By Leong Sze Hian

I refer to the article “‘Judge GIC on its long-term returns’” (Sunday Times, Feb 24).

GIC has attracted criticism?

It states that “But GIC has attracted criticism at home for various reasons, including not giving enough details of Singapore’s reserves.

3.9 per cent real rate of return?

GIC’s report out last year showed that it earned an annualised 3.9 per cent real rate of return over 20 years. In other words, the annual return was 3.9 per cent above the global rate of inflation.

Distinquish between “transparency” and “accountability”?

As to the questions of how much detail to release about returns and investment strategies, Mr Ng is keen to distinquish between “transparency” and “accountability”.

While many call for increased transparency, Mr Ng argues that what they are asking for, in substance, is accountability and that he feels is a valid request.

“It is reasonable for the Government to hold the GIC management accountable for its performance and the public to hold the Government and GIC accountable,” he said.

GIC does offer more points of comparison since two years ago. It now provides the five- and 10-year return of a portfolio made up of stocks and shares that a pension fund might hold.

Over time though, Mr Ng admits that there may be more information disclosed as GIC tries to respond to the challenge of helping the public understand what it does.

“It’s a constant communication process.”

Rate of return in US$?

Reading the above, you may not realise that the rate of return referred to was in US$ and not S$. In this connection, I thought it may be interesting to reproduce what I wrote about the GIC’s annual report last year:-

I refer to the article “GIC’s real rate of return over 20 years steady at 3.9%” (Straits Times, Jul 31).

No more S$ returns?

In the past, the GIC used to give the returns in S$ terms as well, instead of just US$. So, why is it that this year’s GIC annual report once again reports the returns in US$ only?

As the S$ has been appreciating against the US$, how much lower would the returns be in S$?

Have 20-year real returns, but no 5 and 10-year?

I find it rather strange that GIC’s report gives the annualized real rate of return over a 20-year period, but not the real rate for 5 and 10 years. If it can give the nominal returns for 5, 10 and 20 years, why can’t it give the real returns for 5 and 10 years too? For example, as the 5-year nominal return was only 3.4 per cent, what was the real return?

GIC returns reporting like a chameleon?

For example, GIC reported its 20-year nominal returns in both US$ (5.7%) and S$ (4.4%), in its 2009 report (see HERE). It also gave the real return in S$, at 2.6 per cent, but not in US$.

However GIC’s 2010 and 2011 reports only gave returns in US$. Which means that the report went from reflecting no real US$ returns in 2009, to only real US$ returns in 2010 and 2011, being 3.8 per cent and 3.9 per cent respectively (see HERE), and no longer in S$. Why is this so?

In its 2011 report, GIC disclosed the 5 and 10-year nominal US$ returns (being 6.3 per cent and 7.4 per cent respectively), instead of just the 20-year returns in previous reports. However, the then new 5 and 10-year returns were only given in nominal and not real terms? And again why were the returns not reflected in S$?

GIC vs Temasek?

Since Temasek gives its returns from inception, why can’t the GIC do the same? As GIC gives the rolling 20-year returns, why can’t Temasek do the same too?

Otherwise, it may be difficult to compare GIC and Temasek’s returns.  It is akin to trying to match two different rulers with different measurements. As if trying to watch one chameleon was hard enough – try watching to keep track of two!

Returns help Government spending?

With regard to “”GIC’s investment returns flow through to the government budget which then allows the Government to spend on different areas””, I thought it may also be interesting to reproduce what I wrote about the Reserves’ Net Investment Returns (NIR) contribution last year:-

I refer to the article “Social spending – where will money come from?” (Straits Times, Sep 4).

How much total reserves? 

It states that

“If you add the three pools of reserves up, you get about $800 billion. A very modest 2 per cent return on that comes up to $16 billion a year. The Net Investment Returns (NIR) contribution last year was $7.91 billion. And even if we assume that the NIR contribution last year had hit the 50 per cent cap, activating the other 50 per cent of NIR would mean an additional $8 billion to the Government”.

Only 2% return on reserves? 

Since the total sum of Singapore’s reserves is a secret, even if we assume that the above conservative estimate of $800 billion is correct, 50 per cent of the NIR assuming an average annualised return of say five per cent, would be about $20 billion.

Temasek 17, GIC 6, but NIR 2%? 

This estimated NIR is not unrealistic, given that Temasek’s and GIC’s annualised returns have been reported at 17 (S$ terms) and around six per cent (US$ terms), respectively. So, even if we spend a lot more on social spending, just the NIR alone may be sufficient, without even talking about the huge budget surpluses in the past, with about nine out of every 10 years in surplus.

Secrets of Singapore? 

Of course, the fundamental questions as to why the percentage of the NIR used in a year, the sum of total reserves or the annualised return on the total reserves are a secret, remain.

Spend more, tax more? 

As to “As Prime Minister Lee Hsien Loong said in his Aug 26 National Day Rally speech, “nothing falls from heaven”. So taxes will have togo up eventually to fund higher social expenditures – “not immediately” but within the next 20 years.

Annual health-care spending will double to $8 billion over the next five years. This year, the Government introduced the permanent GST Voucher, which pays out a combination of cash, conservancy rebates and Medisave top-ups, with more for older and lower-wage Singaporeans, to offset increases in the goods and services tax. This will cost the Government $680 million this year.

Also formalised in 2007 is the Workfare Income Supplement, which supplements low-wage workers’ income with cash and Central Provident Fund (CPF) top-ups. This cost the Government $260 million last year.

NIR alone enough for extra spending? 

Plans are also under way to spend $60 billion over the next 10 years to improve the transport system.”, even adding all of the above comes up to a total of only about $15 billion a year.

Don’t include current expenditure as additional spending? 

However, on closer scrutiny, one would realise that the above amounts includes current expenditure that we are already spending. So, the additional expenditure is actually only about $10 billion a year.

As explained above, the NIR alone may be about double this additional expenditure in a year.

Thus, the consistent rhetoric that if we spend more means we have to raise taxes, does not seem to hold water, not to mention that we have so far not spent significantly more relative to revenue in the last decade or so.

Accounting treatment of Budget surplus? 

With regard to “But the Government also spent $8.58 billion of special transfers on programmes such as Workfare, and top-ups to various endowment funds, such as the Medical Endowment Fund”, this may be a fundamental issue with the way we determine our Budget surplus or deficit, because almost all countries would fund the social expenditure as an expense every year, instead of Singapore’s never-ending annual transfers to top-ups to the various endowment funds.

I understand that an arbitrary four per cent of an endowment fund a year, is then used to fund MediFund, Workfare, etc.

The result of this may be that the Budget surplus may be significantly under-reported, compared to other countries.

If we change to what other countries do, there may actually be a lot more money that we can spend on social spending, on top of the NIR explained above.


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