Budget 2015: Projected earnings of Temasek Holdings to be part of Govt’s Net Investment Returns Framework

SINGAPORE — With government spending set to increase, Finance Minister Tharman Shanmugaratnam said that it is necessary to take steps to strengthen future revenues, with the first step being to include the projected earnings of Temasek Holdings in the Net Investment Returns (NIR) framework.

Under this framework, the Government is allowed to spend up to 50 per cent of the expected long-term real returns on net assets managed by the investment entities of Monetary Authority of Singapore and GIC.

The portolios of GIC and MAS are already part of the NIR framework. The inclusion of Temasek Holdings was deferred as there was no established methodology for projecting the long term expected real returns on its portfolio, as well as its still evolving investment strategy, said Mr Tharman, who delivered the Budget Statement in Parliament today (Feb 23).

He said: “We are now ready for our spending rule to be based on the total expected returns of all three investment entities, including Temasek. We have worked with Temasek to develop an approach to project its expected long-term returns, taking into account the nature of its investment portfolio, although its equity-only portfolio will continue to be more volatile and subject to more pronounced investment cycles than the MAS and GIC portfolios.”

He added: “Including Temasek in this framework would enable us to spend based on its total expected returns, including realised and unrealised capital gains, and not just actual dividends paid by Temasek to the Government.”

Government spending, Mr Tharman noted, will increase, driven by three main areas – healthcare, public transport, and the development of Changi Airport Terminal 5. Even as the Government will seek to control costs, spending will “inevitably rise”.

“We project overall spending to reach about 19 per cent to 19.5 per cent of GDP (gross domestic product) on average over the next five years. This is about 1 per cent of GDP higher than the revenues we have today,” he said. “It is therefore necessary that we take steps now to strengthen future revenues, to put Singapore on a firm fiscal footing for the rest of this decade.”

READ THE FULL BUDGET STATEMENT HERE

Other documents on Budget 2015 available on the Budget 2015 website.