Retired banker suggests that the proposed expected long-term real returns on government assets to be approved by Parliament instead of the President

On Facebook today (9 October), retired banker Chris Kuan shared a Straits Times article about President Halimah being briefed by GIC, MAS and Temasek on projected investment returns, a process which she described as “an important one within our annual Budget cycle”.

These estimations would be used to decide the amount of fund from the country’s past reserves that the Government will be able to tap for the upcoming Budget. Under the Net Investment Return framework, the Government is able to take up to 50% of the expected long-term real returns on net assets invested by Temasek, GIC and MAS into the Budget. However, this can only be done after deducting liabilities like government bonds.

MOF explained on its website that by doing so, it makes sure that any tapping of the reserves will be done in a sustainable way, so the future governments will be given a steady stream of returns to support the Budget.

Prior to the beginning of each financial year, GIC, MAS and Temasek will propose the expected long-term real rates of return after looking through the detailed study and assessments brought up by investment professionals within the three agencies. Additionally, external expert views are also obtained.

Following that, the MOF will review the methodologies used to propose the rates, and suggests the expected long-term real rates of return to be applied to the net assets invested by the three agencies.

It is only after that the President will be consulted, along with the CPA, before she decides if she agrees with the Government’s proposal or not.

On his Facebook page, Mr Kuan emphasised that the proposal is based on expected long-term real returns which he notes is problematic in a few ways.

First, Mr Kuan asked, “ How is the President able to challenge the assumptions made by the 3 agencies?”

He explained that President Halimah would not be able to challenge those assumptions given that she is not an investment expert herself and noted that the members of the Council of Presidential Advisers (CPA), “who might through majority vote advise her to accept the proposal”.

“So the idea that the President is the guardian of the reserve seems far more a formality rather than an actual check on the government,” said Mr Kuan.

The second point he made was that there is a better way to carry out this particular part of the process, which Mr Kuan asserted is “too damned opaque for a strategic issue”. He suggested that the expected long term real returns and any changes to it be tabled by Parliament for approval.

“The President’s own stamp is as much a formality as it already is,” he added.

He continued, “Better still, also have any changes in the investment mandate such as increasing the equity portion of the reserves or the private equity portions tabled to Parliament for approval.”

By doing so, Mr Kuan said, elected representatives and citizens will have some idea on the deliberations involved in using the earnings from the reserves to fund state expenditures.

“This is what the Norwegians do when it comes to the mandates for managing the reserves and using the earnings to fund expenditures,” explained Mr Kuan.

He went on to explain that these methods could engender confidence and broad public support when it comes to government finances, and even lessen the use of the Protection from Online Falsehoods and Manipulation Act (POFMA) on the issue.

On 25 November, political activist Brad Bowyer was issued a correction order under POFMA as directed by Deputy Prime Minister and Minister of Finance Heng Swee Keat to correct statements he made on a Facebook post about government returns and investments. This is the first correction order to be issued under POFMA since it was gazetted on 25 June 2019.

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