Singapore—As the government starts its first fiscal year after GE2020, the sizable economic fallout from the Covid-19 pandemic may cause a deficit on this year’s budget, economists say.
This counters what has been the trend in the past administrations when the government spent conservatively and accumulated budget surpluses early in their typically 5-year terms, which in turn gave them leeway for bigger spending later on.
According to Singapore’s constitution, the government is required to balance its revenue and expenditures for the duration of each term.
The South China Morning Post (SCMP) reported that on Budget Day, Feb 16, Heng Swee Keat, Singapore’s Finance Minister, could possibly announce a budget with a deficit of between 2.1 and 6.5 per cent of GDP (S$10 billion to S$32.5 billion).
This would allow the government, which has been generous in its support for Covid-affected businesses and families, to continue these efforts, although, for 2021, less financial support may be expected.
In a report from late last month, economists from brokerage firm Maybank Kim Eng called the deficit “unusual” because “the government typically starts the first year of its new term with a sizeable budget surplus.”
“However, with the economy in need of continued support to climb from the steepest recession in Singapore’s history, the current term of government will likely start with a deficit in FY2021,” the economists said.
A return to “prudence and balanced budgets” could take some time, warned Prime Minister Lee Hsien Loong last November at the Bloomberg 2020 New Economy Forum.
As the pandemic continued last year, the government rolled out several budgets, digging into the country’s reserves for a total stimulus package of over S$90 million, which is about one-fifth of the country’s gross domestic product (GDP).
Maybank Kim Eng’s economists believe the deficit for 2021 could be as much as 4 per cent of the GDP, while DBS’s Irvin Seah says it could be smaller.
He estimates a deficit between 2.1 to 2.5 per cent of Singapore’s GDP.
CNBC quotes a report Mr Seah wrote last month that read, “Starting the first fiscal year in the red could prove to be challenging amid uncertainty to the fiscal outcome in the subsequent fiscal years.
Moreover, the government may want to keep its powder dry to guard against any unforeseen shocks to growth in 2021.”
CNBC further reports economists expect to see the following in Budget 2021:
More support measures for wage subsidies, the creation of new jobs, and the upskilling of employees, particularly for workers in the tourism, aviation, and other hard-hit sectors.
Cash subsidies for families’ living expenses, and additional support for low-wage workers.
Cash support for businesses to stay open, as well as funding for start-ups as a boost to entrepreneurship.
And, in keeping with the country’s recent greener thrust, incentives that would encourage the adoption of vehicles with lower emission rates, and endeavors to raise solar capacity and other sources of renewable energy.
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