Investment returns allow record spending despite tax revenue gap: analysts

Government expenditure is expected to increase by 10.3% to $137.3b in FY2026.

Singapore is projecting an $8.5b fiscal surplus for FY2026, but higher government spending is outpacing tax revenue, with the overall surplus largely supported by investment returns, bank analysts said.

“The overall fiscal surplus is attributed to the net investment returns contribution of $28.5b,” According to Maybank.

The bank noted that government expenditure is set to rise 10.3% to $137.3b in FY2026. As spending grows faster than operating revenue, the Budget will run a primary deficit of $2.8b and a basic deficit of $5.4b.

Despite this, the projected $8.5b surplus “preserves some dry powder” at the start of the new electoral term, it added.

Bank of America said the stronger-than-expected $15.1b surplus in FY2025, combined with the projected FY2026 surplus, gives the government flexibility under Singapore’s Balance Budget Rule, which requires the overall budget to be balanced over its term.

Although the headline surplus suggests caution, fiscal impulse is projected at +0.6% of GDP in FY2026, indicating that the Budget will still provide modest support to the economy. The economy is forecast to grow by 2%–4% next year.

Prime Minister Lawrence Wong said the higher surplus follows stronger corporate tax collections over the past year. According to UOB, operating revenues in FY2026 are projected to rise 3%, supported by higher corporate income tax receipts, personal income tax collections amidst wage growth, and stronger GST revenue from private consumption.

The FY2025 overall fiscal surplus more than doubled to $15.1b, or 1.9% of GDP, from the original estimate of $6.8b. “The outturn reflected stronger operating revenues and a larger net investment returns contribution, alongside a more modest-than-expected overshoot in total expenditure,” UOB said.

S&P Global Ratings said the FY2025 surplus significantly exceeded initial projections, supported by higher corporate income tax, stamp duty collections and vehicle quota premiums.

However, the agency noted that Singapore faces rising long-term spending pressures from infrastructure projects and an expanding social safety net, as its ageing population drives healthcare spending higher.

“To fund its recurrent spending, the government implemented several revenue measures in recent years, including a two-step hike in the goods and services tax to 9% from 7%,” S&P said.

Analysts said that whilst Singapore continues to run overall surpluses, rising structural spending means investment returns will remain an important pillar of the Budget.