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Hello friends! My apologies for not posting for the past 2 months. Work has been very busy and we are planning a wedding! All very exciting things, but unfortunately I have had to prioritize these pieces instead of writing.

Today I'd thought I would take a look at the Singaporean economy, and why they have been so successful over the past 60 years. Singapore has been interesting from a purely economic perspective and their development story over the past 60 years is nothing short of impressive. They have the lowest crime in the world, an incredibly high standard of living, and a clean living space that leads the modern world. As I started to dig deeper as to why this is the case, fiscal prudence rises to the top of the list. As I've discussed fiscal deficits on here at nauseum, Singapore executes a prudent economic strategy that has a balanced budget and invests in new technology, living spaces, and healthcare to have a society that is impressive on all levels.


Singapore is the only nation that has gone to an undeveloped country in 1965 to one of the most developed and forward looking nations in the world in 2024. Before we look at some of the core reasons as to why Singapore was able to develop and attract foreign direct investment at the rate they have, let's consider something almost trivial. Its size. It is an ode to the past in a city-state format, a modern Constantinople with an ability to focus its resources and easier to get consensus on larger decisions. I think generally, this is underrecognized in today's world as the modern nation state is a relatively new structure over the past several hundred years. City-states used to exist and have high-functioning modern societies. Size may matter a bit here.

Singapore's development story is quite remarkable, considering its transformation from a modest trading post into a thriving global financial hub within just a few decades. This transformation was driven by strategic planning, robust economic policies, and efficient utilization of resources, including tax revenues. Here's a breakdown of how Singapore developed, how it spends its tax revenues, and how it manages to balance its budget:

Singapore Celebrates 50 Years of Independence -

Economic Development:

  1. Initial Phase: Post-independence in 1965, Singapore faced numerous challenges, including a lack of natural resources, a small domestic market, and political instability in the region. The government, led by the People’s Action Party (PAP), focused on creating a conducive environment for foreign investment and industrialization.
  2. Industrialization: The government adopted an export-oriented industrialization strategy, focusing on attracting multinational corporations to set up manufacturing bases in Singapore by offering a stable political environment, high-quality infrastructure, and attractive tax incentives.
  3. Diversification: Over the years, Singapore diversified its economy into sectors such as financial services, tourism, and the knowledge-based economy, reducing its dependence on manufacturing.
  4. Innovation and Skills Development: Singapore has heavily invested in education and skills development, ensuring a skilled workforce to meet the demands of a modern, knowledge-based economy. The focus on continuous learning and upskilling has been pivotal in maintaining its competitive edge.

Use of Tax Revenues:

Singapore's government is known for its efficient fiscal management, including the strategic use of tax revenues. The main areas where tax revenues are spent include:

  1. Healthcare: Singapore has a robust healthcare system that is partially funded by the government through tax revenues. The system is designed to ensure affordability while encouraging personal responsibility through mechanisms like Medisave, a compulsory health savings scheme.
  2. Education: A significant portion of tax revenues is invested in the education sector, from primary education to tertiary institutions. This includes funding for infrastructure, subsidies for tertiary education, and scholarships for talented students.
  3. Infrastructure: Singapore continually invests in its infrastructure, including public transport, housing through the Housing Development Board (HDB), and utilities, to ensure a high quality of life for its residents and maintain its attractiveness as a business hub.
  4. Social Security: Programs like the Central Provident Fund (CPF) are crucial for retirement savings, and while they are primarily funded by mandatory savings, the government also contributes through various schemes and top-ups for lower-income groups.
  5. Research and Development: Singapore allocates a considerable portion of its budget to R&D to support innovation, enhance its economic competitiveness, and create high-value jobs.

Balancing the Budget:

Singapore is one of the few countries that consistently maintains a balanced budget, often resulting in surpluses. Key strategies include:

  1. Prudent Spending: The government is known for its cautious approach to spending, ensuring that expenditures are productive and yield long-term benefits for the economy.
  2. Diversified Revenue Sources: Apart from direct taxes, Singapore has diversified its revenue sources through vehicle taxes, customs and excise duties, and earnings from investments of its reserves.
  3. Savings and Investments: Surpluses in good years are saved or invested through entities like Temasek Holdings and the Government of Singapore Investment Corporation (GIC). These investments generate income, which helps fund government expenditures and can be tapped during economic downturns.
  4. Reserves: The constitutionally mandated need to maintain a balanced budget over a term of government encourages long-term planning and fiscal discipline. The government can only spend from the reserves that have been accumulated in the past if it obtains the President's approval, ensuring a safeguard against profligate spending.

Singapore's success in developing into a global financial center and maintaining a high standard of living for its citizens is largely attributed to its strategic economic planning, efficient use of tax revenues, and disciplined fiscal policy. This approach has not only allowed for sustainable development but has also provided a buffer against economic downturns, ensuring the city-state's resilience and stability.

aerial photography of parked cars near building during night time

Singapore's Fiscal Strategy:

Singapore's fiscal approach contrasts significantly with the deficit spending often observed in the United States. Deficit spending occurs when a government's expenditures exceed its revenues, leading to the accumulation of debt. While deficit spending can be a useful tool for stimulating economic growth, particularly during recessions or periods of low economic activity, it carries risks if used extensively over the long term. Here's how Singapore's approach differs from the U.S.'s deficit spending and how it avoids associated long-term risks:

  1. Mandatory Balanced Budgets: Singapore's Constitution mandates that the government must maintain a balanced budget over its term. This means that any planned government spending must be matched by expected revenues within the government's term, promoting fiscal discipline and long-term planning.
  2. Limited Borrowing for Investment Only: Singapore's government does not borrow to fund recurrent spending. Borrowing is limited to specific investment projects that are expected to generate economic returns, ensuring that debt levels remain manageable and are used to finance growth-enhancing projects.
  3. Prudent Use of Reserves: Singapore can only dip into its past reserves for budgetary purposes with the President's approval, ensuring that such measures are taken only in exceptional circumstances. This creates a strong safeguard against the depletion of national savings.
  4. Rainy Day Funds: The government sets aside significant surpluses during good years in various endowment and trust funds. These funds can be drawn upon in tougher times, providing a buffer without resorting to deficit spending.

U.S. Deficit Spending:

  1. Regular Use of Deficit Spending: The U.S. frequently employs deficit spending as a fiscal policy tool, often to fund government operations, social services, and military expenditures. This approach can stimulate economic activity, especially during downturns, by injecting money into the economy.
  2. Accumulation of National Debt: Continuous deficit spending has led to a significant accumulation of national debt in the U.S. While this can be sustainable in a growing economy, especially for a country like the U.S. with a strong demand for its debt, it poses long-term risks such as higher interest payments and potential challenges to fiscal sustainability.
  3. Interest Payments: A significant portion of the U.S. budget is dedicated to paying interest on the national debt. As debt levels increase, so do these interest payments, which can crowd out other government spending priorities.
  4. Potential for Inflation: Prolonged deficit spending, especially if financed by printing more money, can lead to inflationary pressures, reducing purchasing power and potentially destabilizing the economy.

Avoiding Long-term Risks:

Singapore's cautious fiscal approach helps it avoid several risks associated with long-term deficit spending, such as:

  1. Lower Debt Levels: By maintaining balanced budgets and borrowing only for investment, Singapore keeps its debt levels relatively low, reducing the risk of fiscal crises and ensuring sustainability.
  2. Economic Stability: Singapore's approach promotes long-term economic stability by avoiding the boom-and-bust cycles that can result from fluctuating government spending.
  3. Inflation Control: Prudent fiscal management helps Singapore maintain low and stable inflation rates, preserving purchasing power and living standards.
  4. Fiscal Flexibility: By saving during good times, Singapore ensures it has the fiscal flexibility to respond to economic downturns or crises without resorting to excessive borrowing or destabilizing fiscal measures.

Another piece is since Singapore is small, it does not have a large line item allocating to military spending, where in the U.S. we employ our military to essentially defend the dollar as the world currency so we can spend more than we take in. It is a business model in which war depends to have the privilege to be fiscally irresponsible. Granted, there are many other differences, but the avoidance of debt is a key one, and helps to avoid other larger problems that loom if national debt is ignored.