Will we see a Budget which spends more than what we have?

By February 17, 2017Current, Unscrambled

This post is part of the series Budget 2017

Other posts in this series:

  1. Budget 2017: The National Budget Process
  2. Will we see a Budget which spends more than what we have? (Current)
  3. Three reasons to cheer the Early Childhood Development Centres Act

TL-DR – Wanna bet?

Just as a family cannot spend more than they earn, our country’s expenditure cannot be more than its revenue in the long term. If we overspend and worse, if we keep on overspending, this will be unsustainable, and cause problems for future generations.

So now, We all know how the Singapore government doesn’t leave things to chance; every move is more or less calculated.

This is even more so for the national Budget. While Singapore spends to assure itself of a secure future, it runs a balanced budget and keep government spending within revenue over the course of a business cycle. What this means is that the Government does not borrow money, and under normal circumstances, it does not draw on past reserves. Instead, it will generate enough revenue to fund its own expenditure under each term of Government.

This approach of spending within our means while developing a strong and vibrant economy will help to ensure a better Singapore for our children. Or in household speak, we can say that we make enough money to pass on as inheritance to our children.

Sources of Government Revenue

Sources of Government Revenue (Source)

Areas of Expenditure

Areas of Government Expenditure (Source)

Budget Balance is Necessary

Did you know that Singapore is required under the Constitution to keep to a balanced budget under each term of Government?

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Unlike many other countries, Singapore does not borrow money to fund government expenditure, and the Singapore Government does not have external debt. This practice of fiscal discipline ensures that government funds can be put into good use for Singapore’s development in all sectors.

The Constitution has a rigorous mechanism to ensure that Singapore’s finances are properly managed. For example, without presidential assent, the Government is not able to borrow to fund spending, thereby ensuring fiscal prudence.

However, maintaining a balanced budget has become more complex through the years. With the increasing needs of Singaporeans, spending on social development has also increased steadily over the years.

The Finance ministry is responsible every year for ensuring that the public sector is efficient and prudent, and that public funds are used responsibly. This is done through establishing limits and maximising discretion in the way the ministries use public funds.

Establishing limits

Funding for ministries is capped at a fixed percentage of GDP, meaning their budgets will increase and decrease with the country’s GDP.

Also, any department that utilises less than 95% of its budget will have its budget for the next year adjusted downwards to reflect its real needs. (ouch…)

Maximise Discretion

While the budget caps are pre-determined, ministries have the freedom to decide how to spend their operating budgets and move funds between their personnel and other operating costs.

This is known as the ‘operating block budget’ system as there is no line-by-line control. Howeer, larger ministries have ‘total block budgets’ which include capital and construction projects as well. They can thus move funds between their operating and development expenditure freely.

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Prudent expenditure leads to surpluses

This prudent governance and expenditure policies has amounted to substantial surpluses over the years.

Surpluses from previous Budgets have helped tide the economy through difficult times such as the 1997 Asian Financial Crisis and the 2008 Global Recession.

In 1998, the budget surplus went towards helping businesses in the form of corporate and property tax rebates, and the reduction of employers’ CPF contribution.

Budget surpluses are often shared with Singaporeans in the form of growth dividends.

This Budget 2017, we can almost expect the Minister for Finance to deliver a balanced Budget. One that is prudent and calculated, to take Singapore forward.

Continue reading this series:


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Nick Lee

Author Nick Lee

I'm the introvert who hides at the corner during parties. I'm the one who tries to be funny (sometimes can, sometimes cannot) I'm the one who can't count for nuts. I'm...oh, never mind...

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