Budget 2025 Is 'something for everyone' the right thing to do?

Subsidies are justifiable as corrections to market imperfections, but there are downsides to repeated 'handouts'

- Linda Lim and Pang Eng Fong

Commentators on Singapore's Budget 2025 have rightly hailed it as "inclusive" and "generous", with "something for everyone", as expected from a pre-election Budget. As economists who have studied Singapore's development for the past half-century, we consider how economics informs the Budget's contribution to solving Singapore's long-term development challenges.

The high cost of living affects all Singaporeans. Here the Budget delivers a range of vouchers, credits, tax rebates and top-ups aimed at mitigating the negative impact on different categories of beneficiaries.

Their form and scale may differ, but such subsidies have been a feature of all Singapore's recent Budgets.

To economists, subsidies are justifiable as corrections to market imperfections, where "externalities" exist. Here Budget 2025 conforms by providing subsidies for the arts and culture, for the energy transition, and for caregiving, among other activities where relying on market forces alone will lead to suboptimal production and consumption.

But the persistent need for subsidies for basic goods and services - like food, accommodation and utilities - in one of the world's richest countries indicates that prices are too high and wages too low to enable a substantial segment of Singaporeans to make ends meet. The market distortions which cause this result in part from state land, labour and exchange rate policies.

As owner of 90 per cent of Singapore's land, and builder of housing for over 80 per cent of the population, the Government determines both demand and supply, and hence the price, of land. High land and rental costs undermine the international competitiveness of what is already a high-cost economy. Yet the Budget does not provide rental relief to businesses or residents.

hawker centres in HDB heartland estates, or indicate any change in HDB flat pricing, that could reduce this contributor to the high cost of living.