A smaller budget surplus of S$1.91b likely for FY17

Singapore

A SMALLER budget surplus of S$1.91 billion, or 0.4 per cent of gross domestic product, is expected for fiscal year 2017, largely due to an increase in expenditure. In comparison, FY2016 is expected to reap a surplus of S$5.18 billion.

Estimated operating revenue for the current fiscal year is expected to climb to S$69.45 billion from S$68.67 billion in FY2016, with the largest dollar increase in funding source expected to come from motor vehicle taxes.

For FY2017, the budget remains expansionary, Finance Minister Heng Swee Keat highlighted in his Budget speech on Monday, with the ministries' expenditures likely to be 5.2 per cent higher than the previous year. Total expenditure for FY17 is expected to clock S$75.07 billion.

A total of S$14.11 billion in net investment returns contribution (NIRC) should offset S$6.58 billion in special transfers and top-ups to endowment and trust funds while helping to flip a basic deficit into an overall budget surplus.

Mr Heng said: "As we expect expenditures to continue rising in the long term, this budget position is prudent, while supporting firms and households in the midst of continued economic restructuring."

The boost in FY2017 expenditure stems largely from increasing spending towards areas such as national development, environment and water resources, healthcare and home affairs. The largest dollar increase in spending will be in national development in FY2017, while the largest decline will be in transport.

Higher expenditure on public housing will see the Ministry of National Development's spending go up 39 per cent to S$4.8 billion. Similarly, spending by the Ministry of Health will increase 9.6 per cent to S$10.7 billion due to the growth in patient subsidies, MediShield Life premium subsidies and financial assistance as well as the ongoing ramp up of construction works and IT infrastructure for major healthcare infrastructure products.

Over the past five years, Singapore's annual healthcare spending has more than doubled to around S$10 billion in FY2016 and is expected to continue to rise as the population ages. Health-related spending is now the third largest expenditure item, behind defence and education.

Healthcare expenditure is slated to account for 13.1 per cent of total outflows in FY2017, up from about 8 per cent five years ago.

Meanwhile, new immigration and checkpoint security functions linked to the opening of Changi Airport's Terminal 4 as well as preparations for heightened security threats will see the Ministry of Home Affairs' expenditure rise 12.9 per cent to S$5.8 billion.

On the other hand, the Ministry of Transport will see a 12.2 per cent slide in spend in FY2017 to S$9.2 billion; this is partly due to the Thomson East-Coast Line entering a lower expenditure phase and the completion of Downtown Line 3 in FY17.

However, given that transport spending is lumpy, expenditures will likely rise in the future as the Transport Ministry continues to channel funds towards enhancing public transport connectivity.

For instance, the government expects to spend more than S$20 billion over the next five years to almost double the MRT network in the city-state by 2030. Special transfers (including top-ups to endowment and trust funds) are expected to rise to S$6.58 billion in FY2017 from S$6.47 billion in FY2016.

Meanwhile, NIRC - which also includes contributions from Temasek Holdings - is expected to decline from S$14.37 billion in FY2016 to S$14.11 billion in FY2017.

Selena Ling, head of treasury research & strategy for OCBC Bank, said: "Given that Budget FY2017 is but only the second year in the current five-year framework, an estimated budget surplus of S$1.9 billion in FY2017, on top of a generous S$5.2 billion surplus seen in FY2016, does give the Singapore economy ammunition for subsequent budget years ahead should the need arise."

"The scope for the final surplus to be larger cannot be discounted because of the better growth outlook this year," added Irvin Seah, DBS senior economist.

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