THE Government has moved to amend the Constitution to change the framework it uses for spending Singapore's reserves.

The change will potentially release more reserves for Government spending, a move which is necessary to meet the growing demands on its purse over the medium to long-term.

More expenditure is needed in the area of social support to tackle the problems of an aging population and the growing income gap. The Government also needs to invest in projects to sharpen Singapore's competitiveness. These are in the areas of education, continuing education and transport infrastructure, for example.

The current system allows the Government to spend up to 50 per cent of its net investment income every year. This income is actual interest and dividend income, after deducting costs of paying off debt. The rest has to be saved.

The proposed change allows the Government to base spending on the total returns it earns, including capital gains and losses. This means including not just interest and dividends, but also the gains and losses in the value of its investments.

The returns will also factor in a long-term rate of return and be adjusted for inflation. The 50 per cent spending cap is still in place.

This approach is similar to that being used by universities around the world to provide for long-term investment and a smooth source of income for annual spending.