Where Does The Singapore Government Get its Money?

This post was brought to you by the National Youth Council

In the lead up to Budget 2023 in February, Kopi published an article exploring Singapore’s government expenditure over the years. 

In that post, we looked through two decades of Budget statements to unpack the shifting priorities of the government and explore where Singaporeans’ money was being spent.

Beyond containing proposed spending for upcoming fiscal years, Budgets also contain anticipated and past revenue streams for the government

The way that the government decides to extract this revenue – be it different kinds of taxes, or investment income – also reveals a lot about the government’s intentions. 

Thus, we decided to look at where the government’s money has been coming from over the last 20 years. 

After exploring a few key takeaways, we’ll tie things together by bringing up government expenditure again.

Singapore doesn’t collect a lot of taxes

At 13.1% (2018), total tax revenues as a proportion of Gross Domestic Product is significantly lower in Singapore as compared to other industrialised countries.  

These low tax rates are due to the foreign investment-led and export orientated economic growth strategy that Singapore has adopted since the 1960s (SA Lee, 2017). In other words, by having relatively low tax rates, it was hoped that Singapore could make itself attractive to foreign investment and workers.

From the 1980s onwards, increased competition, especially with cities like low-tax financial centers like Hong Kong, was cited as a reason for further decreases in income and corporate taxes. 

The reduction in taxes was a global phenomenon between the early 1980s to the 2000s, with personal income taxes in particular being lowered across developed and developing countries .

While taxes have been kept low, total revenue has been increasing

Interestingly, while taxes have been kept low, and have even decreased in the last 20 years, total revenue has continued to increase. This seems to be true even when accounting for economic growth. How is this possible?

This increase in revenue is partially due to increased investment income

Well, breaking down the different streams of revenue for the government, we can see that from 2003 to 2022, income from investments has been steadily increasing as a proportion of total revenue, whilst corporate income tax revenue has been decreasing. 

In Singapore, CPF monies (which are invested in Special Singapore Government Securities), proceeds from issuing government bonds in the markets, government surpluses, as well as receipts from land sales are accounted for as past reserves.

These accumulated reserves are then reinvested through three corporations – Government of Singapore Investment Corporation (GIC), Temasek Holdings, and the Monetary Authority of Singapore (MAS). 

Money gained from this reinvestment is available to the government under the name Net Investment Returns Contribution (NIRC).

NIRC =  (≤50% of NIR) + (≤50% of NII)

The NIRC to the government budget consists of two parts: up to 50% of the Net Investment Returns (NIR) on the net assets invested by GIC, MAS and Temasek Holdings, and up to 50% of the Net Investment Income (NII).

NII refers to the actual dividends, interest and other income received from investing Singapore’s reserves, while the NIR on is based on expected long term rate of return from net assets.

Increased expenditure might put Singapore in a tricky position

As explored in our previous article, expenditure has been rising, and is expected to rise even more. 

Even with an increase in GST and other levies, Singapore government expenditure and revenue is expected to be close to break-even levels. 

During a speech in Parliament, Minister of Finance Lawrence Wong pointed this out, arguing that Singapore remains in a “tight fiscal position”.

The situation also means that it would be “highly unlikely” that government would be able to return what was drawn from past reserves for pandemic-related support measures.

While the government had previously returned S$4 billion after tapping on the reserves during 2008 Global Financial Crisis, Minister Wong argued that Singapore is “in a different position” today.

What he was partially alluding to here was Singapore ageing population, and the need to devote ever more increasing resources to heath and social care to deal with this demographic transition.

This post was brought to you by the National Youth Council

What all of this shows is that are many trade-offs to be made whilst drafting these Budget documents. There are many ways of raising revenue and each with its own set of strengths and limitations. With the tight fiscal conditions, these decisions will be also be more important than ever. 

This might seem a bit too daunting and off-putting. In fact, when the National Youth Council did a sentiment poll about Budget 2023, it found that only only one in four were aware of specific details in the Budget

However, it’s important to stay engaged with what happens with these Budgets. After all, issues like fertility rates, health and elderly care, are of critical importance to younger generations. 

During a post-Budget 2023 Youth Dialogue, Minister of State Alvin Tan agreed saying that “youths represent about 25% of our population, but 100% of our future”. In the discussion that followed, Minister Indranee Rajah and MOS Tan discussed everything from cost-of-living issues to support for families. 

To find out more about this dialogue and to keep informed about future ones, visit youthopia.sg.

In a world that is bubbling with clickbait, sensationalism and oversimplifications, Kopi aims to bring long-form journalism back to South-East Asia.

Through deeply analysed articles, we uncover and explain the complex and multifaceted issues facing our societies. Through engaging narratives, we tell stories that are bold and unique.

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