Ex-GIC economist Yeoh Lam Keong wrote on his Facebook Nov 7 on his estimate the surplus is $30b (he also wrote about the reserves) which was covered by online media The Independent Singapore. Both received a POFMA from the MOF. Tan Kim Lian wrote on his Facebook Nov 20 where he basically felt the $30b may be right, and he outright challenged the government to POFMA him.
I have also read opinions of Lee Hsien Yang, Yeoh Lian Chuan, Chris Kuan, and a few others. Whether they are correct or not is besides the point. People have a right to their opinions. It is good to see respectable leading personalities partake in such a conversation of national interest. If one has a different view, it is good to join in a healthy discussion. To quote myself in a previous blog, kiassu, kiassi and bo-chap is the fence-sitter's wine of oblivion. The internet is free. POFMA imposes no fines.
The government of course has a right to respond. The MOF's explanation to YLK's post is here.
I have some comments to the above gentlemen's views. As a preamble, and in sympathy with lay persons not familiar with government accounting, I share what I know. I have blogged on this before, but now I present in a pictorial which is easier to understand.
Basically, there are 4 types of receipts:
(1) Revenue - these are taxes, fines, fees, duties, NICR (net investment contribution returns) from GIS & Temasek, and a certain percentage of profits of MAS.
(2) Fiduciary - these are money belonging to others, mostly Stat Boards, but invested by MOF on their behalf.
(3) Debt - Proceeds from securities issued.
(4) Land sales
(5) All cash received are deposited into the govt account at MAS. They are recorded in the Income Statement. Govt Balance sheet has only 2 asset items. All cash received are debited in the Cash a/c.
(6) All Revenue cash are credited into the Consolidated Funds. All fiscal spending flows through this fund. The cost of running all the ministries are recorded in this fund.
(7) Apart from the operating cost of ministries, the government also spends on various programmes. All these spending programmes are approved by legislation. Eg Edusave, CDC Voucher, Pension, Medical Endowment, Development, etc. A special fund is set up for each programme. Appropriations are made from Consolidated Funds to each relevant Special Funds.
These funds have different timelines for spending, ie they do not follow the fiscal year. Some short term, some very log term. Some are endowment funds, ie the principal will not be spent, only earnings from the funds are spent.
(8) The Revenue cash less the budgeted cost of the ministries, less appropriations to the special funds, is the fiscal balance or deficit. This is transferred to GIC for investing.
(9) Fiduciary money are recorded in the Fiduciary Fund.
(10) All proceeds from securities issued are recorded in the Securities Fund. The government do not take on debt for fiscal spending.
(11) When proceeds of land sales, securities and fiduciary money are transferred to GIC, it is credited from Cash a/c and debited to Investment a/c
(12) When the ministries spend, it pays out of its MAS account. The amount spend is credited from Cash a/c and debited to Consolidated Funds.
(13) When money is spend under those special programmes, cash is paid out from MAS a/c. Cash a/c is credited and debited to the relevant special funds a/c.
(14) Some investments are made by the govt itself. These are mostly short term investments to park funds not required in the immediate future.
NOTE: No Funds is set up for land sales. The proceeds are simply transferred to GIC. Cash a/c credited and Investments a/c debited. MOF of course has apps that keep track.
Yeoh Lam Keong (Facebook Nov 7)
YLK: “... we have a $30 bn structural fiscal surplus that we have not even begun to publicly delineate clear spending big plans for.”
MOH explained the past several years, the average budget surplus is $2.2b and Yeoh is wrong about the S30b. A lot of government detractors started the usual venting and sharing without actually understanding what Yeoh meant. I am not sure of what exactly he meant. He could be saying :
(a) A lot of the appropriations were made out of Consolidated Funds into those special funds. But each year, a lot of these special funds were not spent in the fiscal year. Thus had they not been appropriated, the Consolidated Funds would have been left with a higher surplus. He estimated it to be $30n.
(b) The term 'structural surplus" has a specific meaning. The fiscal for the year could be subject to cyclical peaks which will be evened out in the short term by economic cycles. But sometimes a surplus (or deficit) could be due to long term structural changes. For example changing demographics. This causes structural surpluses (or deficits).
(c) Land sales proceeds were not treated as Revenue. Had the govt done so, the surplus will be much higher.
I'm guessing Yeoh was NOT referring to (c) because land sales was only about $8b last year and also the fact he mentioned 'structural'. Neither could he be referring to (b) although he used the term. Had he meant (b) I really would love his dissertation. I am guessing YKL meant (a).
(a) is something that Kenneth Jeyaratnam has consistently criticised. Funds have been appropriated for programmes which are further down the road, but in the meantime, people are struggling and GST is being raised.
Tan Kim Lan (Facebook Nov 20)
Several points the affable TKL made are technically incorrect. Basically Tan said the government did not follow 2 generally accepted accounting treatment. Had they done so, the surplus will be closer to YKL's $30b.
Tan : Land sales not reported as Revenue. "Instead, it disappears as transactions involving "past reserves"
Tan is right in that most countries report state land sales as Revenue. But as the above pictorial shows, it didn't disappear. Land sales proceeds appear in the Income statement and ends up in Investment a/c.
Tan : "Large transfers are made from surplus towards special funds.... hence reducing the surplus."
The right way to explain this is as per (a) for Yeoh's comment above.
I understand Tan is saying had no transfers been made out to Special funds, the surplus would have been much larger. So in fact, the government is transferring out of surplus to special funds and thus reducing the surplus. Here Tan is conflicting himself about accounting treatment because all countries use a consolidated fund and appropriations are then made out of this fund to special funds.
In effect, Tan subscribes to my comments (a) and (c) to YKL. If that were the case, Tan is again wrong that "the surplus will be closer to the "structural surplus" of $30 billion stated by Mr. Yeoh Lam Keong." The surplus would in fact be massively higher than the $30b had land sales been taken into Consolidated Fund AND no appropriations be made out to the special funds.
Lee Hsien Yang (Facebook Mar 2)
Commenting on Yeoh's post, Lee Hsien Yang Nov 19 shared his Facebook post of Mar 2.
LHY :"Singapore has historically run a massive budget surplus every year. The way the surplus is calculated does not conform to IMF accounting. Adjust for that, it would be even more of a surplus!".
He quoted from an article by Manu Bhaskaran (CEO of Centennial Asia Advisors) and Linda Lim (Professor Emerita at the Stephen M. Ross School of Business, University of Michigan) which stated "The different method used by the International Monetary Fund shows a fiscal balance roughly 5 to 7 percentage points higher in 2011-15".
It is not helpful to mention non-conformity with IMF accounting without explaining the context. It leads the unwary to ponder oh gosh, what other diabolical manner of creative accounting has the ministry pursued. The only issue in question is IMF recommends land sales be reported as Revenue. It is not about a right or wrong way. IMF's concern is about uniformity of reporting makes for easier comparatives, and the fact it helps in preventing leakages. Singapore makes a difference about reporting and recognising land sales. It is reported in the Income Statement. We just do not recognise it as revenue available for fiscal and thus not taken into Consolidated Funds.
Yeo Lian Chuan (Facebook Nov 20)
He believes the surplus is too conservative for the following reasons :
YLC: If you take the 50% of the real income of the reserves alone that is not part of NIRC, that’s already >$20bn a year
I hope he is not suggesting the sovereign wealth funds transfer 100% annual profits to the coffers. Every entity needs resource conservation for operations and build wealth. In any case, the long term return rate is set as a policy. There may be years in which the long term yields are higher than real returns.
YLC: "..the government undercounts income, by excluding all amortised land lease proceeds 100%"
This is the same criticism of not taking land sales for fiscal use. But YLC here is suggesting something different. YLC is a lawyer and here he is suggesting leasehold accounting. He said over 99 years, if the amortised aggregate for each year is taken in as revenue, the surplus would be higher. There is a problem here. Firstly, government accounting works on cash basis, not accruals. Secondly, what about freehold lands sold?
YLC: ".... the spread earned by GIC is not taken up as income or part of NIRC"
The spread he refers to is the higher returns made by GIC over the interest payments to CPF. Note quite sure what he meant here. Is he saying the investment gains should be taken up by the government? Of course it is, as part of the overall returns of GIC but in the form of NIRC. GIC investment funds are co-mingled.
The part I do not know is who is paying for the cost of the CPF funds? The govt who issued the SSGS, or GIC? If govt pays SSGS interest to CPFB, this do not affect the surplus because the payment is out of Securities Fund, not the Consolidated Fund. That will mean the cost of funds to GIC is zero, so the SWF reports higher returns. Does this higher returns from GIC mean more revenue for government budget? NO, the real returns make no difference to the budgeting. The govt is paid according to the computed long term NIRC rate of return.
YLC: "..".. when the government announces a major measure such as the GST assurance package, ....... the money is not due to be spent or sometimes even liable to be spent."
This is the same pet peeve of Kenneth Jeyaratnam about money lying in Special Funds.
YLC : "Fifth, the gains from these funds - which are worth over $1.22 trillion (repeat trillion) ....... are also not treated as relevant assets under the NIRC framework"
I think there is a fundamental misconception here. He is referring to the Special Funds. These are liabilities, not assets. The assets representing these funds are all co-mingled in the investment accounts. They could be with GIC, Temasek, MAS or even in the investments managed by MOH itself.
YLC : "Sixth, the Budget counts development expenditure as an immediate 100% expense even though it may yield an asset. According to the government’s reasoning, when land is sold that is merely a conversion of one form of wealth to another. Why isn’t this same logic applied to development expenditure or some of it. The total development expenditure in Budget 2022 was $17.35bn".
Govt accounting is reporting cash in - cash out and the balance is the surplus. The Development Fund represents money put aside for various projects. In the budget, the money for development projects is appropriated from the Consolidated Fund. It is not a fiscal expenditure as such. The Development Fund records the money spent for the projects. On completion of the project, the asset will be carried in the books of whichever government agency or ministry that eventually owns it.
Chris Kuan : ( Facebook Nov 20, Nov 21)
Chris often throws out gems in his posts. In this particular dispute, his basic point is how the surplus is computed is meaningless. We abide by the way the local jurisdiction wants to see things reported. That's sovereignty exercised.
The gist of my comments here aligns with Chris. Our constitution dictates proceeds from land sales are to be treated as reserves and should not be available for spending. In so much as the Accountant General wants to reflect compliance with our constitution, the accounting treatment he has devised is brilliant in its simplicity. It is reported as income, but does not go into the Consolidated Accounts as spendable funds. The fact the IMF is able to compute our fiscal surplus according to their way of treatment indicates nothing is hidden. The hullabaloo over the surplus computation is meaningless.
My message to fellow Singaporeans. Keep on talking.
