Since its inception, Singapore’s paramount economic advantage has lain in its seamless integration with global markets, attracting vast foreign investment and driving trade flows that transformed it from a sleepy entrepot into a burgeoning metropolis.
Yet the turbulence unleashed by Donald Trump’s tariff wars has starkly illuminated how such openness can become a strategic liability. With Singapore’s GDP forecast for 2025 recently slashed to a mere 1.7% — a precipitous decline from the twenty-year average of 4.2% — it’s time to reconsider the island-nation’s fiscal paradigm to catalyze economic stimulus and fortify long-term resilience.
Two fiscal levers merit particular scrutiny: the Goods and Services Tax (GST), a 9% consumption levy and the Net Investment Returns Contribution (NIRC), which channels returns from GIC, Temasek and the Monetary Authority of Singapore into the national budget. Parliamentary discourse has misleadingly cast these instruments in binary terms.
The Workers’ Party and Progress Singapore Party have advocated increasing the share of the NIRC used for public spending from 50% to 60%, potentially unlocking S$4 billion to S$5 billion (US$3.1 billion to US$3.9 billion) annually to boost the economy and strengthen social safety nets.
Both have also proposed targeted GST relief, whether through the PSP’s call for a rollback to 7%, or the WP’s push for exemptions on essential goods. Meanwhile, the incumbent People’s Action Party (PAP) remains wedded to the austere status quo, preserving the full GST rate while stockpiling national reserves for our “rainy day fund.”
To avert further economic torpor, Singapore must confront its two greatest exigencies: persistent inequality and an impending demographic crisis. The PAP should therefore harness the full spectrum of government resources by synthesizing salient opposition fiscal proposals into a hybrid framework — maintaining the existing GST structure while augmenting NIRC expenditure.
Contrary to the PAP’s postulations, Singapore has considerable scope to responsibly expand NIRC spending. The party routinely echoes the plight of Indonesia, Malaysia and Thailand during the 1997-98 Asian financial crisis as proof that insufficient reserves can catalyze currency collapses.
But this narrative is patchy at best. Those countries suffered from profound structural vulnerabilities, including fragile financial systems, vast short-term foreign-currency debts and inadequate reserves.
Even South Korea, which benefitted from relatively robust investor confidence, was beset by comparable systemic risks, as exemplified by its parlously overleveraged chaebols and limited domestic savings base.
None of these conditions applies to contemporary Singapore. With a meticulously regulated financial system, Singapore is the only country in Asia to boast a AAA credit rating. The country commands approximately US$511 billion in foreign exchange reserves.
This comprises a minute fraction of the total estimated S$1.9 trillion, yielding an extraordinary reserves-to-GDP ratio of just under 300%, one rivaled only by resource-rich states such as Qatar and Norway.
Crucially, the WP and PSP merely wish to modestly increase the share of investment returns allocated for public expenditure, not the assets themselves – hardly a radical adjustment that would imperil the country’s formidable fiscal bulwark.
The government’s stringent criteria for reserve utilization further underline the infrequency with which such funds are deployed; over the past two decades, reserves have been tapped only twice: S$4.9 billion during the 2008 global financial crisis (which was fully replenished within two years), and S$40 billion amid the highly unprecedented Covid-19 pandemic.
Former Prime Minister Lee Hsien Loong’s admonition to restrain NIRC spending, given the unpredictability of future crises ranging from geopolitical upheavals to climate threats, should buttress rather than diminish the imperative to address pressing domestic challenges.
Unmitigated, these internal issues could pose even graver risks to Singapore’s long-term prosperity, increasing the necessity for emergency withdrawals in future crises.
The merits of raising public spending also rationalize maintaining the GST at its current rate. While the WP and PSP rightly highlight its disproportionate burden on lower-income households, the GST confers irreplaceable advantages.
It preserves Singapore’s fiscal flexibility to sustain ultra-competitive personal and corporate tax rates, a pivotal asset given the city-state’s dependence on foreign capital inflows.
Moreover, the PAP correctly notes that as a broad-based consumption tax, GST revenue is significantly underpinned by tourists, expatriates, and the wealthiest 20% of residents, who account for 70% of total collections.
Instead, transfer schemes such as GST-V should be bolstered to mitigate the GST’s regressive impact. Inequality remains alarmingly rampant; even after accounting for such transfers, the bottom 10% and 20% of households only earn 15% and 30% of the median income, respectively, disparities that are both morally indefensible and economically detrimental.
Financial insecurity deters lower-income individuals from risk-taking, whether by seeking better-suited employment or entrepreneurial ventures such as heartland food stalls, thereby stifling overall productivity. Furthermore, this inequity renders these groups disproportionately susceptible to economic shocks, escalating the future fiscal burden of crisis support.
Additional revenues should be channelled into two pivotal areas to unlock the potential of lower-wage workers, investments that promise handsome rewards. The first involves upskilling initiatives, particularly SkillsFuture, which remain largely inaccessible to those most in need.
Employer support is markedly skewed, with 69% of degree holders receiving training sponsorship compared to just 41% of those with only secondary education, and the scarcity of hybrid and online learning options further restricts participation among lower-income workers constrained by time.
Enhanced funding could redress these gaps and facilitate upward mobility, an especially critical priority in the face of rising automation risks.
Secondly, the increased spending from the NIRC and GST could bolster Singapore’s SMEs, which employ lower-income workers more often than larger companies.
Since these businesses have a relative lack of creditworthiness and collateral, initiatives such as the Enterprise Financing Scheme and SME Working Capital Loans would empower these businesses to invest in digitalization, sweeten incentives to attract talent and broaden their international customer bases, strengthening their resilience amid economic downturns.
Addressing the needs of lower-income groups also intersects with a critical demographic imperative: reversing Singapore’s vertiginously declining birth rate, which plummeted to a historic low of 0.97 in 2024. This trend portends a drastic reduction in working-age adults per senior from 5.7 in 2015 to an alarming 2.7 by 2030, threatening to curtail output and tax revenues.
Singapore’s status as the world’s most expensive city in 2022 elucidates much of this reluctance to procreate; 89% cite the exorbitant cost of child-rearing, while 81% lament insufficient time.
NIRC and GST revenues could meaningfully alleviate these pressures, chiefly by subsidizing housing and childcare and enabling businesses to adopt more flexible work arrangements. Admittedly, many countries, such as Russia and Hungary, have expended mammoth resources into reversing their population declines, only to see minimal results.
But Singapore’s enviable economic fundamentals could make similar measures far more efficacious, as demonstrated by Sweden’s success in the early 1990s, where sustained family support during an economic boom lifted fertility rates even above replacement levels.
With renewed global economic uncertainty on the horizon, coupled with the longstanding pressures of inequality and demographics, Singapore’s political leaders can ill afford to obdurately cling to their reductive views of the GST and NIRC.
Rather, they must recognize both as complementary levers to amplify public investment, uplifting present well-being while safeguarding the future.
Sean Tan is a former King’s Scholar at Eton College and intern at the Center for International Governance Innovation. He has also written articles for St Antony’s International Review Oxford, Yale’s undergraduate US-China magazine “China Hands”, Oxford Political Review and several other notable publications.
