Singapore Budget operates within well-defined framework, guided by clear fiscal rules: OECD report

SINGAPORE - Singapore’s Government operates within a well-defined Budget framework, guided by clear fiscal objectives, and this has contributed to the country’s international reputation for fiscal discipline over a sustained period, as well as for policies that are financially sustainable, said a report by the OECD.

The Government has to maintain a balanced Budget within each term, and cannot borrow to fund its operating expenses, highlighted the Budgeting in Singapore report published by the Organisation for Economic Cooperation and Development (OECD) on its website on Jan 13.

These fiscal rules provide a measurable benchmark to hold each term of government to account, said the report.

There is also a high bar to amend the rules since they are enshrined in the Constitution, it added, noting that this approach is unique in South-east Asia, as Singapore is the only country in the region to embed such fiscal rules in this manner.

The study’s lead author, Mr Andrew Blazey, deputy head of the OECD’s Public Management and Budgeting Division, told The Straits Times in an interview on Jan 15 that Singapore has adhered to the rules for a sustained period of time.

He said: “It’s stable, it’s got some credibility to it, because it’s been observed (and) it hasn’t been changed frequently. There’s a good understanding as to what it is. These are very high bars and credentials that Singapore has built up over time.”

He added that while other countries also have fiscal rules, “(they) will change their rules to match changes in economic circumstances”.

The report, published by the OECD Directorate for Public Governance, was based on a review of the budgeting process and done in discussion with the Ministry of Finance.

It covers topics like Singapore’s Budget management, changes to the Budget process over the years, as well as transparency in financial reporting.

The last time the OECD did a similar report on Singapore’s budgeting process was in 2006.

Mr Blazey, who was a director at New Zealand’s Treasury before he joined the OECD in 2018, noted that Singapore’s Budget has evolved since then to adapt to the changing economic and demographic environment.

The report highlighted a number of successive reforms over the years that have helped the country navigate the tighter economic conditions brought about by an ageing population and falling birth rates, while maintaining fiscal sustainability.  

They include the introduction of the Net Investment Returns Framework, which allows the use of up to 50 per cent of the expected long-term real returns from investing the country’s past reserves; the amendments to the Central Provident Fund (CPF) to strengthen retirement adequacy; the enactment of the Significant Infrastructure Government Loan Act that allows the Government to borrow to fund significant infrastructural projects; as well as the use of special funds to allocate money through the Budget for specific purposes, such as with the Coastal and Flood Protection Fund. 

Pointing to these reforms, Mr Blazey said: “They add up to something quite significant in recognising that the Budget framework, and the way in which it’s applied, needs to stay in sync with the economy and the spending requirements in the country.”

The report notes that spending on economic development grew from $9.6 billion or 18.5 per cent of total expenditure in Financial Year (FY) 2013, to $21.7 billion or 20.7 per cent of total expenditure in FY 2023.

Spending on social development for health rose from $5.8 billion or 11.1 per cent to $17.3 billion or 16.4 per cent over that period, while spending on social development for non-health items such as education and social support went from $18.4 billion or 35.6 per cent to $34.7 billion or 33 per cent over the same period.

To support economic and social development, the Government has also made use of every lever within the Budget, through revenue, contributions and spending, to ensure progress on policy priorities, the report said.

For instance, the Government has diversified its tax base and increased tax rates to improve fiscal sustainability and maintain a balanced budget in the face of increasing expenditure pressures, the report added.

The report also singled out Singapore’s efforts to enhance fiscal transparency, such as through efforts to engage citizens and help them understand the Budget.

In particular, it noted that the consultations for

the Forward Singapore exercise

to renew Singapore’s social compact – held from 2022 to 2023 – had helped inform how the Budget can better support Singaporeans in areas such as life-long learning, housing, health and care for the elderly.  

Noting how some of the Forward Singapore findings “went straight into” the 2023 and 2024 Budgets, Mr Blazey said consultations on the social compact on such a large scale were rare – in other words, they are not common elsewhere.

Meanwhile, on financial reporting, the OECD report noted that the Government does not disclose the full size of Singapore’s past reserves and has held this stance for many years without negatively affecting its credit rating or ability to engage in financial markets.

The report also added that the Government does disclose most of the component parts of its assets and liabilities, and the proportion of income from investment returns that contributes to budget revenue.

The Government has said that it is not in Singapore’s national interest to publish the full size of the past reserves, as it is a strategic asset and revealing it will also make it easier for hostile actors to mount speculative attacks on the Singapore dollar.

Asked about the report’s observation, Mr Blazey said it was for each country to determine how much to disclose about its reserves.

He added that in Singapore’s case, “everything that’s needed from the reserves is available to compile the Budget”, such as the amount of revenue that comes from the returns on investing the reserves.

“Large components of reserve position are available, and there is a lot of transparency around the way in which that feeds into the budget process. So…it works in terms of the way in which those settings are in place,” he said.