IMF and economists also said something similar to Steve
Chia:
Feb 27, 2006
> NEWS ANALYSIS
> Near $3b Budget gap sparks fresh debate
> Govt's accounting is conservative and S'pore is not really
in
> deficit, say economists
>
> By Narendra Aggarwal
> Economics Correspondent
> AS PARLIAMENT sits today to consider Singapore's Budget for
2006-07,
> weighing heavy on its mind would be the fact that the huge
$2.9
> billion deficit projected by the Finance Ministry will be the
largest
> in at least 20 years.
>
> Yet private-sector economists, academics and public-finance
experts
> will remain, as in previous deficit years, totally unflustered
by the
> figure.
>
> The reason for their indifference is that many argue that the
rather
> gloomy picture painted of the Government's finances is not the
result
> of unsustainable fiscal largesse, but rather the result of
the
> Government's rather conservative accounting methods.
>
> It's an old chestnut of a problem that has bugged everyone
from the
> humble economics undergraduate to economy watchers at
the
> International Monetary Fund (IMF).
>
> The numbers, this time around, look like this: Aided by what
is
> expected to be strong economic growth, a surplus of about
$0.7
> billion is expected for the year ending March 31, 2007.
>
> But because of a handsome $3.6 billion worth of giveaways in
the
> new 'Progress Package' Budget, an overall deficit of $2.9
billion is
> estimated instead.
>
> Economists have been quick to point out that there really
isn't any
> red ink at all.
>
> For example, long-time Singapore economy watcher Song Seng
Wun, a
> senior economist with CIMB-GK Research, says there is
'under-
> reporting' of government revenues by what he thinks is a sum
of about
> $10 billion.
>
> 'So in fact, by my estimates there should be a surplus of
about $7
> billion,' he concludes.
>
> Whether there is a deficit boils down to 'really a definition
issue',
> says Standard Chartered Bank (Stanchart) economist Joseph
Tan.
>
> 'And Singapore takes a very, very conservative view of
revenue
> compared to other governments,' he explains.
>
> In this conservative approach, two major items, typically
regarded as
> current-year government revenue, are not included in full
in
> Singapore's income statements.
>
> The first is capital receipts, and in particular, land sales.
This is
> totally omitted.
>
> According to an appendix that accompanied the Budget numbers
released
> last week, capital receipts for the coming financial year 2006
are
> estimated to weigh in at a whopping $4.08 billion. Land sales
will
> account for the lion's share of this at $4.04 billion.
>
> The second item is net investment income (NII). Only up to 50
per
> cent of NII from the investment of past reserves are
'available for
> use by the government of the day', says the Finance Ministry.
For the
> coming year, 'investment and interest income' is estimated to
be
> $7.65 billion, but only $2.39 billion has been budgeted in
the
> accounts.
>
> Both of these accounting moves are problematic, say
economists.
>
> IDEAglobal senior economist Nizam Idris says 'not including
land
> sales revenue is one glaring omission'. He adds that going
by
> international standards, money from all land sales should be
included
> in government revenue.
>
> Like other economists, he also points out that the return
on
> investments made from past savings of the state shown in the
Budget
> are very small.
>
> The new Budget includes $2.39 billion as NII contributions,
but Mr
> Nizam notes that even if Singapore's near $200 billion
foreign
> reserves were invested in United States Treasury bills with a
4 per
> cent yield, the state's investment income would be much
higher.
>
> CIMB-GK's Mr Song says that if IMF standards are applied,
Singapore's
> financial position is quite strong.
>
> This hypothesis was put to the test in a study presented at
an
> Institute of Policy Studies conference in 2002.
>
> Using IMF conventions, public finance guru Mukul Asher of the
Lee
> Kuan Yew School of Public Policy estimated the excess in the
state's
> total revenue over total expenditure to be between 6 and 17
per cent
> of gross domestic product (GDP) between 1991 and 2001.
>
> If one uses last year's GDP figure of $195 billion and applies
the
> low end of his findings, Singapore would have had a Budget
surplus of
> more than $10 billion for the year just gone by, instead of
the $0.43
> billion reported.
>
> In the past, the Finance Ministry has defended its
conservative
> accounting, arguing since capital receipts from land sales
could be
> highly volatile as a result of changing market conditions.
Since it
> is not a steady stream, it is not prudent to include land
sales as a
> revenue item.
>
> In an e-mail response to the Straits Times, the ministry
emphasised
> again that this accounting method is designed to produce an
overall
> Budget balance that includes all the regular income and
revenue
> available for expenditure by the current government.
>
> 'The portion of the NII that is not used for expenditure and
all
> proceeds from land sales are therefore not included in the
Budget.
> Otherwise it will mislead Singaporeans on how much revenues
are
> available for expenditure.'
>
> Not everyone, however, is totally convinced. 'Everybody else
does it,
> so there is no reason why Singapore should also not do it,'
says Mr
> Song of CIMB-GK.
>
> Referring to the point about volatile land sale revenues,
Stanchart's
> Mr Tan says that 'this is not a valid argument as the market
will be
> able to adjust to the fluctuations of revenue'.
>
> He adds that the market has its own ways of adjusting to
reality.
>
> 'Just consider this: the Budget deficits in recent years has
not hit
> Singapore ratings. We have been able to sustain our triple-A
rating.
> Clearly the market thinks that the country's fiscal position
is
> stronger that what it appears to be.'