Solving the payout puzzle
How the Govt is funding Budget giveaways without touching past reserves
Christie Loh
[email protected]WHEN Prime Minister Lee Hsien Loong dished out his platter of goodies on Budget Day, he appeared to be spending beyond his means — on the face of it.
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In fact the deficit of $2.86 billion — incurred largely on schemes to help the elderly and the needy — is the biggest in at least 20 years.
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But, to the layman, the bigger mystery is how it is going to be funded. Mr Lee has made it clear that he will not touch reserves accumulated by past governments, which would require Presidential approval.
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This means the Government will have to draw on reserves piled up during the current term.
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But how can that be? A glance at the Government's accounts shows that there have been two Budget surpluses and two deficits between 2002 and 2005. Far from building up reserves, the previous Budgets in the current Government's term actually show a net shortfall of $1.37 billion.
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The answer to the mystery: The Government is able draw on a source of funds that does not appear on its balance sheet.
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These include "capital receipts" from statutory boards in the current term — one-off proceeds from the sale of assets such as land and capital goods.
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According to Budget accounts, such receipts have raked in $13.42 billion between the fiscal years 2002 and 2005. In comparison, the deficits look tiny.
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And that is not all there is in the coffers.
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Also helping to cover 2006's Budget deficit is the "investment income" transferred in 2001 by the outgoing Government to the incoming one, the Ministry of Finance (MOF) said in an email response to Today's queries.
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Typically, a government earns some profits by investing its reserves. In the year a presiding government exits, a portion of the investment income is passed on to the newcomers.
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The MOF spokesperson declined to reveal the exact amount handed over in the transition year of 2001, saying that "it is best that such matters be addressed within Parliament in the context of the Budget Debate over the next fortnight".
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So while back-of-the-envelope calculations would suggest that the present Government had a kitty of $14 billion to fund any deficits, why don't they reflect on the balance sheet?
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In fact, on account of this practice, the International Monetary Fund (IMF) said in a report last year that Singapore's fiscal policies were prudent and its fiscal strength was even greater than it looked.
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"The Government's definition of the budget balance underestimates the strength of Singapore's fiscal position as operating revenue excludes substantial portions of investment income and earnings from land leases," said the IMF report.
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However, the MOF spokesperson explained that Singapore has adopted a "more stringent definition" because capital receipts are "lumpy and uncertain" by nature.
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She added: "It would be fiscally irresponsible to use these receipts to fund regular expenditure ... otherwise Singaporeans could be misled about how much revenue is available for expenditure."
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But when the Government needs such funds — to cover a deficit, for example — they certainly come in handy.
http://www.todayonline.com/articles/102910.aspInteresting points in the article.
1) Some income is apparently not reflected in the balance sheet.
2) This income suddenly comes into play to fund the recent Budget.
