SINGAPORE, Feb 8 — After the hike in the Goods and Services Tax (GST), the Government will likely need to make further moves to boost its revenues to keep up with rising spending in areas such as healthcare, infrastructure and social support, the Ministry of Finance (MOF) said today.

In an occasional paper on its medium-term fiscal projections, MOF said that government spending as a proportion of gross domestic product (GDP) could possibly exceed 20 per cent of GDP by 2030, while revenue is set to grow at a slightly slower pace than GDP, unless more tweaks are made to policies.

The paper noted that the Budget 2022 tax moves, including the GST hike, were necessary to close the gap between Government spending and revenues over the coming years.

But if spending continues to increase, the Government will need to make further moves to raise revenues to balance the budget, MOF said, though it did not specify what moves these should be.

Why it matters

The MOF report was released just a week before the Deputy Prime Minister and Minister for Finance Lawrence Wong will present Budget 2023, setting out the Government’s spending and revenue plans for the year ahead.

MOF said the paper, which presents a projection — and not a prediction — of Singapore’s fiscal situation and outlook, provides context for policy reviews and a starting point for discourse on fiscal policy.

Spending forecast

Government spending over the long term is expected to increase in areas of healthcare, infrastructure and social support, MOF said in the paper.

Overall healthcare spending is expected to go up from around 2.3 per cent of GDP currently, excluding Covid-19 expenditure, to around 2.9 to 3.5 per cent of GDP in 2026 to 2030, driven by three main factors: An ageing population, rising age-standardised utilisation of healthcare, and higher medical costs.

Age-standardised utilisation rate, which refers to utilisation rates after normalising for the impact of ageing, has increased due to healthier lifestyles, increased screening leading to earlier diagnoses and rising incomes and greater accessibility to high-quality healthcare services.

Meanwhile, government spending on infrastructure, including on new MRT lines such as the Cross Island Line and Jurong Regional Line, is expected to remain at around 4 per cent of GDP per annum in 2026 to 2030.

However, this is still subject to increasing interest rates, which could raise borrowing costs and lead to a higher projected infrastructure spending.

The Government will also be spending more on social support programmes over the next few years, from around S$1 billion in 2018 for early childhood education to more than double the amount within the next few years, MOF noted.

The Progressive Wage Credit Scheme and the enhanced Workfare Income Supplement to uplift lower-wage workers and support their employers will also receive a spending boost of more than S$9 billion from 2022 to 2026.

Revenue forecast

Government revenue is expected to increase, based on the projection that the Net Investments Returns Contribution (NIRC) will keep pace with economic growth at around 3.5 per cent of GDP to meet the rising expenditure, though it may fluctuate from year to year.

But MOF said investment returns are expected to grow more slowly than before in the next few years, due to uncertainties such as slower global economic and productivity growth, inflation as well as geopolitical and trade tensions.

The NIRC framework allows the Government to spend up to 50 per cent of the net investment returns on net assets invested by Singapore’s sovereign wealth fund GIC, the Monetary Authority of Singapore and state investor Temasek Holdings — the three entities that manage and invest Singapore’s reserves — and up to 50 per cent of the net investment income derived from past reserves from the remaining assets.

The NIRC currently supports about one-fifth of the Government’s spending.

Meanwhile, the moves made in Budget 2022 will help to increase operating revenue as a percentage of GDP from 14.8 per cent in FY2016 to 2020, to up to 15.7 per cent in FY2026 to 2030.

These moves include the increase in GST from 7 per cent to 9 per cent, which is expected to yield additional revenues of about 0.7 per cent of GDP per annum.

Other Budget 2022 moves were the increases in the top marginal personal income tax rate and residential property tax rates for higher-end and non-owner-occupied properties, and a new additional registration fee tier for luxury cars.

But looking ahead, in the absence of any revenue policy changes, operating revenue is likely to grow slightly slower than GDP, MOF said.

It added that Singapore’s fiscal space is now "much tighter” compared with the past few decades.

"In the near term, revenues should be sufficient to cover the higher spending. But we have not taken into account further policy moves that the Government may make between now and 2030, for which the resource requirements are yet to be determined,” it said.

Depending on the final design and scale of these moves, the Government may need additional revenues to balance the budget in the medium term, the ministry added. — TODAY