NET INVESTMENT INCOME

Dr Lee Tsao Yuan asked the Minister for Finance, since Net Investment Income (NII) is considered as part of current reserves, whether governments can run budget deficits up to the magnitude of NII (which has been about S$3-5 billion a year) for that year, without drawing on past reserves.

The Minister for Finance (Dr Richard Hu Tsu Tau): Sir, as all NII is current reserves under the Constitution, the government of the day can use NII to fund deficits and can run budget deficits up to the magnitude of the NII without drawing on past reserves. However, this Government has not had to fall back on NII at all for any purpose, as it had accumulated sufficient budget surpluses within its current term of office.

Mr Chng Hee Kok (East Coast): Sir, will the Minister consider a review of the NII? Instead of allowing for the full portion to be put into current reserves, limit a certain portion of it into current reserves, since NII is accrued from past reserves.

Dr Richard Hu Tsu Tau: I believe I have said in an earlier sitting of Parliament that we are considering the possibility of locking up part of NII, and we are studying this possibility. If we should decide to do so, there will be a change to the Constitution next year.

Mr Jeyaretnam: The Minister says that investment income forms part of the current reserves because they are provided for in the Constitution. Would he be good enough to draw us to the Article or provision in the Constitution which says this.

Dr Richard Hu Tsu Tau: I suggest he looks it up himself.

Dr Lee Tsao Yuan (Nominated Member): The Minister stated that he would consider changing the Constitution in order to define NII or the part of NII that goes to current or past reserves. Would the Minister also consider at the same time changing the Constitution in order to incorporate the definition of past reserves in the Constitution?

Dr Richard Hu Tsu Tau: NII is defined in accordance with Generally Accepted Accounting Principles. These Principles are well established and used universally not only in Singapore but in many other jurisdictions. So the question of the definition is not difficult.

Dr Lee Tsao Yuan: Clarification, Minister. I think my question was really regarding the last part of your comment which said that you would change the Constitution in order to state whether what part of NII would belong to past reserves and to current reserves. Perhaps I was wrong in this matter.

Dr Richard Hu Tsu Tau: What we meant was we would try and decide what portion of NII should be locked up, however we define it.

Dr Lee Tsao Yuan: As I see it, Minister, if the change of the Constitution is to define the portion of NII that belongs to past reserves, then would the Minister also consider at the same time including in the Constitution the definition of "reserves" that was stated in the White Paper? Because right now it is not in the Constitution.

Dr Richard Hu Tsu Tau: I am sure we would do whatever is necessary.