A PROPOSED law will increase the Government's revenue by slightly more than 2 per cent of Singapore's Gross Domestic Product (GDP) each year.

Finance Minister Tharman Shanmugaratnam disclosed this in Parliament on Monday when making the case for changes to the Constitution, to let the Government spend more of the returns from investing the country's reserves.

Mr Tharman did not give a dollar figure for how much more funds the change would yield. But based on last year's GDP of $243 billion, the new rule will add at least $4.86 billion to the Budget.

The change aims to strike a balance between present needs and the needs of future generations, he said.

The money will be used to improve schools and universities as well as enhance worker education and training.

It will also come in handy for upgrading transport infrastructure, meeting higher healthcare costs as the population ages, and helping to bridge the widening income gap.

Currently, the Government can only spend up to half of the investment income on the reserves, from interest and dividends paid out each year. These make up only a small portion of total investment returns.

The change will see a new framework employing the concept of Net Investment Returns, which includes capital gains - that is, the change in the value of investments as prices rise.

It will also be based on long-term expected returns over 20 years, and take into account the effect of inflation.

But to ensure the reserves continue to grow, spending will be capped at 50 per cent of the Net Investment Returns.