Budget watch

Budget Watch: Economists expect bumper surplus for 2016

Economists expect a bumper surplus in government coffers for the financial year ending March 31, despite the slowing economy, muted property market and rising social spending.
Economists expect a bumper surplus in government coffers for the financial year ending March 31, despite the slowing economy, muted property market and rising social spending.PHOTO: ST FILE

Govt revenue growth remains robust despite slowing economy, they say

Economists expect a bumper surplus in government coffers for the financial year ending March 31, despite the slowing economy, muted property market and rising social spending.

A surplus, when the Government spends less than it takes in, would provide leeway for Budget 2017 to contain short-term help for companies struggling to keep afloat.

Finance Minister Heng Swee Keat will be delivering the Budget on Feb 20.

Economists said that government revenue growth remains robust despite the slowing economy.

Takings from goods and services tax (GST), stamp duties and other levies and taxes are likely to be higher than the previous financial year, said OCBC economist Selena Ling.

The property market "has not softened as much as feared" and there was still "a fair bit of healthy spending" across the economy despite sporadic volatility, she noted.

 

She added that last year's economic growth numbers are likely to be revised upwards from earlier estimates on a stronger-than-expected showing in manufacturing.

Ms Ling expects a "bumper surplus" above $5 billion for this financial year, while UOB economist Francis Tan has predicted a Budget surplus of about $6.7 billion, citing a pickup in economic activity since the second half of last year.

Official projections tip a surplus of $3.44 billion for the year, thanks largely to a bumper net investment returns (NIR) contribution.

The NIR framework allows the Government to spend up to half of the long-term expected real returns from GIC, Monetary Authority of Singapore and Temasek Holdings.

The projected $14.7 billion contribution will be the top contributor to government coffers, displacing corporate income tax for the first time.

Though the Budget is expected to be in surplus, government spending is likely to continue rising especially as the country grapples with an ageing population and a shift towards more social support.

Last month, a parliamentary committee asked the Ministry of Finance (MOF) to ensure that government spending remains sustainable in future, without imposing undue tax burdens on Singaporeans. The MOF had said that it would review both expenditure and revenue to ensure fiscal sustainability.

Some steps have been taken on the revenue front. In Budget 2015, for instance, the Government announced it would raise marginal tax rates for the top 5 per cent of income earners. Changes in earlier years included increasing tax rates for higher-value residential properties.

Setting aside the fact that it is impossible to estimate the NIR contribution, some economists expect the Budget position for the coming financial year to be similar to this one.

"The economy may be on the back foot but there will still be revenue growth," said CIMB Private Bank economist Song Seng Wun.

"Some sectors, like manufacturing, were doing better in the last few months of 2016 and we will have to see if that spills over to the rest of the economy in the coming year."

DBS economist Irvin Seah expects the Budget to be "modestly expansionary", with a significant share allocated to helping companies tide over this period of slower growth.

The bulk of resources, however, will go towards pressing on with medium-term, industry-specific economic restructuring efforts.

"This will be an enterprise- focused Budget," said Mr Seah.

But Mr Song believes that "there is still room for the Government to hold on to its bullets in case things get worse". While sentiment is weak, especially given external geopolitical developments, "it might not warrant the Government helping all companies", he said.

"The focus would be on sectors which have been hit harder. On the whole, the approach will remain very targeted," added Mr Song.

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A version of this article appeared in the print edition of The Straits Times on February 06, 2017, with the headline 'Economists expect bumper surplus for 2016'. Print Edition | Subscribe