By Chris Kuan
“Singapore had $190b cash (Budget) surplus between 2005 to 2014?” is the headline of a TOC article. Is this such a surprise? Is there even a need to add a “?” at the end of the statement?
That the government has run cash surpluses far beyond what is reported in the budget and what the state-controlled media dutifully reported without question should be common knowledge by now. The World Bank and the IMF provided the numbers in their respective websites. The IMF’s country assessment reports even commented on what it regards as non-standard reporting of the fiscal position.
For those who are still in the dark. In the budget, the government appears to follow the rules by reporting revenues (tax, fees and charges) and expenditures with an additional item to the revenue line – net investment return contribution which is the revenues that the government is allowed to draw from the earnings from the reserves (50% of the expected inflation-adjusted earnings or returns). The net of revenues and expenditure is the fiscal position – surplus or deficit. So far so good. However beneath the seemingly compliant picture of the nation’s fiscal position – there are small and (very) large omissions or subterfuges if you will.
Let us start with the small omissions which relate directly to expenditure items already included in the budget.
The government has a (bad) habit of reporting expenditures meant to be disbursed over long period of time, in a single year which overstates the expenditures for that year.
A prime example is the Pioneer Generation Package which the government charged as a $8b expenditure in 2015 but in reality an approximate $500m expenditure a year over 20 years.
Each year the government allocates upfront expenditures to funds and endowment but the actual spending from these funds and endowments are spread over a number of years, hence smaller than they appear in the respective budget expenditure line item.
In summary, it means each year the budget expenditure is overstated and hence the fiscal position is more in surplus or occasionally less in deficit than what the government chose to report.
The large omissions has to do the classification of reserves. For most intents and purposes, the sale of land generates a revenue that ought to be reported as a revenue line item in the budget.
However, in my considered opinion, the government classified land as part of the reserves and therefore it simply regarded revenues generated from land sales as a movement within reserves, that is to say a shift from one type of reserves (land) to another type of reserves (financial).
Hence the government has no obligation to report land sales as a revenue line item in the budget which also means land sales revenue cannot be spent as it is still reserves protected by the constitution. Similarly when the government draw on the financial reserves to reinvest in land such as land acquisition and land reclamation, it again regard this as a movement within reserves and has no obligation to report this as an expenditure line item in the budget.
This also mean that spending the financial reserves does not contravene the constitution because it is regarded as a movement of financial reserves to land, another type of reserves.
What is also not reported is the total amount of earnings derived from investing the reserves because, net of the amount due to the Net Investment Returns Contribution to the budget, the earnings becomes reserves (and are invested). Again the government has no obligation to report the full earnings as a revenue line item in the budget.
If you think this is exceedingly convoluted, it is.
If you think this is exceedingly convoluted, it is. It obscures the current and future sources of government revenues, the size of the reserves and the changes in and the movements within the reserves. The total lack of transparency means that the government’s budget position cannot be challenged since no hard evidence are publicly available to support a challenge or to provide backing for competing, alternate budget proposals. It will be easy for the PAP to accuse any alternatives as “raiding the reserves” or “reckless spending”.
Needless to say, all this is also anti-democratic since it entrenches the power of the People’s Action Party. Bear in mind, finance is the weapon of choice in political warfare.