Budget 2022: Singapore sees third straight deficit in FY2022, narrowing to S$3b

SINGAPORE will run a fiscal deficit for the third year in a row in FY2022, with an expected deficit of S$3.04 billion, or about 0.5 per cent of gross domestic product (GDP). (see amendment note)

"For FY2022, our budget remains expansionary to support the economy," said Finance Minister Lawrence Wong.

Although operating revenue is expected to rise, this will be more than offset by a rise in spending, due in part to pandemic-related spending in economic support and healthcare.

According to Ministry of Finance (MOF) estimates, total expenditure is expected to come in at S$102.4 billion, marking a 4.1 per cent or S$4 billion increase from FY2021's revised total expenditure of S$98.4 billion.

Segmentally, operating expenditure for FY2022 is expected to hit S$85.1 billion, up 4.3 per cent from the revised FY2021 figures, while development expenditure is projected to rise 2.8 per cent to S$17.4 billion.

Spending in the social development sector, which will account for 48.1 per cent of expenditure in FY2022, is projected to rise 0.9 per cent from FY2021 to S$49.2 billion. Spending for healthcare, which is a key driver of this sector, is expected to be up 4.7 per cent to S$19.3 billion.

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Spending for security and external relations is expected to gain 5 per cent to S$25 billion, while spending for economic development is set to grow 10.4 per cent to S$24.6 billion, due largely to a 40 per cent rise in manpower spending to S$7.1 billion.

Expenditure for the government administration sector will also inch up 1.8 per cent to S$3.6 billion.

For the specific ministries, spending by the Ministry of Manpower (MOM) will increase by 31 per cent to S$8.7 billion in FY2022 from revised spending of S$6.7 billion in FY2021, on the back of the extended qualifying window of the Jobs Growth Incentive, as well as other Covid-19 related spending.

Meanwhile, spending by the Ministry of Defence is expected to rise 6.5 per cent to S$16.4 billion in FY2022 from S$15.4 billion in FY2021. The gain is due to the resumption of activities such as training and exercises that were previously affected by the pandemic.

Expenditure from the Ministry of Health is slated to book a 4.7 per cent gain to S$19.3 billion in FY2022 versus S$18.4 billion in FY2021. The rise is due to higher subvention to public health institutions, community hospitals and Voluntary Welfare Organisations in aged care and long-term care sectors, as well as an expected ramp-up in progress for development projects such as the Woodlands Health Campus, SGH Emergency Medicine Building and SGH Elective Care Centre.

On the revenue end, operating revenue for FY2022 is expected to be S$81.8 billion, which is 1.7 per cent higher than FY2021's revised figure. This is mainly due to an increase in estimated collections from Goods and Services Tax (GST), vehicle quota premiums and corporate income tax. These will be partially offset by lower stamp duty collections.

Net investment returns contribution (NIRC) for FY2022 is estimated to be $21.6 billion, up 6 per cent from S$20.3 billion in FY2021.

Before taking into account the government's top-ups to endowment and trust funds, interest costs and loan expenses, capitalisation of nationally significant infrastructure and NIRC, a basic deficit of S$22.8 billion is projected for FY2022, smaller than FY2021's S$20.3 billion figure.

The news of another deficit came as a surprise to some who were expecting a rosier outlook for the year ahead. Maybank Securities economist Chua Hak Bin was expecting a "small surplus" for FY2022. "The delay in the GST hike and setting aside of a $6 billion healthcare fund likely contributed to a small deficit for FY2022," he said.

However, Chua also said he would not be surprised if the final budget for FY2022 turns out to be a small surplus. "The strong recovery will likely translate into higher tax revenue this year," he added.

Similarly, DBS senior economist Irvin Seah was expecting a "modest surplus" for FY2022 with the government frontloading some of the tax policies. He was also expecting the government to pool a fiscal surplus in FY2022 that could then be deployed later on.

He noted that macroeconomic developments such as rising inflation levels could have paved the way for FY2022's deficit.

"The policymakers want to ensure that recovery can be sustained, with the emergence of inflation being a key concern for Singaporeans and companies," Seah said, adding that the recovery from the pandemic has been uneven across Singapore, with industries such as aviation and hospitality still struggling.

Amendment note: An earlier version of this story incorrectly stated that this is Singapore's fourth straight deficit, when it is in fact the third straight deficit.