“There is a need to not only preserve Singapore’s wealth but grow it for future generations,” asserted Senior Minister of State for Law and Finance Indranee Rajah while speaking on the sidelines of a visit to Fei Yue Community Services at Teck Whye.
The Minister was replying to a question on whether the Net Investment Returns (NIR) framework should be adjusted for the Government to spend more than half of the long-term expected real returns.
She referred to a Chinese saying that wealth does not last beyond three generations - “It’s wisdom of the ages, as time and time again, experience has shown that the first generation accumulates, saves and builds up, the second generation preserves it, and the third generation comes along and spends it.”
Observing that the current generation has benefitted from the efforts of the pioneers, the Minister said, “The way we approach it, is that the fourth generation of Singaporeans must not only continue to preserve but to grow the wealth.”
Pointedly, the NIR framework allows the Singapore government to spend up to half of its long-term expected real returns from the assets managed by the Monetary Authority of Singapore, state investment firm Temasek Holdings, and the Government of Singapore Investment Corporation.
“Today, we are in a good position and this is an approach we would like to continue going forward...As to whether it should be 50 or 60 per cent, it is not a science, but a discipline.”
That discipline is that we use half now, keep half for the future, and that’s how we preserve and grow the inheritance, not just now, but for future generations.”
The Minister also tried to explain the rationale why the Singapore Government chose to raise the GST and not use more than 50 per cent of the Net Investment Return (NIR) on the reserves in a Facebook post.
Indranee said “The suggestion that the Government use more of the returns – say, 60 per cent instead of 50 per cent – assumes various things.”
The first is that an additional 10 per cent of the NIR will give the same amount as a 2 percentage point GST increase. The second is that returns generated by the reserves will remain the same.
She said, “However, even with the NIR framework (which essentially smooths out volatility by taking a longer term expected return), long term investment returns can still vary or fall. We can never eliminate investment risk.”
“We take 50 per cent to be fair and prudent - use half now and leave half for the future. We should continue this for as long as we can in order to both preserve and grow our inheritance,” she added.