Spending only half of investment returns allows S'pore to 'preserve and grow wealth'
Senior Minister of State for Law and Finance Indranee Rajah, seen interacting with the elderly attending the Community Befriending Programme at Fei Yue Senior Activity Centre on February 21, 2018. Photo: Koh Mui Fong/TODAY
SINGAPORE — Senior Minister of State for Law and Finance Indranee Rajah on Wednesday (Feb 21) stressed the need to not only preserve Singapore’s wealth but to grow it for future generations.
Addressing questions over whether the Net Investment Returns (NIR) framework should be adjusted for the Government to spend more than half of long-term expected real returns, she referred to a Chinese saying that wealth does not last beyond three generations. “It’s wisdom of the ages, as time and time again, experience has shown that the first generation accumulates, saves and builds up, the second generation preserves it, and the third generation comes along and spends it,” she told the media on the sidelines of a visit to Fei Yue Community Services at Teck Whye.
Noting that the current generation has benefitted from the efforts of the pioneers, she added: “The way we approach it, is that the fourth generation of Singaporeans must not only continue to preserve but to grow the wealth.”
The NIR framework allows the Government to spend up to half of its long-term expected real returns from the assets managed by the Monetary Authority of Singapore, state investment firm Temasek Holdings, and the Government of Singapore Investment Corporation.
Ms Indranee said: “Today, we are in a good position (because of that) and this is an approach we would like to continue going forward...As to whether it should be 50 or 60 per cent, it is not a science, but a discipline.”
That discipline is that we use half now, keep half for the future, and that’s how we preserve and grow the inheritance, not just now, but for future generations.”
In his Budget statement on Monday, Finance Minister Heng Swee Keat had explained why Singapore cannot fully spend the returns accrued from the NIR framework.
It will mean that the principal sum of the reserves will “stagnate over time” and, as a result, the NIR contribution as a share of the gross domestic product will fall as the country’s economy grows, he noted.
On Tuesday, Ms Indranee also spoke to reporters about the topic on the sidelines of a post-Budget dialogue. Then, she said that drawing up to 50 per cent of the returns is a “fair figure”, with the remaining half kept in the reserves. Spending a higher percentage of the returns could be going down a “slippery slope” and the authorities will have to make the principal sum of reserves “work a lot harder”, she had also noted.
Any changes to the NIR framework can only be made through amendments to the Constitution.
Mr Heng also said during the Budget statement that the Government is considering providing guarantees for long-term borrowings undertaken by statutory boards and state-owned companies to build critical national infrastructure.
The Government’s move to explore different models of funding, such as through borrowing is necessary, said Ms Indranee on Wednesday.
“This marks a shift, simply because the expenditure for infrastructure is very large and it is a bit lumpy, as certain portions would have to be paid first, and then you would have to wait awhile before another big portion,” she said.
“It is necessary to explore different models, so we hope Singaporeans can understand why we are doing this.”
The funds would support large scale projects such as Changi Airport’s Terminal 5, as it would position Singapore as the connectivity hub for Asia, as well as boost employment and making Singapore as the focal point of economic activity.
Asked about the risks of adopting a borrowing model, she stressed that it would be a “mixture” of borrowing, as well as government and private sector funding to help mitigate the risk.
