Fiscal Policy

The main focus of the Government's expenditure is on the delivery of essential public goods and services to Singaporean. The Government spends to assure the nation of a secure future. Therefore, key areas of expenditure are on education, public housing, health care and national security. The Government is also committed to building and maintaining world-class economic infrastructure and services. This is evidenced by the fact that development expenditure accounted for around one-third of government expenditure on average over the last three decades.

Singapore's tax policies, although providing the main source of funding for the government, seek to enhance its economic competitiveness and attract foreign investments to Singapore.

This combination of fair tax policies and prudent expenditure programmes are key reasons for Singapore’s successful fiscal policy over the years, which complemented the monetary policy in promoting sustained and non-inflationary economic growth.

As Singapore’s fiscal policy is directed primarily at promoting long-term economic growth, rather than cyclical adjustment or distributing income, the Singapore Government has adopted the following principles in its conduct to meet its objective:

  • the private sector is the engine of growth, and the government's role is to provide a stable and conducive environment for the private sector to thrive;
  • tax and expenditure policies should be justified on microeconomic grounds and focus on supply-side issues, i.e. incentives for saving, investment and enterprise;
  • the counter-cyclical role of fiscal policy is limited, due to high import leakages.

Against the backdrop of such a prudent fiscal policy, Singapore was able to enjoy consistent budget surpluses over the years, which contributed to a high savings rate that allows it to achieve one of the highest investment rates in the world without having to incur foreign debt. High domestic savings have further, in turn, provided Singapore a high level of foreign reserves, which has served to boost investor confidence and provide a buffer against adverse economic shocks.

 

With this ethos of fiscal rectitude, which extends throughout the public sector, the MAS has been able to focus on its primary goal of ensuring price stability and preserving confidence in the domestic currency through the appropriate management of the S$ exchange rate, without needing to balance this against the requirements of deficit financing.

 

Please refer to the website of the Ministry of Finance for more information on Singapore's fiscal policy.