Budget 2022: S$3 billion overall deficit expected; Govt to draw S$6 billion from reserves to tackle Covid-19

SINGAPORE — The Government expects its overall fiscal position following this year's Budget to remain in deficit by about S$3 billion, or about 0.5 per cent of annual economic output. It will also make a further drawdown of S$6 billion from past reserves to fund future Covid-19 public health measures, said Finance Minister Lawrence Wong on Friday (Feb 18).

President Halimah Yacob has given her requisite in-principle support for the drawdown, which would bring the total sum drawn from the reserves up to S$42.9 billion over the course of the pandemic, for financial years (FY) 2020 to 2022.

Nevertheless, this amount is still lower than the initial S$52 billion drawdown that Madam Halimah originally agreed to for the Fortitude Budget in FY2020, reflecting the Government’s prudence in the use of the reserves, said Mr Wong.

Part of the reason the Government expects to use a lower amount of the reserves meant for Covid-19 relief is an unexpected improvement in the overall position in FY2021.

The revised deficit for last year’s Budget is S$5 billion, or about 0.9 per cent of the economy. This is significantly lower than the S$11 billion deficit that was projected last year.

Mr Wong, who delivered the Budget on Friday, said the improvement is mainly due to reduced spending of S$10 billion for the Covid-19 Resilience Package, shortfalls in anticipated spending by ministries due to Covid-19 delays, as well as one-off revenue gains, including from vehicle quota premiums and stamp duties.

Around S$6.5 billion in stamp duties was collected in FY2021, which is S$2.2 billion higher than expected. Revenue for vehicle quota premiums and personal income tax was S$0.9 billion and S$1.4 billion higher than their respective projections. 

“We also tapped on our existing resources first to provide short-term relief when we had to tighten restrictions periodically last year,” said Mr Wong. In 2021, the Government reallocated funds to cough up S$2 billion of economic relief measures due to the periods of heightened alert.

The overall deficit for Budget 2022 comes in spite of projections by several economists that government revenue in the current fiscal year will slightly exceed spending for the first time since the start of the pandemic in 2020.

DBS Bank, for example, predicted that Budget 2022 would be a "modestly contractionary budget", taking into account potential boosts from predicted tax hikes. It predicted a surplus of S$3.5 billion to S$4 billion.

Mr Wong said: “Beyond the crisis, our spending needs will continue to grow, as we tackle structural shifts and invest more to deliver on our longer-term priorities as laid out in this Budget.”

At the same time, expenditure growth needs to be managed, he added. Announcing a further 1 per cent cut to the budgets of all ministries and state organs from FY2023 onwards, Mr Wong said this adjustment will be channeled towards new priorities.

The Government had previously implemented a 2 per cent budget cut in FY2017.

As for the additional S$6 billion drawdown, Mr Wong said this amount will be set aside to “maintain a multi-layered public health defence”.

“This is necessary for us to react nimbly and confidently to the evolving Covid-19 situation,” said Mr Wong.

In a factsheet provided by the Ministry of Finance, the S$6 billion from past reserves will be used for "temporary and extraordinary" coronavirus measures.

• S$3.7 billion: For testing, clinical management and contact tracing
• S$1.2 billion: For vaccination and therapeutics
• S$1.1 billion: For isolation facilities, border management and safe distancing