Observations on our fiscal position
Mr Speaker, as the final budget for this term of Parliament, I thought it would be interesting to share some trends I've observed over the past four years.
Let me first begin by stating the obvious. The projected surplus of $6.8 billion for FY2025 was wildly unexpected, following a huge increase in the projected surplus in FY2024 from $0.78 billion to the revised figure of $6.4 billion. Contrast this with a poll of private sector economists in Singapore, reported by the Business Times, which suggested a possible deficit of up to $6.6 billion for Budget 2025.
The combined fiscal surplus of $13.2 billion for FY2024 and FY2025 was also surprising in the context of questions raised in Parliament towards the end of last year. In September 2024, I asked for an update on the cumulative fiscal position of the current term of Government, where PM Lawrence Wong shared that FY2024 was ongoing, but the overall fiscal position was estimated at $0.78 billion.
Additionally, the Government has made substantial top-ups of $41.6 billion to endowment and trust funds in these two years. While these funds serve real needs, the magnitude of the surpluses generated within this short timeframe remains significant.
To provide perspective, the reserves drawn down during the COVID-19 crisis amounted to approximately $43 billion. It was previously said that this represented over twenty years’ worth of past budget surpluses. Yet, in just two years, the Government has set aside nearly $42 billion in additional resources, and over the last four years, this figure rises to $72.2 billion.
Another key difference is Singapore’s accounting approach, which excludes land sale proceeds. In FY2024, this amounted to $25 billion, and in FY2025, an estimated $19.4 billion.
Higher-than-expected surpluses are not a recent phenomenon. In FY2021, an estimated deficit of $11 billion turned into a surplus of $1.9 billion. In FY2022, a projected deficit of $3 billion became a surplus of $1.7 billion. Even in FY2023, while a deficit of $0.4 billion was initially estimated, a wider deficit of $2.5 billion was recorded—though without an additional $7.5 billion set aside for the Majulah Package Fund, it would have been a $5 billion surplus instead.
While uncertainty is a reality, if the Government consistently collects more than it needs and runs large surpluses year after year, it raises questions about the wisdom and urgency of raising taxes—such as the increase in GST—especially when many Singaporeans continue to struggle with inflation and the cost of living.
Structural changes vs. one-off handouts
With the General Election approaching, it is natural for Singaporeans to be skeptical of one-off handouts. This year appears to be the year of vouchers, with CDC vouchers, climate vouchers, and the new SG60 vouchers. Given record surpluses, it is appropriate to share these resources with Singaporeans. However, broad-based handouts should not replace structural reforms that ensure lasting affordability.
Firstly, structural mechanisms should be prioritized over one-off schemes, which may be politicized, require significant administrative resources, and create uncertainty. Secondly, resources should be directed towards those who need them most, rather than adopting an indiscriminate approach.
For instance, the CDC Voucher Scheme initially aimed at assisting lower-income households has expanded to include all Singaporean households, with amounts varying across years. It remains unclear whether this will become a permanent scheme and, if so, whether all households will continue to qualify.
Updating personal income tax brackets
A 60% personal income tax rebate (capped at $200) was introduced for YA2025, similar to YA2024 (50% capped at $200) and YA2019. Instead of making this an annual one-off rebate, a better approach would be to adjust personal income tax brackets and raise the tax-free threshold to reflect inflation. Based on my estimates, nearly 80% of resident taxpayers receive only the $200 cap, making the rebate less generous than the 60% headline rate suggests.
Strengthening retirement adequacy
The Government should implement structural reforms to enhance CPF savings, especially given our ageing population. A recent DBS report suggests that a retiree with a modest lifestyle requires approximately $550,000 in savings, while an aspirational lifestyle would necessitate $1.3 million. Many Singaporeans struggle to build such a nest egg.
A 2024 OCBC survey found that only 35% of respondents were on track with their retirement plans, with financial constraints hindering savings. A recent parliamentary reply revealed that only 52% of CPF members have at least $60,000 across their balances. Even among active members, only 74% exceed this threshold—a figure that remains worryingly low.
Implementing the Lifetime Retirement Investment Scheme (LRIS)
I once again urge the Government to implement the Lifetime Retirement Investment Scheme (LRIS), first accepted in 2016. This scheme would provide CPF members with better returns without requiring them to make complex investment decisions.
CPF investments currently offer risk-free returns, but they may not be sufficient. While CPF members can invest via the CPF Investment Scheme (CPFIS), not everyone has the expertise to make sound financial choices. A recent Lianhe Zaobao interview with PM Lawrence Wong noted that the Government is still studying the scheme’s viability, questioning whether it can outperform CPF’s guaranteed returns. However, studies have already been conducted, and delaying implementation only increases opportunity costs for Singaporeans.
Had the LRIS been introduced a decade ago, Singaporeans’ retirement funds would be significantly larger. Endowus, an investment advisory firm, highlighted that a portfolio of 80% equities and 20% bonds generated annual returns of 7.99% from 2014 to 2024—far exceeding CPF’s 2.5% interest rate.
If the Government lacks confidence in its investment entities’ ability to outperform CPF returns, then the NIRC framework itself warrants review.
Addressing inequality
Inequality in Singapore is increasingly based on socio-economic status rather than race or religion. In his Budget 2025 speech, PM Lawrence Wong highlighted that income inequality—after taxes and transfers—is at its lowest since 2000. However, this trend is driven by short-term transfers like the GST Assurance Package and CDC vouchers. Without sustainable measures, these effects may not persist.
The latest household income trends report indicates that many households still earn below a living wage. Even after a decade of the Progressive Wage Model (PWM), an estimated 136,200 households earn less than $3,000 per month, representing nearly half a million people. Meanwhile, from 2014 to 2024, the number of households earning above $20,000 per month has increased by 158,000, highlighting a growing disparity.
According to a 2024 UBS report, Singapore saw the highest growth in wealth inequality among 29 major countries between 2008 and 2023, with the richest benefiting disproportionately from economic growth.
Beyond income inequality, we must address wealth inequality through bolder policies, including a stronger minimum wage framework, enhanced wage supplements, and more redistributive measures. Greater wealth taxation should also be explored to ensure equitable resource distribution.
Additionally, inequalities in education and job opportunities must be tackled. Access to primary school placements should not be determined by parental background, ensuring fair opportunities for all children.
Conclusion
In conclusion, Mr Speaker, if the Government continues to generate large surpluses while raising taxes on Singaporeans, its fiscal policies should be scrutinized. Structural reforms to CPF and taxation are urgently needed to address retirement adequacy and cost-of-living pressures. Finally, inequality—particularly socio-economic disparities—must be tackled proactively to foster a fairer society for all Singaporeans.
