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Smoke and Mirrors in the Government’s Accounts

SMRT’s quarterly results brought into focus the Finance Minister’s decision to set up yet another new fund, the Bus Services Enhancement Fund, with $1.1 billion being set aside out of current spending.

Rather than set up this fund, I believe it would have been more beneficial for our  Finance Minister to have chosen to provide an annual subsidy to the bus operators. This could have incentivized them to lower costs and raise productivity. Instead, without providing any economic cost benefit analysis, he chose to set aside a huge amount, far more than the capital costs of 550 new buses that the government said it would purchase.

Of course if he was not challenged by the Opposition, the NMPs the NCMPs or his own backbenchers in Parliament to provide a rationale or any cost benefit analysis for a fund as opposed to other methods, then why would he?

It is a perplexing question why the PAP government would choose to set up so many funds.  At 31 March 2011, the following funds had been set up in addition to the Consolidated Fund, the Development Fund and the Government Securities Fund:

Developmental Investment Fund

Pension Fund

Saver-Premium Fund


Edusave Endowment Fund

Lifelong Learning Endowment Fund

Medical Endowment Fund

Eldercare Fund

Community Care Endowment Fund

National Research Fund


Revolving Fund
Contingencies Fund

Development Contingencies Fund

While many of these funds were small their total size amounted to some $41 billion as of 31 March 2011. the setting up of funds is the preferred method of the PAP government even though a fund is not necessarily the best method for ensuring that the end user, the tax payer gets a better service in the case of SMRT or a better return on their tax dollar. Why is this the preferred method and why allocate such large sums to them from the current Budget?

I came up with some possible answers  (which I discuss in more detail below) and which explain why this article is entitled “Smoke and Mirrors in Government Accounting.”

  • 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 and 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.
  • 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 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. I will be publishing more on this shortly.

Smoke and Mirrors

Though the original intention was to talk about SMRT and public transport, and the appropriateness of subsidies, other more important issues soon came to the fore. I will publish my  SMRT’s results as a separate post after this one.

I have already highlighted the uniquely PAP practice of setting up new funds in every Budget.  The Bus Services Enhancement Fund was not the only fund set up in 2012.  Tharman also allocated $2.95 billion to the GST Voucher Fund and $2.35  billion  to the Special Employment Credit Fund. As stated above these allocations (including a $1 billion allocation to existing Endowments) almost exactly mirror the Net Investment Returns Contribution.

This is not new. I had already pointed this out when I wrote RP’s response to Budget 2012 . I said,

It is likely that the Finance Ministry chooses the Net Investment Returns Contribution carefully to ensure that the Overall Budget Balance is close to zero.

You can read it here. (

Every year the Finance Minister is required under Article 147 of the Constitution to present an audited statement of the assets and liabilities of Singapore at the close of the preceding financial year.  In the latest statement, showing assets and liabilities as at 31 March 2011, the total amount of money that had been allocated to special purpose funds amounted to $41 billion as mentioned. This huge sum was augmented by the $7 billion allocated in Budget 2012 taking the total to nearly $50 billion (less any amounts dispersed from the funds over the last year).

This violates the principle that government spending should be subject to Parliamentary oversight and approval since the Finance Minister alone approves the funds’ budgets and expenditure. Now, if the expenditure was coming from the Consolidated Fund or the Development Fund then it would be the subject of a Supply Bill which has to be approved by Parliament. This is required under Article 148 of the Constitution.

The setting up of a new fund is not subject to Article 148 and is a convenient way of circumventing this control.

However, new funds still have to be authorised by law, as required under the Constitution.  The legislation contains the requirement that the funds be audited and the accounts presented to Parliament. I have been unable to discover any mention in Hansard of the Finance Minister presenting audited accounts or reports for the National Research or the National Productivity Fund since inception. This is despite billions of dollars having been disbursed by both funds. Also, the Finance Minister has made regular fresh allocations to these funds from the Budget since they were set up.

I have also checked for some of the other funds. However, despite a legal requirement for the Finance Minster to present audited reports and accounts, I am unable to discover from the record when this has happened.  Therefore I am puzzled by Minister Lui Tuck Yew’s assertion in Parliament on 9th April 2012 that the Bus Services Enhancement Fund’s annual reports, like those of other government bodies, will be available to Parliament and public information.

An equally serious question is how these funds are invested.  On this point the legislation is vague, except to say that it is at the discretion of the Finance Minister. In the government’s annual statements of assets and liabilities the amounts allocated to the funds are shown as liabilities, but there is no specific earmarking of the funds’ assets on the asset side of the balance sheet. We have already touched on how the amount of money allocated to the funds for the last few years mirrors almost exactly the Net Investment Returns Contribution from Temasek, GIC and MAS. This would lead one to suspect that this is merely a bookkeeping exercise with the NIRC being matched by an equal and matching capital injection into either Temasek or GIC.

However if this is the case then this would appear to violate the Financial Procedures Act, which requires that any capital injection into a statutory corporation be by way of a capital contribution appropriated by Parliament from the Consolidated Fund by written law. This would not appear to have happened here.


 Given the lack of information and the deliberate evasion of Parliamentary scrutiny, it is impossible to say with any degree of certainty whether these funds are being channelled into Temasek and GIC or another statutory corporation or whether they are held as separate investments or part of the government’s cash holdings.

If the former is the case, it is impossible to know whether they are being used as a means of indirectly shoring up returns by preventing an outflow of funds. This might force our sovereign wealth funds to sell some of their less liquid holdings, thus putting pressure on valuations and revealing an even more parlous state of affairs than the government’s own figures already show.

As I said in my letter to IMF we are being deprived of an early warning system by the PAP’s insistence on secrecy and failure to follow IMF procedure.

Any similarity to the way some of the more famous Ponzi schemes have unravelled is entirely coincidental. If I was a forensic investigator looking at a a private hedge fund or investment company I would be extremely worried. Just as I did with the IMF loan, acting as a private citizen, I will continue to press the government for transparency and accountability with the limited means at my disposal.

As my readers may know from a small portion of the correspondence that I have published, getting at the statistics takes a lot of time and repeated attempts. If anyone is abe to help by pointing to the relevant information, such as the reports which I have been unable to find, then  I would be extremely grateful.

I hope that my upcoming IMF case will at least provide a clear-cut answer as to who has the power over our monies and finally give us an answer as to what the President is actually good for?

Still Citizens themselves  need to actively keep the pressure on the government to follow the proper constitutional process and rule of law and see that the executive is accountable to Parliament. We have seen recently that the PM has unfettered discretion when it comes to calling by elections. Should we also allow a system that allows the minister of Finance unfettered discretion when it comes to spending our hard-earned monies?

The PAP government has yet to make a case as to why secrecy and lack of information benefits Singaporeans. Norway for example is a model of transparency with regards to its own sovereign wealth funds. At the moment secrecy only seems to benefit the PAP not the citizen.


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