Accessing Singapore’s reserves

The Parliament has approved the the proposed change to the Constitution to allow accessing more from Singapore’s reserves to fund government expenditure. Proposed changes include;

Under Current system

• Government allowed to tap up to 50% of Net Investment Income (NII). NII is defined as the nominal dividend and interest income and does not take into account capital appreciation (ie, paper gain) or inflation

For the new proposed amendment,

• The government will be allowed to tap up to 50% of the Net Investment Return (NIR)
• NIR comprises of 
  - the long-term expected real rate of return on the reserve invested by GIC and MAS
  - the NII on the remaining assets, mainly Temasek
• Total return will be used as a measure of investment returns for NIR. Capital gain is included in the Total Returns
• Real returns is returns after factoring in inflation, or commonly known as inflation adjusted return
• The Government will project a 20 year long term expected rate of return. This will result in a smoothed rate of return so as not to overspend during good years and underspend during lean years. The President can veto on this estimate
• If the President does not agree to the estimates, the average historical real rate of return over the previous 20 years will be used

Hopefully, this new development can remove the common view that commoners can never benefit from the huge reserves that Singapore has.

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