SINGAPORE: The return of Donald Trump to the Oval Office has sparked heated debate over the how United States’ government finances - in particular, its soaring debt - will change under the new administration.
America’s budget looms front and centre over President Trump’s agenda. At stake is not just whether the US can avoid another government shutdown, but more importantly, whether it can bring the federal debt onto a sustainable path.
This depends on how much Elon Musk’s controversial Department of Government Efficiency can trim from the federal budget, how much additional revenue higher tariffs will net, and whether these can offset the impact of extending tax cuts that were introduced in 2017.
Elsewhere, contention over budgets and budgeting rules has upended the political landscape. Germany’s three-party coalition government collapsed last year over disagreements about the reform of the country’s debt brake - strict constitutional rules that limit the country’s structural deficits.
In France, wrangling over the budget precipitated a change of prime minister and cabinet, and the country is now scrambling to get its 2025 budget passed.
IMPORTANCE OF BUDGETS AND FISCAL POLICY
Budgets can make or break governments as they are at the core of any administration’s policy agenda, setting out what the state will spend on and how this will be funded.
The government’s revenue and expenditure policies are important for a number of reasons. Along with monetary policy, fiscal policy can help to smoothen out economic cycles by stimulating demand during economic downturns, and conversely, moderating demand to cool an overheating economy. Taxes and subsidies can create or help correct market distortions, and thus affect market efficiency, besides shaping a country’s business and investment climate.
Taxes and transfers are the mechanism by which the state redistributes from those who are better-off to those who are less well-off, mitigating inequality. Finally, government spending supports economic development through investment in infrastructure, capabilities and human capital.
Fiscal sustainability is critical for any country to be able to sustain spending into the future without having to hike taxes sharply or rack up excessive debt. Financial resources are also needed to respond to external economic shocks in a volatile world.
FOSTERING ACCOUNTABILITY AND TRANSPARENCY
While putting together the national budget is an inherently political process, the budget is more likely to meet the country’s needs if it is underpinned by a robust system of fiscal planning that fosters accountability and transparency.
Several jurisdictions have mechanisms to hold governments to account for their spending and revenue plans, particularly where political leaders vying for office make all manner of promises to the electorate.
The US Congressional Budget Office, a nonpartisan agency established by law, was set up in 1974 to provide information to Congress for informed budgeting. The Office for Budget Responsibility has performed a similar role in the UK since its establishment in 2010.
Another useful practice is to publish a medium-term fiscal forecast or outlook. This helps to promote fiscal discipline and transparency by communicating the government’s fiscal goals and policies and providing an assessment of the fiscal impact of policy choices. If implemented well, a medium-term fiscal framework can inform the preparation of annual budgets and assure the public that there will be sufficient revenues to fund the government’s policy agenda.
The need for such assurance has been less pressing in Singapore, given the government’s strong track record of fiscal prudence, reflected in sizeable Budget surpluses that the government used to run in previous decades.
As spending pressures grow, however, trade-offs between competing priorities will be brought into sharper relief. This is why the Ministry of Finance published a paper on medium-term fiscal projections in 2023. Given global economic volatility, the medium-term fiscal outlook may need more frequent review and updating in the years ahead.
SINGAPORE’S DISTINCTIVE BUDGET FRAMEWORK
Besides transparency and accountability, an effective budget should be aligned with national priorities, including societal values and citizen aspirations. In particular, it should reflect a considered balance between the needs of current and future generations. Finally, the budget process should foster close coordination across public agencies in delivering the government’s agenda.
Singapore’s budgeting framework has distinctive features, including recent enhancements, that address each of these objectives. While the system has served us well thus far, it must continue to evolve and innovate in the face of emerging challenges.
The annual Budget is guided by societal values and aspirations distilled from national consultations, which a recent OECD paper titled Budgeting In Singapore In 2025 describes as a “uniquely Singaporean process”. For instance, findings from the Forward Singapore exercise in 2022-203 has helped inform Budget measures in areas such as child development, employment and retirement.
Finance Minister Lawrence Wong in his 2024 Budget speech stated that the Budget would roll out the “first instalment” of Forward Singapore programmes.
Indeed, Forward Singapore has set out medium- to longer-term objectives that will take at least several Budgets to address. It is therefore important to take stock of the cumulative impact of several Budgets on each priority area, rather than focus on what a single Budget delivers.
Intergenerational fairness is another key consideration for budget planning and budgeting rules. For instance, excessive borrowing to finance current spending can lead to a significant debt burden on future generations. Borrowing aside, pension liabilities may have a similar impact.
In Singapore, constitutional rules limit the amount that the government can spend from the investment income generated from the national reserves. The intent is to have the reserves grow at approximately the same pace as the economy, so that future generations can continue to benefit from it to the same extent.
The balance between current and future spending requires constant recalibration. For many years, the government has financed major infrastructure projects from current taxes and revenues. However, with the fiscal space tightening, it introduced a Significant Infrastructure Government Loan Act in 2018 that permits borrowing for long-term, nationally significant infrastructure. This supports intergenerational fairness by sharing the cost of financing with future generations who would benefit from the infrastructure.
The multifaceted nature of many challenges such as population ageing, technological disruption and climate change requires public agencies to work closely together to achieve policy objectives. Budgetary processes should incentivise and encourage such collaboration.
The Ministry of Finance has introduced joint budgets to foster greater cross-agency collaboration with a view to rationalising efforts and enhance accountability for shared outcomes. Rather than park large resource buffers within each ministry or agency, the ministry is retaining more resources for reallocation to the areas of most pressing need. This gives the government greater agility to meet new and emerging challenges.
These budgetary innovations build on a strong budgeting framework set out in law and established practice. The OECD paper on Budgeting In Singapore In 2025 recognises that Singapore has made “successive changes to its Budget framework” and reformed the way this framework has been applied.
As Singapore plans ahead for future expenditure needs and revenue sources, the Budget framework itself must continue to transform to support the country’s needs.
Terence Ho is Associate Professor (Practice), Singapore University of Social Sciences. He is the author of Future-Ready Governance: Perspectives on Singapore and the World (2024).
