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%.

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.

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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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