Budget 2025: Worth keeping the bigger fiscal picture in mind

THE debate on Singapore’s Budget begins today (Feb 26), with Members of Parliament (MPs) sharing their views on what was announced in last Tuesday’s speech and what more can be done. Even as they scrutinise specific policies, however, it is worth keeping broader issues in mind.

In this week’s debate, grouped measures such as the Large Families Scheme and SG60 Package may receive particular attention. The ensuing Committee of Supply debates on each ministry’s budget should also bring details – which can in turn be analysed – of schemes only briefly mentioned in the Budget statement. Concrete measures and policy goals – whether encouraging parenthood or attracting investment – are natural focal points for discussion. But even as they may rightly occupy the bulk of the Budget debate, there is room for a speech or two that reminds the House of the greater context.

One form of context, which the government itself may be eager to stress, is the Forward Singapore movement. Arising from a national engagement exercise, that policy agenda encapsulates the fourth-generation leadership’s vision for Singapore – and will presumably be central to the ruling party’s campaign in the upcoming general election.

But there is also the fiscal context. While the nature of Budget 2025 is influenced by its position at the end of the current government term, there are longer-term aspects as well.

The S$6.8 billion surplus for the new financial year came as a surprise to observers, most of whom had expected the government to use the fiscal room created by earlier Budgets to run a deficit this time.

Notably, the surplus comes despite Budget 2025 being so generous that it drew the inevitable “election Budget” label. Fiscal circumstances may not always be benign.

The government often underestimates each year’s fiscal position. In both this and last year’s Budget, corporate income tax collections were better than expected. But this year, Finance Minister Lawrence Wong stressed just how unexpected this was. Corporate income tax collections were previously stable at around 3.2 per cent of gross domestic product, but are projected to reach 4.1 per cent of GDP in FY2024, he noted.

Still, even with the boost to tax revenue, Budget 2025 ran a small primary deficit – operating revenue less total expenditure – of S$1 billion. Special transfers, including CDC Vouchers and SG60 Vouchers, widened this to a basic deficit of S$4.8 billion. Another S$19.6 billion went into top-ups to endowment and trust funds. Unsurprisingly, what tipped the Budget over into a surplus was the net investment returns contribution (NIRC), which rose 12.9 per cent to S$27.1 billion. In absolute terms, NIRC was S$3.11 billion higher than in the previous financial year. By comparison, corporate income tax rose S$1.79 billion.

As the NIRC is drawn from the returns from invested reserves – currently capped at 50 per cent – it is by its nature subject to market volatility. In an increasingly unpredictable environment, the fiscal room created by the NIRC cannot be taken for granted.

This is even as an ageing population both requires higher spending and may dampen tax collection; as changes to global tax rules affect corporate tax takings in uncertain ways; and as more needs to be set aside in long-term funds.

In 2019, then prime minister Lee Hsien Loong noted that about S$100 billion would be needed for Singapore’s coastal protection efforts. An initial S$5 billion was set aside in the Coastal and Flood Protection Fund in 2020. Budget 2025 could spare enough for a further S$5 billion top-up. But many more years of such fiscal room will be needed to reach the eventual goal.