Skip to main content

New! You can personalise your feed. Try it now

Advertisement

Advertisement

Budget 2020: Expected S$10.95b deficit largest since 2009 global financial crisis, but no need to draw on past reserves

SINGAPORE — The Singapore Government expects to incur the largest Budget deficit this year since the 2009 global financial crisis, but there is still no need for Singapore to tap its national reserves, Deputy Prime Minister Heng Swee Keat said on Tuesday (Feb 18).

In his Budget 2020 speech, Deputy Prime Minister Heng Swee Keat said that the Government expects to run an overall Budget deficit of  S$10.95 billion, or around 2.1 per cent of the nation’s gross domestic product (GDP), which refers to overall economic output.

In his Budget 2020 speech, Deputy Prime Minister Heng Swee Keat said that the Government expects to run an overall Budget deficit of  S$10.95 billion, or around 2.1 per cent of the nation’s gross domestic product (GDP), which refers to overall economic output.

Follow TODAY on WhatsApp

SINGAPORE — The Singapore Government expects to incur the largest Budget deficit this year since the 2009 global financial crisis, but there is still no need for Singapore to tap its national reserves, Deputy Prime Minister Heng Swee Keat said on Tuesday (Feb 18).

In his Budget 2020 speech, Mr Heng, who is also the Finance Minister, said that the Government expects to run an overall budget deficit of  S$10.95 billion, or around 2.1 per cent of the nation’s gross domestic product (GDP), which refers to overall economic output.

Mr Heng told Parliament: “With our fiscal prudence since the beginning of this term of Government, we have sufficient accumulated fiscal surplus to fund the overall deficit in the 2020 financial year. There is no draw on past reserves.”

The Government needed to roll out an expansionary Budget to address the “considerable uncertainty” faced by the Singapore economy because of heightened risks in the global economy, and the rapidly evolving Covid-19 crisis, he said.

The estimated deficit for 2020 exceeds the forecasted S$8.7 billion deficit in 2009, which was later revised to an S$819 million deficit. 

Back then, the Government rolled out a S$20.5 billion resilience package over two financial years (FY) of 2008 and 2009 to tide Singapore over the grave economic crisis that hit the global economy after a major meltdown in the United States housing market.

The latest projected deficit also eclipses the revised deficit of S$1.65 billion in FY2019.

In the current term of government, economists previously estimated that there is a total accumulated surplus that could have reached S$15.6 billion by the end of FY2019. This meant that Budget 2020’s fiscal position is possible without the need for tax increases or to draw on reserves from past terms.

Based on the latest fiscal data from Budget 2020, the Government has accumulated around S$18.67 billion in surpluses from the first year of the current term of government, FY2016, until FY2019. When the estimated deficit for FY2020 is factored in, the remaining surplus would be S$7.72 billion.

Singapore is required under the Constitution to keep a balanced budget over each term of Government. The next General Election must be held by April 2021.

ENSURING FISCAL SUSTAINABILITY

Mr Heng said in his Budget speech that Singapore must continue to plan its finances based on “long-term structural drivers”.

“As we lay out our plans for our economy, people and environment, we must ensure these plans are fiscally sustainable, so that we have the resources to deal with future needs and challenges,” he said.

He noted that in the current term, the Government happened to have a higher revenue flow mainly due to “exceptional” statutory board contributions from the Monetary Authority of Singapore (MAS), as well as increased stamp duty collections.

The S$1.65 billion deficit, or about 0.3 per cent of GDP, which the Government incurred in FY2019, was revised from the initial S$3.48 billion deficit forecast in Budget 2019, owing to “lower-than-expected expenditures arising from unforeseen project delays”, said Mr Heng.

These lower than predicted expenses were mainly due to delays in projects under the Defence Ministry (Mindef) due to circumstances outside its control, as well as other lower-than-expected expenditure requirements by the Education and Transport Ministries. TODAY has sought comment from Mindef on its delayed projects.

It is not the first time that unexpected contributions from MAS, Singapore’s central bank and financial regulator, led to revisions of the previous year’s Budget projections.

In FY2017, MAS delivered a surprise contribution of S$4.5 billion due to currency translations, significantly adding to the expected S$9.6 billion surplus that year. For FY2020, the Government is expecting statutory board contributions to increase by S$800 million from the previous year, or 44 per cent, to S$2.6 billion due to projected higher MAS contributions.

Said Mr Heng on Tuesday: “We used some of the unexpected surpluses to save ahead for anticipated needs and shared some of the surpluses with Singaporeans. But we must not count on such revenue surprises to keep happening.”

Instead, Singapore should anticipate long-term spending needs and be disciplined in raising revenues “ahead of time”, he said.

“At the same time, we must be mindful of the uncertainties and downside risks to our revenue,” added Mr Heng, highlighting the ongoing discussions to revise international tax rules under the Base Erosion and Profit Shifting (Beps) project, of which Singapore is a party.

Beps is a global initiative to curb tax avoidance, whereby companies artificially shift profits across borders to keep their overall tax exposure low.

EQUITABLE STRATEGY

Reiterating the need for an equitable fiscal strategy, in which recurrent needs such as healthcare should be paid for with recurrent revenues, such as taxes, Mr Heng said Singapore’s fiscal discipline has helped it be among “a select group of countries” with a triple-A credit rating, which reduces the cost of borrowing for firms and households.

These lower borrowing costs therefore “promote a virtuous cycle of economic growth”, he explained.

When Singapore borrows for long-term developments, such as to pay for the hefty upfront costs of infrastructure, the Government is able to distribute the cost equitably across current and future generations without needing to raise taxes sharply, he said.

“Once built, (the major infrastructure projects) benefit many generations of Singaporeans,” said Mr Heng.

In order to have enough reserves to take on unexpected shocks and longer-term challenges, Mr Heng said that Singapore must be able to maintain its fiscal posture.

“We are being prudent to preserve fiscal buffers, to ensure that we have the wherewithal to stand our ground and bounce back quickly if the tide turns against us,” he said.

“This is how we have been able to respond decisively to fight the Covid-19 outbreak and support Singaporeans and our workers, and at the same time, to be able to set aside an Assurance Package for GST (Goods and Services Tax) to help Singaporeans in the years ahead.”

WHAT EXPERTS SAY

Experts told TODAY that the significant deficit this year is no surprise, considering the fact that the Government has accumulated a sizable war chest over its current term, which could end in 2020. It is also typical for Budgets near the end of the term of government to be higher spending than at the start.

Calling it a “blockbuster” Budget, Singapore Management University law don Eugene Tan said: “As this could well be the last Budget before the General Election, the imperative to make fiscal management a bonus point for the ruling party is there as well — that we are well-placed to take on what may come and to keep us exceptional.”

KPMG’s Singapore deputy head of tax Ajay Kumar Sanganeria noted that the two Covid-19 special packages totalling S$5.6 billion — the Stabilisation and Support Package, and the Care and Support Package — made up more than half of the estimated 2020 Budget deficit.

“Compared to Sars (severe acute respiratory syndrome), the special package of $5.6 billion announced is many folds higher,” he said. A S$230 million package was rolled out to address the 2003 Sars outbreak.

But with additional surplus funds left in this term of government, Mr Ajay said that there is still room for more measures to be announced off-Budget in the event the Covid-19 situation worsens.

Professor Gerry George, Dean of the Lee Kong Chian School of Business at the Singapore Management University, said that there have been “relatively good years for surpluses” so a higher deficit was expected for 2020.

This is especially so since the economy is sluggish due to Covid-19, wider economic uncertainties over trade and tepid global growth.

Asked if such high spending is an overreaction, Prof George said: “A cash transfer direct to households is a much better fiscal boost than falling short or turning up empty handed.

“There is simply no best way to catch a falling knife, but this Budget takes a commensurate response to the Covid-19 crisis and economic slowdown,” he said.

 

Related topics

SG Budget 2020 Budget 2020 financial crisis national reserves

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.