EXPENDITURE PRIORITIES

Overall, this year's budget continues to emphasise the Government's priorities on education, security, health, public housing, environment, transportation and economic development. Chief among these are education and security which have a strong bearing on Singapore's long-term strategic interests.

Total spending on education will rise by a hefty 30% from $4.4 billion in FY97 to $5.7 billion in FY98. The jump from 3.0% to 3.6% of GDP brings our spending on education closer to the medium-term target of 4% of GDP. We can take pride in having developed an educational system which we believe is one of the best in the world. Our students' performances have been outstanding in international mathematics and science surveys and Olympiads. This year, higher enrolments are projected in schools and tertiary institutions, leading to a 12% increase in operating expenditure. The main boost in the education budget however comes from a 80% increase in development spending on the building of new and better schools and campuses, the single session secondary school building programme and the roll-out of the IT Master Plan in schools.

Defence spending will amount to 4.6% of GDP, up from 4.4% in FY97, but still well below the 6% of GDP that Government is prepared to commit to develop and maintain a strong and credible defence force. So long as revenues hold up, we should not slacken spending in this area since the security of our nation is the very basis of our survival and prosperity.

With the emphasis on education, the social and community services sector as a whole will account for the lion's share of 37% of total expenditure in FY98, with security coming in close at 34%. The share of spending on economic and infrastructural development will exceed 20% for the second consecutive year, up from an average of only 15% over the period in FY93-96. The increase in this sector is driven by higher development spending.

Operating Expenditure

Operating expenditure in FY98 is expected to be 9.8% of GDP. As a share of GDP, this is consistent with levels in previous years, barring the one-time compensation of $1.5 billion to SingTel in FY96 for removal of monopoly privileges. At around the 10% GDP level, our operating expenditure is also considerably lower than that of most developed countries. This is the result of a deliberate policy to keep the public sector lean and trim, avoiding welfarism and confining Government's role to one of providing basic public goods and services, thus freeing more manpower and financial resources to the private sector as the engine of growth.

At the same time, the growth of operating expenditure will not be held down dogmatically without regard to public expectations for new and higher quality services as well as increased workload. Where warranted, we will provide for increases in operating expenditure.

Since 1994, we have also introduced a financial management system called Budgeting-for-Results or BFR, to raise the quality and efficiency of public services. Under the BFR programme, the public sector is managed along the lines of Autonomous Agencies, or AAs. With effect from April last year, all AAs are required to pre-specify output and performance targets that they hope to achieve for the budgets voted to them in return for greater autonomy in financial and personnel management. Wherever possible, they will attempt to link their outputs directly to their funding. In this way, there is greater accountability for deliverables, and transparency in the utilisation of public resources. The aim is to ensure that public sector recurrent spending does not outstrip nominal GDP growth rate, with compensation made for increased workload and new programmes and services.

The BFR framework is appropriate and effective in regulating the running cost of Government departments and Government-funded statutory boards. Running costs constitute more than 90% of our operating expenditure. Since annual increases in cost factors are generally lower than GDP growth, any increase in running costs as a share of GDP is due entirely to new programmes and higher workload.

Transfers, the other component of operating expenditure, are budgeted at $1.2 billion. These constitute less than 10% of operating expenditure. More than half will go to restructured hospitals as healthcare and medical subsidies, another 16% will go to town councils to subsidise estate management costs, and 10% will go to welfare and community self-help organisations. This reflects the Government's philosophy on subsidies. Subsidies are given selectively, and only on essentials such as basic healthcare and public housing on a cost-sharing basis. For example, medical subsidies on hospitalisation are fixed as a percentage of charges and skewed heavily in favour of the lower income groups. At the same time, genuine cases of dire need are never ignored. Medifund, set up in 1993 as a fall-back for those who cannot afford to pay their share of medical cost, is expected to pay out some $18 million in medical subsidies in FY97 to cover the needs of those who cannot afford even the heavily subsidised C class charges.

Since its launch, the Medifund has received $600 million in transfers from the Government to build up its capital endowment. Based on the current level of capital in the fund, projected income will be adequate to meet projected drawdowns in FY98. I do not therefore propose to make an additional transfer of capital to the Medifund this year.

The absence of large scale public assistance programmes reflects the Government's stand on state welfarism. We believe that extensive welfare programmes damage the fabric of our society as they diminish individual responsibility, self-reliance, community support and the work ethic. Even in the UK, the Government has realised that welfarism is not the right way to go, and is trying to roll back many of the welfare programmes and policies introduced after the Second World War. Our approach is one of many helping hands, with co-funding from Government and public donations, and services rendered by volunteers and members of the community.

Development Expenditure

As a percentage of GDP, we spend much more on development than the G-7 economies. This reflects the emphasis we place on building up a world-class infrastructure, focusing on areas which bring high returns and lasting benefits. We will invest in infrastructure to support economic activities. We will develop a first-rate road and rail network system to transport people and goods efficiently and more industrial land will be made available through reclamation. School buildings and teaching systems will be constantly upgraded to prepare our young to deal with future challenges in the workplace and society. We will continue to invest in affordable and good quality public housing, and in modern drainage, sanitary and waste handling systems to support healthy living. Not least, we need to constantly upgrade our defence and internal security infrastructure so that our families and assets are well protected.

Over the last three years, that is, FY95-97, spending on development has risen steadily from between 3-5% of GDP prior to FY95 to 6.3% in FY97, and now, to 7.5% in FY98. As Singapore's economy graduates from the ranks of developing country status to an advanced developing economy, we will face new challenges and stronger competition. We will need to quicken the pace of economic infrastructural development and renewal, and to accelerate the development and education of our workforce. Notwithstanding the current regional economic turmoil, we intend to implement all the essential development programmes. We will then emerge stronger and more robust once the storm blows over in this part of the world.

Economic development programmes under the Ministry of Trade and Industry are expected to cost $2.8 billion and account for the largest share of development expenditure. Its share of GDP will rise from only 0.3% of GDP before FY95 to 1.8% of GDP. The thrust of development is in land reclamation on Jurong Island to meet expansion needs of the petroleum, petrochemical and chemical industry, an important and growing arm of our manufacturing sector. More than $1 billion is committed in FY98 for reclamation of 1,800 hectares and a road link to Jurong Island. In addition, another $420 million has been earmarked for on-going reclamation and development at Tuas View. Funds are also provided under the Economic Development and Assistance Scheme, and the building of a mega exhibition centre, a centrepiece of the Tourism 21 plan.

Communications ranks second with a development budget of $1.8 billion. This is 1.2% of GDP, doubling from 0.66% of GDP in FY96, as we are committed to create a world-class land transport system. A sum of $1.2 billion is provided for the North East MRT Line, Changi MRT Extension, Bukit Panjang LRT, Sengkang LRT, a new MRT station at Singapore Polytechnic and the construction of a building directly above and integrated with the Dhoby Ghaut MRT station. Also on the cards are several improvements to our road network, such as the upgrading of expressways and the building of new junction interchanges and roads to ease congestion for faster movement of people and goods.

As a result, spending on economic and infrastructural development as a whole is set to more than double from 1.3% of GDP in FY93 to 3.1% of GDP in FY98. For the second consecutive year, it has overtaken social and community services as the top priority in development spending.

But this has not been achieved at the expense of reduced development spending on social and community services. In fact, development spending on social and community services has also risen steadily and strongly over the past five years, from 1.7% of GDP in FY93 to 2.7% of GDP in FY98. This is driven mainly by increased spending on education projects, which will almost double, from 0.7% of GDP in FY93 to 1.2% of GDP in FY98. Spending on drainage, sewerage and waste disposal facilities under the Ministry of the Environment has also gone up three-fold from 0.2% of GDP in FY93 to 0.6% of GDP in FY98. On the slate are a fourth incineration plant, a landfill at Pulau Semakau, and the upgrading of various sewerage works and facilities to expand processing capacity to accommodate future demand.

Capital expenditure on public housing is expected to remain at about 0.5% of GDP, increasing by 8% to about $790 million. This includes $150 million in capital grants to HDB, $350 million for the main upgrading programme, and another $130 million for the interim upgrading programme.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 5.35 pm.

Sitting accordingly suspended at 5.20 pm until 5.35 pm Sitting resumed at 5.35 pm