Singapore Projected a Budget Deficit of S$0.6bn for FY2018

This week, Singapore’s Finance Minister presented the country’s 2018 Budget, where its budget balance is projected to record a deficit of -S$0.6bn, after recording the biggest surplus in 20 years at S$9.6bn for FY17. The large surplus was attributed to higher-than-expected operating revenue on statutory board’s contribution, which rose sharply by 527.9% yoy to S$4.4bn last year. This was also due to better economic performance in 2017, as reflected in higher revenue collections from corporate income tax , as well as stamp duty, which partly offset the lower revenue collection from GST, vehicle quota premiums and motor vehicles taxes.

Following the strong economic performance last year, where Singapore’s GDP growth rose sharply from 2.0% yoy in 2016 to 3.6% in 2017, mainly driven by stronger external demand, we believe the strategy and focus of the Government’s 2018 Budget measures are to support domestic demand, in view of the expectations of slower exports growth this year.

As the actual revenue collection of S$9.6bn exceeded the target of S$1.9bn set in early 2017, the Finance Ministry will be channelling the difference in surplus of S$7.7bn by giving back to the economy, through infrastructure spending (S$5bn) and assisting the aging population (S$2bn). The surplus money is targeted to be channeled for future spending, such as investment in railway lines infrastructure spending. This year, government is planning to initiate a new Rail Infrastructure Fund to save up for major rail ahead. Part of the surplus will also be shared with the people (S$0.7bn), where every adult Singaporean, aged between 21 and above, will receive a one-off special cash payment in a range of S$100-S$300 based on the individual salary.

The Singapore Government also announced it’s long-term future plan, where GST rate will be increased from 7% currently to 9% between the year 2021 to 2025. Prior to that, GST on imported services, such as consultancy, marketing, apps and music will be introduced and is expected to take place on 1st January 2020. However, there are various measures to support individuals and families, such as SG bonus, enhanced proximity housing grant, higher annual Edusave contributions, additional Utilities-Save (U-Save) under GST voucher for three years, as well as service & conservancy charges rebate.

As the Budget 2018 is expansionary and supportive of economic growth, the Ministry of Trade and Industry (MTI) projects GDP growth to be in the range of 1.5-3.5% for 2018, from 3.6% growth in 2017. With various measures in the pipeline from Budget 2018 to boost private consumption, we believe domestic demand is expected to remain healthy and supportive of growth to cushion the possible slowdown in external demand.

Source: Affin Hwang Research - 23 Feb 2018