II FY 86 BUDGET

Mr Speaker, Sir, I now turn to the FY 86 Budget.

The Budget Document for the financial year 1986-7 has already been circulated to Members. Members will note that several changes have been made to the format of this year's document.

Previously, in addition to the main Budget Document, a Memorandum on the Budget was submitted alongside. This year the two have been merged into one unified document.

I have also taken cognizance of Members' request for a more meaningful comparison of estimates. For this reason, the estimates for FY 86 are now compared with the corresponding revised FY 85 estimates and not with the original budget figures.

The objectives of this year's expenditure budget are two-fold:

(a) To restrain the growth in recurrent expenditure.

(b) To stimulate the economy through increased development expenditure.

Total Government spending in FY 86 is estimated to be $22.06 billion, about $5.94 billion or 37% higher than the revised FY 85 expenditure. More than 60% of the total budget allocation for FY 86 is for development. As a proportion of GDP, Government expenditure is expected to rise sharply from 43% to nearly 60%. This is largely due to a substantial increase in provision for development expenditure, including loans to HDB for the purchase of land required for public housing. Excluding the funds for HDB land purchases, the expenditure to GDP ratio will rise from 35% to 43%.

The allocation for recurrent expenditure in FY 86 is $8.54 billion, about $1.41 billion or nearly 20% more than the revised FY 85 recurrent expenditure. The increase is due to higher public debt servicing and pension costs, and a sharp rise in the Government grant-in-aid to HDB. If this latter item is excluded, the recurrent expenditure for non-Defence Ministries and Organs of State will show a small increase of around 1.4%.

Public debt servicing costs are projected to increase by $1.01 billion or 68%. This is largely due to interest payments on new domestic loans that are expected to be raised in FY 86.

Pension payments are expected to go up by $33 million or 22% because of the large number of retirees.

The grant-in-aid to HDB is increased by nearly $496 million. Following the recent change in HDB's accounting system, the HDB accounts reflect more accurately the difference between the market value of land required for public housing and the lower value used in setting sales prices of flats. The grant-in-aid to HDB is increased to reflect this subsidy.

Excluding the grant-in-aid to HDB, the operating expenditure of the non-Defence Ministries and Organs of State is projected to drop by $130 million. Expenditure by MINDEF is expected to be $176 million lower than in FY 85. This decrease is partly offset by a slight increase in of $46 million in expenditure by the other Ministries and Organs of State.

A provision of $3.23 billion is set aside for the operating expenditure of the non-Defence Ministries and Organs of State. Of this, $1.80 billion or 56% is used for Expenditure on Manpower, $0,50 billion or 15% for Other Operating Expenditure, and $0.93 billion or 29% for Grants, Subsidies and Other Transfers.

Expenditure on Manpower is projected to increase by $54 million or 3%, much lower than the average annual increase of 16% over the FY 80-84 period. The moderate increase is due to the wage restraint policy and reductions in the authorised staff establishment. These reductions are possible as a result of higher productivity, implementation of mechanization, automation and computerization schemes, organizational reviews and changes in work procedures.

Over the FY 80-85 period, the permanent establishment of the public sector, including the self-financing statutory boards, increased by more than 10,000 posts. The public sector's share of total employment also increased. A large part of this increase was due to the expansion of the tertiary and technical education institutions and the stepping up of the public housing programme. Our current public sector employment to population ratio is relatively high. Singapore's public sector employment to population ratio in 1984 was 5.3%, as compared with 3.0% in Japan, 1.6% in South Korea and 3.4% in Hong Kong.

The recession and fall in revenues make it more pressing to contain increases in establishment levels and manpower costs. Government has, therefore, decided that the permanent staff complement of Ministries and Statutory Boards should be reduced by 10% from the current level over the next five years. The 10 per cent target will apply to existing programmes and can be achieved through normal attrition, and more selective recruitment, plus increases in productivity. Manpower requirements for new services will be considered separately.

A comprehensive programme of manpower scrutinies will also be instituted in the public sector. The scrutiny programme will involve the critical examination by each Ministry and statutory board of its activities. The scrutinies will determine whether particular activities are necessary and if so whether they could be done at lower cost and with less manpower. Alternative means of achieving objectives including "privatization" of selected services will be examined.

I must reiterate that the 10% staff reduction can be achieved through normal attrition and more selective recruitment without the need for retrenchments. Every attempt will be made to retrain and redeploy redundant staff to other areas.

Government has accepted the Economic Committee's ? recommendations that the employers' CPF contribution rate be reduced and that there should be no increase in overall wage costs in 1986. With effect from 1 April 1986, the employers' CPF contribution rate in the public sector would be reduced to 10% in the case of non-pensionable officers and to 6% in the case of pensionable officers. The half-month incentive payment will also be suspended. The suspension of the half-month incentive payment will mean a 4% reduction in the wage bill and this will offset increases arising from annual salary increments. Overall, the reduction in CPF rates and suspension of the incentive payment will result in a total savings of about $230 million in Government's wage bill.

Apart from manpower costs, Other Operating Expenditure of Ministries and Organs of State is also projected to fall by $34 million or 6%. This is due to stringent control by Government departments of operating costs. Discretionary expenditures, particularly those which will result in a leakage overseas (eg overseas travel) will be reduced significantly.

A modest increase of $26 million or 3% is expected in expenditure on Grants, Subsidies and Other Transfers, the bulk of which is to finance the operating deficits of the tertiary and technical education institutions, aided schools and other non-self-financing statutory boards. The low rate of increase reflects the wage restraint policy and tight control of operating costs.

Total development outlay for FY 86 is estimated to be $13.52 billion, an increase of $4.53 billion or 50% over the revised FY 85 expenditure. Expenditure on public housing, education and economic services takes up $12.39 billion or more than 90% of the development budget.

As I mentioned earlier, part of the increase in development outlay is due to the provision of loans to HDB for the purchase of land needed for public housing. Even after discounting these loans, development expenditure in FY 86 is expected to register a very substantial increase of $1.91 billion or 33%. The sharp rise is due to the accelerated implementation of major infrastructural projects. Apart from projects included in the FY 86 development budget, Ministries and statutory boards are expected to implement other new projects costing nearly $1.19 billion in total. These new projects are in the final stages of planning and when implemented can be expected to inject a further $0.37 billion in development expenditure in FY 86 alone.

A sum of $8.81 billion, equivalent to 65% of the budgetted development expenditure, is set aside for the public housing programme. The bulk of this provision is to cater for the purchase of land required for public housing.

The allocation for economic services is $3.23 billion or 24% of the development outlay. Of this, $2.37 billion is for land reclamation, development of industrial estates, the Mass Rapid Transit System, roads and other infrastructure. Loans and capital assistance grants totalling $0.75 billion will be extended to industrial and commercial enterprises.

The development budget for education and manpower training is $0.35 billion. This is for the school and junior college building programme, expansion of the National University of Singapore, Nanyang Technological Institute, Singapore and Ngee Ann Polytechnics as well as vocational and industrial training institutes.