Budgeting data gaps and fiscal policy debate

Singapore has regularly reported considerable surpluses in its annual fiscal budget. Budget surpluses have been an essential part of the country’s growth strategy (Asher et al. 2015) as they are perceived to provide a signal of sound public sector financial management to foreign investors, key stakeholders in Singapore’s development planning. Budget surpluses also enable the corporate income tax rate to be kept among the lowest in the world, at 17%. Other policies—such as having a relatively large inflow of foreign workers that depresses at the lower end and almost no taxes on most forms of capital gains and domestic interest income—contribute to the high share of capital income in national income at around 55%, with labor’s share at around 40%–42%, in contrast to the pattern in OECD countries.

The annual government budget projects the intended mobilization and utilization of economic resources by the public sector for each fiscal year. Besides allocation and distribution, other key objectives of the budget are to smooth economic volatility, reduce uncertainty, and facilitate public policy discourse. However, a closer examination of Singapore’s budgetary documents by Kwan et al. (2015) reveals several pertinent details that could be potentially counterproductive to the budget’s objectives as well as to sound public financial management.

Budgetary reporting: Issues and implications

Firstly, fiscal marksmanship has been poor, with consistent underestimation of both the primary and the overall budget balances between 2006 and 2013. Over the period, the difference between the initial budget estimates and the budget outturn ranged from just under 1% to over 3% of GDP. The difference between the revised estimates and the budget outturn was between 0.1% and 0.8% of GDP. These are large enough differences to impact on the quality of fiscal debates, both domestically and abroad.

Secondly, the realized surpluses arise primarily from underestimating revenue receipts and overestimating expenditure. These shortfalls in accuracy can have wider macroeconomic effects. If the budget’s purpose is to complement and raise economic activity, smaller realized expenditures can potentially limit the impact of government spending. In contrast, as income and other taxes form approximately 89% of all reported tax revenue, higher revenue receipts can have social costs by disrupting business planning and exacerbating inequality. The latter is the case if the tax burden is unevenly shared between labor and capital—and nearly all capital income is tax exempt in Singapore.