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CONTINUED:Ministerial Statement By Minister For Finance Dr Richard Hu To Parliament On 17 August 1999 On Protection Of Reserves Issues Raised By The President At His Press Conference On 16 Jul 1999

16 Jul 1999

The President has not challenged this legal opinion.

35. Treating NII as current income is also the standard approach under Generally Accepted Accounting Principles. The accounting standard (paragraph 74 of SAS/Framework) issued by the Institute of Certified Public Accountants of Singapore (ICPAS) defines revenue to include sales, fees, interest, dividends, royalties and rent. The revenue constitutes income that is available for use in day to day operations.

36. The President also said that the Government had locked up NII as part of past reserves since 1992, but last year decided that "the NII should now belong to the current account". This is not accurate. The actual situation is as follows:

37. Under the Constitution, NII is and has always been current income. The Government has not changed this treatment. However, it has carefully studied whether it should do so, and lock up part of NII as protected reserves, especially that part of NII earned from investing past reserves.

38. This is a complex issue. We have to project the likely state of the economy and budget position of the government over the long term, to assess how much revenues the government will have and what it will need to spend. This involves many uncertain-ties. We must also weigh carefully the proper balance between restraining a profligate government on the one hand, and allowing a responsible government enough flexibility to operate on the other. The matter is not pressing, and if we decide hastily and make a mistake it will be difficult to reverse later.

39. It was the Government, not the President, who first raised the issue of NII in Jan 92, well before President Ong took office. Against a backdrop of comfortable surpluses, it decided to take the more conservative stance of locking up all the NII earned from past reserves, and to amend the Constitution for this purpose, not immediately, but after about a year of implementation.

40. However, subsequently the Government did not follow up to amend the Constitution. Revised projections of revenue and expenditure showed that earlier expectations of continuing large surpluses had been too optimistic. The Government therefore looked for more flexible alterna-tive ways to protect the NII.

41. The matter has been discussed at length between MOF, the Cabinet, and the President's office. The Government seriously studied including a more stringent definition of NII in the White Paper on Principles. It finally decided against doing so, because the present uncertain economic outlook made long term budget projections difficult. A second reason was that doing so would cause the Principles to go beyond the Constitutional provisions. The Principles cannot override the Constitution; they can only give effect to them. A future government would not be bound by the definition of NII in the Principles.

42. The President and CPA have given their opinions, including the suggestion to lock away half of the NII from past reserves. The Government has carefully considered their views. The suggestion to lock away part of the NII has merit. But we have to find the right basis for determining how much to lock away, as a fixed proportion like 50/50 may not be appropriate for all circumstances. The Government therefore has not yet made a final decision.

43. In Mar 99, the Government informed the President's Office that while it had earlier been inclined not to change the status quo treatment of NII, it had relooked at the calculations and concluded that there could be a case for protecting NII or

47. I informed this House during my FY99 Budget Debate round-up speech on 9 Mar 99, that between 25 Jan 97 (the day the present Government took office) and 31 Mar 98, the Government had generated an operating budget surplus of $6.3 bn. After taking int