Mr. Speaker, this year we tabled the largest budget in our history, larger than the five budgets combined in 2020 to fight COVID. And not surprisingly, we also have a record number of members participating in this debate, and I thank everyone who has spoken and supported the budget.
I would like to start by sharing with members something I say at all budget dialogues I have attended so far, and that is: please do not look at any one budget in isolation, because it's not possible for any single budget to be all-encompassing. So if your favorite item is not mentioned in this year's budget, it does not mean that it has been overlooked or ignored, because every budget builds on the last and lays the framework and groundwork for the next.
Indeed, in the debate, several members highlighted that suggestions and points they raised on AI in previous years were taken up in this year's budget. So that's the spirit in which we craft and design every budget. And on that note, I've listened carefully to the many thoughtful suggestions that have been shared. In the last few days, even on occasions when I've not been in this chamber, I've read your speeches. We will study your suggestions and give them due consideration. And maybe in a few budgets from now, some of these suggestions will be highlighted thereafter.
Sir, I will not be able to address every point raised today. The program-specific questions will be taken up during the Committee of Supply debates. For my response, I will focus on three broad issues that have been highlighted.
First, how will we secure continued economic success and good jobs for Singaporeans in a changed world? Second, are we doing enough to ease cost pressures and ensure every Singaporean can progress? And third, is our fiscal strategy fit for the future and the challenges we face, both now and in the future?
Let me start with how we sustain economic success and secure good jobs for Singaporeans. Many members spoke about this, including Miss Jessica Tan, Mr. Victor Lie, Mr. Kenneth Tong, Dr. Neil Kong, Dr. Wan Rizal, Miss Guki, and Mr. Vikram Na, amongst others.
Our economic strategies must adapt to a changed world. This is a world where power and strength increasingly shape outcomes, where rules are more contested, where economic relationships are being rewired. We felt these pressures acutely last year, especially after the US Liberation Day tariffs.
Now, fresh changes in US tariffs remind us that uncertainty and volatility is becoming the norm. And in such a world, smaller countries like Singapore risk being bypassed or marginalized. Right? So we cannot afford to stand still. We must deepen trusted partnerships, diversify our links, and strengthen our resilience. And crucially, we need to establish leadership positions in key domains so that we create distinctive value that others cannot easily replicate. And many members talked about value capture for our economy. That's exactly what we are doing. And so we are investing heavily in R&D, building up our enterprise ecosystem step by step, and anchoring cutting-edge investments in Singapore. We must stay at the frontier in advanced manufacturing, finance, digital services, and new growth sectors.
In the past, growth and jobs moved more closely together. When the economy expanded, firms hired more workers across the board. Today, the relationship is more complex.
Let me explain. Our fast-growing sectors are export-oriented. That's to be expected. These companies in these sectors compete globally, and they create well-paying jobs with strong career progression opportunities.
But precisely because they compete at the frontier, they have to be productive and operate efficiently, often with lean manpower.
And that's a global trend. You look at leading companies around the world; some of them run highly automated facilities, including so-called dark factories that operate 24/7 with minimal human presence. And that's one reason why manufacturing employment in many advanced economies has steadily fallen.
We see similar patterns here in Singapore. Over the last decade, the manufacturing sector has on average contributed about 20% of GDP, but its employment share is smaller. It has declined from 14% in 2015 to about 12% today.
Over that same period, employment in exportable services areas like finance, IT, and professional services has grown as we diversified our economy. Yet taken together, the manufacturing, finance, IT, and professional services segments of our economy account for just around 30% of employment.
Does that mean that growth is no longer important? Far from it. Growth is essential. It creates new opportunities, raises wages, and generates the resources we need as a society. Frontier industries, in particular, produce positive spillovers. They anchor our enterprise ecosystem and drive demand across the rest of the economy.
So without sustained growth, and especially growth at the frontier, investments will go elsewhere, capabilities will erode, wages will stagnate, and Singapore risks a real decline.
But growth alone is not sufficient. Growth alone will not automatically translate into job opportunities across the board.
We must also uplift the broader domestic economy, raising productivity, wages, and career pathways across the services sector. And that's why we are taking sustained action in areas like education, healthcare, and social services. We have put in place skills frameworks to articulate competencies, enable skills upgrading, and support structured progression in these areas. We have increased salaries for workers in public healthcare institutions and government-supported preschools. We have updated salary guidelines for the community care and social service sectors.
These are not ad hoc or one-off moves. They are integral to our economic strategy, because inclusive growth means more than developing frontier industries. It also means ensuring that domestic services — services that Singaporeans rely on daily — become more productive, more professional, and more attractive as careers.
In this regard, SMEs play a critical role. They employ many Singaporeans and anchor economic activity across our island. Many members also shared their concerns about SMEs, including Miss Diana Pang, Mr. Jackson L, Mr. Fati Fousy, Mr. Edward Shia, Mr. Denise Pua, Mr. Aza Ofman, and Mr. Sharia Taha.
In particular, the two SME segments under greater pressure are retail and F&B, food and beverage. These sectors face structural headwinds from e-commerce and changing consumer habits, and from increased overseas travel by Singaporeans, and perhaps also by the strong Singapore dollar.
Yet even amidst these challenges, the number of F&B and retail establishments continues to grow, and with more players in the market, competition has intensified. So how should we respond to these trends? In the immediate term, we have provided corporate income tax, or CIT, rebates, including in this budget. Over the longer term, our support must be sustainable and should not distort market incentives.
For businesses in retail and F&B, what are their cost drivers? The largest components of their operating expenditure are the cost of goods and materials, labor, and rent.
Let me go through each one of these. In a small economy like ours, goods and materials are largely priced in global markets, so there's little scope for us to influence these costs.
On rental cost: at the macro level, rentals have broadly tracked economic fundamentals. Rent increases for retail spaces have trended below nominal GDP growth and inflation in the last few years.
Rental costs have also declined as a share of total business cost. Between 2019 and 2024, they fell from 26% to 17% for the F&B sector and from 30% to 26% for the retail sector.
Now, that's the broad picture. Of course, market rents vary by property type and location. Individual tenants may face higher rent increases at renewals, and we are mindful of these cases where government agencies are landlords, like HDB and JTC, and where we have direct oversight, like in hawker centres. We have frameworks to keep rents fair and competitive, and we will continue reviewing and updating these frameworks. We will also continue to monitor the situation closely to ensure that rentals remain sustainable and competitive.
I've covered cost of goods, rental. Next, manpower.
Indeed, labour costs have increased in recent years. Part of this reflects structural factors — an ageing population and tighter labour supply — as well as market forces as firms compete for workers. But part of this is also the outcome of policy. Through the Progressive Wage Model, we are raising wages for lower-wage workers. That's the right thing to do to uplift incomes, strengthen dignity in work, and narrow wage gaps. And at the same time, to support businesses through the transition, we introduced the Progressive Wage Credit Scheme. And in this budget, we are enhancing the scheme and extending it for another two years. That reflects our consistent approach to uplift workers while supporting firms to adjust.
Mr. Mark Lee asked for more leeway for SMEs to hire foreign workers. We cannot relax the Dependency Ratio Ceiling, the DRC. Doing so will encourage excessive reliance on foreign manpower and weaken our Singaporean core. But we will consider calibrated ways to provide more flexibility, like expanding the sources from which businesses can hire work permit holders for certain types of occupations where genuine shortages exist. And we will continue to strike the right balance: sufficient flexibility for businesses without undermining Singaporean workforce development.
Ultimately, the sustainable path forward is productivity improvement and business transformation, and many members spoke about this. We know that SMEs need more support to embark on such transformation. Several members, including Miss Cassandra Lee, Mr. Lee Hongan, and Mr. Henry Quag, have offered suggestions on what more we can do. Mr. Mark Lee also highlighted the need to strengthen management capabilities, and he and several other MPs, including Mr. Leanga and Mr. Victor, spoke about the importance of internationalization.
These are all useful feedback and suggestions, and the government will continue to take them on board, study them, and lean forward to enable our SMEs to innovate, upgrade, and internationalize. SMEs that redesign jobs and transform their operations can offer higher wages and more meaningful opportunities to attract and retain Singaporeans. Many SMEs have done so successfully, including those in retail and F&B.
Enterprise Singapore and the Singapore Productivity Centre recently did a deep dive into F&B establishments in Singapore. The findings were reported in the media, and they are very instructive, because F&B establishments that benchmarked themselves against productivity standards and knew that they were lower than the benchmarks could find practical and useful ways to raise their productivity. And when they did so, they have generally done better. I mentioned Harry's on budget day as one example. Other companies have done so too: restructured, transformed, digitalized, and even expanded abroad.
And we want to encourage many more to take that path. Let me cite another example: PoHang Jewelry. It was founded in 1948 as a small shop on North Bridge Road. Over the decades, it grew into a household name. A few years ago, the company embarked on a serious transformation. It strengthened its management. It embraced e-commerce. And with government support, it is developing AI tools to analyze customer data and shopping behavior so as to enable more personalized product recommendations. And it now employs 150 people and is making plans to expand into ASEAN.
These examples show that even traditional industries can reinvent themselves, and in doing so, create better opportunities for Singaporeans.
Another powerful force reshaping our economy is artificial intelligence, or AI. And many members spoke about this, including NTU Sec Jen, Mr. Niang, Mr. Desman Tan, Mr. Desmond TR, Dr. Shalin Chun, Mr. Daryl David, Miss Lee Huing, Mr. Mariam Jaffa, Mr. Andre Lo, and Associate Professor Jameus Lim. Many also shared about the anxieties that workers and fresh graduates are feeling. These concerns are real, and we must and we will take them seriously.
Historically, every major technological wave has displaced some jobs but also created new ones.
Computers displaced stenographers and typists, but created new professions in ICT, in finance and services. And over time, productivity gains expanded opportunities for workers. Indeed, what we have seen in Singapore so far is that AI can augment jobs and help workers achieve more, even as it automates certain tasks.
Take the example of Miss Angeline Tan, who works at Nanyang Incorporated, a local event infrastructure company. Her company adopted an AI chatbot to handle customer inquiries. Instead of being displaced, she stepped up. She became a chatbot manager, assuming responsibility for auditing the system's responses and ensuring its accuracy. But she did not stop there. She upgraded her skills further. And today she is an AI tech lead in the company, overseeing the implementation of AI tools, improving workflows, and taking on more creative responsibilities. And that's the pathway we want to encourage: workers moving up the value chain.
AI can also make our workplaces more inclusive. Robots can handle physically demanding tasks. For example, they can support seniors and persons with disabilities. Mr. Denise Pua and Mr. Shahil Taha spoke about this, and we will step up efforts in this area too.
These are not theoretical possibilities. They are already happening today. And for now, our labour market remains resilient. The proportion of permanent employees has risen to a record high of nearly 91%, with gains across most sectors. Vacancies continue to outnumber job seekers, and over 40% of openings are entry-level PME roles, indicating still healthy demand for young graduates. So thus far, the evidence does not point to widespread displacement. But as many members have highlighted, there are emerging pressures, and we recognise that we cannot rely only on today's data. We must prepare for tomorrow.
And I mentioned earlier that the historical experience with major technological waves is that ultimately more jobs are created than lost. That has been so in the past. But there is no economic law that says this will always happen, or that this will happen in the future.
Indeed, many are concerned that this time may be different, because AI is more powerful, advancing faster, and affecting a wider range of occupations. And many members raise important concerns, for example, that companies may lean too heavily on AI and invest less in worker training; that more workers could be displaced and the older ones will find it harder to re-enter the workforce; and that entry-level jobs, the first rung of career ladders, may be hollowed out. We are alert to these risks, and we will act early to prevent such outcomes from taking hold in Singapore. We will invest more deliberately and more systematically in our people.
In that regard, I agree with NTU Secretary-General Mr. Remis' three calls: to empower every worker to be AI-ready; to strengthen support and safeguards for workers; and to strengthen the labour movement's ability to protect and uplift PMEs.
We will work closely with our tripartite partners, especially NTU, to realise these shared goals.
What does this mean in practical terms? For example, as we develop champions of AI and implement our national AI missions, we will not only just help companies transform; we will capture value in Singapore. We will pay close attention to how these companies apply AI, and importantly, guide them to use AI to enhance human skills and expertise.
Take aviation maintenance. Machines and AI can perform many functions, but skilled technicians remain essential, and AI can help them make better diagnoses and perform their work more cost-effectively.
Achieving all this will not be easy. Every sector is different, and how they use AI and the impact on workers in each sector will vary. And that's why we are coordinating all of these efforts through the National AI Council, aligning industry transformation and workforce upgrading to ensure that AI uplifts our workers. That is our assurance, and that's why our strategy going ahead is clear: we will not have jobless growth in Singapore.
We will exploit AI to grow the economy, and we will ensure that growth translates into good jobs and better wages. That's how we give every Singaporean confidence to progress in the future.
Next, let me touch on cost pressures. We achieved better-than-expected growth of 5% last year. Yet, as many members have highlighted, including Melina Abdulhal, Mr. Saktiandi Supat, amongst others, Singaporeans continue to feel cost-of-living pressures. The data may show improvement, but lived experience and realities do matter. So the question is this: what more must we do to ease cost pressures and ensure every Singaporean can continue to progress?
We must first understand why affordability and cost concerns have surfaced, not just in Singapore but across many economies around the world. After COVID and the war in Ukraine, inflation surged globally. In Singapore, it rose to more than 6% in 2022, and it has since come down to 0.9% last year. Inflation has moderated, but price levels remain higher than before, and that's what households are experiencing. To cushion the spike, we provided more than $10 billion through the Assurance Package.
Some have observed that the transfers in this year's budget are smaller than last year. But in fact, support in this budget remains substantial and broader in scope. We are providing CDC vouchers, cash support, utilities rebates, ChildLife SG credits, and CPF top-ups for seniors. What does this mean? A middle-income household with young children receives about $2,800 after you total up all the different items. A lower-income household with young children, about $5,000.
And a retired elderly couple, about $7,600.
Essentially, we give more to those with greater needs. And we give more to seniors, especially our retirees, as they are not working and have to cope with higher prices on fixed incomes.
These are meaningful sums, and they are on top of substantial, broad-based subsidies for essentials like education, healthcare, and housing, as well as targeted support for lower-income families and workers.
Mr. Luis Chu said that the government's primary response has been to rely on one-off and ad hoc handouts. He said that last year I had clarified the matter then, but regrettably he has repeated this false claim again this year, because the facts are: only about 5% of our overall budget is for one-off measures. That was so in FY 2025, and it is so in FY 2026.
The remaining 95%, the overwhelming share, is for longer-term and structural schemes.
And in this budget, we enhanced preschool and student care subsidies as well as ComLink Plus to support families with children. Total social spending has increased this year. It has not gone down. We are providing more help for Singaporeans. And our approach is not just to cushion the cost, because the durable solution to cost pressures is steady, sustainable wage increases.
And Mr. Sha Lo highlighted concerns that a decreasing proportion of Singaporeans benefit from economic growth. He highlighted the concerns among seniors, and indeed one group that will face greater impact is retirees, because they are not working, and that's why we provide more for them in the budget.
But when we look at data at both the household and the individual worker levels, household and workers, in fact, incomes have risen faster than inflation over the past decades across the entire income distribution.
So real incomes have gone up for both households and for workers across the entire income distribution.
We also look at household expenditures. Spending has increased in dollar terms, but expenditure as a share of income — that has either remained stable or fallen across the income distribution as well. Meaning Singaporeans generally are spending less as a share of their incomes, even if their spending has gone up in dollar terms.
In particular, the share of household income spent on essentials like food, public transport, and education has declined across all income quintiles.
There is one exception, and that is healthcare. Singaporeans are spending a larger share of their income on healthcare and health insurance. That reflects our rapidly ageing population, because as you get older, you will tend to spend more on healthcare. And that's why we provide significant and growing subsidies for healthcare services and for our national health insurance premiums. It's also why we have taken steps to rein in overly generous private riders and other practices that drive up medical inflation, especially in the private sector. And we will continue to ensure that healthcare remains affordable in Singapore. No Singaporean will be denied the healthcare they need because of an inability to pay. That is our assurance.
Another reason for concerns about cost is that inflation for some frequently consumed services, especially F&B, has risen faster than general inflation.
Now, food consumption may form a smaller share of income, which I mentioned just now, but we experience higher prices each time we order something or we dine out, and the psychological impact is immediate and visible.
The domestic services, be it healthcare or F&B, are labour-intensive. We want wages for Singaporeans in these sectors to rise.
But when wages rise, costs also increase.
And that's the fundamental tension every economy must manage.
Some countries choose to suppress service wages to keep prices low. But then this traps a segment of workers in low-paying jobs. That's not what we want to do. Others, like the European economies, have taken a different path. Wages in the services sector are high. You go to any European country, you'll know they are paid very well. But that leads to higher prices overall and a heavier cost burden, which in turn has to be supported by a larger welfare state financed by taxpayers. There's no free lunch. Someone's got to pay this. So Singapore is forging our own path. We pursue broad-based wage growth, but wage increases have to be supported by skills upgrading and productivity improvements. And at the same time, the government bears a substantial share of the cost of essential services through subsidies and transfers, with more support for lower- and middle-income households.
Overall, this balance has delivered good and affordable services to Singaporeans at a sustainable cost.
But we know that this is still a work in progress. The macro data may be reassuring, but as many members have highlighted, the lived realities differ from household to household, and the circumstances will vary for specific segments. Different families face different pressure points. For example, there are larger families with more children, and they will face greater cost burdens, as Mr. Pritam Singh and Mr. David Ho have highlighted. Mr. Singh suggested adjusting the CDC vouchers. That could be one way to help them, but we will continue to explore other measures to help those with larger families. There are also families caring for seniors or children, and especially those sandwiched with both. Miss Yoan Lingling, Miss Jessica Tan, Miss Nadia Samin highlighted their concerns, and in fact we already provide more for them in the budget, in every budget, including in this year's budget. There are families with members who have special needs. Professor Kenneth Pun and Miss Hassina Abdul Haleim highlighted their concerns, and caregivers too need to be supported, as Mr. Tayung and Miss Hurting highlighted.
In recent budgets, including this one, we have strengthened support for all of these groups, and we will continue to do so, and will consider the suggestions that members have made.
Targeted support for specific groups requires means testing, and we use different indicators to means test. The two key ones are the annual value of dwellings, or AV, and per capita household income, or PCHI.
Quite a number of members in this debate, including Mr. Alexio, Miss Jessica Tan, Mr. Jaredam, Miss Sylvia Lim just now, Mr. Edward, suggested reviewing these indicators.
I suppose if we were to take a step back, most of us would agree that support should be given to households with less income and less wealth. No one would dispute that.
How to measure income and wealth is the challenge. AV and PCHI are practical and effective indicators, but no measure is perfect, and we will continue refining our criteria, especially when it comes to support for seniors.
The cost pressures can also feel sharper due to inequality. Because of inequality, comparisons intensify and social stresses grow. Encouragingly, in Singapore, income inequality has narrowed compared to a decade ago. Lower- and middle-income workers have seen faster real income growth than those at the top. Without this inclusive growth, I have no doubt that the cost pressures that we are feeling on the ground would have been far worse.
We have achieved good outcomes, but we will continue to press on. And in this budget, we are raising the local qualifying salary as well as enhancing and extending the Progressive Wage Credit Scheme. Several members — Mr. Patrick Tay, Mr. Melvin Ong, Mr. Sanjif Diwari — suggested further steps to support lower-wage and vulnerable workers.
We will study your suggestions carefully, balancing wage increases with sustainable productivity improvements.
We are also paying close attention to wealth inequality. We have begun publishing the data and will track this more systematically. But we are not starting from a weak base. Through housing grants, home ownership, and CPF top-ups, we enable lower-income households to accumulate assets in Singapore. Today, households in the lowest quintile have average net wealth of nearly $300,000.
That's a meaningful foundation.
Mr. Saktiandi and Associate Professor Terren Ho suggested additional asset-based transfers.
I think, Mr. Speaker, someone called it a Singapore dividend or other forms of putting together the measures that we do to help Singaporeans build assets. In fact, this is the approach that the government has long taken. We focus not just on income support but on enabling Singaporeans to accumulate assets because asset ownership gives families a concrete stake in our nation's success and allows them to share directly in Singapore's progress. We do this through a range of different mechanisms like the Child Development Account, the Post-Secondary Education Account, through CPF and our housing policies, and most recently we introduced the ITE Progression Award which incorporates an element of CPF top-ups. We will continue to strengthen pathways for Singaporeans to build savings and assets.
We also have progressive taxes on wealth through our property and vehicle taxes, and we will continue to study ways to moderate excessive wealth concentration carefully and responsibly.
But redistribution has its limits. It's very easy to say let's tax the rich more. But capital and talent are mobile. And if we rely solely on ever higher taxes for this segment, eventually the broad middle will also have to shoulder the burden and we risk undermining competitiveness, enterprise and job creation.
Redistribution alone cannot build a strong and resilient society. So our approach is balanced. We keep taxes moderate but progressive. We redistribute resources to those with greater needs and we complement that with heavy investments in human capital, early childhood education, quality schooling and tertiary education as well as lifelong learning through SkillsFuture. Upward mobility remains central to our social compact because here in Singapore, your starting point should never determine your finishing position.
Several members also spoke about retirement. Mr. Saktiandi has been championing this for many budgets. Ms. Polian also mentioned this in the debate. And in this budget, we are indeed strengthening our CPF system because Singaporeans are living longer and we want them to retire with confidence and peace of mind. Our CPF system rests on sound and sustainable principles.
Each member saves for his or her own retirement, but we do not leave individuals to fend for themselves. We boost those with lower balances through Silver Support, the Majulah Package, and periodic CPF top-ups. And we continue to review the parameters of these schemes that keeps our system fiscally sustainable while ensuring that those with less get more support.
The CPF provides, as members would know, risk-free returns of 2.5% on the Ordinary Account and 4% on the Special Account with extra interest of 1 to 2%. Members who wish to invest their savings for potentially higher returns can do so today through the CPF Investment Scheme or the CPFIS.
But the experience with the CPFIS has been mixed. From 2016 to 2024, while a majority of CPFIS-OA investors earned above 2.5% per annum, only about half achieved returns of more than 4%. This is for OA. In other words, many would have been better off topping up their CPF Special Account and earning the guaranteed 4% return.
For CPFIS-SA investors, the results were even more sobering. Around three in four made 4% or less per annum. In other words, they underperformed the SA rate which is risk-free.
So the reality is that we all talked about investment such a wonderful thing, but investing and earning consistently good returns is not that easy, and that's why we took some time to study how to implement a low-cost investment option within the CPF. It has to be simple, low cost and effective.
There are commercial life cycle products available in the market, but up to now the take-up has been limited partly due to the high fees which can go up to as much as 2%. But in recent years, the market has matured. More players have entered and digital platforms have helped to lower the cost. And that's why we now believe it is possible to offer well diversified life cycle products at lower fees.
The CPF Board will be engaging the industry next month to call for expressions of interest. There's still a lot of work to be done designing the scheme, the specific parameters that several members talked about, building the IT system and ensuring a smooth and seamless user experience. The CPF Board is working towards rolling out the scheme in the first half of 2028. But if we can do this earlier, we will.
Beyond retirement, we have and will continue to strengthen support across life stages. We have initiated major moves as part of Forward Singapore in public housing through the new HDB classification system of Standard, Plus and Prime flats, in healthcare through Healthier SG and Age Well SG. We have made SkillsFuture a key pillar of our social compact and we are strengthening this further. We have introduced the SkillsFuture Jobseeker Support Scheme and we have enhanced ComCare and ComLink Plus.
Mr. Abdul Muimin asked about this particular issue of ComLink Plus. Let me just touch on it briefly. There are today about, what, 11,000 families on ComLink Plus. Most are in rental housing. There are around 14,000 eligible families living in rental flats. We have approached them, but some chose not to come on board ComLink Plus or could not be contacted.
With the enhancements to ComLink Plus, we will redouble our efforts to reach out to them and with stronger community support we hope more of them will come on board the scheme and we will also extend ComLink Plus to lower income families beyond the rental blocks.
Members have also offered many other suggestions to further strengthen our community and social support system. Many suggestions have been offered, for example in healthcare delivery and integration with social support. Members like Dr. Tan Yip Yeng, Mr. Dennis Tan, Ms. Rachel Ang and Dr. Muhammad Faishal just now spoke about this. Suggestions around housing and neighbourhood rejuvenation. Mr. Ang Wei Neng, Ms. Joan Pereira touched on that. More support for the arts, culture and community initiatives. Ms. Eileen Chua, Associate Professor Kenneth Paul Tan mentioned that just in their speeches, as well as suggestions to review the income thresholds for the Jobseeker Support Scheme which Mr. Yeo Wan Ling and Mr. Patrick Tay had advocated. We will study these suggestions carefully. In particular, the Jobseeker Support Scheme was launched only recently, about a year ago. So we will review the scheme and its parameters once we have more experience.
Many members also asked for more support for families especially for parents and would-be parents. Mr. Faisal Manap, Ms. He Ting Ru, Mr. Sharael Taha, Ms. Eileen Chua, Mr. Gabriel Lim and others have highlighted this concern.
Indeed, our falling total fertility rate is a serious concern. It's not unique to Singapore. It's happening across all advanced and high income economies. So we really should have some humility about this because no country has truly succeeded on a sustained basis to reverse this decline.
Members offered practical suggestions around housing cost pressures and the affordability of raising children. Some also asked for more work flexibility and leave provisions so that parents can be present in their children's formative years.
In fact, we have taken significant steps on both fronts recently. We have enhanced shared parental leave and with the Large Family Scheme, parents can receive now up to $48,000 for their third or fourth child and even more for the fifth or subsequent child. As a result of the recent enhancements, our expenditure on marriage and parenthood initiatives has increased from $4 billion in FY2020 to $7 billion in this budget. But we will not stop here. We have not given up. We will not give up.
We are already planning for the next tranche of measures to strengthen support for families and there will be an opportunity to discuss this at the COS debate and the Minister in the Prime Minister's Office will share more at that occasion.
Sir, this government will continue to provide stronger assurance for Singaporeans at every stage of life. We will do this in a coherent and deliberate way, strengthening individual responsibility, reinforcing collective support, and preserving long-term fiscal sustainability. We will continue to strengthen our social compact and ensure Singapore remains a society where every citizen can progress with confidence.
Let me move on to the third question. Is our fiscal strategy fit for immediate challenges and is it positioning us well for the future? Let us look at the global context. Since the start of this decade, countries have been tested in ways few could have anticipated. Many advanced economies are now carrying record high levels of public debt. And as debt rises, so will borrowing costs. Over time, this constrains fiscal flexibility and weakens longer-term growth potential for these economies.
Against this backdrop, Singapore's strong fiscal position is a strategic advantage.
Many members spoke about our fiscal position and public finances, including Mr. Ang Wei Neng, Ms. Valerie Lee and Mr. James Lim. I'm glad they see our healthy fiscal position as a strength, a source of strength.
Given the surplus we've generated in FY25 and also the ones that we expect in FY26, Mr. Gerald Giam had asked whether the GST hike should be re-evaluated. But let us consider the facts. At the beginning of this decade, we knew that healthcare spending would rise sharply in line with our rapidly aging population. This was structural, not cyclical. And healthcare was not the only area where spending pressures were increasing.
We had estimated that healthcare alone would require additional funding of 0.6% to 1.2% of GDP and this would happen in the second half of this decade which we are in right now. That is a significant and permanent increase. The question was how to fund this. And we studied a range of options. We raised property taxes and motor vehicle taxes for luxury cars. We increased the top marginal personal income tax rates. But these moves were still not sufficient to close the structural funding gap.
The Workers' Party had suggested raising the maximum Net Investment Returns Contribution or NIRC we can use in the annual budget from 50% to 60%. We did not agree with that proposal because the NIRC framework was carefully designed to safeguard intergenerational equity. If we increase the cap to 60%, that can ease immediate pressures, but it will weaken fiscal discipline, reduce our buffer for future shocks, and shift a heavier burden onto the next generation.
And in the end, the GST was the only broad-based and sustainable option to fund rising healthcare needs while preserving our reserves framework. But even as we raised the GST, we also made sure we mitigated the impact on Singaporeans. We delayed the effective tax increase for the majority of Singaporean households by at least 5 years. We enhanced the permanent GST voucher to further defray the tax paid by lower and middle income households. And after accounting for these measures, the majority of GST collections are and will continue to be from higher income households, tourists, and foreigners.
In other words, we secured stable funding for healthcare while cushioning the impact of the increase for most Singaporean households.
Could we have relied instead on corporate income tax collections? But remember back in 2022 when we made the decision on the GST, there was no sign that corporate income tax collections would rise so significantly. At that time, discussions on BEPS were still evolving. The eventual outcomes and their revenue implications were far from certain. It would not have been responsible to fund permanent healthcare commitments using revenue sources that were uncertain and can yet dry up.
The corporate income tax collections only started rising towards the end of FY2023 and have stayed elevated until now. This outcome was not anticipated. It was due to GDP growth outperforming expectations in 2024 and 2025 as well as better than expected contributions from multinational enterprises in a few key sectors.
And this brings us to the issue of fiscal marksmanship. Mr. Alex Yam, Mr. Gerald Giam, Mr. Louis Ng, Mr. James Lim touched on this and we've debated this before in the House. It's perhaps my favorite topic because I have shared before I started work in MOF doing precisely this, fiscal projections. And as I've explained, our forecast deviations are within a reasonable range comparable to other advanced economies.
Within this range of variation, revenues in recent years have indeed come in above projections. Is that because we were overly conservative? The short answer is no. Our projections are prepared by MOF economists using the best available data at the start of each financial year, including GDP growth assumptions at that time. But for a small open economy like Singapore, growth outcomes can diverge significantly from forecasts as global conditions evolve because we are so dependent on the external environment. Forecasting Singapore's GDP growth is like forecasting the world's GDP growth which is very, very difficult to do.
Likewise, revenues from property transactions or COE premiums are inherently difficult to predict. You can't tell what next year's property prices will be, what next year's COE premiums will fetch. It's very hard to do. In the case of COE, we increased the quotas yet the premiums continue to rise with sustained demand and that explains the increase in revenue from licences and permits which Mr. Gerald Giam asked about. So forecasting in such an environment will never be exact, but I assure everyone in this House and Singaporeans that our approach has been and will be responsible and professional.
A further insinuation is that the PAP government deliberately painted a doom and gloom picture for electoral advantage. But let's consider the facts and the context. After the US Liberation Day tariffs, there was widespread uncertainty across the world, not just in Singapore. At that time, how many analysts projected 5% growth for Singapore in 2025? I don't recall any.
The reason why things did not turn out as badly as we feared was partly due to factors beyond our control, but also partly because of the decisive steps we took. DPM Gan Kim Yong and the team moved quickly engaging the US to safeguard our core interests, deepening links with other countries, forging new agreements that sustain investor confidence. Our agencies, our businesses, and our workers adapted swiftly and worked tirelessly through a very uncertain period. Their efforts deserve recognition.
So, let us not belittle these contributions just to score a political point. The fact that we are in a better position today than our projections is something we should all welcome. It's good news for Singapore and Singaporeans.
Imagine if we had chosen differently. If we didn't raise GST and had instead hoped for revenue upsides and then the economic situation did not turn out so well, we would be having a very different debate today. We'll be scrambling to close fiscal gaps. We will be responding from weakness.
But because we made the difficult yet responsible decision, because we chose responsibility over convenience, we are now in a position of strength. So, Sir, we did not gamble with Singapore's future. We made the hard call and that's why we can act with confidence today.
Next, let me turn to our medium-term revenue and expenditure outlook. We are expecting structural revenue increases from FY2027. That's when the first revenue collections from the BEPS top-up taxes come in based on the strong corporate tax collection so far. And that's pre-top-up tax. Our initial sense is that the further increase from the top-up taxes could be significant. We will continue to firm up our estimates over the coming months as we get more up-to-date data on how firms are performing and adjusting their plans.
Since the BEPS revenue is coming in, some may ask, well, how about rolling back the GST? But again, the GST increase was introduced to fund rising structural healthcare expenditure for an aging population. These spending needs are permanent and will continue to grow and they should be supported by a stable and reliable revenue base. At the same time, as I've shared in the budget, government spending is rising in many other areas aside from healthcare for social needs, economic competitiveness, our energy transition, security and infrastructure.
So the additional corporate tax revenues will strengthen our fiscal position and support these growing needs, but they do not replace the structural role of the GST and especially what we have done to fund permanent and rising healthcare costs.
In fact, expenditure pressures are already evident. Take the example of defence spending. I mentioned that MINDEF's budget of 3% would be where it is for now and that budget includes spending on cybersecurity by MINDEF and CSA, something that Mr. Gerald Giam asked about, but it does not include cybersecurity spending beyond MINDEF and we do need to spend more on cybersecurity outside of the MINDEF family. MDDI and the Cyber Security Agency, for example, will have to invest more. We will have to harden our critical information infrastructure like our grids and our power system against cyber threats. And that's why I said in the budget that security spending will rise in the coming years.
In short, our aim is not to run high surpluses for the rest of this term of government, something that Mr. Leong Mun Wai asked about. Our objective is a balanced budget over the term of government.
And that's clear from our historical records. Mr. James Lim very helpfully gave a speech yesterday outlining the historical data and if you look at the past years we've had balanced budgets in many years, balanced meaning within a range of plus or minus 0.5% of GDP in terms of the overall fiscal balance. We've had years of surpluses, we've had good years, but we've also had years of deficits. But on the whole we plan for a balanced budget over the term of government and if there are revenue upsides, when there are revenue upsides, we will deploy these to meet our growing needs.
Mr. Sharael Taha suggested giving back surpluses above 2% of GDP to all Singaporeans. But in practice, we actually do not wait to cross a mechanical threshold like that. Whenever there are revenue upsides, we have shared some of the gains with Singaporeans. Last year, we used that to fund the SG60 package. This year we channeled them towards CPF top-ups and the Cost of Living Special Payment. And we have also strengthened our national priorities by investing in our social support system, enhancing our connectivity, security, and economic resilience.
For this FY2026 budget, expenditure is at 18.4% of GDP. As I said just now, it's the largest budget on record. Earlier MOF had projected that government spending could reach 20% of GDP by 2030.
Now if you look at the trends since emerging from COVID, expenditure has been growing by an average of $10 billion every year and we expect our needs to rise even more for the coming years in this term of government. So government spending is likely to exceed 20% of GDP before 2030.
In light of our fiscal position, Mr. Sharael Taha had asked if the government can commit to not making further major revenue moves. At this juncture, if circumstances remain broadly stable and without any further major revenue moves, we expect our fiscal position during this term of government to remain healthy.
We've already said that there will be no further GST increases until at least 2030. Aside from the GST, we continue to review our tax system regularly as part of prudent fiscal management. We will make revenue adjustments only when necessary to fund structural spending needs or to achieve clear policy objectives like strengthening progressivity or addressing externalities.
These are difficult decisions. Any tax change, I should say any tax increase, is a difficult decision. We take them only after careful study and full consideration of the impact on households and businesses.
MOF had earlier published medium-term fiscal projections up to 2030 with updated revenue and expenditure developments. These projections will need to be refreshed. So we will publish updated medium-term projections extending to 2035 by next year.
But a word of caution is in order because in today's fast-changing world assumptions can quickly become outdated. So the forward projections serve as a guide and will have to be continually updated. Ultimately, what matters most is maintaining fiscal discipline together with the agility and nimbleness to respond swiftly as circumstances change.
Let me turn to specific points on our tax system. Ms. Denise Phua asked about the timing of the changes to the PARF rebate. We implemented the vehicle tax changes immediately to prevent a rush to market. That has long been our practice for property and motor vehicle related taxes. The changes are announced and then applied immediately to ensure market stability and fairness. A number of questions have been raised on this particular issue and we'll address them separately.
Mr. Saktiandi and Mr. Louis Ng shared their views on the personal income tax regime. When taken together with our progressive tax rates, tax relief and rebates, currently about 1 in 3 resident workers pay no personal income tax. Amongst those who do, about 8 in 10 have an effective tax rate of less than 6%. So we will consider these suggestions around the personal income tax as part of our regular fiscal reviews.
There was a debate yesterday about what it means to run a surplus, a fiscal surplus. Does a fiscal surplus mean that the government is taking more from the economy and leaving households and businesses to bear a deficit? This is an oversimplified and inaccurate characterization of how our fiscal system works. A surplus simply means that in a year revenue exceeds expenditure. And in Singapore's case, revenue includes significant investment income from our reserves, not just taxes collected from businesses and households.
So if you exclude NIRC, expenditure exceeds revenue. In other words, we are putting money back into the economy, not draining money from businesses and households. And in fact, our budgets in both 2025 and 2026 have been expansionary with significant support for households and businesses.
More importantly, we should look at who pays the tax and who benefits from the transfers. And on that score, the picture is clear. For every dollar of tax paid by the top quintile, they receive 20 cents in benefits. That's the top income quintile. Pay a dollar in tax, you get 20 cents in benefits. In contrast, the middle quintile receives around $2 in benefits. A dollar of tax, you get back more, $2 in benefits. And the bottom quintile gets $7 in benefits.
In other words, those who have benefited more, those who are better able to contribute are the ones who generally pay more in taxes. And we use that revenue to strengthen our social compact and provide greater support to those who need it most.
So, Mr. Speaker, our fiscal system is fair, progressive, and sustainable. It is pro-worker, pro-enterprise and pro-Singapore.
Let me conclude on a final point around accountability and I agree in principle with the many comments and suggestions that members have made including Mr. Pritam Singh, Dr. Harpreet Singh and Mr. Henry Kwek asking for more information to ensure fiscal accountability and value for money in government spending.
We want to do that. We want to ensure that and that's why we've been publishing the Singapore Public Sector Outcomes Review biannually since 2010. That sets out the key outcome indicators across major policy areas and allows the public to track our progress over time. We will continue to review the indicators in the report and ensure they are relevant and useful. It's not static. We continually look at refreshing and updating this document. Ministries on their own also conduct detailed reviews of major spending programs to assess effectiveness and outcomes.
And I will ask all ministries to provide clearer and more accessible information on major initiatives so that Singaporeans can better understand how public resources are used and what results they achieve.
Mr. Speaker, let me conclude. I have outlined our strategies to secure our future together in this changed world. I thank members of this House for your support for the direction we must now take. This next phase will not be easy. The economic headwinds remain. The geopolitical environment is becoming more contested.
The major powers are competing more intensely. They may say they are not asking others to choose sides, but in reality they are using the full range of tools from economic leverage to regulatory controls and technology restrictions to advance their interests. Some pressures will be overt, others may be subtle, seeking to influence opinions, shape narratives, or even sow division amongst our people.
We must be clear-eyed about these realities. But we have faced difficult external environments before. We have navigated uncertainty, preserved our sovereignty and independence and emerged stronger because we remain one united people and acted with resolve.
And we enter this new era with considerable strength, a strong economy, a cohesive society, sound public finances. These are not accidental achievements. They are the result of decades of hard choices made by generations of Singaporeans.
So this budget builds on that strong foundation. It is a collective commitment that we will do what it takes to thrive in a more demanding world, that we will stand together when pressures mount, and we will continue pushing forward to seize new opportunities on the horizon. The world may be more uncertain, but we are prepared. We are united. And together we will shape our own destiny and secure a brighter future for every Singaporean. Thank you, Mr. Speaker.
