BUDGET 2008

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BUDGET 2008

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37.

Mr Gautam Banerjee asked the Minister for Finance in light of the global financial crisis and its impact on the global economy and Singapore economy which is now in a technical recession, whether the assumptions, estimates and forecasts inherent in the Budget presented to Parliament on 15th February 2008 need to be re-examined/revised.

Mr Tharman Shanmugaratnam: At the time of Budget FY08, the Government’s forecast of GDP growth for 2008 was 4%-6%, and inflation between 4% and 5%. These forecasts were also in line with most market forecasts in February 2008. However, we also highlighted in the Budget the significant downside risks to growth in 2008 due to the turmoil that was ongoing in global financial markets. We also underlined the risks of higher inflation arising from the run-up in oil and food prices.

As the year progressed, these risks have in fact materialised. Growth is now likely to fall significantly below the forecast range at the start of the year. Inflation also rose to above 6% in the middle of the year, although it is now falling together with the decline in commodity prices. Overall, inflation should average above 6% in 2008, or between 5% and 6% if we exclude rental values that are imputed to owner-occupied homes (which do not reflect cash expenditures).

We will be revising our budget estimates for FY08, taking into account the latest available information and the most updated forecasts for the remaining five months of the fiscal year (ending in March 2009). It would be premature to provide a precise revised forecast for the Budget at this point given the considerable uncertainty in global markets currently. However, I can provide a broad sense of what we are now expecting.

We had originally projected a deficit of $800 million for FY08 in the Budget. We now expect expenditures to be significantly higher than budgeted in view of the higher cost factors in infrastructural projects, additional spending on the new and enhanced Marriage and Parenthood measures, and higher payouts from the enhancements to Growth Dividends and U-Save rebates that PM announced in his National Day Rally speech. Further, there may also be some dampening of revenues in view of the lower than expected economic growth and more subdued property transactions, especially in the last two quarters of the fiscal year.

We should therefore expect a significantly larger deficit in FY08 – possibly more than three times larger than the initially estimated $800 million.

We are not seeking to reduce this deficit, either by trimming Government expenditures or raising additional revenues. The larger deficit is an appropriate fiscal stance in the context of an economy that has entered a slowdown. We have in fact raised expenditures over the course of the year, so as to allow for a more expansionary budget in the current economic environment. We will be able to fund the larger deficit from the surpluses we accumulated in FY07, when we had unexpectedly higher revenues.

In the Budget Statement in January 2009, the revised budget estimates for FY08 will be presented along with the estimated budget for FY09.