Govt spending must not be a future burden

27 Jun 2008, The Straits Times

Question

Name of the Person: Basant Kapur

Let Budget surplus fund health insurance

IN LAST Saturday's Insight article, 'A recipe for economic growth', Ms Lydia Lim and Ms Lee Siew Hua said I suggested 'that part of the reserves be used to provide subsidised health insurance for the very old who are less well off'.

This is a misinterpretation of what I actually said in my e-mail message of June 17: 'With over $400 billion of reserves (as estimated in a Business Times article in August 2006), is it really that necessary to continue to be so preoccupied with concerns of fiscal soundness as to not be able to provide subsidised health insurance to our oldest, less well-off citizens?'

There are two respects in which my statement differs from that attributed to me. First, subsidised health insurance could be provided out of current budgetary surpluses. This would imply a slower rate of growth of reserves, but not tapping the current level of reserves, as the writers' statement seems to suggest.

Second, as I argued in a Straits Times article of Feb 29, there are good economic grounds for the Government to finance more of its longer-term development expenditure by 'borrowing' from its reserves, and repaying the borrowing from the increased tax revenues that result from future economic growth. This would free up some current tax revenues, which could be used for social purposes, including subsidising health insurance for the very old who are less well off.

As the CPF Board website states: 'MediShield is a catastrophic medical insurance scheme to help you meet the cost of medical treatment for serious illnesses or prolonged hospitalisation at Class B2/C wards.' In the absence of a subsidised health-insurance scheme, what becomes of poor Singaporeans with serious illnesses or prolonged hospitalisation needs once they pass the age of 85, or cannot afford the increased premiums from ages 80 to 85?

Reply

Name of the Person: Ms Karen Tan

Director, Corporate Communications

Ministry of Health 

Name of the Person: Mr Chin Sau Ho

Director, Corporate Communications & Services

Ministry of Finance

Govt spending must not be a future burden

Basant Kapur ("Let Budget surplus fund health insurance", 25 June 2008),  argues for health insurance to be subsidised from current budgetary surpluses, and for the Government to finance more of its longer-term development expenditure by borrowing from its reserves so as to free up current revenues for social spending.

Social subsidies should always be evaluated on their merits, and the ability to sustain them without burdening future generations. We should not expand social subsidies simply because we currently have a budget surplus.  Spending needs are growing in many areas, including social spending, and we expect the government budget to be tight. Our challenge will be to manage the increase in social spending as our population ages, and focus subsidies on those most in need. 

This is particularly important for health care, where adopting the wrong approach on pricing and subsidies will balloon expenditures without significantly improving health outcomes.  We should be mindful of the experiences of some developed countries, which spend much larger percentages of their GDP on healthcare, yet with life expectancy and health standards that are no better than Singapore's.

Public spending on healthcare in Singapore is carefully calibrated, so as to provide for the medical needs of our citizens in the best possible way. Our 3M system combines personal savings (Medisave), catastrophic medical insurance (MediShield), and government welfare for the truly needy (Medifund).  We continue to review and improve the 3M system as the population's needs change.  For example, within Medifund, we now have Medifund Silver to provide means-tested socialised care more generously, with full subsidy in some cases, for the elderly needy. 

We have also provided Medisave top-ups (which can be used to pay for MediShield premiums and treatment costs) as and when our fiscal position allows.  This year the Government will be providing $226 million in such Medisave top-ups for the elderly.  MediShield today covers more than 90% of the working population and almost 80% of the population, and we are extending this coverage through auto-cover for children and youths.  Taken together, this is a more focused and sensible approach, and will be far less costly on future generations than an automatic system of subsidised health insurance.

As for funding longer-term development expenditure via borrowing, the Government is already doing so – many public infrastructure projects are financed through a combination of government grants, loans and user fees. The Government is also exploring possible ways to further leverage on our reserves, by drawing a sustainable stream of net investment income from our reserves.  However, it would be irresponsible and unfair for the Government to borrow more and leave behind a large bill for successor Governments and future generations to pay through higher taxes.