SINGAPORE (Feb 21): The net investment returns contribution (NIRC) is expected to be the single largest contributor to Singapore’s coffers this year under Budget 2020.
This could be the fifth consecutive year that the government has relied heavily on the NIRC to fund expenditure since Temasek Holdings was included under the net investment returns (NIR) framework in 2016.
This year, the NIRC is estimated to generate $18.63 billion, up 9.3% y-o-y from $17.05 billion in 2019. This compares to Singapore’s corporate income tax, personal income tax and goods and services tax, which are estimated to generate $17.1 billion, $12.51 billion and $11.27 billion respectively.
The NIRC comprises up to 50% of the net investment returns on the net assets invested by GIC, the Monetary Authority of Singapore (MAS) and Temasek. It also comprises up to 50% of the net investment income derived from past reserves from the remaining assets.
The Singapore government began to include the returns of GIC and MAS under the NIR framework, which was established in 2008. The NIR framework aims to enhance revenues and ensure a “fair balance” between the needs of current and future generations of Singaporeans.
According to the Ministry of Finance, government expenditures were expected to rise significantly over the long-term. This included increased investments in human capital, knowledge and innovation to sharpen the capabilities of Singaporeans. It also accounted for investments to make Singapore a top quality home, through enhancements in the city centre and neighbourhoods. And it will address higher social expenditures in an ageing society and those facing growing income gaps.
In a Facebook posting on Jan 21, Temasek’s executive director and chief executive Ho Ching said that without the NIRC, the government would have had to raise taxes long ago for social spending. Similarly, programmes like the Pioneer Generation Package could only have come from higher taxes or cuts to other essential programmes without the NRIC, she added.
The heavier reliance on the likes of Temasek Holdings is seen to have some impact on the portfolio of government-linked companies, in which Temasek holds controlling stakes. For one, they are expected to keep up with healthy dividend pay-outs – which will all add to what Temasek, in turn, can give the government.
For example, over the last couple of years, DBS Group Holdings, where Temasek holds a 29.9% stake, has increased its dividend pay-out. From 60 cents paid for FY2016, the amount has increased to $1.43, $1.20 and $1.23 for FY2017, FY2018 and FY2019 respectively.
Similarly, Singapore Telecommunications, where Temasek controls 52.5%, has committed to maintaining its dividend for FY2020 ending March 31 at 17.5 cents. This is despite its earnings having come under pressure from both stiffer domestic competition and underperforming regional associates.
