Singapore’s Budget 2025 is likely to take on an expansionary fiscal stance ahead of this year’s general elections, says UOB’s associate economist Jester Koh. The budget, which will be presented by Prime Minister and finance minister Lawrence Wong on Feb 18, is likely to be the final one under the current term of government. The general elections will have to be held by Nov 23.
“Since 2005, we observe that the overall fiscal position tends to be more expansionary (i.e. wider deficit) in the final two years of the five-year terms of government, possibly due to increased spending ahead of the general elections,” Koh writes. “This could also be the upshot of adhering to the principles of fiscal prudence where precautionary spending led to meaningful accumulation of fiscal surpluses in the first three years of the terms of government (except in 2021-2023 during the post-Covid recovery phase) and spending is subsequently augmented in the last two years, nonetheless keeping within the limits of the Balanced Budget Rule (BBR).”
In his Jan 31 note, Koh predicts Singapore’s overall fiscal position in FY2024 to be at $5.0 billion or 0.7% of the country’s GDP, compared to $0.8 billion or 0.1% of Singapore’s GDP estimated in Budget 2024.
Based on historical revenue collection patterns and monthly fiscal year-to-date data from April to December 2024, Koh also estimates Singapore’s operating revenue for FY2024 to be “significantly higher” than projected at last year’s Budget. This is due to stronger corporate income taxes thanks to a positive outturn in economic growth of 4% in 2024, compared to the Ministry of Trade and Industry’s (MTI) estimate of 1% to 3%. During the year, Singapore also reported larger personal income tax receipts, which was attributed to improvements in nominal income growth. In addition, the strong growth in Goods and Services Tax (GST) receipts were partly due to the 1 percentage point increase in GST to 9% on Jan 1, 2024.
Based on historical data and quarterly fiscal year-to-date data from April to September 2024, Singapore’s total expenditure could also come in higher in FY2024. Possible overspending could come from the various ministries in national development (MND), transport (MOT), home affairs (MHA) and defence (MINDEF). At the same time, these could be offset by undershoots under the ministries of social and family development (MSF), sustainability & the environment (MSE) and manpower (MOM).
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Furthermore, the fiscal deficit for FY2023 could be narrowed to $2.9 billion or 0.4% of Singapore’s GDP, compared to the previous projection of $3.6 billion or 0.5% of GDP.
As such, these factors will give the government more room to help lower income households from the higher cost-of-living pressures while still sticking to the principle of fiscal prudence.
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With a stronger fiscal position, Koh foresees that Budget 2025 should be “broadly expansionary”. This year’s budget should also see a “modest” fiscal deficit of $2.7 billion or 0.4% of GDP in FY2025.
Budget 2025 themes
In Koh’s view, this year’s Budget could revolve around four main themes.
They are: cost-of-living and job security measures; strategies to boost the nation’s fertility rate; anchoring investments in key areas such as artificial intelligence (AI), finance and the green transition to create good jobs and upskill the workforce, as well as supporting families through every stage of life. The last point is based on Chapter 4 of the Forward Singapore Report and the National Day Rally speech in 2024.
In addition, UOB’s wishlist includes Singaporeans receiving additional Community Development Council (CDC) vouchers of at least $600 per household in FY2025. The bank also hopes to see an enhancement and rebranding of the assurance package to go along with the themes of SG60. This year will be Singapore’s 60th birthday since its independence in 1965. Specifically, the bank hopes to see a higher quantum of payouts and U-save rebates under the package in 2026 with an extended support scheme for low- and middle-income households beyond 2026.
Other items on UOB’s wishlist include a one-off cost-of-living cash support for low-income households and the augmentation of the SkillsFuture Jobseeker Support (JS) or SkillsFuture Level-up Programme.
Softer growth rates in 2025
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In 2025, the economist expects the growth rate for corporate and personal income tax collections to moderate, in line with the estimated softening in nominal GDP growth. The latter is due to a lower real GDP growth forecast of 2.5% in 2025 as well as a normalisation in the pace of general price increases.
Similarly, Koh expects nominal wage growth to soften in 2025 in line with a cooling – albeit still tight – labour market. According to the MOM’s latest polls, about 31.6% companies surveyed in 4Q2024 say they intend to raise their employees’ wages compared to 32.6% of companies polled in 4Q2023.
Meanwhile, the softer corporate income growth is estimated to be mitigated by the implementation of both the Income Inclusion Rule (IIR) and the Domestic Top-up Tax (DTT) under Pillar Two of BEPS 2.0. Both regulations will take effect for businesses’ financial years beginning on or after Jan 1 this year.
GST collections will also likely see slower y-o-y growth compared to the near 20% increases seen in FY2023 and FY2024 no thanks to the successive 1 percentage point GST hikes on Jan 1, 2023, and Jan 1, 2024.
In 2025, Koh foresees “resilient” stamp duty collections as private property transaction volumes has likely bottomed out, with tailwinds from the ongoing easing of interest rates by the Federal Reserve and its consequent passthrough to domestic Singapore overnight rate average (SORA) rates, albeit with a lower sensitivity.
The increase in the supply of certificates of entitlement (COE) should also “bode well” for vehicle quota premiums, especially if there is still robust demand for motor vehicles.
Looking ahead, Koh projects healthcare-related expenses to rise “materially” over the long-term due to higher spending requirements stemming from an ageing population. According to the National Population and Talent Division, a strategy group under the Prime Minister’s Office (PMO), one in four citizens are likely to be aged 65 years or above by 2030 from about one in five currently.
In the occasional paper on medium-term fiscal projections published by the Ministry of Finance (MOF) in 2023, the government says it expects healthcare expenses to increase to 2.9% to 3.5% of Singapore’s GDP in FY2026-FY2030 compared to 2.3% in FY2016-FY2020 and 2.9% in FY2021-FY2025.
Singapore’s defence spending is also likely to stabilise in the years ahead due to the rising need to bolster defence capabilities as well as the need to uphold deterrence amid heightened geopolitical tensions and cybersecurity threats. This observation comes despite the general downward trend as a share of nominal GDP in recent years, which is in line with member countries of the Organisation for Economic Co-operation and Development (OECD).
In addition, the Net Investment Returns Contribution (NIRC), which has become an increasingly important supplement to Singapore’s operating revenues, should see positive impact in the long run thanks to the facilitation of the transfer of excess Official Foreign Reserves (OFR) to the government for long-term management by GIC via the Reserve Management Government Securities (RMGS).
Finally, Koh foresees the ongoing capitalisation of development expenditure under the Significant Infrastructure Government Loan Act (SINGA10) on projects such as the North South Corridor, Deep Tunnel Sewerage System, the Cross Island Line and the Jurong Region Line.
The economist forecasts core inflation in 2025 to average around 1.7%, down from 2024’s 2.7%, signalling a return to a desired pace of price increases.
Singapore’s real GDP is likely to grow by 2.5%, down from 2024’s 4.0%, due to a slowdown in growth momentum in trade-related sectors in 2H2025 from tariffs.
Charts: UOB
