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 attached) 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)
etc

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.

 

Phillip Ang

* The author blogs at LikeDatOsoCanMeh.

 

 

 

Sponsored Content

15 Responses to “Singaporeans taken for another ride: Imprudent spending = Prudent spending”

  • pap selected INDIAN president:

    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.

    that is why clown and his gang lied about need for malay president when even an INDIAN qualified. BECAUSE pap thinks citizens’ money is pap money and so has squandered all of citizens’ money and so NOW die die must NOT allow any outsider to be president to ask the inconvenient questions.

    that is why Singapore need New Government made of better Singaporeans to be in power to investigate the pap abuses and put pap folks in changi chalet if any of them is found to have abused power.

    ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
    who is malay? who is INDIAN? if need malay why not just change ic to malay and solve INDIAN president lie? if cannot change ic from INDIAN to malay why not choose malay whose ic says malay instead of selecting INDIAN whose ic says INDIAN as malay president? WTF.
    ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

    GD Star Rating
    loading...
  • rukidding:

    As long as nobody ask questions on how or when to put a “stop” to “awarding New Citizenships”…..Pappy will definitely “abused” this “unquestion right of path” to “garner” more “illegally acquired” supporters.

    Same goes to what Philip Ang has revealed.

    Remember,…you are considered as “Dafts”

    So,…if everyone continues to be “balless and timid or boh chee”….nobody to blame , except ourselves.

    Will 2018 be the start of a NEW Year for you guys to “garner” back your “lost balls” ????

    GD Star Rating
    loading...
  • PAP Is Root Of All Evils:

    The question now is not whether if there is a problem, but rather how bad is the problem. Are the culprits going to live scot free till the end of their lives in luxury or will they be brought to justice.
    The dafts will have to decide, dafts have the ability to decide and they should decide decisively in the coming election.

    GD Star Rating
    loading...
  • PAP Is Root Of All Evils:

    ……
    The question now is not whether if there is a problem, but rather how bad is the problem. Are the culprits going to live scot free till the end of their lives in luxury or will they be brought to justice.

    The dafts will have to decide, dafts have the ability to decide and they should decide decisively in the coming election.

    GD Star Rating
    loading...
  • All In The Familee:

    Will this be the biggest kleptocracy in history?

    GD Star Rating
    loading...
  • SG accounting grad?:

    I am disappointed by Singapore accounting grads.

    None of them see the need for transparency of how sg money is invested by GIC and TH.

    NONE OF THEM VOICED THEIR CONCERNS.

    ARE THEY TIMID BY INTIMIDATION?

    WHERE IS THEIR ACCOUBTING ETHICS AND STANDARDS?

    GD Star Rating
    loading...
  • HarderTruths:

    By making sure no one outside the privileged few can see the data, we can all reasonably conclude the island’s finances are in really bad shape or non-existent, or else why the need to hide it? Why then more taxation and fees? Why the presidential fiasco?

    It is most likely too late already but the illusion must be kept until the pappies are ready to leave once ship starts sinking.

    GD Star Rating
    loading...
  • Tremendous:

    Even LKY cannot get to this level. We achieved ‘racial harmony’ when we have chinese, indians and malays from a certain party lying together that an indian is a malay. I tell you this. They kept claiming that they cannot disclose our reserves positions just to satisfy our curiosity. They lied again. None of us are asking out of curiousity. All of us are asking out of nervousness with mounting losses staring at our faces.

    GD Star Rating
    loading...
  • Self Interest First:

    Join PAP, make millions and keep quiet. Everything else, not my problem!

    SG accounting grad?:
    I am disappointed by Singapore accounting grads.

    None of them see the need for transparency of how sg money is invested by GIC and TH.

    NONE OF THEM VOICED THEIR CONCERNS.

    ARE THEY TIMID BY INTIMIDATION?

    WHERE IS THEIR ACCOUBTING ETHICS AND STANDARDS?

    GD Star Rating
    loading...
  • nihon:

    how much is on the total reserves? cash and near cash?

    how much is in the assets of temasic, gic and mas? how much returns do they generate? and what other assets are under ni?

    GD Star Rating
    loading...
  • oxygen:

    @ SG Accounting grad

    MATE, YOU PUNCHED UP THE WRONG NOSE – you can’t blame any accountant for this sorry mess. Accountants are a CONSERVATIVE LOT of all professions. Surely they sit on the opposite end of pessimism-optimism continuum of say exploration geologists or even medical science research.

    Accounting policies in GIC and TH is NOT and never was determined any time by accountants inside or outside. It is a CORPORATE POLICY decision of how much to disclose and what to disclose. In real life – in any corporate around the world including listed entities subject to statutory and listing law requirements, the disclosure ACCOUNTING POLICY is like a strip-tease show. The teasing artiste alone decides how much, how fast she peels of every thing to reveal the grande finale exhibition. Accountants like us are all spectators – it is SEE BUT DON’T TOUCH.

    So what you don’t see of hidden behind scanty financial accounting policies, you don’t know what the management is hiding from you (the accountants) and shareholders/stakeholders. So how can you validly criticize the strip-tease artists in analogy of any listed entity? Even in audit, auditors don’t get to see all the details of accounting entries – that is why external auditors could miss out when illegal bribery have taken place for even a decade. There is just too big and too much a database of financial information and too little time and budget constraints (audit costs) to forestall fraud detection. In any case, fraud detection is NOT and NEVER the objective of any audit exercise – that is why we got the Enron debacle and World.com disasters.

    Read this real life case history of how Waste Management Inc by clever accounting policy misled the investment community and its external auditors.

    https://en.wikipedia.org/wiki/Waste_Management_(corporation)

    SG accounting grad?: I am disappointed by Singapore accounting grads.

    None of them see the need for transparency of how sg money is invested by GIC and TH.

    NONE OF THEM VOICED THEIR CONCERNS.

    ARE THEY TIMID BY INTIMIDATION?

    WHERE IS THEIR ACCOUBTING ETHICS AND STANDARDS?

    how?

    Wiki:Between the years of 1976 and 1997, the executive officers of Waste Management, Inc. began “cooking” the accounting books by refusing to record expenses necessary to write off the costs of unsuccessful and abandoned landfill development projects; establishing inflated environmental reserves (liabilities) in connection with acquisitions..

    GD Star Rating
    loading...
  • oxygen:

    @ SG accounting grad

    IN ITS HEYDAY BEFORE FRAUD EXPOSURE, Waste Management Inc stock is better than the FAANG stocks on Nasdaq today – a ‘SURE WIN” of a “MUST BUY” stock which is on a skyward trajectory for 20 years. Wall Street thought it is an everlasting gold mine because human civilization generates an expanding, never ending mountain of disposable waste in urban living and Waste Management Inc is the strongest competitor in its domain. No one come close in terms of automation, scale and operational efficiency. I watch the stock with amazement, but lucky for me, never bought into this “too-good-to-be-true” financial accounting fraud.

    IT COULD HAVE BEEN ANOTHER FINANCIAL DISASTER FOR ME if I had joined the party.

    THE MORAL OF THE STORY IS THIS – TO UNDERSTAND A STOCK/BUSINESS, it is ABSOLUTELY NECESSARY TO READ – its financial statement AND MORE IMPORTANTLY HOW ITS FINANCIAL ACCOUNTING POLICY IS CONSTRUCTED (which then tells you what they reveal or prepare to reveal and more importantly WHAT THEY HIDE FROM YOUR ATTENTION AND SCRUTINY) how these financial accounting policy impacted upon disclosures of income statement and balance sheet.

    In Waste Management Inc, the stakeholders/shareholders was just RECYCLED WASTE – ditched by fraudulent accounting policies – THE INSIDERS ALL GOT VERY WEALTHY, bailed out before Waste Management Inc shares fell from high heven back to earth.

    GD Star Rating
    loading...
  • oxygen:

    @ Self-Interest First

    ANOTHER TRAGIC CASE OF NAIVE GULLIBILITY at its peak. If you been in China for some time, every Ah Tiongs also aspires to join the Chinese Communist Party and “profit” from the “inside track” – never mind the rot and corruption within.

    Self Interest First: Join PAP, make millions and keep quiet. Everything else, not my problem!

    Not so easy lah, I met a lot of disillusioned CCP members who got nowhere.

    I know why.

    Organisations, by its definition and construct, are necessarily in essence a political animals which must deal with power creation and politics of wealth distribution AND THE TAMING OF BOTH in return feedback loop.

    With too many members, not enough goodies for even unequal inequitable distribution, you might be among most of those who will be left high and dry of exhausted efforts, loyalty and sacrificial slavery and got nothing of even crumbs in the finality.

    Remember this – a famous general in history have always been made on the lives and sacrifice of tens or hundreds of thousands or even millions of soldiers who belong to the same organisation called “the military” on both side of the battle divide.

    And there can only be one general or a few generals in each military – the rests are all CANNON FODDER.

    YOU WANNA TO BE ONE OF THOSE EXPENDABLE CANNON FODDER?

    GD Star Rating
    loading...
  • I Know:

    More needless spending = higher GDP growth = higher bonuses for MIWs. Look around. Decent condition roads being resurfaced, railings repainted every 2-3 years, HDB car park renovation island-wide, etc.

    GD Star Rating
    loading...
  • Fark Mee Ha:

    If only Phillip Ang is our MP.
    People’s Workers’ Party have never asked these questions.

    I wonder why?

    GD Star Rating
    loading...
Member Services
Members LoginSelf-ClassifiedsSelf-Support
Sponsored Advertisement
Search On TR Emeritus
Sponsored Advertisement



Most Recent Comments
  • never voted pap: someone told us in Aljunied coffee shop pap PA chairman very angry with pap IB CI for not able to...
  • never voted pap: we never trusted pap. never. when singtel tv braodcast Al Jazeera, we paid for the broadcast. we are...
  • LIONS: When they subsidise F1,got ask about salary or not?
  • PAP.Guarantee.Win.GE2020: Dear Oxygen, You claim to be doing well in OZ, so please go back OZ and stop instigating...
  • l'ingenieur: Chris Bong: A vote for PAP, means you are selling out your future and that of your children. This...
  • Haigen-diaz: PM Lee is still following the path of his father’s legacy but through an intense program of kakistocracy...
  • world shift to Authoritarian: The world is moving towards conservatism and authoritarianism. This is thanks to screw...
  • Ferrari Saw CB: Is SMRT stand for SMART? STUPID or smart?
  • Rabble-rouser: : I went to SIM Lim recently, a shock of my life, almost 90% are foreigners. Where have the locals...
  • Thor long: This how washing machine works.
  • 3 crabs: 3 crabs salary is very high, equivalent or higher than CEO salaries in small companies. A VP in a GLC may...
Announcement
Support TR Emeritus
Support TR Emeritus:
Other Amount:
Advertisement
Advertisement
TRE Classifieds
  • Oregon Scientific

    Oregon Scientific was established in Portland, O...
    [Read more]

  • Bitmain Antminer S9 13.5 TH/s + PSU APW

    Brand new never opened still under warranty Antmin...
    [Read more]

  • Korean Stylenanda

    Stylenanda is a South Korea-based clothes brand. T...
    [Read more]

  • Hong Kong Street Jia Kee 820

    Hong kong Street Jia Kee provide with many food op...
    [Read more]