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.
.
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.asp
Interesting 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.
