A bird’s-eye view of the budget

You have to be a hermit not to know that an “election budget” was presented by Finance Minister Tharman Shanmugaratnam on Friday, 18 Feb 2011. The Straits Times duly splashed on its front page all the give-aways announced by the government in its effort to sweeten the ground before polling day.

The Reform Party and the Singapore Democratic Party have given their critiques of the budget. You can read them here, here and here. As at the time of writing, the Workers’ Party did not have a response on its website.

Since this would almost surely be the last budget before an election, I thought it might be a good opportunity to take a look at all the budgets since Fiscal Year 2006 — the year when the last election was held. Perhaps a bird’s-eye view of the budgets through this government’s term of office might reveal some overarching patterns as to their spending philosophy?

You’ll have to begin by clicking the image below, and then if necessary, clicking again to expand it, otherwise it’s too small to see the numbers clearly.

The pink box shows you the revenue, for which there are three levels:

Operating Revenue is what the government gets from taxes, fees and other routine charges. If one adds the interest and dividends they earn from the State’s investments, you’ll have what I call Recurring Income. And then, if one adds receipts from land sales and other asset disposals, one gets Total Receipts.

Expenditure (blue box) is divided into three broad groups. There are Running Costs — i.e. the cost of running government departments, the military, police, schools, etc. Then there are Transfer payments — money that the government gives to various parties, sometimes banked into provident fund accounts rather than in cash. Thirdly, there’s Development Expenditure — the cost of building infrastructure and the like.

Whether or not a budget is in surplus or deficit depends on which definition of revenue and which expenditure groups you take into account. Development Expenditure, for example, is really a form of investment; it’s not an operating cost. But generally, you will see the government maintaining a surplus (Total expenditure is less than Recurring Income) every year in good times and bad. There is a constant deflationary effect — though whether this is good or bad is arguable.

Tharman mentioned in his budget speech that

Members will recall that the Government had sought and obtained the President’s approval to draw $4.9 billion from Past Reserves, to fund the Jobs Credit Scheme and the Special Risk-Sharing Initiative under the Resilience Package. We were in the midst of a global crisis of unprecedented scale. Our access to Past Reserves gave us the resources and confidence to deal decisively with the downturn and to be prepared to take further measures if the situation worsened. In the event the amount drawn for these two schemes was $4.0 billion, less than expected.

We have recovered well from the crisis, putting our fiscal position on   stronger footing. With the much lower deficit we achieved last year, as well as our good Budget position this year, we should be able to achieve an overall budget surplus during the current term of Government. We have thus decided to put back into Past Reserves the $4.0 billion that we had drawn earlier for the Resilience Package. I have informed the President of our decision.

For the life of me, I cannot see these transactions in the Budget numbers. Perhaps they’ve been netted off some other figures, or maybe they are in the Balance Sheet, which I didn’t bother to look at. But it doesn’t really matter much, except that without being specifically itemised, the reader might wonder why we needed 4.9 billion in the first place. I suspect it had something to do with the fact that Operating Revenue in 2009 and 2010 was lower than Total Expenditure. But then, the shortfall was S$8.96 billion; the numbers do not tally (scratch head).

What I’d like to do here is to make three broad observations. Readers however, will probably be able to make more observations using the data I have provided.


Government budget a small percent of GDP

The Singapore government’s budget takes a relatively small bite of our Gross Domestic Product, always under 20 percent. In most developed countries, government spending is something between 30 – 50 percent of GDP.  There’s a simple graphic on this webpage, though one has to be careful with the figures shown. The figure provided for the USA there — 21 percent — relates only to spending by the federal government. This is not comparable to Singapore. A better figure would be the total spending of all levels of governments — federal, state and local — and hence, this other chart at right from the Economist Magazine is more meaningful:

(Source: Economist Magazine, 21 Jan 2010, Leviathan stirs again)

On the one hand, you could be pleased with the way the Singapore government keeps its spending under control. It’s good to have lean government.

On the other hand, surely it’s hard to believe that we have got it right and everybody else has got it wrong. (That said, there is an entire school of pro-government intellectuals who loudly and incessantly trumpet Singapore exceptionalism, and sometimes it gets really hard to think a skeptical thought amidst the racket they make.)

One could make this argument: Here we have adopted (with a vengeance, almost) the economic model of the West which naturally brings with it the salary structures of the West and its capitalist income gap. Whereas in the West (Europe especially), governments also take a large tax bite and actively redistribute to compensate for the social costs of capitalism (therefore large government budgets relative to GDP), the Singapore government does not do anything of a similar scale. This accounts for its small size relative to our GDP.

So, is a low percentage a good thing or a bad thing?


Where’s the recession?

The second observation comes out of the combined line Personal Income Tax + Withholding Tax, and it’s quite stunning. The Withholding Tax was included inside Personal Income Tax up till 2009 and only shown separately from 2010 on. The collection of these taxes rose every year over the period 2006 – 2010 and is expected to rise further in 2011. You’d never guess that we had a recession in 2008 – 2009.

By way of contrast, consider this: Corporate Income Tax dipped nearly 10 percent in 2009 compared to 2008. The State’s Net Investment and Interest Income (mostly the returns from our sovereign wealth funds) almost halved between 2008 and 2009. But not Personal Income Tax + Withholding Tax.

These taxes mostly come from the middle class and the rich. This suggests that they didn’t suffer any recession at all. Their incomes must have continued to rise, thus paying more tax each year. We seem to have created an economic model that completely insulates the upper classes from economic cycles. Are they so able to manipulate their own salaries and earnings that they do not suffer from downturns?


Goods and Services Tax

GST collected doubled over the term of this government. It grew even more than betting taxes despite the latter being powered by the opening of two large casinos, though the GST itself was boosted by a rate hike from 5 percent to 7 percent on 1 July 2007.

As we know, the GST is a very flat tax; it is highly regressive. It impacts the poor much more than the rich because the poor tend to spend all that they earn, while the rich tend to spend only a small part of what they earn. The poor therefore pay GST on a much larger proportion of their income than the rich.

There is a very strong moral case for fiscal transfers to offset the impact of this kind of tax; yet the government has been hopelessly inconsistent about it. Transfers as a percentage of GST collected were very low in 2007 and 2008. They were high in 2006 and will be fairly high again in 2011 — and you can guess why: election years. The percentage was also high in 2009, which was when the recession hit hard and the public outcry could not be denied.

The government will likely say that is how it should be. Save during good times, spend more during hard times. But it is very strange when the hoarding is made via a flat tax, on the backs of the poorer sections of society during “good times”. Shouldn’t the war chest be built via higher personal and corporate taxes during the better years? Shouldn’t we consistently spend a bigger portion of the GST to mitigate its regressive effects?

(You will notice that I excluded those transfers that went into institutions, organisations, endowment funds and trusts. No doubt some of them serve the needy, e.g. Medifund; others however, are for research, universities, etc. They are not obviously counteractive to the regressiveness of the GST, thus excluded.)


What do I discern from the six-year data? In a nutshell, it seems to me that:

1. The government budget is admirably lean, but it also means it devotes few resources to compensating for the regressive tendency of its tax policies.

2. What compensation there is, is extremely short-term and inconsistent. Whereas regressive taxes are permanently structured, transfers that mitigate their effects are ad hoc and tend to happen only during election years or during severe economic crises.

3. There is a consistent deflationary tendency from the annual budgets.

4. There are signs that economic power is so entrenched among the upper-middle class and rich that even during a recession, they are able to ensure their incomes do not suffer; this can only mean that pain is disproportionately borne by other sections of society.

15 Responses to “A bird’s-eye view of the budget”

  1. 1 Sprechen Sie Singlisch? 21 February 2011 at 03:00

    Hi Alex,
    quite a bit of your analysis hinges on who exactly these middle to high income persons are with respects to the population in Singapore (30%, 50% or 70% of the population better yet a histogram). Any data with respects to the income distribution population would surely strengthen your argument.

    Also, I suspect the brunt of the recession fell on transient workers who I believe make up the majority of low income workers here. This does not substantially change your argument “that pain is disproportionately borne by other sections of society” but it would change the moral calculus for many Singaporeans.

    • 2 yuen 21 February 2011 at 12:49

      to add to SSS’s comments: while GST is indeed regressive, its impact on the low income population is not as high as YB seems to believe: they are more likely to patronize hawkers and small businesses that fall outside the GST paying circle; NTUC Fairprice is in the circle of course, which is why it often announces that it is “absorbing GST”, avoiding price hike on essential items, etc; whether these are only window dressing, people appreciate the intention

      • 3 RTT 21 February 2011 at 20:12

        Its a fallacy to say that by patronizing hawkers and other assorted non-GST charging entities, you are not affected by the GST. These hawkers and the likes have to buy their ingredients and supplies from somewhere which charges GST.

        Hence, the only bit hawker patrons avoid is the GST on the value add by hawkers but not on up-stream value add.

  2. 4 anony 21 February 2011 at 10:35

    Yes, was shocked to note that GST collection progressively increased since GE2006! And to think that we had GST offsets which amounted to nothing becos the price of essential food products just went up & up & up. Rice, sugar, fruits, veges, fish continue to escalate in prices. Remember the rice shortage about 2 years ago & rice supply at our supermarkets were dwindling, the gahment stepped in to assure the public that there would be enough stockpile available but at the same time encouraged consumers to go for the potatoes, sweet potatoes as substitute staples as they cost less than rice.

    So what do GST offsets do anyway? The main thrust of this GST offset handout is just a smoke screen for the gahment to look caring & in touch with the layman in the street. On the other hand for retailers & suppliers, it signals to them to push prices of essential food products up. And now that gahment has increased foreign levy, your local HDB bakeries, kopitiams & food courts that rely heavily on China nationals will no doubt raise prices.

    I am done with all these GST offsets & election bribery of handouts to be given. Becos at the end of the day, you and I know that we will be forever chasing after higher & higher prices. Alwasys up never down.

    I can only speculate that our Cabinet ministers are greedily looking for a mega jump in their multi million salaries soon after GE2011. And hello to GST 10% as the rumour mill has been going.

  3. 5 defennder 21 February 2011 at 11:54

    Hi Alex,

    Note that GST revenue did not decline because of the recession either. So there must be more than meets the eye than just pointing out that personal tax revenue did not decline meant that the rich had insulated themselves from recession. Income tax revenue is projected to decline in 2010, although I have no idea why.

  4. 6 Gard 21 February 2011 at 12:58

    This May 2008 paper might offer a snapshot of income distribution:

    To verify the extent of ‘entrenchment’ by the rich, perhaps it might be useful to look back further into the recession years of 1998 (Asian crisis) and 2001 (Dot-com bust) and maybe 2003 (SARS) period.

    I suspect this ‘entrenchment’ is not uniquely Singapore phenonmenon; income inequality has risen throughout the OECD countries for the past decade.

    Budget 2011 should be examined with a perspective on “how could we have done differently back in 2010.” Too big a change and analyst would wonder if the government made a mistake back then. Since the government is incapable of admitting outright any failing, it takes the nuanced, watered-down approach.

  5. 7 suggestion 21 February 2011 at 14:44

    The second observation comes out of the combined line Personal Income Tax + Withholding Tax, and it’s quite stunning. The Withholding Tax was included inside Personal Income Tax up till 2009 and only shown separately from 2010 on. The collection of these taxes rose every year over the period 2006 – 2010 and is expected to rise further in 2011. You’d never guess that we had a recession in 2008 – 2009.


    That’s gross income tax and not per capita or household tax?

    THe population grew a lot from 2006 to 2010

    • 8 Gard 21 February 2011 at 17:15

      I suppose a quick calculations using the (personal income + withholding) tax figures divided by employment figures by MOM, can provide a rough picture of what’s happening at a per-worker level:

      Year / tax per worker / yoy % change
      2006 1887094.836
      2007 2083638.494 10.4%
      2008 2232082.374 7.1%
      2009 2424749.164 8.6%
      2010 2385173.247 -1.6%

      (Employment figures refers to both employees and self-employed.) If tax is paid on income earned on the previous year, the 2010 decline might be understandable. 2007 happened to be the year that income inequality as measured by Gini peaked at 0.489.

  6. 9 yawningbread 21 February 2011 at 15:18

    defennder — Where do you see Personal Income Tax declining in 2010?

    If you are referring to my table, please note 2009’s Personal Income Tax line includes Withholding Tax. In 2010, the format changed, splitting Withholding Tax away from Personal Income Tax.

    (Reference the footnote #1 in this statement by the Ministry of Finance: Total estimated receipts for FY2011 by Object Class which says very clearly “The Withholding Tax collection was previously included in the figures reported under Personal Income Tax”)

    I also mentioned the same in first paragraph of the section “Where’s the recession?” above.

    Therefore, to compare 2009’s figures with 2010, you must add the withholding tax to the 2010’s personal income tax figure. Once you do that, there is no decline.

    Re other comments so far, I will respond with an addendum article.

  7. 10 Simply a place to live? 21 February 2011 at 16:12

    Assets tax seemingly mirrors the economic cycle, dipping in 2009 before rising to 2008 levels by 2010.

    Assets tax comprises of property tax and estate duty. Estate duty has been abolished wef. 15 Feb 2008

    Even before its abolishment, estate duties have comprised a small percentage of assets tax. Assets tax may then be analysed primarily in terms of property tax. Property tax is payable in Singapore based on Annual Value, or the amount one would get from renting out one’s home based on prevailing market prices.

    Source: http://www.singstat.gov.sg/pubn/reference/yos10/statsT-publicfinance.pdf

    From here, I refer to this table http://www.singstat.gov.sg/stats/themes/people/hhldindicators.pdf detailing household and housing composition in Singapore between 2000 and 2010**.

    Of special mention is the category of “Others” (excluding Chinese, Malays and Indians). The proportion of this group of people residing in the prestigious types of housing is quite significant compared to the other races.

    Thus, a disproportionately high amount of property taxes is paid by people not amongst the major races. This might suggest that capital accumulation has accelerated in the hands of non-locals.

    Of course there is no definite association between the categories of race and citizenship (i.e. an Overseas Chinese or a local Eurasian). But it might also be useful to consider inequality amongst locals, PRs and foreigners to fully grasp the implications of this Budget.

    ** % in housing and household composition should take into account changes in Singapore’s population between 2000 and 2010

    2000: Total population: 4.02 mil, Resident population (incld. PRs: 3.27 mil
    2010: Total population: 5.07 mil, Resident population (incld. PRs) : 3.77 mil

    Source: http://www.singstat.gov.sg/stats/themes/people/hist/popn.html

  8. 11 John Tan 21 February 2011 at 17:14

    I suspect one reason personal income + withholding tax has been increasing despite the recession is the increasing number of taxpayers over the years.

    We’ve been adding about 200,000 new residents every year. Given our low birth rate and after substracting the low wage foreigners, it is safe to assume that the number of taxpayers have steadily increased.

    Population of Singapore from 2006-10 (in million rounded to 1 decimal place):

    2006 4.4
    2007 4.6
    2008 4.8
    2009 5.0
    2010 5.0

  9. 12 defennder 21 February 2011 at 17:36

    Ah I see thanks Alex for the clarification. I was mistaken on that. The other observation that GST has never decreased is valid though.

  10. 13 haveahacks 21 February 2011 at 20:12

    Actually, it shouldn’t be a surprise that personal income taxes did not fall as much as corporate taxes. That’s a known fact in Public Economics. Profits are always much more volatile than wages so in a recession, profits will fall more than wages. The flip side is true in a boom. In Singapore’s case, this is accentuated by the fact that we only tax employment and rental income but capital gains are tax-free. Investors might have lost their shirts in the stock market, but since we don’t tax gains or allow them to offset losses, that never shows up in the figures.

    The other factor is that the 2008 recession was actually a “phony” recession. The financial sector had a heart attack, but luckily for the rest of us, the real economy only suffered a few sniffles.

  11. 14 haveahacks 21 February 2011 at 21:06

    Oops. Partially take back what I said earlier. According to IRAS’ website, there was a 20% tax rebate in YA2008 and 2009, plus this year. That means that the income tax take also should be adjusted to what the taxes would have been without the rebate.

    Tax paid in 2007 2008 2009 2010 2011
    on income earned in 2006 2007 2008 2009 2010
    $billions 5.7 8.2 9.1 8.1 8.8
    (Assuming no income tax rebate)

    In addition, income tax is paid on income earned in the previous year, so after making these adjustments, we can see that incomes did in fact fall quite sharply in 2009. It’s just that that was masked by the withdrawal of the 20% rebate in 2010. We can only speculate as to whether there would have been a rebate if the election had been due last year rather than this year…..

  12. 15 Jonno 22 February 2011 at 16:15

    Singapore Budget (2006-2011) over the last 5 years shows worrying long term trends. Firstly, the tax revenues from personal and corporate income show an up-&-down-&-sideways trend. Even taking into account incremental tax cuts – one can assume that the days of Singapore’s high economic growth seen from late ’80s to 90s (Post-Pan-El crisis era) is no longer possible! PM Lee’s decision to open Singapore to casinos/gambling must be due to this slowing economic growth.

    Reliance on new sources of tax revenues are clearly evident from B50 (GST), B60 (Betting Tax) & B80+B90 (Other Taxes). This is in tune with expectations that increasing GST & gambling taxes will be driving Singapore economy in the future. Another possible reason for increasing GST revenues are connected to immigration intake both quantity (work horses) and quality (HNWIs)!

    Other sources of tax revenues are derived from tobacco/alcohol (B30 – Customs & Excise Tax), property-based transactions (B20 – Asset Tax & B70 – Stamp Duty) and car/transport-related (B40 – Motor Vehicle-related taxes, C-00- Fees & Charges) are dependent on the economy & people’s expectations, there are often volatile & unpredictable.

    On the expenditure side, Government running costs are rising over time (not surprising as Ministers’ pay are regularly increased). This is the escalating MAIN item that needs to be funded through tax revenues. Guessing GST and gambling tax would be the main sources.

    Lack of significant social welfare expenditure reveals an economy not geared to looking after Singapore citizens. This will bode badly for those have not the resources to look after themselves post-retirement. Surpluses from investments and land-sales are LOCKED up in government treasury. Basically, the Government’s budget show a soaking up effect of the overall economy and a very stingy expenditure which only looks after the instruments of the government. SINGAPOREANS are nothing in this equation!

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