Government Land Sales Revenues and Investment Receipts Recognised as Revenue

Mr Leong Mun Wai asked the Minister for Finance (a) whether Government land sales revenues and investment receipts have been previously fully recognised as revenue; and (b) if so, when was the change effected and why.

The Constitution was amended in 1991 to create the institution of the Elected President to protect Singapore’s Past Reserves. This was a major shift in our fiscal framework, to prevent any profligate government from spending beyond its means by drawing down on the reserves built up over previous generations.

Our physical endowment of land is scarce and finite, and protected as part of our Past Reserves. Land sales simply convert physical assets to financial assets. As such, proceeds from land sales accrue fully to Past Reserves and are not available as revenue for spending in the Budget, for the reasons explained by the Second Minister for Finance Indranee Rajah in Parliament on 5 April 2021. Instead the proceeds are invested and the Government can spend from the income generated by these investments.

The framework for spending from investment income has evolved over time, reflecting the careful deliberations by the Government on how to spend from the returns generated by the reserves, balancing the needs of current and future generations.

Prior to 2001, the Government could spend all of the investment income that was accumulated during its term. Investment income at that time referred to interest and dividends received, and excluded capital gains.

In 2001, the Constitution was amended to protect at least 50% of the net investment income (NII) earned from the Past Reserves of the Government. This amendment underscored the Government’s commitment to take a longer-term view, to save some of the investment income to ensure that our reserves would continue to grow, so that future generations would be better able to deal with rainy days.

In a further evolution of the framework, the Constitution was amended in 2008 to implement the Net Investment Return (NIR) framework, which allowed the Government to spend from the long-term expected real return on the net assets invested by GIC and MAS. The returns under the NIR framework include capital gains. Temasek was included in the NIR framework in 2016.

Today, the Net Investment Return Contribution (NIRC) is the largest single contributor to the annual budget. It is estimated to be $19.6 billion for FY2021, or 20% of the Budget.