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Heng says budget surplus is $9.6b but IMF’s accounting standards says $31.9b – financed by heavy borrowings in housing

by Vincent Low

It was announced in Parliament today (19 Feb) that as the Government has accumulated a budget surplus of almost S$10 billion for FY2017, all Singaporeans aged 21 and above this year will get a one-off SG Bonus of between $100 to 300 each.

Finance Minister Heng Swee Keat said that this "reflects the Government’s long-standing commitment to share of the fruits of Singapore’s development with Singaporeans". He described the bonus as a "hongbao" (red packet).

The Bonus will be paid according to the annual assessable income of the person:

  • Income $28,000 and below will receive $300 "hongbao"
  • Income $28,001 – $100,000 will receive $200 "hongbao"
  • Income greater then $100,000 will receive $100 "hongbao"

The SG Bonus will cost the Government $700 million.

Singapore’s revised projected Budget position for FY2017 which ends in Mar 2018, has shown a surplus of $9.61 billion, helped by exceptional contributions from Statutory Boards and higher-than-expected Stamp Duty, Heng said.

IMF shows that SG surplus is much higher

However, as acknowledged by Ministry of Finance, Singapore's budget balance does not include:
1) Proceeds derived from the sale of land
2) All investment income from the reserves*

The budget balance that is presented to Parliament is based on revenues that the Government of the day can spend under constitutional principles, MOF said.

Under IMF's standard, the surplus includes total investment returns and land sales. So to see the actual overall budget balance including land sales and investment income, which is the adopted international standard in budget presentation, one will have to refer to the chart below that is compiled using figures from past years' revenue announcement.

Figures in billions

So, for 2017, based on IMF's defined calculation for budget surplus, it would hit S$31.5 billion with the bulk coming from land sales.

In fact, most of the land sales are eventually financed by Singaporeans' borrowings to buy houses including HDB flats. A large part of the cost of HDB flats come from the price of land which Singapore Land Authority charge to the Housing Development Board based on market prices. As a result, Singaporeans are saddled with heavy debts which will take them some 20 to 30 years to pay off.

And if you are asking why land sales are not allowed to be used for budgeting purposes, Factually.sg writes, "This avoids a situation where the Government of the day sells land just so that they can meet their expenditure needs, and ensures that the Government plans its long-term budget prudently."

However, this explanation does not seem to make sense, given that a large bulk of future expenses which Minister Heng brought up in his Budget speech has to do more with infrastructure cost and not recurring expenses.

Even if land sales are not touched, the Net Investment Returns Contribution (NIRC) could be at a point be increased to 100% depending on the need of the country and the reserves will still be growing due to the untouched income generated from the land sales.

With the current modus operandi, Singapore never ever spends its savings and will continually ask Singaporeans (even those from low-income families) to pay more in taxes to fund government expenditure despite having a more than healthy budget surplus annually.

Nevertheless, thanks to the generosity of Heng, we will all be getting back "hongbao" of $100 to 300 each.

Correction: Under IMF's standard, the surplus includes total investment and land sales. The new figures reflect the annual surplus based on the calculated surplus based on that instead of what is reflected in the IMF's website.

*Net Investment Returns Contribution (NIRC) comprises: