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Alternative proposals for a better Singapore

Regulatory framework for commercial drones

There is a growing interest in commercial drones, where there are plans for them to be used for package deliveries, filming movies and commercials, and even pizza delivery. However in some countries, aviation regulations severely restrict the use of commercial drones, which could constrain the growth of the industry. I asked the Minister for Transport this parliamentary question on 9 July 2014, so that the public can better understand how Singapore’s regulatory framework will evolve to meet industry needs and technological advancements.


Mr Gerald Giam Yean Song asked the Minister for Transport in respect of current regulations governing unmanned aerial vehicles (also known as drones or unmanned airships) in Singapore’s airspace (a) whether there are any restrictions on the size or engine power of the drones; (b) whether there are any requirements for individuals to be certified before operating drones and, if so, what are these certifications for; (c) whether the Government sees potential in the commercial drone industry in Singapore; and (d) whether there are plans to provide a clearer regulatory framework so as to accommodate a possible growth in this industry.

Mr Lui Tuck Yew: The International Civil Aviation Organisation (ICAO) has embarked on the development of international standards to regulate unmanned aircraft operations, particularly in airspace used by manned aircraft. The work covers areas such as certification of the unmanned aircraft system (widely known as UAS), competency requirements of the UAS operator/pilot, and guidance on its operations. Singapore, represented by the Civil Aviation Authority of Singapore (CAAS), is a member of the ICAO Panel tasked with developing such standards.

In Singapore, there is growing public interest in civilian unmanned aircraft activities for recreation and commercial purposes such as aerial filming. There are also several companies in Singapore seeking to grow the commercial UAS industry here.

The Singapore Air Navigation Order (ANO) currently applies to the operation of unmanned aircraft that weighs not more than 7 kg without its fuel and that is capable of being flown without a pilot. To preserve the safety of manned aircraft operations, the ANO disallows the flying of such unmanned aircraft within 5 km of an aerodrome, or at an altitude higher than 200 ft above mean sea level when outside 5 km of an aerodrome, unless a permit has been obtained from CAAS.

The current regulations do not adequately address unmanned aircraft heavier than 7 kg, to which regulations for manned aircraft would apply. In parallel with the development of international standards by ICAO, CAAS is reviewing the regulatory framework for the various types of unmanned aircraft and their operations in Singapore. This review, which is being done in collaboration with other stakeholders, takes into account the safety and security risks posed by unmanned aircraft activities, particularly near aerodromes, built up areas and critical/sensitive installations. The review will provide the necessary regulatory oversight of UAS activities while allowing for the growth of the industry. Operating guidelines to advise operators on the safe conduct of UAS activities are also being developed. The proposed regulatory framework will be rolled out for public consultation in the coming months.


Source: Singapore Parliament Reports (Hansard)

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Questions on the new bus contracting model

I asked the Minister for Transport 3 parliamentary questions and another 4 supplementary questions regarding the new bus contracting model, during the sitting of Parliament on 7 July 2014. This is the relevant extract from the Hansard.


1. Mr R Dhinakaran asked the Minister for Transport what are the key considerations for the change in the public bus transport model and what will be the initial investment by the Government in this model.

2. Mr Christopher de Souza asked the Minister for Transport how his Ministry envisions the new bus contracting model in which operators will bid for a package of routes through competitive tendering as being able to achieve better service and affordable fares to commuters as well as the plying of buses on less lucrative but necessary routes.

3. Mr Teo Siong Seng asked the Minister for Transport whether the Government has made a provision in the budget for the new bus contracting model and, if so, whether the budget will be made transparent to the public.

4. Mr Gerald Giam Yean Song asked the Minister for Transport under the new Government contracting model for public buses (a) how does the Government plan to buy back the public bus infrastructure and operating assets currently owned by the two public transport operators (PTOs); (b) how will the value of these assets be assessed; (c) how will the Government ensure that the PTOs do not profit from the disposal of these assets; and (d) how will the Government fund these asset purchases.

5. Mr Gerald Giam Yean Song asked the Minister for Transport (a) whether the Government expects to make an operating loss over the long term under the new Government contracting model for public buses; and (b) approximately how much operating subsidies the Government expects to inject into the public bus system each year.

6. Mr Gerald Giam Yean Song asked the Minister for Transport (a) whether the Government has any plans to extend the new public bus contracting model to the MRT system; and (b) whether the Government is satisfied with the current MRT ownership and operating model.

The Minister for Transport (Mr Lui Tuck Yew): Mdm Speaker, with your permission, I would like to take Question Nos 1 to 6 together, please.

Mdm Speaker: Yes, please.

Mr Lui Tuck Yew: As announced in May, we are moving the public bus industry from the current privatised model to a Government Contracting Model.

We have been studying this move as early as the Land Transport Master Plan in 2008. Under the current model, the public bus operators rely on their fare and non-fare revenues to pay for their operations and buy operating assets, such as buses. When fare revenues are uncertain, as it has been in recent years, operators may be reluctant to expand capacity ahead of demand, or to improve service levels beyond regulatory standards on their own accord. This was why the Government had to step in with the Bus Service Enhancement Programme, or BSEP, in 2012 to quickly raise service standards and to add capacity, even as we worked towards a more sustainable bus industry model.

Under the proposed Government Contracting Model, LTA owns the buses, plans the routes and engages private bus operators through competitive tenders to run the services. This will enable us to respond more quickly and effectively to changes in ridership and commuter needs. The model also allows for more operators, potentially even overseas ones, to compete for the contracts. Bus operators will need to compete on the basis of costs and service quality. Over time, this will lead to the provision of better bus services in a cost-competitive manner, thereby benefitting commuters.

Mr Dhinakaran, Mr Gerald Giam, and Mr Teo Siong Seng asked whether the Government is setting aside a budget for the new bus contracting model, and how much the Government will subsidise bus operations. I think it is probably not in the Government’s interest to reveal any budget that we may have set aside and how much we are prepared to subsidise before the tenders are issued and the returns are seen, as this may well skew the bids against us.

The eventual amount of subsidy will crucially depend on whether fares and bus service standards are set realistically. Regardless of industry model, the cost of the overall bus system has to be paid for either by commuters in the form of fares, or taxpayers in the form of Government subsidies. There surely is no free lunch. Therefore, we have to strike the right balance. The Government is committed to ensure the affordability of public transport fares. However, regular fare adjustments are still necessary to ensure the overall financial sustainability of the public transport system.

Likewise new bus routes and higher service levels have to be assessed judiciously. Even today, we receive many requests to run bus routes that have low ridership. From the point of view of the select few who benefit, these bus routes are of course “necessary”. But if we run too many of these routes throughout the system, either higher fares, or more Government subsidies, will be required.

Mr Giam asked about how we intend to treat the current bus assets owned by the two incumbent public bus operators. We will discuss this issue as part of our negotiations with SBST and SMRT on the nine bus packages that they will continue to operate after 2016.

Finally, Mr Giam may perhaps not be aware that we have already implemented the New Rail Financing Framework (NRFF) starting with the Downtown Line last year, even before the announcement of the public bus contracting model. In fact, the Government Contracting Model for buses brings us closer to the NRFF, where the Government, instead of the operator, owns the operating assets and is responsible for major capital asset investments.

Mdm Speaker: Mr Gerald Giam.

Mr Gerald Giam Yean Song (Non-Constituency Member): Thank you, Madam. I have four supplementary questions, three of which are related to each other. First is how does the Government ensure that there is genuine contestability and competition among the operators so that they will be kept on their toes to constantly improve service quality and efficiency? How will it ensure that the new model will not see the same few players dominating the market?

Secondly, how will the Government ensure that it is easy for new players to enter the market, and also easy for non-performing operators to exit?

Thirdly, how many new players does the Government plan to allow into this market?

Fourthly, does the Government have plans to set up a corporatised, not-for-profit entity like a National Transport Corporation or Transport for London, that manages the assets in the day-to-day operations of the bus network, while leaving LTA to play the regulatory and planning role, as this could lead to greater efficiency and accountability, and minimise the risk of regulatory capture?

Mr Lui Tuck Yew: Mdm Speaker, I thank the Member for his supplementary questions. Perhaps, I will start with a reply to how we would encourage new players to enter the market, and then, I will go into the specifics of contestability and how many new players.

One important thing is to lower barriers to entry, which is why we decided that as we embarked into the Government Contracting Model that it would be best for LTA to purchase and own the buses. For each package, you may be looking at perhaps 400-500 buses. For 400 buses, you may be looking at $150 million and $200 million dollars – quite a significant capital investment if it has to be invested by a new player.

We do not want to preclude the possibility of operators that are already in the local market, running private buses quite efficiently, who may be prepared to make a bid for one of these packages, provided we lower the barriers to entry.

How do we ensure genuine contestability? Well, to have as many bidders as possible. To make the bidding as simple as it can be, so that your evaluation is as straightforward as possible.

There is another reason why we have decided to purchase and provide the buses. Because we intend to have a five plus two option – five years, with the option for an operator, if he is successful and performing well, to extend for another two years. So this is five plus two. After that, it is re-tendered.

Obviously, the lifespan of a bus extends well beyond the five or seven years. If an operator were to bring in their own buses, then the challenge is how do they cost this into their bid? Do they bring in second-hand buses, meaning the life span would run out by the time they finish; or do they bring in new buses knowing that this could disadvantage operators from certain countries, for example, the European countries because they are on the different side of the road. And so the buses that they use here may well not be so suitable if they were to use it some other place, like back in their home countries.

So, genuine contestability comes about from lowering the barriers to entry, making sure that you have got competitive bids, structuring the tender so that it is as clear and as simple as possible so that when you evaluate, you can evaluate across a common base line, so that the potential operators do not need to price in too many areas of uncertainty.

As to how many new players, we actually are open to this. The initial part is that three of the 12 packages will be put up for tenders and we will then negotiate with SBST and SMRT to run the remaining nine packages. Over the longer period, the intent is to put up all 12 packages for tender. Whether we continue to have two, three or more players will depend on the returns that come in.

On the not-for-profit entity and whether there should be a corporate player to own the buses, we do not see a necessity for that at this point in time. Basically, it is really the same model that we are trying to adopt as for rail. In rail, we provide the infrastructure, we provide the first set of rolling stock, and the operator then subsequently buys it over at the right point in time. The bus industry had been operating on quite a different model in the past because the operators used to have to pay for the depots, buses and everything. What we are trying to do here in the Government Contracting Model is to provide as much as possible the same kind of support to the bus industry as we did to the rail industry in the early years.


Source: Singapore Parliament Reports (Hansard)

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Debate on MediShield Life Committee Report

Delivered in Parliament on 8 July 2014

Madam Speaker,

Anxiety about healthcare affordability weighs heavily on the minds of Singaporeans – not only the elderly, but also their adult children and those who will become old and face the risk of falling seriously ill. It is therefore important for us to work together as a nation to find solutions to the challenging problems regarding healthcare affordability, quality and accessibility in Singapore.

I would like to thank the MediShield Life Review Committee for widely consulting Singaporeans on their concerns and taking many of these into account when crafting their recommendations to the Government. I also commend the Committee for taking the initiative to address some key issues that went beyond the terms of reference given to them by the Government.

I support the motion endorsing the Committee’s report as the basis for designing MediShield Life. However, I have a number of concerns about some details of the Scheme, which I will focus on in my speech today.

At the heart of the report lies the recommendation to provide Singaporeans with better lifetime protection against large medical bills and to strengthen our social safety net. Pulling these recommendations in both directions are the competing priorities of, on one hand, the need to make MediShield Life affordable to all Singaporeans, and on the other hand, the need to ensure that the scheme is financially sustainable. This is the key challenge before the House today.

Premium subsidies

On the issue of affordability, I am glad that the Government will be providing permanent premium subsidies for low and middle income earners.

The Committee has suggested that the process for applying for subsidies should be as simple and convenient as possible. I agree and I would like to reiterate my earlier calls for premium subsidies to be provided automatically to households that have already undergone means-testing for other government assistance schemes.

For example, all households with Community Health Assist Scheme (CHAS) Blue and Orange cards should receive MediShield Life premium subsidies without having to apply separately. The same should apply to recipients of Medifund, Public Assistance and ComCare assistance.

Polyclinics, hospitals and private clinics should step up efforts to assist all their patients to apply for CHAS, so that they can receive both outpatient subsidies under CHAS, and MediShield Life premium subsidies. The Government should reach out to all lower and middle income Singaporeans before the start of MediShield Life, so that they do not miss out on the premium subsidies they are entitled to.

I would also like to suggest that the income criteria for premium subsidies be pegged to healthcare inflation so that the value of the subsidies is not eroded with rising healthcare costs and premiums.

Reserves and Capital Adequacy Requirements

On the issue of financial sustainability, the Committee has reiterated the Government’s conservative approach of setting aside substantial reserves in the MediShield Life Fund to meet current and future liabilities. It did not suggest any changes to the reserves framework.

This is an area that begs further examination. It is not just an academic exercise. The reserves framework impacts the premiums that people are required to pay.

Let me state for the record that I believe that MediShield Life should be financially sustainable in the long term, and that enough reserves must be set aside for temporary spikes in claims and long term liabilities.

However, there is a big difference between setting aside enough for reserves, and setting aside too much for reserves. Setting aside enough ensures that the MediShield Life Fund remains solvent even when claims in a particular year are higher than expected. Setting aside too much could mean collecting excessive premiums to cater to an extremely unlikely, but catastrophic event.

So how much is “enough” and how much is “too much”?

The Monetary Authority of Singapore (MAS) has in place a Risk Based Capital Framework which regualtes all insurance funds, including MediShield. The framework defines, among other things, how much the fund needs to set aside to ensure capital adequacy and solvency. This is measured using the capital adequacy ratio (CAR), which is the ratio of a fund’s net assets to its total risk requirements.

The MAS expects insurance funds to meet a CAR of 120%. According to an answer to my parliamentary question last October, the CAR of the MediShield Fund was 165% at the end of 2012, which is 45% higher than MAS requirements. At the end of 2013, the MediShield Fund had net assets of $613.3 million dollars, which is more than 1.8 times the total claims paid last year.

The Health Minister said in response to the same parliamentary question that the MediShield Fund has set a target CAR of 200%, which is 80% higher than MAS requirements.

Madam, is there really a need to set aside so much in reserves? While this manages the risk for the Fund, it could be placing an unnecessary premium burden on policyholders.

If the pace of reserves accumulation can be adjusted to be more in line with MAS requirements, premiums can be made more affordable. The Fund can still maintain a comfortable buffer above MAS requirements, but I do not see the justification for exceeding the requirements by 80% when the regulator’s requirements are already quite conservative.

Another result of parking aside too much in the reserves, is that the medical loss ratio of the MediShield scheme becomes very low. In 2013, the medical loss ratio of MediShield was 44%, which means that out of every dollar that was collected in premiums last year, only 44 cents was paid out in claims. This is the lowest loss ratio since 2001.

As I pointed out during the last Parliament sitting, under the Affordable Care Act in the United States, commercial insurance companies are required to issue premium rebates to policyholders if their loss ratio falls below 80-85%. Can MediShield Life, which is a not-for-profit scheme, do something similar, so as to reduce the premium burden on Singaporeans?

Transparency of actuarial data

Healthcare expert Dr Jeremy Lim has commented on the lack of actuarial data on MediShield Life being made available to the public. I agree that more detailed data will enable the public and independent experts to validate the conclusions put out by the Government, especially with respect to the premiums that need to be collected to keep the Fund solvent.

It would be helpful if the Government could make known its targets for the medical loss ratio, capital adequacy ratio and reserves for MediShield Life.

Since the Government says it needs to keep a large amount in reserves for “adverse scenarios”, it should explain what kind of adverse scenarios it is expecting and how much it expects them to cost.

Finally, as MediShield Life will be front-loading premiums, its annual reports should distinguish how much is being collected for pre-funding and how much is being collected to fund current claims.

Portal medical insurance

Next, I would like to discuss the issue of portable medical insurance. It is good that the Committee has brought this up in its report.

The report noted that less than 5% of employers offer portal medical benefits, and most companies that provide inpatient benefits do so through Group Hospitalisation and Surgery insurance plans (GHS) that are separate from MediShield. It acknowledged that GHS plans are “usually more attractive” than those provided by MediShield, MediShield Life and Integrated Shield Plans, and tend to offer “higher perceived value” to employees at relatively lower costs for employers.

This presents a steep challenge to adoption. We are essentially asking many employers and employees to shift to an inferior plan that may cost more.

Because of this, I think we need to approach the messaging from a different angle to encourage adoption. First, we need to explain to employees that there are clear benefits to portable insurance. When they move jobs, they can still retain their cover. Second, the universal mandate for MediShield Life means employees will already be paying premiums, whether or not their employers offer portable plans. So portable benefits provided by employers could help lower the premium burden on employees.

Third, having a single comprehensive insurance cover instead of a patchwork of duplicate covers means the employee should be able to claim a larger share of his hospital bill. And fourth, not all employers offer inpatient medical benefits to their employees. These employers could be encouraged to take the first steps by helping their employees pay their MediShield Life premiums, as this will make them more attractive organisations to work for.

To make portable benefits more attractive and comprehensive, employers could not only contribute towards their employees’ MediShield Life premiums, but also consider purchasing riders to cover some of the co-payments, so that the out-of-pocket payments by employees will be reduced.

The Government should take up the Committee’s suggestion for an adoption grant to be made available to companies to assist them in making a move to portable medical benefits that ride atop MediShield Life. MOH should also increase its efforts to better educate companies of the continuing tax incentives available, and the benefits of providing portable insurance to their employees.

Integrated Shield Plans

Next I would like to touch on Integrated Shield Plans. The Committee has suggested that the Government should work with the insurance industry to develop key features for a Standard Plan that will provide coverage at the B1 class level in public hospitals.

This Standard Plan appears to serve two main purposes: First, to provide a benchmark for consumers to compare against the plans offered by private insurers. Second, to set the Medisave Withdrawal Limit for Integrated Shield Plans.

On the first point, I share the frustration of many consumers in choosing the best Shield Plan. The Plans are currently offered by five insurance companies, with each trying to differentiate itself by offering a different set of benefits. Sometimes comparing them is like comparing apples with oranges.

Worse still, many consumers get their information about the Integrated Shield Plans from insurance agents representing individual insurers. Naturally, we cannot expect these insurance agents to give completely unbiased advice, since it is their job to market their own company’s products.

The net result is that consumers end up either choosing a plan that is not the best for them and their families, or they end up confused and unsure of which plan to choose.

I note that the MOH has a section on its website that provides a comparison of MediShield and different Integrated Shield Plans. This is a good initiative that should be better publicised, so as to reduce confusion and also encourage more consumer self-service. It could also spur more competition and lower prices, as the insurance companies will compete more on features and price, and less on their marketing ability.

I would like to seek more clarification on how the Standard B1 plan will be implemented:

First, will the Government tender out the Standard Plan to one insurance company or will all insurers be expected to offer this plan? If it is tendered to one insurer, how will it ensure sufficient competition such that the premiums and benefits are to the advantage of consumers’?

Second, if existing Integrated Shield Plan policyholders decide to switch to the Standard Plan, will they be subject to underwriting, where their pre-existing conditions will get excluded or risk-loaded? If so, then it probably would not make sense to switch, especially for older policyholders who are likely to have developed pre-existing conditions.

For many Singaporeans, the main issue they have with Integrated Shield Plans is that the Medisave Withdrawal Limits are too low, forcing them to cough out cash to pay their premiums. This is especially so for older policyholders, who now have to top up anywhere between $100 and $3,500 a year in cash to pay their B1 plan premiums. This is frustrating for many of them, especially retirees who are short on cash but have sufficient Medisave balances.

I hope the development of a Standard B1 Plan will raise the Medisave Withdrawal Limit to better meet the cost of Integrated Shield Plan premiums, especially for older policyholders.


Madam Speaker, MediShield Life is a welcome shift in policy towards stronger social safety nets. In its 1993 Healthcare White Paper, the Government sounded a warning against an over-reliance on medical insurance and the risk of moral hazard. Now, 21 years later, the Government has responded to a louder voice of the people with a universal scheme that has better benefits, lower co-payments and subsidised premiums. This is a step in the right direction towards a more caring society.



Following my speech, PAP MP Janil Puthucheary said that the minimum medical loss ratio of 80 to 85 per cent under the Affordable Care Act (“Obamacare”) includes not just direct claims but also the money put aside for “unpaid claim reserves and contingent benefits”. On further research after his speech, I found a US state government website which defines “medical claims” as including “adjusted incurred claims”, not just direct claims. I realise I made an oversight about how insurance companies in the US define “medical loss ratio”. Dr Puthucheary said that a more appropriate comparison in Singapore is the incurred loss ratio, which compares the premiums people pay with the claims that are paid out as well as what the MediShield fund will need to meet its future liabilities. While both medical loss ratio (in the US) and incurred loss ratio (in Singapore) include future liabilities, it is not clear whether they both use exactly the same input factors. Therefore, comparing MediShield’s incurred loss ratio with the medical loss ratio of US insurance companies may not yield a like-for-like comparison either. This is one of the reasons why I asked for more transparency of MediShield’s actuarial data, so that the public can make their own assessments and arrive at their own conclusions.

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Govt should take on more risk on behalf of citizens

During the debate in Parliament on 27 May 2014 on the President’s address, I made a speech in which I criticised the Government for not taking on sufficient risks on behalf of the people, but had instead passed many risks to them. I cited the increasing of the CPF Minimum Sum, the raising of the CPF drawdown age, and the high capital adequacy ratio of the MediShield insurance scheme as examples.

PAP MP Janil Puthucheary took issue with my remark that MediShield was “collecting a lot more in premiums than it is paying out in claims”. He suggested — without mentioning me by name — that this was an example of “intellectual dishonesty” and “sound-bite politics”, paraphrasing what I said as, “Medical insurance premiums are higher than the pay-outs”.

He left out my phrase “a lot more”, which gave the impression that I thought MediShield should be making a loss by collecting less in premiums than it pays out in claims. I immediately clarified that “I never said or suggested that health insurance pay-outs should be more than the premiums collected. But for a social health insurance scheme which is what MediShield Life should be, the premiums collected do not need to be so much more.”

In any case, these are not simply sound-bites, but facts. Between 2001 and 2013, based on CPF Board Annual Reports, MediShield collected $3.704 billion in premiums but paid out $2.190 billion in claims — a difference of $1.514 billion. I leave it to Singaporeans to assess whether or not they consider $1.5 billion to be “a lot more” in premiums than pay-outs.

Dr Puthucheary also questioned the validity of my comparison between MediShield and Obamacare, the US Affordable Care Act, which requires all Americans to buy health insurance and mandates commercial insurers to take on more risks on behalf of their policyholders. He said that “we are talking about a public social insurance and he is comparing it with a private, for-profit environment in the United States”.

In fact, Obamacare served to illustrate my point that even profit-oriented health insurers in the US are required to take on more risks on behalf of their policyholders than our MediShield, which is a social health insurance scheme. I pointed out that Obamacare mandates a loss ratio of at least 80-85%, and that insurers who do not meet this minimum must now issue rebates to policyholders. (Loss ratio = [claims paid-out] / [premiums collected] x 100%. The higher the loss ratio, the more risk on the insurer.)

MediShield’s loss ratio between 2001 and 2012 had been, on average over this period, 63% (59% if year 2013 is included). It dropped from 75% in 2012 to to a historical low of 43% in 2013. The latter figure was revealed in the latest CPF Annual Report released on 6 June (after the Parliament sitting). It is likely due to the higher premiums collected as a result of the premium hike last year.

On his last point, about what if the “supposition that we could increase pay-outs is wrong”. He cited a “worst case scenario is that our public healthcare financing becomes insolvent and we are unable to support the healthcare needs of a generation possibly.”

Increasing the loss ratio to 80-85% is not going to make public healthcare financing “insolvent”. That is clearly a hyperbole (an accusation he made about me). But more importantly, wouldn’t it be better for a government to take on more risks, so as to prevent individual citizens from suffering financial ruin due to high healthcare costs?

The PAP MP’s argument that it is okay for the Government to “save more” (by collecting more premiums than necessary) but disastrous for it to pay out more, proved the central point in my speech: That the Government is reluctant to take on more risks on behalf of Singaporeans.

The MediShield Life Review Committee is expected to submit its full report to the Government this week. I hope the Committee can prove me wrong, and that the Government will show that it is willing to take on significantly more risks on behalf of its citizens. If not, this will certainly not the last time I will be raising this issue.

This is the transcript of the full exchange in Parliament:


Mdm Speaker: Mr Gerald Giam.

Mr Gerald Giam Yean Song: Thank you, Madam, I just want to clarify a point that Dr Janil said in his speech earlier on. I never said or suggested that health insurance pay-outs should be more than the premiums collected. But for a social health insurance scheme which is what MediShield Life should be, the premiums collected do not need to be so much more.

As a point of comparison, the US Affordable Care Act, the new ObamaCare, mandates that a minimum loss ratio of between 80% and 85%. Ours is, on average, 63% over the last 11 years, and it was 75% in 2012. So, the US Affordable Care Act mandates that the minimum loss ratio should be between 80% and 85% and that insurers who do not spend 80-85% of their premiums in healthcare costs must now issue rebates to consumers. And these are all commercial insurers. These are not social health insurers.

Mdm Speaker: Dr Puthucheary.

Dr Janil Puthucheary: Thank you, Madam. Mr Giam brings up some very good points. And if I could take them in reverse order. Firstly, we are talking about a public social insurance and he is comparing it with a private, for-profit environment in the United States. So I do not think his comparison is valid.

Secondly, I am loath to use the United States as the be-all and end-all for a model of where our healthcare system should evolve to. Even the policy-makers and office holders in the United States would readily admit that the short-term electoral outlook significantly constrains their ability to take a long-term strategic vision for the healthcare system of their nation.

But lastly, I would like to make one point, which is that what if he is wrong? What if Mr Giam’s supposition that we could increase pay-outs is wrong? And we should compare that to what if the current situation is the wrong decision? If the current situation where, as he puts it, the pay-outs are far less than the premiums collected, that is the wrong decision. We save a little bit too much. If he is wrong, and we pay out more, if we pay out more and he is wrong, what is the worst case scenario? The worst case scenario is that our public healthcare financing becomes insolvent and we are unable to support the healthcare needs of a generation possibly.

This has happened in many other countries. The intellectually honest thing to do is to compare risks versus risks, benefits versus benefits, and worst-case scenarios against worst-case scenarios – not to cherry-pick the benefits of your proposal against the potential risks of the proposal in front of you. Thank you, Madam, for your indulgence.

Mr Gerald Giam Yean Song: Madam, I am glad he made that clarification. In fact, I cited ObamaCare precisely because of the US health system and the trouble that it is in today, and the fact that it is a commercial insurance scheme rather than a social insurance scheme. In fact, a social insurance scheme should have a much higher loss ratio than a commercial insurance scheme because commercial insurance wants to make money, whereas the Government is not in the business of making money. In fact, MediShield is supposed to be a not-for-profit insurance scheme.

Secondly, he asked about the grave scenario if pay-outs become more than the premiums collected. Now, in the case of medical insurance, it is relatively easy to be able to project what are the likely pay-outs to be and compared to, let us, say, earthquake insurance or something that has a much low frequency compared to health insurance, where you are able to see the trend and the cost of medical expenses over the years and be able to project what the pay-outs should be.

So, the question is: if it comes to the point where, because of the miscalculations, we aim for a 90% or 80% medical loss ratio but, for some reason, there is SARS that year or something like that happens, then we have a situation where the Government would have to step in to subsidise a bit more of the cost and the premiums can rise behind the increase in cost, not before you know that the costs are going to increase, then you raise the premiums.

Mdm Speaker: Dr Puthucheary.

Dr Janil Puthucheary: Madam, because we are talking about a social public good, it is therefore incumbent that we take a longer term, prudent approach, past one electoral cycle. I am glad that Mr Giam feels that medical expenditure is predictable. I and my professional colleagues would completely disagree. There is a lot of uncertainty about how costs will rise.

Myself and my brothers and sisters in the healthcare profession are part of that problem because we keep researching and coming up with all kinds of ways to spend the Health Minister’s money. Lastly, the example of SARS is a great example. It is precisely because of the prudent, conservative, risk-averse approach that we take on a day-to-day basis that when something like SARS comes along, the Government is able to step in and do what needs to be done.

Mdm Speaker: Minister Gan Kim Yong.


Source: Singapore Parliament Reports (Hansard)

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Managing risks, incentivising hard work and constructive politics (Debate on President’s address)

Speech delivered in Parliament on 27 May 2014

Madam Speaker,

I would like to focus on three areas in my response to the President’s address: Managing risks, incentivising hard work and constructive politics.

Managing risks

First, on managing risks. We face numerous risks in the course of our lives, or what the President called “the vicissitudes of life”. We could lose our job and suffer a drastic drop in income; we could fall seriously ill or get into an accident, and have difficulty affording the medical treatment; or we may retire but find we do not have enough to live our golden years with peace of mind.

This Government has been an excellent risk manager – it has been very good at managing its own risks, but less so the risks faced by our citizens. It pegs the CPF Minimum Sum amount to inflation, but does not do the same for CPF LIFE annuity payouts to the elderly. It raises the CPF drawdown age, which helps preserve the value of CPF balances, but leaves many retirees struggling to make ends meet, despite decades of contributions to CPF.

Even a risk sharing scheme like MediShield, which is supposed to be a form of social health insurance, is run more on commercial than social principles. The MediShield Fund had a capital adequacy ratio of 161% in 2012, which is more than 40% higher than what the Monetary Authority of Singapore (MAS) expects commercial insurance funds to hold. The loss ratio of MediShield averaged just 63% from 2001 to 2012. This means that it is collecting a lot more in premiums than it is paying out in claims.

In the past two decades, this Government has “marketised” many public services like transport and healthcare, transferring risks from the Government to service providers, which can easily pass them on to customers because of their near monopoly positions.

There are negative consequences for transferring too much risk to citizens. If Singaporeans face very high uncertainties in their lives, they will be less willing to start a business or volunteer their time to help others. Their minds will be so preoccupied with survival, that they find it hard to engage in innovative, creative or compassionate thinking. Instead, they will be under tremendous stress, worrying about how to cope with the rising cost of living and the increasing responsibilities of work and family.

In my maiden speech at the opening of the first session of Parliament in October 2011, I criticised the regressive transfer of risks from government to citizens over the previous decade. I am glad that in the last two-and-a-half years, there has been a shift in mindset and policy, and the Government is starting to bear a larger share of risks.

The HDB says it has de-linked BTO (Built-to-Order) flat prices from resale market valuations. The LTA has just announced that public bus services will undergo a nationalisation of their infrastructure and operating assets, with operations contracted out to private operators under stricter service standards. Changes are underway in healthcare to distribute more risks through universal insurance.

These are moves in the right direction. However, it is not time to declare victory yet. While flat prices have moderated, they come from a very high base and prices are still high relative to incomes of young home-buyers. We have yet to see whether service quality will improve under the new bus contracting model and whether fares will continue to rise as the same rate as now.

While everyone will soon have health insurance, is the risk simply being distributed among all Singaporeans? Will the Government take on some of the risk by subsidising premiums and removing some claim limits, as I proposed in my adjournment motion on healthcare financing last November? I look forward to some good news in this respect when the MediShield Life committee announces its recommendations.

There are other related issues like the increasing cost of living, the adequacy of CPF for retirement, healthcare affordability and job security that continue to cause Singaporeans a great deal of worry. The Government will do well to pay closer attention to these issues in its remaining term.

Incentivising hard work

Next, on incentivising hard work and productive activity.

In Singapore, almost all government financial assistance is strictly means-tested and time bound. Most Members would have seen cases at their Meet-the-People sessions where a struggling resident with a family to support is given a small amount in financial assistance – sometimes as little as $50 a month – by the community development council (CDC) and has to repeatedly appeal through the MP for it to be renewed every few months.

I presume the purpose of this is to motivate such residents to work harder and reduce their reliance on government handouts. However, in many of these cases, the resident is already working as hard as she can, but her income is simply not enough to maintain her children and elderly parents, while paying off utilities bills, service and conservancy charges and medical expenses, just to name a few.

The Government cannot expect that, by making them jump through hoops to receive financial assistance, they will suddenly be able to pull themselves up by their bootstraps, especially when incomes at the lower end are not rising at a fast enough rate. Some struggling families need to be given financial assistance on a longer term basis, until their circumstances change, for example, when their siblings or children graduate from school and start working.

We must always incentivise hard work and productive contributions to our economy and society. However, these incentives should not be only focused on welfare recipients.

We must be on guard against rent-seeking behaviour, particularly in major industries that have an impact on our economy. The Economist magazine defines rent-seeking as cutting oneself a bigger slice of the cake rather than working to make the cake bigger. In other words, trying to make more money without producing more for customers.

Rent-seeking may or may not be illegal. Some examples of rent-seeking include forming cartels, or lobbying for changes in regulations that benefit one’s own company at the expense of customers. Rent-seeking can impose large costs on our economy without creating any value. It insults our sense of what is fair, and goes against the values of meritocracy and hard work that we expect people to put in before getting rewarded.

The Economist has developed what it calls a “crony-capitalism index”, which ranks countries according to billionaire wealth earned as a proportion of the overall economy, in sectors that are vulnerable to monopoly, or that involve licensing or heavy state involvement. Singapore ranks poorly on this index. We are ranked 5th among the 23 countries that were surveyed in 2007 and 2014.

The Economist identifies several industrial sectors that are prone to rent-seeking behaviour, including casinos, real estate and construction. We should be on higher guard against the risk of rent-seeking behaviour in these sectors.

Madam, as social spending increases, the Government has said that it will need to develop other revenue streams to make up for future budget shortfalls.

We should continue to keep taxes low for income derived from engaging in value-adding activities which bring technological advancement and create good jobs for Singaporeans. This rewards hard work and incentivises productive activity and entrepreneurship.

However, if there is a need to raise more revenue to make up for future budget shortfalls, the Government should look first to increasing the Net Investment Returns Contribution or taxes on profits derived from economically non-productive activities. These should be done before considering raises to the GST or personal income taxes for middle-income earners.

Constructive politics

For my last point, I want to respond to what the President said in his address about constructive politics.

He said that “it is crucial to maintain constructive politics that puts our nation and our people first”. He acknowledged that “politics lives off robust debate and passionate argument” and that “we should continue to have vigorous debates on the challenges facing our nation” as this is important so as to “have the best ideas and best leadership for Singapore”.

I agree with the President on these points. My reason for entering politics was to contribute towards shaping better public policies that benefit my fellow citizens and help Singapore progress. I trust that this was also what motivated all members of this House to enter the political arena.

Robust debates which focus on the issues and problems at hand, and where alternative solutions are proposed and properly considered, can help shape better policies, which will benefit Singaporeans. But when debates start getting personal and descend into unnecessary political attacks, they risk losing focus from the bread-and-butter issues that citizens are concerned about. This sort of politics can cause our people to become cynical about the political process, and erodes their respect for politicians of all parties. We must not let our politics descend to this level because that will weaken Singapore.

Having said that, we must not presume that vigorous and passionate debates will lead to gridlock and paralysis. We should not sacrifice quality for efficiency. As the wise adage goes, “legislate in haste, repent at leisure”.

It is unproductive to rush through new policies, only to have it cause pain and unhappiness for the people, and have to reverse it later. It would be much better to have a proper and informed debate both inside and outside this House, make adjustments in response to feedback from MPs and the public, then roll out better schemes for Singaporeans.

I will continue to join my Workers’ Party colleagues to contribute constructively to debates on issues that matter to Singaporeans. If we assess that a policy will go against Singaporeans’ interests, we will oppose it and where possible, propose alternatives. If the policy is good for our country, we will support the Government for the benefit of our people. This is how we play the role of a constructive opposition.

Madam, I support the motion to thank the President.

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GST offsets for low-income households

I asked the Minister for Finance this question in Parliament on 14 April 2014.

The permanent GST Voucher scheme was introduced in 2012 to help lower- and middle-income households with their expenses, in particular, what they pay in GST. It was an acknowledgement that the GST is an inherently regressive tax, because lower-income earners on average pay a far higher percentage of their incomes in GST than higher-income earners do.

It is surprising to learn that GST Vouchers offset on average only half of the GST that the lowest 20% of households earn. This was not the understanding and the impression that I had when the GST Voucher scheme was launched several years ago. I thought it was meant to fully offset the GST paid by the poor.

Mrs Josephine Teo, the Senior Minister of State for Finance, told me that the GST that lower-income households pay is “more than offset” by the other benefits they receive from the Government, like childcare subsidies, financial assistance for education, Workfare, housing grants and healthcare subsidies. I feel we should not be conflating the GST Voucher scheme with other government assistance schemes for low-income households, as those schemes should exist whether or not we have the GST.


Mr Gerald Giam Yean Song asked the Deputy Prime Minister and Minister for Finance (a) on average, what percentage of GST paid by the lowest 20% of households (by income) is offset by all forms of GST Vouchers last year; and (b) whether the Government will consider fully offsetting the GST paid by all households in the lowest quintile even in years when there are no one-off Special Payments made.

Mrs Josephine Teo (for the Deputy Prime Minister and Minister for Finance): Mdm Speaker, in 2013, for the lowest 20% of households by income, on average about half of their GST paid would have been offset by the regular GST Voucher. If we include the one-off GST Voucher Special Payment announced in Budget 2013, the benefits from the GST Voucher would have covered over 90% of their GST paid.

However, the GST Voucher scheme is not the only offset for the GST paid by lower-income households. The GST Voucher is part of a progressive system of taxes and benefits, that ensures that lower-income households get back far more benefits than the taxes they pay, including GST. These include childcare subsidies and financial assistance from school to tertiary education, Workfare, special and additional housing grants, and healthcare subsidies. The GST that they pay is hence far more than offset by the benefits they receive.

Mr Gerald Giam Yean Song (Non-Constituency Member): Madam, I thank the Senior Minister of State for the reply. I would like to clarify: what is the Government’s philosophy behind the GST Voucher Scheme? Is it meant to offset the taxes that are paid by the lower- income through GST? Or is it meant to just partially offset it? I understand the Senior Minister of State’s point that there are other vouchers and other subsidy schemes that would help to offset the cost of living, but specifically for the GST, does the Government see it necessary to fully offset the GST paid by the lower- income, in recognition of the fact that it is a regressive tax? Because that was the understanding and the impression that I had when the GST Voucher Scheme was launched.

Mrs Josephine Teo: Mdm Speaker, I thank the Member for his question. The GST Voucher Scheme is a permanent scheme. When the scheme was introduced, the idea was to ensure that even for lower- income households where they paid GST, there would be some form of permanent support for these households. But it does exist as part of a broader set of benefits that are provided to different households. And it is within this context that the GST Voucher Scheme is designed. So we look at the benefits that are provided to households holistically and provide the support where it is most meaningful to them. If I could also share and remind the Members of the House, in every Budget, the support measures that are provided to lower- income households have been strengthened in many different regards. It could be in education; it could be in childcare; it could be in healthcare; it could also be in housing. So we have to look at all of these in totality.

Source: Singapore Parliament Reports (Hansard)

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Interview with Straits Times on public transport woes

The Straits Times did an interview with me last week about the performance of public transport since the last General Election, quotes of which were published on Saturday’s (3 May 2014) Insight article, “On track to solve public transport woes?”. Below is the full transcript of the interview.


[Straits Times] In terms of train reliability, the disruptions in December 2011 were probably the turning point for the worse. 2012 saw the number of train delays hit a high, and according to LTA stats the number of delays and withdrawals came down last year. Some measures the Govt has implemented to tackle this include setting up joint teams with the operators post COI, and raising the maximum fine this year. What is your sense of rail reliability since 2011? Has the situation improved, stagnated or deteriorated, and why?

[Gerald] The number of delays lasting longer than 5 minutes may have come down last year, but this was from a high base of 396 in 2012 and 393 in 2011. The number of delays in 2013 was still higher than in 2010 and 2009. So I think it is still too early to declare victory.

Furthermore, I have often experienced trains stopping many times for less than 5 minutes along the way, resulting in the overall journey being significantly delayed. This has also been the experience of other commuters I have spoken to. Sometimes the statistics that the Government looks at don’t tell the whole story.

[Straits Times] Looking ahead, what needs to be done in to improve train reliability further?

[Gerald] It is usually cheaper to maintain a machine regularly than to replace a machine that has broken down because of poor maintenance. Our MRT system has suffered for years of under-investment in maintenance. It will take a massive re-investment in maintenance to restore reliability to acceptable levels. Beyond maintenance, technology and infrastructure needs to be upgraded to keep up with population and commuter growth. For example, I believe the multiple short delays during trips that I mentioned earlier are often due to the signalling system not being able to accommodate shorter headways (the distance or time between trains).

[Straits Times] In terms of crowding, have trains become even more packed since 2011? Any feedback you have gotten from commuters or residents about this issue?

[Gerald] I find that the train frequency during peak hours has increased slightly, but trains are often still not arriving fast enough to clear the continuous stream of people who are entering the station platforms. Once there is even a slight delay, the platforms would be overflowing with people. While MRT operators may have increased train frequency, there are also more commuters due to continued population increases. It is meaningless to tell commuters that trains are now arriving every 2 minutes instead of every 5 minutes, when they needs to wait for 3 full trains to pass by before being able to board a train.

[Straits Times] Some measures to ease train overcrowding include travel demand management schemes such as free travel and Insinc, as well as introducing express/parallel bus services under the BSEP. To what extent do you think these have been effective? And do you think the overcrowding situation will ease when the Downtown and Thomson lines open a few years down the road?

[Gerald] If we can find a way to spread out the commuter load away from peak hours, that would help ease peak hour overcrowding. However, I don’t think free travel or other incentives will make a significant impact. These will only work if most commuters have flexible working hours, which is clearly not the case now. More employer mindsets need to change to allow for more flexible working hours and telecommuting.

We also need to develop more alternative city centres so that commuters do not all head in the same direction at the same time, as this causes additional strain on the public transport network.

I hope overcrowding will ease with the opening of new lines, but keep in mind there will also be more commuters in the coming years because of an increasing population. Furthermore, many of the new lines are serving areas which previously had no easy access to MRTs. I think the main benefit of these new lines would be an increasing mode-share of commuters taking the MRT. It may not translate to less crowded trains along the existing lines.

[Straits Times] Do you think bus services have improved overall since the BSEP was rolled out, and to what extent? Why or why not?

[Gerald] I understand there has been an improvement in bus frequency along routes benefiting from BSEP, with some services seeing waiting times of 30 minutes reduced to 10 minutes. With $1.1 billion of taxpayer money poured into this programme, plus another $1 billion or so on the way (with BSEP 2), I think this is the least that commuters can expect.

[Straits Times] Are there any problematic routes you know of – whether in terms of being too crowded/very long waiting time/bunching – that need to be addressed?

[Gerald] I am not able to itemise every problematic route, but I am told that SBS services 225G and 225W from Bedok Interchange often experience very long queues, such that passengers at the back of the queue are not able to board the bus or have to squeeze themselves onto the steps of the bus entrance.

[Straits Times] Moving forward, what else needs to be done to improve the bus network? More bus priority schemes, moving more quickly to the contracts model, or even nationalization?

[Gerald] We need to prioritise the needs of public transport commuters over users of private transport. The former mayor of Bogota, Colombia once said that if all citizens are equal before the law, then “a bus with 80 passengers has a right to 80 times more road space than a car with one.”

With this in mind, I would like to see more all-day bus lanes to make bus journeys smoother and more predictable in terms of timing, even if it means taking away some road space from cars.

I think whichever public transport model we adopt must incentivise operators to place reliability, affordability and commuter comfort and convenience ahead of profits. I can’t see how this can be achieved with two operators that are profit-oriented and enjoy de facto monopolies on each of their routes. The PTOs’ profits should be used to lower fares and for maintenance and upgrades, not to distribute as dividends to shareholders. Alternatively, we should, where feasible, introduce genuine competition that will spur innovation and productivity improvements to lower costs and improve service quality. It is competition that spurs efficiency and productivity improvements, not the profit incentive as our Government leaders wrongly assume. PTOs cannot be allowed to keep their profits yet be shielded from competition, because the ones who will suffer are commuters, who come mostly from the middle and lower income groups.

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Detecting aircraft that stray from flight path

The startling revelation that Malaysian military radar tracked the missing MH370 flying across Peninsular Malaysia but did not sound an alarm, prompted me to ask this question of MINDEF. I wanted to ascertain if suspicious aircraft can be effectively detected by our military radar and intercepted before they can harm our homeland. With just a tiny airspace surrounding our territory, there is little time to lose in completing the OODA loop (observe-orient-decide-act) to make the right decision in dealing with suspicious aircraft. What is interesting is that these air defences were put to the test once before, although it is not clear what type of aircraft had wrongly entered our airspace.


Mr Gerald Giam Yean Song asked the Minister for Defence whether the RSAF has measures in place to identify and be alerted to aircraft flying near Singapore which veer off their flight path so that they can be intercepted in time before they reach Singapore.

Dr Ng Eng Hen: The RSAF has a robust air defence system to monitor our skies and protect the sovereignty of Singapore’s airspace. Working closely with the Civil Aviation Authority of Singapore, the RSAF detects and identifies aircraft before they enter our airspace through its suite of radars.

If an aircraft veers off its flight path, a series of preventive measures will be triggered. First, air traffic controllers will communicate with the aircraft to verify its reason for veering off its flight path. If there are doubts regarding the intent of the aircraft or the aircraft does not adhere to air traffic control directions, RSAF fighter aircraft will be activated to intercept the aircraft. Ground-based air defence systems will also be activated.

On past occasions, the RSAF had responded swiftly to suspicious aircraft approaching our airspace. For instance, in 2008 when an unknown aircraft was detected heading towards Singapore, the RSAF activated our F-16 fighters to intercept and identify the aircraft, and the fighters escorted it till it landed.


Source: Singapore Parliament Reports (Hansard)

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Progressive Wage Model and Low Wage Workers

I asked the Acting Manpower Minister (on 14 April) how his ministry planned to bridge the gap between the 110,000 workers earning less than $1,000 per month (a figure I obtained from a previous Parliamentary question) and the 80,000 workers expected to benefit from the Progressive Wage Model, which will be applied to only the cleaning, security and landscaping industries.


Mr Gerald Giam Yean Song asked the Acting Minister for Manpower how does the Government plan to raise the wages of local low-wage workers in industries other than cleaning, security and landscaping given that that there are around 110,000 employed residents in Singapore earning less than $1,000 per month (excluding part-time workers) and the enforcement of the Progressive Wage Model in these three industries is expected to impact only about 80,000 low-wage workers.

Mr Tan Chuan-Jin: I have talked about the need to raise the incomes of lower-wage Singaporeans for a few years now and we have been putting in place measures to do so. It requires a holistic and wide-ranging effort. As a key first step, we need to keep the economy healthy, competitive and vibrant so that a wide range of jobs is available.

Secondly, our tightened labour market helps to keep unemployment low and put some upward pressure on wages.

Thirdly, we have enhanced Workfare, which now supplements the incomes and retirement savings of more than 400,000 Singaporean workers earning less than $1,900, and encourages them to work regularly and up-skill. Through the Inclusive Growth Programme, low-wage workers benefit from companies’ productivity gains through higher wages. MOM has also raised the full-time equivalent (FTE) salary for full-time local workers from $850 to $1,000 in July 2013. The FTE salary is used to determine how many local workers a company has, as a basis to calculate the foreign worker quota that the company is entitled to. It also ensures that local workers are employed meaningfully, and are not paid token salaries just to pad the numbers.

However, it is important to also understand that raising incomes has to be based on productivity improvements, to be sustainable in the long-run. Mandating the Progressive Wage Model (PWM) to support wages at the very low end is a highly targeted intervention applied to specific sectors where there is a particular problem with the labour market, such as prevalent cheap-sourcing coupled with a lack of union representation for the workers. We are applying the PWM requirement through legislation in the Cleaning, Security and potentially the Landscape Sectors. But this legislation approach will not be appropriate for all sectors and occupations. A better approach for other sectors is NTUC’s on-going efforts to work directly with employers to develop progressive wage structures and career progression pathways for rank-and-file and even PME workers.

We also support the low-income earners through a range of other support schemes whether in the form of housing, medical and education subsidies.


Source: Singapore Parliament Reports (Hansard)

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Net Investment Returns Contribution

I asked the Finance Minister this question during the 14 April 2014 sitting of Parliament to find out if the Government had been using the full 50% of Net Investment Returns (NIR) to supplement the Budget, as is provided for in the Constitution. While it is widely assumed that 50% of the estimated long term annual returns from investing our Reserves is contributed to the Budget each year, the Constitution actually allows for “up to 50%”, which means it could be less than 50%.

Indeed, the Finance Minister revealed that the Government had in fact been using about 47% of NIR on average over the past 5 years. This works out to almost half a billion dollars less each year in the Budget than what the Constitution allowed for. However, for FY2014, the Government plans to top up the Budget with the maximum 50% of NIR.


Mr Gerald Giam Yean Song asked the Deputy Prime Minister and Minister for Finance what percentage of the Net Investment Returns (NIR) on the net assets managed by Government of Singapore Investment Corporation (GIC), Monetary Authority of Singapore (MAS) and Temasek Holdings is contributed to the Government’s Budget as Net Investment Returns Contribution (NIRC) for each of the last five years, given that NIRC comprises up to 50% of the NIR on the net assets managed by GIC and MAS and up to 50% of the investment income from the remaining assets (which includes those of Temasek Holdings).

Mr Tharman Shanmugaratnam (Deputy Prime Minister and Minister for Finance): The Net Investment Returns (NIR) framework allows the Government to tap the investment returns of our reserves for budgetary spending in a sustainable way. Under the framework, the Government can spend up to 50% of the long-term expected real return from the net assets managed by GIC and MAS, and up to 50% of the net investment income from Temasek and other assets.

The Government generally budgets to take in 50% of Net Investment Return Contribution (NIRC) at the start of each Financial Year (FY). The actual NIRC taken in at the end of the FY may vary due to changes in the fiscal position and to differences in the actual outturn for the maximum NIRC compared to what was budgeted at the estimates stage.

From FY2009 to FY2013, the actual NIRC taken in has been close to the maximum 50%, with the Government taking in on average slightly above 47% of the NIRC. We expect to take in the maximum 50% of NIRC in FY2014, in view of an expected overall budget deficit.

The NIRC has been able to supplement the Budget by $7 billion to $8 billion annually. Our approach to taking in NIRC reflects a prudent approach to fiscal spending. We should spend to achieve desired outcomes, rather than spend to the last dollar available.

Further, our government spending needs will increase over time, and the NIRC will remain an important source of revenue over the long term. It is therefore vital that we spend in a disciplined way, and ensure sustained benefits from the returns on our reserves.

Source: Singapore Parliament Reports (Hansard)

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