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Explainer: How much surplus the Govt has accrued under the current term and what happens to it

SINGAPORE — Since this current term of Government took office after the 2015 General Election, it has managed to accumulate surpluses for each of the previous three financial years (FYs), consistently exceeding its forecasts in the process.

Explainer: How much surplus the Govt has accrued under the current term and what happens to it

Finance Minister Heng Swee Keat unveiled the 2019 Budget statement in Parliament on Feb 18, 2019.

SINGAPORE — Since this current term of Government took office after the 2015 General Election, it has managed to accumulate surpluses for each of the previous three financial years (FYs) — consistently exceeding its forecasts in the process.

Unveiling the 2019 Budget statement on Monday (Feb 18), Finance Minister Heng Swee Keat said that Singapore is expected to have a S$2.1 billion budget surplus in FY2018, which ends March 31. This is revised from the initial S$0.6 billion deficit forecast a year ago.

The forecast for FY2019 is a budget deficit of S$3.5 billion, he added.

Taking into account the projected deficit, the Government is expected to accumulate an estimated surplus of about S$15 billion at the end of FY2019.

Here is a look at the facts and figures:

CURRENT TERM OF GOVERNMENT’S FISCAL POSITIONS AT THE END OF EACH FY

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  Initial estimates Actual/revised figures
FY2016 S$3.45 billion S$6.12 billion
FY2017 S$1.91 billion S$10.86 billion
FY2018 -S$0.6 billion S$2.12 billion (revised)
Accumulated surplus   S$19.1 billion

Estimated fiscal position for FY2019: -S$3.5 billion

Accumulated surplus taking into account estimated deficit for FY2019: S$15.6 billion

REASONS BEHIND THE BETTER-THAN-EXPECTED FISCAL POSITIONS

FY2016:

  • Higher-than-expected collections from several tax schemes such as stamp duties, personal income tax and Goods and Services Tax.

  • Lower-than-expected expenditures for healthcare, national development and transport projects

FY2017:

  • One-off “exceptional contribution” from the Monetary Authority of Singapore, thanks to higher investment returns from recovering global markets.

  • 79.7 per-cent increase in stamp duty collections from initial estimates due to higher volume of property transactions

  • Lower-than-expected expenditures for healthcare, national development and transport projects

  • Lower cashflows needed for upgrading programmes of Housing and Development Board flats

FY2018:

  • Operating revenue rose due to higher collections from statutory boards, corporate income tax and stamp duties

  • Lower expenditure due to the suspension of the Kuala Lumpur-Singapore High Speed Rail project as well as the rescheduling of public housing projects

WHAT HAPPENS WHEN THERE IS A BUDGET SURPLUS

The Singapore Constitution requires each term of Government to keep a balanced budget. This means that at the end of its term, a Government should not run into deficit.

However, it can accumulate surpluses over its term, which spans several FYs.

Under each term of Government, any surplus accrued at the end of an FY will be kept as current reserves which the Government can tap on, if necessary, in subsequent FYs during its term.

At the end of each term of government, the accumulated current reserves will be transferred to the Past Reserves, according to the Ministry of Finance’s website.

Past Reserves refer to the reserves accumulated during previous terms of Government, and these are protected by the Constitution.

Singapore Management University’s law professor Eugene Tan noted that the government of the day “would seek to accumulate surpluses in first two or three years of its term”. This is to ensure that it will not go into deficit when the term of government ends, he said.

Over the years, the Government have, on several occasions, shared its surpluses with Singaporeans.

Budget 2019 unveiled on Monday saw Mr Heng announce a Bicentennial Bonus, where low-income Singaporeans can receive up to S$300 in GST vouchers, for example.

Mr Heng said: “From time to time, when our finances allow, we share the surpluses with Singaporeans, and provide more help to those with specific needs”.

Last year, Mr Heng also announced a one-off SG bonus, where citizens received up to S$300 each.

The sharing of surpluses was also carried out in previous terms of government. For example, former Finance Minister Tharman Shanmugaratnam — who is now the Deputy Prime Minister — unveiled a S$1.8 billion surplus-sharing “hongbao” in Budget 2008.

This was not only done during the Budget statement. For instance, former Prime Minister Goh Chok Tong — who is now Emeritus Senior Minister — announced during the National Day Rally in 2001 that eligible Singaporeans would get between S$200 and S$1,700 worth of New Singapore Shares.

WHAT HAPPENS WHEN THERE IS A BUDGET DEFICIT

A budget deficit accrued at the end of an FY is not an issue, so long as the net fiscal position of a Government since the start of its term is in surplus, said Assoc Prof Tan.

In other words, a budget deficit for a particular FY can be offset by surpluses in the Government’s current reserves accumulated in previous FYs.

This would be the case for the estimated budget deficit for FY2019, should it come to pass.

The estimated S$3.5 billion deficit can be offset by the current term of Government’s current reserves which stand at about S$19 billion based on what has been accumulated over the past three FYs.

However, if a Government ends up with a deficit in its first year after assuming office, it would have to draw down the Past Reserves to balance the budget, and that would require approval from the President, said Assoc Prof Tan.

This would also be the case if a Government’s accumulated surplus from previous years during its current term is unable to offset a budget deficit incurred at the end of an FY.

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