to have a more responsive supply while curbing speculation.

Mr Shanmugaratnam had said a sustained economic growth would be Singapore’s most effective tactic against inflation.

But Mr Singh felt the “growth at-all-costs” economic model had exacerbated the imported inflationary pressures. “I’m not sure how it can help. A ‘grow-as-fast-as-you-can’ policy is inflationary in nature.”

In all, 19 parliamentarians spoke yesterday. The debate continues today.

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