Budget 2019: DBS sees swing to deficit of $2.5b for FY2019

According to DBS senior economist Irvin Seah, Budget 2019 will be expansionary without diluting fiscal prudence.
According to DBS senior economist Irvin Seah, Budget 2019 will be expansionary without diluting fiscal prudence.PHOTO: REUTERS

SINGAPORE - The Government is expected to announce a fiscal deficit of $2.5 billion for financial year 2019, down from an expected surplus of $3.3 billion for FY2018, according to the final report in a three-part series by DBS.

But with a total forecast budget surplus of $19 billion for this term of government, policymakers are in a "solid position" to roll out more expansionary fiscal policies, said DBS senior economist and author of the series Irvin Seah.

With the accumulated surpluses, the government could afford to be "slightly more aggressive" in its fiscal policy, he added.

According to him, Budget 2019 will be expansionary without diluting fiscal prudence. Revenue is likely to rise only marginally on the back of a softer economic outlook, while expenditure is expected to surge by about 6.6 per cent.

This comes as the budget position for FY2018 is likely to surprise on the upside with a surplus of $3.3 billion compared to a budgeted deficit of $600 million, on the back of a better-than-expected revenue flow, and less-than-projected expenditure, said Mr Seah.

While he believes that there is enough in the official coffers to provide more fiscal impetus in the coming two Budgets before the term of government ends, ensuring fiscal sustainability remains paramount.

In the report, he flagged that upward pressure on health and social spending will escalate along with the demographic shift, intensifying fiscal strain.


Without the Net Investment Return Contributions (NIRC), which is the single largest revenue item on the government's Budget, Singapore could be "stuck in perpetual fiscal deficit", he said.

But tapping the investment returns indefinitely has its limits.

"While it will be tempting to extract more from the NIRC, doing so means that less will be ploughed back to the official reserves to generate returns to meet future fiscal needs," he pointed out.

He said that the best way is to generate more revenue through economic growth. One way to do so is by lifting the competitiveness of Singapore companies to succeed independently on a global stage, he suggested.

These companies could leverage the abundant supply of resources in the region while still providing meaningful jobs for local Singaporeans which could also help in alleviating the malaise faced by the professionals, managers, executives and technicians (PMETs), he said.

"More importantly, corporate earnings generated overseas could translate into tax revenue to support a higher social expenditure. This has been the focus of the past two budgets and it will remain a key thrust of future fiscal efforts," added Mr Seah.