Budget season is upon us in Singapore, with 8 days of Budget debate that started yesterday. Not everyone may be aware on what “the Budget” is, so here are 10 questions and 10 answers to basic Budget questions.
What is the Budget?
Every year, the Ministry of Finance prepares a budget for each of the ministries in Singapore that begins on 1 April and ends on 31 March the following year (i.e. a financial year). Budgets are required to plan the expected revenue position and spending by the different ministries each year.
Pre-budget dialogues are held in December where feedback is sought based on what might be expected to be approved by Cabinet, before eventually being tabled in February as a Supply Bill. Parliament then sits as a Committee of Supply to examine the plans for each ministry. As of time of writing, Parliament is in the Committee of Supply phase.
Thereafter, the Minister for Finance will deliver subsequent readings of the Supply Bill, which will then be voted on by Parliament. The President then assents to it, turning the bill into law called the Supply Act.
How many Budgets are released per year?
Typically, one. 2020 was special due to COVID-19, resulting in the need for supplementary budgets. Hopefully this situation has stabilised sufficiently that Singapore does not need to pass supplementary budgets again this year.
How do we fund the Budget?
There are many ways to fund a Budget theoretically, just like how you would for a household budget. Some methods include:
- selling state-owned primary goods (e.g. salmon, oil)
- tax revenue (typically a combination of different taxes for an overall desired tax regime that is not regressive, i.e. hurts the poor or too progressive, i.e. disincentivising top earners from working too hard, or worse, taking flight)
- borrowing through bond issuance/loans/seek the help of others (in extreme cases countries have sought the help of foreign countries for funding before, or sought IMF for help)
- printing money (ok, the reality is more complicated than simply “printing money”. The technical term for this is “quantitative easing” and most countries cannot access such instruments with impunity)
- investment revenue
Unfortunately, not all methods are created equal, and not all countries are well-endowed with privileges to mine liquid gold or sell precious ores. Singapore is one such example. Our Budget is primarily funded through tax revenue, and increasingly, net investment return contributions through our sovereign wealth funds, GIC and Temasek. Countries invest in the market and try to beat it, just like us individuals!
What are some key areas in Budget 2021?
Owing to COVID circumstances, Budget 2021 is focused on targetted sectorial support and restructuring opportunities. However, Budget 2021 also takes note of Singapore’s ongoing efforts to deal with climate change.
Unlike more normal years, where the start of a new term is typically fiscally conservative, Budget 2021 will continue to draw down on the reserves, incurring an expected deficit of approximately S$11 billion. It is clear that this shortfall will somehow have to be remade, thus a lingering discussion about how tax increases will be implemented, and if so, how it should be done. DPM Heng Swee Keat has already alluded to the GST hike happening sometime by 2025. Politically, announcing the GST hike is typically not done on an election year budget (who would vote for an incumbent if you promise to tax the people heavily?). We watch with bated breath too, as a tax hike is never popular.
Words like “digitalisation” sound so big in the Budget. Why are there such big words?
Budget statements typically do not micromanage how money is to be spent. However, given the general political direction that a country heads towards, there may be certain objectives that the country aims to achieve. For instance, digitalisation has been a buzzword for some time. Due to COVID-19, an opportunity exists for the government to actively retrain enough people to partake in the digital economy at higher skill levels.
Big words, while lofty-sounding, also provide us common people with a rough idea the trajectory of different sectors in the government’s view. For instance, additional funding for a sector suggests government’s confidence in growth of that sector. For those who might be contemplating a career switch, the Budget statements give some idea of the more promising sectors to consider, especially in terms of hiring incentives, skills upgrading incentives and the general long-term trajectory of the industry sector.
What are budget “cuts”?
In technical parlance, a parliamentarian can issue a nominal budget cut on the budget during the Committee of Supply, before opening debate on a variety of issues. For instance, in the first day of Budget debate, members of Parliament have queries on many issues, such as senior employability, career prospects, tax collection to fund future expenditures and more. In fact, a budget “cuts” is not so much an actual cut in the budget, as it is an opportunity for parliamentarians to debate over substantive issues of the Budget.
Policy wonks pay special attention to this part of the Budget as different parliamentarians will suggest other ideas, based on the feedback received from their constituents and the various groups they may represent, through their career involvement, or other associations. Often the most substantial debates in a parliamentary democracy happens over the Committee of Supply.
Has a budget ever failed to be passed before?
Interestingly, while this has not happened in Singapore in my recent memory, this nearly happened in Malaysia during their own Budget debate, with Prime Minister of Malaysia Muhyiddin Yassin passing the Budget with a 3-vote majority in December 2020.
A budget that fails to pass is known as a budget crisis, which informally describes the deadlock in a parliamentary system. This is significant because Singapore runs a parliamentary system. If the budget cannot pass, the government cannot run, which means it falls.
In presidential systems like the United States, budget crises have happened before. The end-result is a closure of most non-essential governmental services for several weeks due to the lack of funding.
The Singapore budget is going to be passed anyway, so why should we be aware of the Budget debate?
Ok, we know the budget may not necessarily lead to a significant handout for you or me, but knowledge about our country’s affairs and direction is important if we want to maintain our agency as active citizens.
The Budget debate also provides a summary of the main concerns with the current state of Singapore affairs. Tracking years of Budget debate will almost automatically up your Singapore policy literacy game. You can also point out what the Government has done well and has fallen short over the years simply with the Budget debates, as perennial issues will keep getting highlighted year on year without much solutions, whereas issues solved well will disappear after a certain time.
I am a Gen Y. Why do I need to care about the Budget?
There are many areas of the budget that concern Gen Y people! Perhaps they will not occur immediately, but we will likely live to see the effects of climate change and exponential increase in healthcare costs. Understanding if the country is heading in the right direction before deciding how you should cast your vote, or whether you should speak up, voice your concerns to a member of Parliament or other actions.
In any case, the more Gen Y people who are aware of the issues facing our country, the more intelligent and insightful our conversations will be. And with that, we can better understand the issues that face us, and when we are in positions of privilege, work towards using said powers responsibly to guide the political direction of our country.
What do you think of the budget?
Good that our budget debates are peaceful, and that Singapore is not broke to have to borrow cash or print money.