Change could boost govt coffers by $4b-$5b annually, says economist.
THE Government is moving to include up to half of long-term investment returns from investment company Temasek Holdings in the national financial accounts. One expert has given a rough estimation that the move could add $4 billion to $5 billion a year to the Budget bottom line. The Government will seek a constitutional amendment later this year allowing it to include Temasek as a contributor to its Net Investment Returns (NIR) framework as it prepares for more social and infrastructure spending. The NIR framework was set up in 2009 to allow the Government to spend up to 50 per cent of the expected long-term real returns on its net assets managed by the Monetary Authority of Singapore (MAS) and GIC. These are both realised and unrealised capital gains - that is, future projected returns.
The change will help Singapore strengthen its long-term fiscal position as its funding needs rise, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.
The inclusion of Temasek as a contributor to the framework was deferred owing partly to a lack of established methodologies for projecting its returns.
"We are now ready for our spending rule to be based on the total expected returns of all three investment entities, including Temasek," Mr Tharman said.
"(The inclusion) would enable us to spend based on its total expected returns, including realised and unrealised capital gains, and not just actual dividends paid by Temasek to the Government."
CIMB economist Song Seng Wun said the move will be a boost to the Government's coffers.
"Temasek's total shareholder return rate over 20 years is 6 per cent in nominal terms and likely around 4 per cent in real terms. With a portfolio value of $223 billion as of last year, Temasek may contribute some $4 billion to $5 billion to government revenue annually. With the higher NIR revenue and tweaks to tax income announced this year - not forgetting the previous surpluses - the Government has more than enough to fund its social and infrastructure projects," he said.
Government spending is set to rise to about 19 to 19.5 per cent of economic output on average over the next five years, Mr Tharman said, owing to higher spending to enhance health care and transport infrastructure among other needs.
Health-care spending will jump from over $9 billion this year to over $13 billion in 2020, while $26 billion has been committed for the next five years to improve public transport, he added.
"It is now timely that we have this further enhancement to include the expected returns of Temasek in the NIR framework… It continues to ensure that we spend from our reserves in a sustainable manner, so as to benefit both current and future generations."
The Straits Times / Top of The News Published on Wednesday, Feb 25, 2015