Despite a “better-than-expected” revenue collection in the 2023 financial year, Singapore incurred a fiscal deficit of S$3.6 billion (RM12.75 billion), Finance Minister Lawrence Wong said in Parliament yesterday (February 16).
The 2023 deficit works out to about 0.5 per cent of Singapore’s gross domestic product (GDP) for the year and came about because government spending also went up S$2.74 billion more than predicted.
For Budget 2024, however, the government is expecting a small surplus of S$0.8 billion (S$800 million) for the 2024 financial year, or about 0.1 per cent of GDP. Singapore’s online new site Today reported.
Yesterday, Wong, who is also Deputy Prime Minister, gave an overview of the nation’s fiscal position for the year, describing the surplus as “essentially a balanced fiscal position”.
He was wrapping up his Budget speech, in which he unveiled a S$131.4 billion projected spending plan that included other items such as special transfers. This is higher than the size of Budget 2023 measures, which came in at S$130.8 billion.
Part of the 2024 spending plan is the Government’s estimated expenditure of S$111.8 billion, which is 4.6 per cent more than in the previous financial year.
“The overall stance is appropriate, as we are providing targeted support for households and businesses, even as the economy is projected to operate at around potential,” he said.
Higher revenue, spending in 2023
The revised operating revenue for financial year 2023 came in at S$104.3 billion, up S$7.6 billion or 7.9 per cent from estimated figures.
Each year’s Budget typically makes revenue projections, which are revised in the following year as various factors can affect how much goes into the Government’s purse.
“The additional revenue (for 2023) will allow us to pay for new spending, including the S$7.5 billion injection to the Majulah Package Fund,” Wong said yesterday.
The Majulah Package is meant to boost seniors’ retirement and healthcare adequacy, for Singapore citizens born on December 31, 1973 or earlier. The benefits of the package are for those with lower income and less wealth.
An analysis by the Ministry of Finance (MoF) showed that the higher revenue in the last financial year was driven by higher collections from corporate income tax, vehicle quota premiums and personal income tax, among others, despite lower collections from Goods and Services Tax (GST).
Corporate income tax collections came in at S$28.4 billion, higher than the estimated S$24.3 billion, due to stronger-than-expected economic growth in 2022.
Vehicle quota premiums collected jumped more than the estimated S$3.9 billion to S$4.7 billion, due to the Certificate of Entitlement (COE) quota from future years being brought forward.
GST collection came in lower at S$16.4 billion than the projected S$17.4 billion, owing to weaker imports, MoF said.
While the revenues collected were higher than expected, the government also spent more, with total expenditure coming in at S$106.9 billion or 2.6 per cent higher than estimated.
The higher spending was driven mainly by the Ministry of Defence (Mindef) catching up on projects deferred or disrupted by the Covid-19 pandemic and the Ministry of Health (MoH) incurring higher funding to public healthcare institutions and the implementation of Healthier SG.
Other factors include schemes by the Economic Development Board, as well as the development of the domestic rail network in 2023 by the Ministry of Transport (MoT).
Higher transport, housing and health spending in 2024
For the 2024 financial year, the government expects total spending to hit S$111.8 billion, which is higher than the S$106.9 billion spent in 2023.
The main increases will be for MoT, MoH, Ministry of Education, Ministry of Social and Family Development (MSF), Mindef, Ministry of National Development (MND) and Ministry of Law.
MoT’s spending is expected to go up by S$1.3 billion, a 9.8 per cent increase from the past year, mainly due to rail network development and infrastructure upgrades to support Singapore’s air hub.
MoH is expected to spend 4.6 per cent more, or an increase of around S$0.8 billion from last year, mainly due to the opening of the Sembawang and Tampines North polyclinics.
MSF will see a S$0.5 billion, or 12.6 per cent, jump in spending compared with the past year. The higher funds will mainly be channelled to the preschool and social service sectors.
Faster work progress for public housing development and upgrading programmes, as well as higher operating grants to the Housing and Development Board, will also push up MND’s spending this year by 4.7 per cent or S$0.4 billion, compared to last year.
On the other hand, operating revenue for 2024 is estimated to come in at S$108.6 billion, or 15.1 per cent of GDP. This is S$4.3 billion higher than the revised operating revenue for the previous financial year.
The main drivers for this higher revenue are expected to be higher collections for GST (up S$3 billion, or 18.5 per cent, from 2023) as well as personal income tax (up S$0.5 billion, or 3.1 per cent, from 2023). This is due to the increase in GST rate from 8 per cent to 9 per cent, greater predicted consumption for 2024, as well as nominal wage growth in 2023.
Assets taxes are estimated to go up by S$0.8 billion, or 12.8 per cent, due to the increase in property tax rates, which was announced during Budget 2022 and took effect in two phases in 2023 and 2024.
Outlook beyond 2024
Wong said that spending is expected to continue rising in the current decade.
“Our spending in the late 2000s was around 15 per cent of GDP. Over the span of 10 years, it has grown by 3 percentage points of GDP to around 18 per cent.”
Spending is expected to keep growing, driven by higher expenditure in healthcare, as well as the need to fund initiatives to decarbonise the domestic economy.
In addition, Singapore is also making “significant policy shifts” to strengthen social safety nets as part of Forward Singapore.
The Forward Singapore exercise involved a year-long consultation with more than 200,000 Singaporeans that culminated in a report last year that presented the fourth-generation government leaders’ vision of how national policies should be shaped in all areas of society, from health to education to housing.
“We will spend around S$5 billion on Forward Singapore policy moves in financial year 2024, and close to S$40 billion in total by the end of this decade,” Wong added.
Overall, government spending is expected to grow to about 20 per cent of GDP by 2030.
“Assuming we stay within this range of spending increase, we should have sufficient revenues to maintain a balanced budget over the coming years.”
However, Wong said that the medium-term fiscal position is “tight” due to numerous spending pressures such as for healthcare, social needs and energy transition.
“We will have to manage these expenditures carefully or we will end up with a significant funding gap.”
In view of this, he stressed that Singapore must never allow public finances to grow on an unsustainable path like what is happening in other advanced economies. “Instead, let us uphold the ethos of fiscal discipline and responsibility that has served us well, and ensure that our fiscal position always remains balanced, sound and sustainable.”
