STATUTES (MISCELLANEOUS AMENDMENTS) (NO. 2) BILL

Column: 3512

STATUTES (MISCELLANEOUS AMENDMENTS) (NO. 2) BILL: Order for Second Reading read.

Column: 3513

5.21 pm

The Second Minister for Finance (Mr Lim Hng Kiang): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill will amend the Development Fund Act and Financial Procedure Act to allow for:

(i) Voted equity to be appropriated from the Development Fund (DF);

(ii) Transfer of budgets to follow transfer of functions;

(iii) Interest from certain public deposits to be accounted with the deposit and not transferred to the Consolidated Fund; and

(iv) Expenses on Investment to be converted to statutory expenditure from FY 2004.

Let me now explain the main amendments in the Bill.

Voted equity to be appropriated from the Development Fund

At present, the Minister for Finance cannot inject capital into a statutory corporation from the Development Fund. Such investments could either be funded from the Consolidated Fund or the Development Investment Fund.

However, the scope of the Development Investment Fund is limited to projects that can generate returns. For projects that are highly subsidised, the only current alternative would be to use the Consolidated Fund. But this would be highly distortive as the funding ends up reflected as 'operating' expenditure. It would therefore be appropriate to change the legislation to allow for such capital injections to be appropriated from the Development Fund.

Column: 3514

Clauses 2 and 3(b) of the Bill will allow the Development Fund to be used to provide capital contribution for investment by way of capital injection in any statutory corporation.

Transfer of budgets to follow transfer of functions

Currently, when a function and the staff performing it is transferred from one Ministry to another during the financial year, additional budget would have to be provided to the receiving Ministry while the budget for the transferred function is retained with the original Ministry, because the law does not allow the transfer of the funds between Heads of Expenditure. This results in a budget that is distortive and misleading.

Clause 3(c) will allow the full transfer of funds between Heads of Expenditure when, and only when, there is a transfer of functions between those Heads.

Retention of interest from deposits

At present, section 7(4) of the Financial Procedure Act requires interest on all types of deposits placed by the public with the Government to be credited to the Consolidated Revenue Account. On an annual basis, these interest payments have then to be voted separately by Parliament to the Ministry to return to the depositors. This creates unnecessary work flow due to the round-tripping of funds. The interest is due to the depositors, and at no point is it Government revenue.

A self-financing mechanism, such that the administration of returning the principal and interest to the public would reside within the Ministry that imposed the deposit, will therefore address the issue. Administration of the deposits

Column: 3515

could then be managed individually and the interest credited directly to these accounts. Clauses 3(a) and (d) will enable the implementation of this mechanism.

Expenses on investment to be converted to Statutory Expenditure

The Constitution and Financial Regulations require the Government's accounts to be prepared on a gross basis. As such, the investment income and Expenses on Investment (EOI) from the Government's reserves managed by GIC are reported separately in the Government's books. A separate budget needs to be provided for expenses and this estimate presented to Parliament at the beginning of the fiscal year. While the general principle that all revenue should go to the Consolidated Fund and all expenditures should be specifically voted remains conceptually sound, it is distortionary in the case of EOI because income and expenditure occur at the same time and are co-dependent: the expenses are integral to the trades. The current arrangement also distorts returns by overstating revenue through accounting for gross proceeds rather than net proceeds. In the private sector, fund managers offset the EOI from investment income and only net proceeds from investment are taken into the books.

Even in Government, there are precedents to such a treatment. Expenditure incurred on investment activities involving the Government Securities Fund, for example, is not separately voted but charged against the fund directly as the Government Securities Act allows for direct deduction of such expenses from the Fund.

Clause 3(a) will enable EOI to be charged directly to the Consolidated Fund.

Sir, I beg to move.

Column: 3516

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Lim Hng Kiang].

Bill considered in Committee; reported without amendment; read a Third time and passed.