Singaporeans taken for another ride: Imprudent spending = Prudent spending

Singaporeans should be wary of tweaks to legislations with regard to state finance.

So long as GIC’s and Temasek’s books are off limits to everyone except a handful of ministers and PAP elites, Singaporeans will never know the true state of our finance.

One major change to how investment returns supplement government budget was introduced in 2008.  Instead of using only part of dividends from investment returns (Net Investment Income), the new framework (Net Investment Returns, or NIR) allows part of  total returns to be used.

In short, PAP is now able to spend:
– What it has earned (dividends) under NII and
Unearned expected future earnings and capital gains (realized and unrealized) under NIR.

To illustrate the sheer folly of NIR framework:
Ah Kow invested $40000 in SPH at $4 in 2012. Based on past performance, SPH’s monopoly business pays consistent dividends (table below) and is expected to continue growing at a conservative real rate of 3%.
SPH dividends since 2007 (in 2012)
Taking an average 26 cents in dividends earned in previous years, Ah Kow is now able to spend more than 13 cents (50%), thanks to being able to take projected growth into account.

Under NIR, Ah Kow is able to spend even unrealized gains.  From the chart below, was Ah Kow foolish in trying to predict the future?

Isn’t it reckless for PAP to spend based on expected unearned real returns of, say, Standard Chartered investment?
What about UBS and many other wiped out investments?

PAP has concealed too much information on the NIR framework and has again assumed Singaporeans are fools.  These questions need to be answered:
What is the expected real long-term returns? (Cannot tell)
What is the exact percentage of expected real long-term returns used to supplement the budget? (State secret)
What is the projected long-term inflation rate?  (Not telling just to satisfy your curiosity)
What is the percentage of projected long-term real returns spent since 2009? (You guess lor)
What is long term?  (Guess again)

Prudence dictates that one spends only what is earned, not unearned guesstimate returns.

PAP says that our reserves are being protected by the NIR framework but this cannot be further from the truth: Current expenditure is based on mere speculation on future unearned income from unknown future performance.

PAP is also spending more of our reserves, not less. How does spending more today protect our reserves for tomorrow?

It could have simply used part of land sales to supplement the budget but has refused to classify it as government revenue in order to use as it pleases, ie without accountability.

The NIR framework could have simply included realized capital gains, not unrealized capital gains or expected returns which amount to speculation.

The NIR framework is anything but prudent.  That important information has been concealed strongly suggests a hidden agenda.

As usual, Singaporeans have been taken for another ride. 😦

From MOF website (Scrutinise the statements and you will know that lots of it is BS.)

Q20. What is Net Investment Returns Contribution (NIRC)?

Net Investment Returns Contribution (NIRC) comprises:


The annual NIRC amount is published in each year’s Government Budget.

Prior to FY2009, there was only the NII component. The NIR component was introduced in FY2009 with the implementation of the NIR framework, which allows the Government to spend up to 50% of the expected long-term real returns (including capital gains) from the net assets invested by our investment entities.

Q21. What is Net Investment Income?

Net Investment Income (NII) refers to the actual dividends, interest and other income received from investing our reserves, as well as interest received from loans, after deducting expenses arising from raising, investing and managing the reserves.

Q23. Why did the Government introduce the NIR framework, and what are the differences between NIR and NII?

The Government moved to the NIR framework in 2008 in order to enhance revenues and ensure a fair balance between the needs of current and future generations.

Government expenditures were expected to rise significantly over the long term….

The NIR framework is an enhancement from the NII in the following ways.

First, the NIR framework expanded the definition of investment returns to total returns, including capital gains (both realised and unrealized)

Q24. How does being included in the NIR framework impact the investment strategies Temasek, GIC and MAS? How does the Government meet its liquidity needs for NIRC?

Being included in the NIR framework does not impact the investment strategies of the three entities.

The NIR framework provides a formula to work out how much the Government can spend from the reserves, based on the expected long-term real rate of return of the investment entities on the framework. By basing the Government’s spending on expected long-term returns of the investment entities on the framework, the investment entities are not pressured to sell assets, realise capital gains, and pay more dividends. NIR framework is designed to ensure that the investment returns are tapped for spending in a disciplined and prudent way. (See Q25)

The Government has a healthy level of Government Deposits with MAS as well as a variety of sources of cash flows to meet its liquidity needs for day-to-day operations. This enables the Government to manage its liquidity needs independent of the cash flows from the three entities’ investment strategies. Unlike dividends which are separately determined, the NIR framework does not require any realisation of cash that needs to be transferred from the investment entities to the Government.

This entry was posted in FINANCE, GIC, POLITICS, TEMASEK. Bookmark the permalink.

3 Responses to Singaporeans taken for another ride: Imprudent spending = Prudent spending

  1. Sinkie says:

    Using NIR is a double-edged sword.

    It allows more of reserves to be used & that’s good for more social support e.g. actual discounts for more new 2-rm flats, more “permanent” GST vouchers, more “permanent” healthcare discounts / Medisave top-ups for elderly, etc. While PAPies use this spending of our reserves to shore up their die-hard supporters and hoodwink people especially after GE2011, it is also a vindication for many PAP critics that PAPies have been too stingy for locking up the reserves for some imaginary “rainy day”, and that this little bit of increase to social spending is the right thing to do, particularly for the senior generations who have contributed to the reserves in the last 50 years at a time when most of them earned rather low salaries.

    However NIR also allows PAPies to misuse the reserves for spending that helps themselves & the ruling party. Just look at the annual budget over the past few years. A lot of ministries are spending profligately & majority of spending are not for people’s welfare. A lot of $$$$$$$$ reserves have been & are being burned for hardware & software toys in SAF and MHA, dubious policies that help the elites get richer, pet ministers’ projects, grandstanding money wasting events like national day celebrations / F1 race / upcoming 2019 bicentennial etc, and plenty of mal-investments overseas (including millions of charity donations to foreign countries by Temasek).

    At the end of the day, PAPies are using the excuse of increased reserves spending to justify increasing & creating new taxes, and changes in policies to hold onto more CPF monies for longer.

  2. Anthony Sim says:

    The fools and losers are all Singkies…..We apparently have lost all rights and our democratic input to balance the power that we have actually given to the PAP government. When we perpetually give all the time, we LOSE. Unless there is a balance of power, which we do not have in this government, we need not roll the dice to say we have a chance. Fate of LOSS is written on all our stupid FACES. Suck it up or ascertain our rights to make this paradise island we once called HOME .

  3. Gary Seet says:

    ‘PAP has concealed too much information on the NIR framework and has again assumed Singaporeans are fools.’
    Majority of Sinkies are fools. The PAP got that right if nothing else.

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