NET INVESTMENT INCOME

NET INVESTMENT INCOME:

(Estimate of expected additional funds available): 12.

Ms Sylvia Lim asked the Prime Minister and Minister for Finance if he will provide an estimate of the expected additional funds to be available for Government use annually as a result of the proposed amendment to the Constitution to include realised capital gains from reserves as part of Net Investment Income.

The Second Minister for Finance (Mr Tharman Shanmugaratnam) (for the Prime Minister and Minister for Finance): Sir, it is not possible to estimate with any certainty the additional funds that will be available as a result of including capital gains in the Net Investment Income (or NII) from past reserves that the Government can spend. While more will become available for spending, capital gains and losses are inherently volatile and difficult to predict.

We are working out how best to overcome the implications of this volatility, the implications for our budgetary process. The Government is discussing with the President the proposed revisions to the NII spending formula. The intent, as stated earlier by the Prime Minister, is to work out a formula for spending a portion of NII on past reserves that will neither result in over-saving at the expense of the current generation, nor deplete what should be protected for future generations.

Ms Sylvia Lim: Sir, is the Minister not able to provide us with a range of the

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possible funds based on past performance?

Mr Tharman Shanmugaratnam: As I have said, it is volatile and difficult to predict. Past performance is not a very good guide for the future. I can tell you, for instance, that the performance for the last five years, was not as good for capital gains in the previous five years because everyone knows that there was a global equity market collapse four years ago. I would be wary of looking at past performance and saying, "That is the basis on which we project into the future."

Ms Sylvia Lim: Sir, could the Minister confirm that, to some extent, the Government has some say in whether to realise capital gains at a certain point or perhaps hold them for the next year?

Mr Tharman Shanmugaratnam: The Ministry of Finance has not influenced the GIC, or Temasek, for that matter, on their decisions on when to realise investments. Let me say, more generally, that this is a very complicated issue. We are concerned about having to smooth out what are inherently volatile flows. We are working with the President to devise a formula that we think is practicable and is fair to both current and future generations. We will be coming to Parliament in a few months' time to amend the Constitution and we can have a fuller discussion then.