Why It Matters

Budget + NIR = Not In Red

As widely expected, Finance Minister Heng Swee Keat delivered a Budget on Thursday that was prudent and focused on Singapore's future while meeting some of the short-term needs of companies and households today.

But there was one part of the Budget that took analysts by surprise - the net investment returns (NIR) contribution jumped a striking 48.6 per cent this year to $14.7 billion, from $9.9 billion last year.

The NIR framework allows the Government to spend up to half of the long-term expected real returns from the GIC, Monetary Authority of Singapore and, from this year, Temasek Holdings.

The bumper NIR contribution helped push the Budget into the black, with a surplus of $3.45 billion projected for this year. Analysts say it is unlikely the entire $4.8 billion rise in NIR contribution is due to Temasek's inclusion alone. However, it is clear Temasek was a big boost, and its inclusion in the NIR framework was a move that ultimately allowed the Government to spend more while still being prudent.

"I think what is interesting is that this big increase in the NIR contribution is likely the reason why the Government is confident about increasing expenditure by 7.3 per cent and increasing the primary deficit from $4.25 billion to almost $5 billion," said DBS economist Irvin Seah.

Mr Seah expects the NIR contribution to remain in double-digit territory, which will be a boon as spending will rise to support an ageing society and widen the social safety net as Singapore's economy restructures. CIMB economist Song Seng Wun said the healthy NIR contribution means the Government will not have to take unpopular steps, such as raising the goods and services tax or income tax, to meet these spending needs - or at least not so soon.

In order to maintain a balanced Budget long into the future, the only way is still to spend and invest wisely, they noted.

"We have to be careful (that) spending leads to activities that generate returns. The new Jurong Innovation District, for example, will hopefully lead to economic growth and revenue," said Mr Song.

A version of this article appeared in the print edition of The Straits Times on March 26, 2016, with the headline 'Budget + NIR = Not In Red'. Print Edition | Subscribe