A budget statement should be assessed according to the purposes it serves. It is first a statement of the government’s revenue-raising and spending plans for the coming year, explaining how well the government will source funds and where its priorities are. However, a budget statement is also something much more important, serving as a kind of road map of the government’s overall strategy on how it intends to manage the economy and society, and how it plans to address challenges.
This year’s budget statement was all the more important because it was Prime Minister Lawrence Wong’s first since he took over as head of government. Thus, it also offered an insight into how he intends to govern the nation. The budget he articulated was one of the most generous ever but also prudent, balancing short-term needs against the demands of long-term challenges. Hence, Budget 2025 has received a warm reception.
Budget trends: despite the challenges, Singapore is keeping up with spending demands
If we take a step back and look at the evolution of the budget over the last decade, several shifts are evident.
First, in the past 10 years, current spending has grown by around 110% since 2014, much faster than the 67% expansion in development spending. In other words, despite the preference to grow development spending, which is seen as more productive since it builds foundations for growth, the pressures from demands such as an ageing society are so great that the government had little choice but to spend more on social and related areas.
In fact, the sector which saw the largest expansion in spending was healthcare. While the demands of an ageing population were one reason, a good part of this increase reflected a conscious decision by the government to take on a bigger share of the burden of medical costs after 2011. That reversed a trend from 1993 to 2011 when the individual citizen’s share of healthcare spending rose while the government’s share of healthcare spending fell.
Second, Singapore has been able to raise revenues (up 92% from 2014 to 2024) more or less in line with spending (which rose 97% in that same period). The increase in GST rates has helped, but so has the growth in the economy, which raised corporate and personal income taxes. In addition, rising real estate prices helped expand asset taxes.
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Third, Singapore’s fiscal position is blessed with something few other countries have — investment income. The Net Investment Returns Contribution (or NIRC, the measure the government uses to indicate the investment income that can be used for the annual budget) grew 175% from 2014 to 2024 to $24 billion.
However, the way the government deploys this NIRC is interesting. In the past few years, the monies allocated to endowment funds (funds meant to support long-term spending, such as adapting to climate change) have been close to the NIRC receipts for those years. In other words, it appears that the government is able to raise sufficient revenues from conventional sources, so it is allocating the investment income for long-term purposes instead.
The overall takeaway is that we are in a good position to finance the growing demands of society. Hopefully, that means we will not see additional GST hikes or sharp increases in other taxes in the near future.
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The budget helps address pain points for Singaporeans
The high cost of living and doing business in Singapore has been a sore point for citizens as well as for small businesses who have struggled with rising rental, labour and related expenses in recent years.
Many commentators have already pointed out the generous payments to citizens promised by the budget. The amounts given out in the form of SG60 vouchers, CDC vouchers and tax rebates are considerably higher than in the previous year. In addition, ComCare Assistance, which provides assistance to lower-income households, will be increased. Young Singaporeans will get more cash to help them with their studies.
In addition, businesses also get a fair amount of support. For example, there is a corporate tax rebate, and the government will help co-fund wage increases by 40% in 2025 and by 20% in 2026 instead of the original 30% and 15%, respectively. All active companies that have at least one local employee will also receive a cash grant of $2,000.
Aside from rising costs, another bugbear for citizens has been housing in the areas of affordability and the long waits for public housing. The government has committed to launching more than 50,000 new flats in the next three years. This year, the Housing & Development Board (HDB) plans to launch about 3,800 flats with a waiting time of less than three years. The Fresh Start Housing Scheme will also be beefed up with higher grants and the offer of shorter leases.
Does the budget do enough for our long-term needs?
The past few years have seen the world become a more turbulent place. Geopolitical frictions have been aggravated as the US and China face off in what will be a long period of contestation. Many countries, including some of our neighbours, have adopted more inward-looking economic policies, which will slow the prospects for trade. With the amount of carbon in the atmosphere relentlessly increasing, it is likely that Singapore cannot avoid rising sea levels, higher temperatures and wild fluctuations in weather patterns. Technological advances look quite exciting, but while a lot of good can be expected, there will inevitably be a lot of dislocation as well, especially in terms of job losses.
That was bad enough, but the new administration in the US has amplified these challenges with its aggressive trade policies and the radical shift in how the US views its commitments to alliances and global governance. As a tiny country that is heavily reliant on trade, some essential things for Singapore are now at risk — the system of security guarantees that keeps a stable balance of power in our region, an international rule of law that protects small countries from bullying by big ones, and the globalisation and free trade that provided the energy for Singapore’s dramatic transformation into a prosperous society.
It is no exaggeration to say that Singapore faces a very rough decade or more. All we can do is plan ahead to make the best of a bad time. We can’t expect a budget statement to provide all the answers to challenges of such a magnitude, but it did give us some hints about the government’s thinking on the matter.
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First, there is great uncertainty over how things will evolve, but we know almost all the downside risks. This is why the government chose to keep a lot of dry powder in reserve. Should things get a lot worse, it has the fiscal firepower to support the economy.
The government is projecting a budget surplus for the new fiscal year starting in April of $6.8 billion. Since the government is usually highly conservative in its assumptions, this figure is probably larger, which gives us a considerable buffer against downside risks.
Second, it is putting aside sizeable funds to tackle longer-term perils. For example, the Future Energy Fund will be given an additional $5 billion to help Singapore expedite the transition to a greener economy. The Coastal and Flood Protection Fund has also been allotted $5 billion more to help Singapore build defences against rising sea levels.
Third, to ensure that Singapore stays ahead in innovation, the National Productivity Fund will be topped up by $3 billion. The government will also provide infrastructure for innovation by spending $1 billion on the one-north tech hub as well as on developing a new national semiconductor research and development fabrication facility.
Fourth, to ensure that Changi Airport remains a premier global aviation hub, the government will supplement the Changi Airport Development Fund by $5 billion. In addition, the government will also provide a guarantee to Changi Airport Group so as to reduce the cost of debt required to develop Terminal 5 and the supporting infrastructure around it.
Fifth, defence spending has been boosted: the allocation to the Defence Ministry is to increase by $2.6 billion or 12.4% as critical projects are accelerated. Some feel that we are spending too much on defence. However, we live in a world where the dangers to small and less powerful nations are intensifying exponentially. It is also one where defence technology has advanced in many areas. Any nation serious about its defence must invest in this new technology to maintain a credible defence. The complex nature of modern armed forces also means that we need to invest time and money over many years. Incorporating advanced technology is not just a simple matter of buying high-tech equipment. It takes years of training and constant improvement to develop the doctrines and systems that together make for an effective defence.
Conclusion: a good start, but more needs to be done
The budget has been well-received and the above analysis shows why this is the case. Nevertheless, there are areas where the government could do more.
First, the budget has evolved over the years, with many new initiatives added here and there. An example is the role of special transfers. These are one-off cash handouts to help citizens, especially those in the lower income groups. These have now become a very large proportion of spending, accounting for around 28% of operating expenditure compared to just 9% ten years ago. The fact that these transfers have grown so much suggests that they should not be one-offs but an integral part of our social safety net.
So, it is now probably the right time to shift away from one-off disbursements to a more systematic social safety net. One-offs are helpful, but because households cannot be sure of their permanence, the beneficial impact on welfare is less. Also, without certainty about how sustained such help will be, recipients will tend to over-save and not spend enough on essential items.
Singapore has matured as a society and the consensus has shifted away from being sceptical of welfare spending to understanding that affluent societies need to ensure that the less fortunate segments of society are cared for. Prime Minister Wong has contributed to the debate by promoting the idea of supporting those who have been laid off, something which we had tended to avoid doing in the past. A national conversation about the appropriate levels of social spending and how they should be structured would be welcome.
Second, the Prime Minister set out a target of growing the economy by 2%–3% a year in the coming years. This is ambitious because our low birth rate limits the growth of our indigenous workforce and that means that the growth target will need a sizeable inflow of immigrants. Ever since 2011, when voters made clear their discomfort with large inflows of foreigners, this issue has become a sensitive one. It may be time now to openly discuss this issue and create a new consensus that accepts judicious levels of immigration as necessary.
In short, we are in a good place. But to stay there, we need to keep moving ahead of events, be prepared to break old taboos and design new ways of doing things if we are to survive and prosper in this more volatile world.
Manu Bhaskaran is CEO of Centennial Asia Advisors
