• Economists say fiscal surplus leaves open option for a 2024 election

• Basic deficit of S$6.1 billion reflects expansionary stance

SINGAPORE is planning a year of small budget surplus, breaking a six-year planned deficit streak, even with major upgrades to areas such as transport, healthcare and education.

The estimated S$778 million surplus came as two of the last three planned deficits – in FY2021 and FY2022 – later turned out to be surpluses. 

This overall fiscal surplus represents about 0.1 per cent of gross domestic product (GDP). 

This includes a non-cash addition of S$4.1 billion, arising from the capitalisation of significant infrastructure, and a deduction of S$403 million due to related interest costs and loan expenses.

Calling this “essentially a balanced fiscal position” in his Budget speech on Friday (Feb 16), Finance Minister Lawrence Wong said that the overall stance is appropriate as targeted support for households and businesses is planned, even as the economy is projected to operate at around potential.

Despite the surplus, higher operating revenue is expected to only partly offset higher spending.

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Operating revenue for FY2024 is expected to be S$108.6 billion, 4.2 per cent higher than FY2023’s revised S$104.3 billion in takings, on higher collections from goods and services tax (GST), assets taxes, personal income tax, and motor vehicle taxes.

In particular, GST – which was increased to 8 per cent from 7 per cent at the start of 2023 – is expected to bring in S$19.4 billion in revenue in FY2024, up 18.5 per cent from FY2023.

The next highest jump is found in assets taxes, which is expected to rise 12.8 per cent to S$6.7 billion. This is contributed by property tax rate increases, which took effect on Jan 1, 2024, and higher property annual values.

Net investment returns contribution from Singapore’s invested reserves – capped at 50 per cent of long-term returns – is estimated to be S$23.5 billion for FY2024, up 2.6 per cent from the previous year.

Total expenditure is expected to be S$111.8 billion, up 4.6 per cent from FY2023’s revised S$106.9 billion figure. The spending, representing 15.5 per cent of GDP, is driven most by the Ministry of Transport, with outlay expected to rise S$1.3 billion or 9.8 per cent to S$14.2 billion, for rail network development and air infrastructure upgrading.

The second biggest bump comes from healthcare, where spending is slated to rise by about S$800 million or 4.6 per cent to S$18.8 billion. This is mainly due to new facilities such as Sembawang and Tampines North polyclinics, ramped-up capacity in the new Woodlands Health campus, and capacity increases in the long-term care sector.

Healthcare is part of Singapore’s social spending, which is expected to account for 50.2 per cent of total ministry expenditure at S$56.1 billion – up 5.6 per cent from S$53.1 billion in FY2023.

The Ministry of Defence, however, continues to have the biggest individual budget, at S$20.2 billion – up 2.5 per cent or S$500 million mainly due to inflation.

Meanwhile, the Ministry of Law is expected to more than double its spending to S$700 million on projected land acquisition and development. 

The Budget’s basic deficit of S$6.1 billion reflects an expansionary stance that puts more into the Singapore economy than it takes out.

However, with the inclusion of contributions from invested reserves, the Budget’s overall balance – representing its cash impact on the country’s reserves before non-cash adjustments for newly built significant infrastructure – narrows to a deficit of S$2.9 billion.

FY2024’s estimated fiscal surplus defied Maybank economist Chua Hak Bin’s expectations for a small fiscal deficit.

He was anticipating more measures to sweeten the ground given the concerns surrounding higher inflation and cost of living, as this could be the last Budget before a General Election is called. The next election has to be held by 2025.

The Constitution requires the government to keep a balanced budget over its term. But even with a sizeable S$51.6 billion deficit in the pandemic year of FY2020 hanging over its head, Chua believes a small deficit in FY2024 would still be within the scope of a balanced budget in the current term of government.

This is because of the probable large unspent portion in the allocation to trust funds and endowments over the last four years, he noted. Taking into consideration this year’s S$20.4 billion allocation, the government would have committed S$68.2 billion to such top-ups since FY2020, Chua added.

With the expected surplus, he said that it is possible that an election will be called this year. “We think the government is probably already running a balanced budget, especially given the projected surplus for FY2024, and can therefore call an election this year.”

Nevertheless, Chua felt the allocation for incentivising investment for strategic, critical infrastructure and green purposes was greater than expected. Previous Budgets were more tilted towards redistribution and support for lower-income households, he said.

OCBC chief economist Selena Ling similarly noted the optionality for a 2024 election is there with the anticipated FY2024 surplus. Pointing out that the overall fiscal position between FY2021 and FY2023 balances out, she said: “The window is there if they want to call an election before Budget 2025.”

She added: “Whether they pull the trigger will of course still depend on the state of the economy and ground sentiment.”