Long Term Investment Returns of Temasek Holdings and GIC

Parliamentary Question by Mr Henry Kwek Hian Chuan:

To ask the Minister for Finance on how Temasek Holdings and the Government of Singapore Investment Corporation have performed in terms of investment returns over the long term. 

Parliamentary Reply by 2nd Minister for Finance, Ms Indranee Rajah:

GIC and Temasek have made money over the long-term. Their portfolios have grown over the years. For example, Temasek’s Net Portfolio Value was $164b in 2007 as compared to $275b in 2017.

2. This growth is underpinned by their investment performance:

a. Temasek’s investments delivered an annualised nominal shareholder return of 6% in Singapore dollar terms, for the 20 years ending 31 March 2017. Temasek reports its returns in nominal terms, that is, without taking into account inflation.  

b. Similarly, over the same period, GIC achieved an annualised real return of 3.7%; this is over and above inflation.  

c. I should emphasize that these figures are as at 31 March 2017. Both entities will be releasing updated numbers for the period ending 31 March 2018 soon. 

3. Temasek and GIC’s investments benefit Singaporeans through the Net Investment Return Contribution (NIRC) to the annual budget.  The NIRC framework allows the Government to spend up to 50% of the long term expected returns from our reserves. It has become an increasingly important fiscal resource.   

a. From FY2009 to FY2017, the NIRC totalled about $85b, or about 14% of overall revenues. $85b is a sizeable amount that can fund many Government projects and schemes. 

b. In FY2018, the NIRC is estimated to be about $15.85b, or about 18% of overall revenues. It is now the single largest source of Government revenues, larger than any single tax, including the GST, and corporate and personal tax.

4. Our reserves are an endowment that belongs to Singapore. There are very few countries in the world who have national savings that they can tap to fund their budgets, and is especially rare for a country like Singapore which has no natural resources.  This endowment was saved over time through the hard work and discipline of our forefathers, invested by GIC and Temasek for the long term. If we continue to be disciplined and responsible stewards of this endowment, our reserves will continue to benefit all Singaporeans, young and old, today and tomorrow. 

---

Supplementary Question by Mr Henry Kwek Hian Chuan:

Mr Speaker, Sir, I thank the Minister for her comprehensive answer. I have two supplementary questions. Can the Minister share: (i) whether the planned GST increase is linked to past investment losses, such as UBS, Barclays and Merill Lynch; and (ii) can we expect GIC and Temasek to sustain these levels of performance and returns, going forward?

Reply by 2nd Minister for Finance, Ms Indranee Rajah: 

Mr Speaker, with regard to the first question on whether the planned GST increase is linked to past investment losses, such as UBS, Barclays and Merill Lynch, the short is answer is: no. They are not linked. To be even more specific, if the question is whether the planned GST increase is to cover losses from investments into these or other counters, the answer is also: no.

The nature of all investments, whether by Government, sovereign wealth funds, or otherwise, is that you are taking a calculated assessment in the present, on the performance of an asset in the future. It would be wonderful if we had a crystal ball that allows us to see into the future, and can accurately predict all investment outcomes. However, the reality is otherwise. It is not possible to guarantee that all investments will make money all of the time. There will occasionally be losses. That is part and parcel of investing. The only way to avoid any investment loss is just to sit tight and not invest our reserves, but that would not help either. Because if we just leave the reserves as they are and do not invest them, not only will those reserves not grow, but they will be eroded over time by inflation. So, we invest, and that means taking some risks, and accepting some losses. But the overall objective is to reap more than you lose over the long term.

In the case of GIC and Temasek, their long-term performance has been very creditable, as I had explained earlier, and they have made money over the long term. Hence, to the question of whether we have to raise GST because of investment losses on certain counters, that is plainly not the case. GIC and Temasek have both made money over the long term, and have contributed significant revenues to our budget over the years through the NIR framework, as explained earlier.

The NIRC is the single largest source of income of Government revenues, and it has enabled us to keep taxes low, and also to keep GST increases at bay for many years. If we did not have the NIRC, then we would have had to either double the amount of personal income tax, or our GST collection to fund the same amount of expenditure over the years.

Then, one may ask, "Well, if GIC and Temasek contribute to the NIRC, then would not any losses also affect our revenues?" As to this, the NIR framework spending formula is based on expected long-term real returns. It is driven by an overall portfolio approach, taking into account the long-term expected returns of different asset classes, factoring in the diversification benefits, and adjusting based on the long-term investment outlook. From this perspective, the outcome of individual investments or the state of markets from one year to the next do not have a significant impact on our spending levels.

So, in short, investment outcomes in UBS, and so on, have not had a significant impact on our revenues. That is the design intention behind the NIR. It is designed to smooth out the highs and the lows of investment returns, and to give stability to our fiscal planning.

The need for the GST increase was explained in the 2018 Budget Statement. And it is really because we have to prepare for the future. We have enough for this decade, but in the next decade 2020 to 2030, our expenditure needs will grow. We have to plan ahead to meet those needs. We are already reinforcing prudent spending by constraining the growth of Ministry budgets. We already planned to save ahead and borrow for long-lived capital investments which are enjoyed mainly by future generations.a

But even with these measures, there will still be a gap. And this is because our healthcare, security, and other social needs will continue to grow. This would involve recurrent expenditure for broad-based needs that benefit each generation and should, in principle, be supported by recurrent and broad-based taxes so that each generation pays for its own spending sustainably.

The GST increase is planned for ahead of time to ensure that we are in a sound fiscal and financial position to meet the increased expenditure on the social and security needs of Singaporeans in the years to come.

On the Member's second question of whether we can expect GIC and Temasek to sustain this kind of level of performance or returns going forward, there are near-term challenges, such as the current tensions over trade which can affect global economic growth and the investment outlook. But as I have mentioned, such ups and downs are part and parcel of investing. What is important is that we do not take the creditable investment performance by GIC and Temasek so far, for granted. The Government will continue to focus on their long-term overall performance, and remain prudent and responsible in how we use our reserves.