INCREASE OF S$170B IN GOVERNMENT ASSETS IS NOT AN INCREASE IN RESERVES

Many Singaporeans have made consistent calls for the government to increase social spending. The prominent ones in social media I see are people like Leong Mun Wai (Progress Singapore Party), Kenneth Jeyaratnam (Reform Party), Jamus Lim (Workers' Party), Chris Kuan (retired banker) etc. The  argument is premised on the belief the large pool of reserves can support increased social spending without undermining the country's financial strength.. The ethical view is no minimum wage, suppressed wage levels due to a relaxed regulation on foreign labour, and fast rising cost of living, have thrown many local families into survival mode, a situation largely unreported in the absence of an official poverty line. The burgeoning infuriation is fed by a public perception of generous government spending on foreigners in areas like educational subsidies, as well as financial grants and schemes that benefit foreign-own companies. One would be inclined to want to know the balance sheet of Singapore Enterprise and see how their billions of dollars of enterprise grants to foreign-owned companies trickle down to Singaporeans.

The discussion invariably swirl around the two sovereign wealth funds. Non-transparency have led to the proclivity to speculate and an unhealthy tendency to imagine missing funds, distrust earnings figures, and irregular massive executive payouts. The size of the reserves is as big as the fish that got away last weekend.

Jeyaratnam is insistent the reserves are as massive as S$3 trillion. He has done some computation, but I really do not comprehend his figures. Leong has often mentioned a figure of S$1.5 trillion, and I finally understand where he got his numbers from. I will explain.

Everybody talks of national reserves but never clarify what one stands on. Definitions are important. Reserves meant many different things, throwing up wild differences in numbers. There are untapped resources such as natural resources of a country -- oil reserves, fishing grounds, forests, arable lands, etc. or brain power -- educated population. There are infras that are economic enablers - transportation networks, ports, bridges, airports, etc.

There is the well known story of the government claiming it was almost impossible to list the assets for President Ong Teng Cheong. This was civil servants taking the view reserves is the sum of all assets in every government office in the land, which is really impractical to list for Ong.

Then again, 'reserves' in accounting lingo, is an item on the liability side of a balance sheet. It represents a quantum of assets that cannot be distributed. The assets are for some non-specific use (general reserve) or some specific use (building fund, debt repayment, etc). The assets are co-mingled except for sinking funds where the assets are specifically set-aside.

There is the accounting view national reserves is simply the sum of all the net assets (assets less liabilities) in all the government offices (Ministries, Fifth Schedule companies,statutory boards, and all companies owned by them). This is the same definition as provided by MOF. It is also in the Constitution section 142 (4) which defines 'relevant assets'. It is to this definition that we must attach ourselves, where the accounting and legal terms align.

Clearly, the need for definition is compelling. The reserves we are looking for are assets, and not liabilities. In the context of the clamour to use reserves for increased social spending, the assets must represent earnings, not liabilities. Let's take the Tan Ah Kow example. He owns a TV set bought with his bonus, and a car bought with a loan from his good father-in-law. Tan can sell the TV and use the proceeds without being out of cash. But should he dispose the car and spend the proceeds, Tan will be out of cash to meet the obligation on the loan.

In the context of our search for the reserves, it should only be the TV sets that are available for us to spend. It seems to me Leong and Jeyaratnam both referred to total assets of GIC and Temasek as the reserves, possibly including the reserves of MAS. The exclusion of statutory boards, ministries and all owned subsidiary companies, are understandable as data is hard to come by. As for MAS, there seems some ambivalence. Were they referring to the forex reserves or the equity of MAS? The inclusion of forex reserves of MAS as part of national reserves is unquestionably incorrect. Both Leong and Jeyaratnam are taking Tan's TV sets and cars as national reserves. Their figures must then be inherently over-stated.

Recently the Accountant-General released the financial statements of the government of Singapore. Total assets as at 31 Mar 2022 was S$1.57 trillion.

Leong posited the total assets is 'proxy' for national reserves. I take it he meant it is an approximation for the national reserves. So now I understand where his often-touted S$1.5 trillion reserves figure is coming from. But is this correct?

Leong sees an increase of S$170 billion in reserves over 2021, enough money to go around, no need for GST increase, no social spending in drips and drabs but on a more sustainable scale, why worry about the S$7.4b loss by MAS. I think he is mistaken on the accounting.

Government accounting is on a 'cash', not 'accrual' basis. The government balance sheet shows only 'Cash' and 'Investments' on the assets side, and a list of 'Funds' on the liabilities side. All receipts by the government are deposited into their account with MAS. 'Cash' is debited and 'Consolidated Fund' is credited. All spendings are reported under a relevant 'Funds' head. The 'Consolidated Fund' is like a conduit through which all funds are routed to other 'Funds' (there are exceptions). When budgets are determined, for example S$x are for CDC Vouchers, 'Consol Fund' will be debited and 'CDC Voucher Fund' credited. When CDC vouchers are sent out, 'CDC Voucher Fund' is debited and 'Cash' credited. These 'Funds' accounts are spending heads and act similarly as specific 'reserves accounts'. They specify that the determined amount of assets must be reserved for the purpose of the spending programmes for which the Funds were set up. Operating expenditures like salaries and overheads, are debited in the 'Consol Fund'.

Read : The best explanation for the S$7.4B loss by MAS. Not a text book explainer, nor copy-cat version of official or mainstream media tid-bits.

Only the 'Securities Fund' is treated differently. Its funds do not course through the 'Consol Fund'. When the government issues securities, the proceeds are deposited with MAS. 'Cash' is debited and 'Securities Fund' is credited. Securities are government debts. Singapore government does not practice deficit budgeting. It does not borrow to spend, which is prohibited by law. It issues the following securities :
- SSGS (non-market security) meant for CPF Board to invest its national retirement funds.
- Other government securities (marketable SGS, SSB, Treasury Bills) meant for SGD yield curve discovery, for investors, and a mechanism for repo and reverse-repo money market transactions for MAS to fund short term liquidity, mostly overnight.
- RMGS (non-market security) meant to facilitate MAS to transfer excess forex reserves to GIC.

Proceeds from all these securities cannot be spent by the government. These funds are transferred to GIC (sometimes some portion to Temasek) to invest. Credit 'Cash'; debit 'Investments'.

Apart from proceeds of securities, the government also has revenue from land sales which they cannot spend. Land sales proceeds are also transferred to GIC/Temasek. Credit 'Cash', debit 'Investments'.

Budget surplus of the prior year is also transferred to GIC/Temasek. Credit 'Cash'; debit 'Consol Fund'. There was a budget deficit of S$51b in 2021 due to spending on financial aid packages for the pandemic. Thus there was no budget surplus to transfer in 2022.

The government has massive operating revenue from income taxes, fees, fines, rent, duties, etc. All these are deposited with MAS. Debit 'Cash', credit 'Consol Fund'. These may not be spent immediately, so the government invests them. Debit 'Investments'; credit 'Cash'.

Now back to Leong's S$170 billion increase in assets. In the first place, it is incorrect to hold the view the assets figure in the Statement of Assets and Liabilities as approximation for the national reserves. There is absolutely no relationship. But where did the S$170 b increase in 2022 came from?
- S$108b from net increase in securities issued (issuance less redemptions)
- S$75b new RMGS issued (for MAS forex reserves transferred to GIC)
- S$13b from sales of land.

Of the above transfers, only S$13b from land sales are the Tan Ah Kow TV sets, the rest are the cars. There is no S$170b to spend unless Leong was suggesting we sell all the cars as well and be out of cash to meet securities redemption. What did the government actually spend from the national reserves in 2022? The NIRC (net investment return contribution) from GIC/Temasek was S$20.4b which was taken into the budget.

I believe there is no S$1.5 trillion or S$3 trillion of Tan Ak Kow TV sets, ie unencumbered assets, in the reserves. The reality is way much lower. I would be extremely glad to be wrong and for either Jeyaratnam or Leong to be proven correct. They both take the gross assets figure and I wonder if they realise there is a S$981 billion debt that funded those assets. We need to know how many Tan Ah Kow TV sets there are to be able to have a real conversation on how we can alleviate financial sufferings of Singaporeans more meaningfully. Unfortunately, the government is shy with numbers here. Tan Ah Kow cars in the reserves are only of value if they provide returns over their capital costs.