The Singapore Commentator

Among those who had asked for handouts from the government during the budget debate, I thought that businesses were among the least deserving. Businesses may need more structural reform to sustain them for the long term, but in what looks like a relatively good economic year, fiscal handouts appear out of place.

Prime Minister Lee Hsien Loong appears to agree.

PM Lee explains why companies did not get all they wanted in Budget
Prime Minister Lee Hsien Loong gave reasons why business did not get as much as they hoped in Budget 2005. He said part of the reason was because major tax changes in the last five years have already saved companies at least $1.8 billion a year. Mr Lee said the government had also adopted a conservative fiscal policy stance this year because the Singapore economy has been expanding within its long-term sustainable growth rate.

Singapore’s economy grew an impressive 8.4 percent last year, but that was coming from a low base in 2003 when SARS hit. On average, economic growth over the past two years was 3.4 percent — well within Singapore’s long-term sustainable growth rate. Mr Lee said that is why Singapore’s economy does not need further stimulus this year.

Even though Budget 2005 may be less expansionary than last year’s, Mr Lee notes that the government’s total expenditure is still higher than its operating revenues. “We are now able to balance the overall budget only because of the contribution from net investment income, and even then we expect to have only a thin buffer — a surplus of 0.5 percent to 1 percent of GDP in the medium-term. Our fiscal objective is to achieve an overall budget balance, or a modest surplus, on average over the business cycle,” he said.

There’s that thing again about achieving a balanced budget, which I had touched on in my post on the so-called budget crunch.

I think the view of Morgan Stanley economist Daniel Lian on Singapore’s budget is pertinent here. Here’s an excerpt:

The long-term fiscal and government wealth positions of the republic remain very strong. The broad fiscal trend continues to be structurally healthy and, at the same time, the government directly and indirectly is controlling huge corporate and financial wealth... The structural fiscal latitude and vast government wealth mean there is considerable financial and policy scope for Singapore to further slash its tax rates and strengthen its pro-business environment in the future.

Adding to the views of Standard & Poor’s, I think the message on the real state of the government’s fiscal position is pretty clear.