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S’pore posts record S$9.6 billion budget surplus, thanks to ‘one-off’ factors

SINGAPORE — The Republic is expecting a record S$9.6 billion overall budget surplus this financial year ending March 31, owing mainly to “exceptional statutory board contributions” and higher-than-expected collections from stamp duties.

The Republic is expecting a record S$9.6 billion overall budget surplus this financial year ending March 31, owing mainly to “exceptional statutory board contributions” and higher-than-expected collections from stamp duties. Photo: Pierpaolo Lanfrancotti/Unsplash.com

The Republic is expecting a record S$9.6 billion overall budget surplus this financial year ending March 31, owing mainly to “exceptional statutory board contributions” and higher-than-expected collections from stamp duties. Photo: Pierpaolo Lanfrancotti/Unsplash.com

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SINGAPORE — The Republic is expecting a record S$9.6 billion overall budget surplus this financial year ending March 31, owing mainly to “exceptional statutory board contributions” and higher-than-expected collections from stamp duties.

However, neither of these factors can be expected to occur every year, said Finance Minister Heng Swee Keat as he delivered the 2018 Budget on Monday (February 19) where he announced, among other things, an impending goods and services tax (GST) hike and spoke at length on the need for fiscal prudence and sustainability.

“It is not a structural surplus. We cannot base our long-term fiscal planning on the basis of exceptional factors being positive, year after year,” he said.

The surplus projection for FY2017, which represents about 2.1 per cent of Gross Domestic Product (GDP), is more than five times the initial estimate of around S$1.9 billion and a quarter higher than the previous record of about S$7.7 billion in FY2007.

Nevertheless, the Ministry of Finance (MOF) noted that there have been multiple years in the past when budget surpluses were higher in terms of GDP.

In FY2007, for instance, the Republic recorded a budget surplus of 2.8 per cent of GDP, while in FY1997, it was 3.5 per cent of GDP. “It is more correct to compare the budget surplus over time as a percentage of GDP, rather than in absolute dollars, due to inflation and the economy growing… The dollar surplus for FY2017 looks large in part because our GDP is now the largest ever, since independence,“ said the MOF.

Some S$4.9 billion in statutory board contributions were expected in FY2017, more than 16 times the initial estimate of S$300 millon. This was driven mainly by an “exceptional contribution” from the Monetary Authority of Singapore thanks to higher investment returns from recovering global markets, said the MOF.

A higher volume of property transactions also saw the Government collect S$4.7 billion in stamp duties, 73.3 per cent more than initially projected.

Corporate income taxes, which was the second-largest contributor to the Government’s coffers in FY2017 (at 19.1 per cent), are expected to outstrip initial estimates by S$0.7 billion to S$14.4 billion, due to stronger-than-expected economic growth.

GROWING EXPENDITURE

In his Budget statement, Mr Heng highlighted four key areas of expenditure increase: Healthcare, security, infrastructure and education.

“We expect our spending needs to continue growing across all sectors, with some rising faster and more than others,” he said.

Since the start of this decade, the Government has more than doubled its healthcare spending, from S$3.9 billion in FY2011 to an estimated $10.2 billion in FY2018. The increase went into building and operating more hospitals and

other healthcare facilities, and enhancing healthcare subsidies. “In the coming decade, with an ageing population and an increasing chronic disease burden, the demands on families and Government will rise. We will need to spend even more on healthcare,” Mr Heng said. Average annual healthcare spending is expected to rise from 2.2 per cent of GDP today to almost 3 per cent over the next decade. This is an increase of nearly 0.8 percentage point of GDP, or about S$3.6 billion in today’s dollars, he added. Within the next decade, healthcare spending is expected to overtake education.

In terms of infrastructure, spending has increased from S$8.5 billion in FY2011 to an estimated S$20 billion in FY2018. Transport expenditure, in particular, is set to go up by 52.2 per cent, from S$9 billion in FY2017 to S$13.7 billion in FY2018.

A bulk of the transport budget (86.9 per cent) has been allocated for development expenses, while the remaining has been allocated for operating expenses. This will make transport the second largest expense item on the Government’s budget for FY2018, taking up 17.1 per cent of estimated expenditure — just behind defence (S$14.2 billion, or 18.4 per cent).

Apart from expanding the rail network by over 100km, Jurong Lake District, Punggol Digital District and Woodlands North Coast will be redeveloped over the next decade. Ageing infrastructure such as water pipes, and Housing and Development Board flats and lifts will also need to be rejuvenated. Major projects such as Changi Airport Terminal 5, Tuas Port and the Kuala Lumpur-Singapore High Speed Rail will be built as well.

Noting that the terrorism threat to Singapore is “at its highest in recent years”, with a wider range of threats includng major cyber-attacks and self-radicalisation, Mr Heng reiterated that more needs to be invested in security to keep Singapore safe.

Investments in education also have to be sustained in order to give the young a good start, he said. “Even though our student cohorts are falling, we are spending more per child, and dedicating more resources to help everyone reach his or her potential,” Mr Heng added.

Expenditures budgeted for FY2018 are expected to hit S$80 billion, up by S$6.1 billion or 8.3 per cent from FY2017.

The high outlay in FY2018 is expected to result in a basic deficit of S$9.16 billion. But after factoring in the top-ups to endowment funds and trust funds (S$7.3 billion), as well as S$15.85 billion in contributions from the net investment returns (NIR), the deficit is expected to be reduced to S$0.6 billion, or 1 per cent of GDP.

BUMPER SURPLUS A ONE-OFF: EXPERTS

Economists interviewed by TODAY said the Republic’s bumper surplus was higher than they had projected, but this was a blip unlikely to recur in the coming years.

The Republic has to maintain a prudent fiscal policy, they said. “We wouldn’t want to wait for the rainy day and then start scrambling to increase tax revenues,“ said DBS senior economist Irvin Seah, who felt that the Government made the right move to boost its coffers through the impending GST hike.

United Overseas Bank economist Francis Tan add: “This (bumper surplus) is quite rare, and we shouldn’t rely on it even though it is a happy thing.“

Nevertheless, Maybank economist Chua Hak Bin said the larger collections from stamp duties and corporate tax income were expected given the economic recovery, but the surge in statutory board contributions was unprecedented.

Mr Seah and Mr Tan had projected surpluses of S$5 billion and S$3.1 billion respectively. The large budget surplus is probably why the GST hike will only kick in sometime between 2021 and 2025, said Mr Tan, noting that many observers had expected an increase from this year.

Mr Koh Soo How, Asia Pacific Indirect Taxes Leader at PwC Singapore, also pointed out that Mr Heng has “left it fairly open” on when the GST increase will take effect. “It does reflect the Government’s confidence that its current operating revenue and the NIR framework will provide sufficiently for the planned spending needs for another few more years to come,” he said.

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