Minister Khaw Boon Wan has called Budget 2014 “very generous …by any measure” so naturally, I want to see how it holds up by my measure but because the budget contains information black holes and inexplicable discrepancies measuring it is almost impossible. This leads me to believe that Minister Khaw Boon Wan is singing a tune without the benefit of the sheet music. No wonder his song strikes a discord with the ordinary citizen.
First let’s remind ourselves of Budget 2013 which I analysed in an article entitled “How To Make A Surplus Disappear without Anyone Noticing”. This is what I said:
“There is an accepted format for the layout of budgets prescribed by the IMF. Last year I asked why the Budget could not be set out in the format prescribed by the IMF. In July 2012 I wrote an open letter to Christine Lagarde (see here) asking this question in more detail and that latter was published by the Huffington Post. I said there that :
The foreword to the IMF manual sets out an analytical framework for budgets and states that one of the aims of the framework is to provide an early warning system as to when things start to go wrong.”
And also:
“Specifically lacking in Budget 2013 are the figures for net interest earned and investment gains or losses on financial assets and liabilities. It also does not include a value for the state’s land holdings or for receipts from land sales.
The only information available to us is the Statement of Assets and Liabilities [of Singapore which the Finance Minister is required to publish every year]that is more than a year out of date. This barely helps us gain some picture of the true state of the government’s financial position and the size of our net assets particularly as it comes without any explanatory footnotes or an explanation as to what accounting policy is followed.
As the stocks of financial assets and liabilities are more than twelve times the flows represented by revenues and expenditures any losses in the former can easily dwarf any surpluses in the latter. We see no reason not to have full transparency, as secrecy can only be conducive to lack of accountability, even to mismanagement and potential corruption.”
I have read through this year’s Budget Speech and my first thought was, Yipee! I don’t have to do any work I can republish the piece I wrote last year. Seriously, nothing has changed and that is not a good thing. The Budget presentation continues to be a joke, using a format that does not follow the guidelines prescribed by the IMF described in the Government Financial Statistics Manual 2001.
I wonder why our Finance Minister was appointed head of a key committee of the IMF when he does not even follow IMF procedure. Presumably this has got something to do with the speed and willingness with which the PAP committed to giving away $5 billion of our money (more than 60% of the money promised to our Pioneer Generation!) without bothering with democratic niceties like Presidential or Parliamentary approval.
Christine Lagarde, the head of the IMF, must be pleased with the way our courts have moved so swiftly and efficiently to prevent us from challenging the legality of the government’s actions by saying we do not havelocus standi.
I have been pointing out the lack of transparency and the use of smoke and mirrors in the government’s accounts since the Reform Party’s critique of Budget 2012, which was repeated with Budget 2013. I also wrote open letters to the Finance Minister asking him why the Budget was not presented in the format prescribed by the IMF. I have also written an open letter to Christine Lagarde about the discrepancies in the government’s accounts and their failure to provide a full picture of the government’s finances. In particular I highlighted the failure to provide figures for net investment income, capital receipts and revenue from land sales. This was republished in Huffington Post.
In “Where have all our reserves gone?”, “Sherlock Holmes and the Case of the Missing Reserves” and “An Unappetizing Picture”, published in September 2012, I highlighted the fact that the then Statement of Assets and Liabilities (SAL) rang further alarm bells as forensic analysis suggested that the returns achieved by GIC would have had to have been much lower than the quoted returns in order to reconcile the stated figure for total net assets with Temasek’s assets and estimated revenues from land sales:
“It is only by reducing the rate of return on assets to 5.2% that one gets to a theoretical total assets level of roughly $720 billion which is close to the figure for total assets shown in the government’s SAL…
However, when one adds in Temasek’s assets and the likely revenue from land sales, returns appear to have been much worse. I calculated what would be the theoretical rate of return on assets to equal the total assets shown in the government’s balance sheet at 31 March 2011 minus Temasek assets of $180 billion and estimated revenues from land sales of $100 billion. It is only when the return on assets is reduced to a shocking 2.5% in S$ terms while keeping the rate the government pays on its debt to CPF holders at 3.5% that we are able to reconcile our theoretical calculations with what is shown in the government’s balance sheet.”
This was of course a theoretical exercise and, in the absence of any light from the Finance Minister on this black hole, the real picture could be better than laid out above or conceivably much worse. We have no way of knowing. I have not had a chance to bring my analysis up to date with this year’s SAL but I am confident my conclusions there would be unaltered.
Even if the government is barred from spending past reserves without Presidential approval, which in any case can be overridden by a two-thirds vote of Parliament, surely Parliament and the people are entitled to know the true reserve position and how well the government has performed that year in managing them. Nations like Norway, which also have substantial Sovereign Wealth funds, have adopted full transparency and present the results to their Parliament each year. We should be doing this.
This year the Finance Minister has become even braver in his determination to mislead Singaporeans as to the true state of the government’s finances. Perhaps he is emboldened by his victory in court allowing the PAP to proceed unchecked. Particularly as the Opposition in Parliament are unlikely to ask any tough questions and will certainly vote for the Budget.
So let’s look at how he misleads us this time over the disturbing question of our abnormally large surplus. The difference between the estimated surplus for 2013 of $2.4 billion, according to the PAP’s format, and the revised surplus for 2013 of nearly $4 billion announced in Budget 2014 is already embarrassingly large. That figure pales into insignificance when compared with a likely government surplus of nearly $30 billion (extrapolated from the six months’ figures shown in the Monthly Digest of Statistics for January 2014. ) And the government surplus is likely to be considerably narrower than the general government surplus, which includes the results of Temasek and other GLCs and statutory boards not under the GIC and MAS umbrella.
However I cannot say for certain what the figures are as the government has started to make it more difficult to find out what the true surplus is. This may be because many other commentators are now starting to follow my lead, albeit somewhat timidly, and point out that the surplus is vastly larger than the Finance Minister would have us believe.
The problem is that the Yearbook of Statistics used to contain details of the general government surplus in addition to the government surplus but now the format has been changed so it merely presents the surplus in the format the Finance Minister uses, which as we know not only contains no useful information but is deliberately misleading. The Statistics Department has even started restricting online access to anything but the current issue of the Monthly Digest of Statistics (MDS), which only has six months worth of data on last year’s government surplus. Back issues have disappeared. Fortunately the Finance Minister is still obliged under the Constitution to publish the annual Statement of Assets and Liabilities, though this is completely opaque asit is unaccompanied by any explanatory footnotes and is in any case a year out of date. What first world country swims against the global tide towards more openness and transparency by going backwards and trying to restrict its citizens’ access to information?
In Budget 2013 the Finance Minister used his usual trick of transferring the entire Net Investment Returns Contribution (which is meant to provide resources for current spending) straight back to the reserves by allocating most of it to Top-ups to Endowments and Trust Funds (which do not represent current spending). I wrote about this accounting trick previously in Smoke and Mirrors in the Government’s Accounts. This is what I said then:
- The setting up of funds appears to be a way of bringing the Overall Budget Balance close to zero and mirroring almost exactly the Net Investment Returns Contribution. $7 billion set aside for new funds in 2012 and $7 billion in net investment returns contributions. This is despite the fact that monies appropriated to these funds may not be spent for many years, if at all. Again this deviates from the IMF framework, which would require that these appropriations show up as part of net acquisition of financial assets. ( see http://thereformparty.net/about/press-releases/budget-2012-part-one/ and http://sonofadud.com/2012/06/14/chesapeake-energy-and-temasek-a-tale-of-... for details of how our accounts fail to follow IMF accepted procedure)
- The $41 billion in the funds’ assets is a sum of money conveniently removed from the direct control of Parliament. In other words the Finance Minister has unfettered control over their budgets and disbursements.
- The legislation requires that these funds produce annual reports and accounts that the Finance Minister is supposed to submit to Parliament. However a preliminary inspection of Hansard uncovered no evidence that this had ever happened. [I later discovered that while some of the funds have been audited by the Auditor-General others, such as the National Productivity Fund and the Bus Services Enhancement Fund, do not even appear in the SAL. More on this soon]
- These funds appear to be a way of injecting capital into the statutory corporations (mainly Temasek, GIC and MAS) almost exactly mirroring the outflow from the Net Investment Returns Contributions (NIRCs). However I have not been able to discover any information as to how these funds are invested. In the Statement of Assets and Liabilities their assets are pooled with the rest of the government’s assets. If it is indeed the case that these monies have ended up being invested in Temasek or GIC then this would seem to violate Article 7(A) of the Financial Procedures Act.
- Finally and most seriously, if these funds are invested in Temasek or GIC, then they may be being used as a way of alleviating the stress these funds are under as a result of poor performance. In particular they ensure that cash outflow is minimal which might otherwise put pressure on the funds to sell some of their investments. If these are illiquid then there could be a considerable drop in their price. While I would hesitate before saying that there is any mismarking or overvaluation of assets we do know from the government’s own balance sheet that the performance of the sovereign wealth funds appears to have been extremely poor.
In this year’s Budget the Finance Minister pulls off the same feat by using this years NIRC to fund the whole of the Pioneer Generation Package of $8 billion. In actuality annual spending, on the Finance Minister’s own figures, is likely to only be around $400 million. If history is any guide, the PAP government will, through its customary stinginess as exhibited in the way the surplus invariably turns out to be higher than expected, likely considerably underspend the amount budgeted.
I will return shortly to discuss the other aspects of the Budget, which pale into insignificance beside the signal fact of how badly Singaporeans are being short-changed by this PAP government. I cannot understand the gushing praise that seems to have come in from many pundits and commentators from civil society and elsewhere.
If we look at the Statement of Assets and Liabilities and the MDS, government net assets have grown by some $100 billion over the three years 2010-2013. Why is that level of continued accumulation of assets necessary and why is the Finance Minister making such efforts to hide the true fiscal situation from the people, even by resorting to subterfuges that would not be permitted if Singapore’s accounts had to be audited like a corporation’s? After all the PAP often pride themselves on claiming to manage Singapore like a corporation. Yet if Singapore were Apple, for example, corporate activists would be demanding the return of a sizable portion of its cash pile to shareholders in the absence of compelling reasons from the management for keeping it. Singaporeans should be demanding answers and, if none are forthcoming, voting to change this country’s management.
Singaporeans have lived too long in completely unnecessary austerity. To cite just one example, while your government has quietly accumulated another $100 billion, you have been forced to wait in tents for medical treatment at government hospitals. These are service standards that would shame a third world country and in any advanced democracy would lead to the government being voted out. There is no justification for such penny-pinching when the stock of the government’s financial assets keeps growing. It is time we awakened to our rights as citizen shareholders and force the PAP government to either return part or all of the surplus to us or else make the case as to why they should be allowed to keep it. Are the returns they can achieve from holding on to our money so much better than we can achieve by entrusting it to private managers or investing it ourselves? Does the PAP need the money to invest in some new invention that will miraculously transform our lives? I doubt it.
Finally you may by now be able to guess my answer to Khaw Boon Wan’s contention that this is a very generous Budget. My answer is that this Budget is not only not generous, it is quite breathtaking in the audacity with which it attempts to fool Singaporeans. Singaporeans, it is your money. You may think you are a free people but so long as you work to provide cash for a government which feels no pressure to live up to basic standards of accountability and transparency then you are actually enslaved.
Kenneth Jeyaretnam
*As a blogger, KJ hopes to help imagine a model for a New Asian Nation to bring about a free and fair future for Singapore. KJ is a Cambridge-trained economist who could be broadly described as from the Keynesian school. He is also a successful ex-hedge fund manager and a liberal opposition politician who contested in the 2011 General Election with the Reform Party. He is currently its Secretary-General. He blogs at sonofadud.com.