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Hard to pin down election-year goodies

The Singapore government has plenty of room to be generous on Feb 23 when it announces the national budget for the year ahead.

But whether that has anything to do with an imminent election is hard to say.

Finding a relationship between election years and budget generosity can be tricky. First, one has to define generous. Just because a government spends a lot of money does not mean it is being overly generous, because there could be a very good policy reason for that. Budgets are fiscal tools, after all, and the prevailing economic conditions matter too. Take 2009, for example, when the government proposed a massive deficit. But that was not because an election was coming. It was because the Global Financial Crisis demanded that the economy get a shot in the arm.

One solution would be to try to control for economic conditions. An attempt was made, and it was not pretty. I first looked for the estimated overall budget balance for every year since 2006, then normalised it for the overall size of the budget by taking the ratio of balance to overall inflow. Here's the data:

Market voices on:

Then I looked at how official economic expectations had changed from the fourth quarter of one year to the first quarter of the next year, when the budgets are typically announced. The theory is that that larger the change in economic expectations, the greater the need for fiscal intervention:

I then plotted normalised balance versus change in economic outlook:

See the trend? Neither did I. It should be obvious, though, why this analysis is faulty.

There are simply too few data points to make a meaningful case either way. There is a lack of data because budget reporting methods and definitions have changed over the years, making it extremely difficult to make comparisons for many years.

This is not to say that election-year budgets are not more generous. The 2006 budget was particularly generous, with oversized spending despite a brisk economy that clearly did not need any more stimulus. But whether that was an anomaly or a trend is hard to say.

There was another interesting part about the 2006 budget, and that is the introduction of Growth Dividends, a tool touted as a way to redistribute accumulated surplus from past years. Now, the concept of accumulated surpluses implies that the cash has to be built up after a few years. Given the rule that new elections must be called within five years of the previous one, there is a good chance that elections will occur in years when there have been enough surplus collected to share around. Whether that timing is coincidental or by design, it nevertheless suggests that there is a good probability of some kind of handout in an election year.