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Singapore’s Finance Minister Heng Swee Keat, who is tipped to be the Lion City’s next prime minister. Photo: AFP

Singapore’s giant reserves: a taxing question for its next prime minister, Heng Swee Keat

  • It’s budget season in the Lion City, which can only mean one thing: a debate over whether more of the revenue from Singapore’s giant reserves should be used to offset taxes
  • The prime minister in waiting – Finance Minister Heng Swee Keat – is to unveil the budget on Monday

‘NIRC’ – it’s a uniquely Singaporean economic abbreviation that stands for net investment returns contribution.

It’s a mouthful, but in the coming weeks the term is likely to be on the lips of many of the Lion City’s lawmakers as they debate the national budget Finance Minister Heng Swee Keat will unveil on Monday. The NIRC is the amount of Singapore government revenue that comes from interest earned on its outsize reserves.

The city state has elaborate rules on how much a sitting government can rely on past reserves. Among them are requirements that the administration is not mired in net debt, and that only up to 50 per cent of long-term expected returns can be used each year.

The NIRC is computed based on long-term expected returns from net assets invested by three entities as well as investment income.

The total size of Singapore’s total reserves is a state secret, but estimates by most analysts put it at well above S$500 billion (US$370 billion).

The NIRC’s status as a bulwark of government revenue is well known in policymaking circles.


But in late January it became a talking point in the republic’s vibrant online media scene after Ho Ching, the wife of Prime Minister Lee Hsien Loong and chief executive of one of the country’s two sovereign wealth vehicles, wrote a 200-word post on Facebook about its importance.

The Temasek Holdings chief executive wrote about how returns from the firm she leads, as well as GIC Private Limited, and the foreign reserves held by the central bank were the “single largest contributor” to the Singapore budget.

Singapore Prime Minister Lee Hsien Loong and his wife Ho Ching. Photo: Xinhua

“Without tapping on the dividends or returns from GIC, [the Monetary Authority of Singapore], and Temasek, the government would have had to raise taxes long ago for social spending,” Ho wrote.

Without the NIRC, the Pioneer Generation Package – a S$9 billion programme unveiled in 2014 to help cover the health care costs of citizens born before 1949 – would probably have been funded by “higher taxes or cuts to other essential programmes”, according to Ho.

Ho’s carefully worded post pre-empted the heated debate that surfaces without fail during the budget season in the island republic: on one side, liberal-minded economists argue that the government’s 50 per cent threshold on spending annual returns is too conservative.


Opposing them are the fiscal hawks who say the present-day government has a responsibility to future generations not to be profligate in its use of past reserves.

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Singaporean economic commentators expect the debate to rage on this year too.


Last year’s debate was particularly heated as the government fought back against demands for the 50 per cent threshold to be increased in lieu of its plan to raise the goods and services tax (GST) to 9 per cent from the current 7 per cent by 2025.

In the 2018 budget, the NIRC was forecast to come in at S$15.85 billion, about 21.8 per cent of the budgeted operating revenue of S$72.68 billion. The figure was $7 billion in 2009.

Pushing back against calls for a relaxation of the threshold, Heng, named last year as Prime Minister Lee’s successor, said increasing the cap would be “ill-disciplined and unwise”.


Shivaji Das, partner and managing director of the consultancy firm Frost & Sullivan in Asia-Pacific, suggested there must be forward planning for when the threshold should be increased.

“At this point the way I see it, 50 per cent is still reasonable,” Shivaji said, noting the recent GST hike.

“But the government will need to be flexible in the medium term. It is not a long term question but a medium-term question on when the ratio has to be evaluated again based on factors like what is the level of taxation, what is the level of inequality … and also factors like climate change.”

A worker repairs concrete blocks around a water fountain at the Orchard Road shopping district in Singapore. Photo: AFP

Irvin Seah, a senior economist at DBS Bank, said part of the challenge for Heng and his officials was helping Singaporeans to better understand the NIRC and usage of the country’s reserves.


The city state has one of the world’s fastest-greying populations, which means health care spending is likely to surge in coming years. The centrepiece of the 2019 budget is expected to be a “Merdeka [Independence] generation” package for those born in the 1950s that mirrors the 2014 package.

“I think there is a lack of awareness. Singaporeans assume that we have a very strong fiscal position and … strong reserves that we can tap on any time,” Seah said.

There are strong arguments on the side of those who seek to grow the NIRC, too.

Chua Hak Bin, an economist with the Maybank Kim Eng Group, said with total assets as a share of gross domestic product at around 230 per cent, it was questionable “whether it is really efficient to have so much and [still have] to raise taxes”.

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Donald Low, a former top finance ministry official who is now a professor of practice at the Hong Kong University of Science and Technology, last year argued that raising the NIRC threshold to 60 per cent would have seen it contribute over S$19 billion to the budget.

“The additional S$3 billion every year, increasing at the rate at which the reserves are growing, is almost exactly what the [proposed] two percentage point increase in GST would yield – in perpetuity,” he wrote in a commentary.

“So even if we accept that the projected increase in spending [by 2025] would require a revenue increase equivalent to a 2 percentage point increase in GST, the question is why doesn’t the government increase the [net investment returns] spending limit from the current 50 per cent to, say, 60 per cent instead?”

With a heated parliamentary debate expected after a budget that could be Heng’s last before a snap general election, Singapore’s prime minister in waiting in would do well to have some answers.