Singapore Media Watch

Thursday, November 30, 2006

Your Views: NNI to include unrealised loss (eg Shin Corp?) - Straits Times (29 Nov 2006) - Govt hasn't decided if GST hike will be in phases

The above quotes are taken from The Straits Times of 29 Nov 2006, "Govt hasn't decided if GST hike will be in phases".

While well intended to give the incumbent government more options to dip into the reserves, a poorly-defined change to the Constitution to allow only realised capital gains from past reserves can be a double-edged sword.

Let me illustrate: Take the example of the government's investments in Shin Corp via Temasek Holdings. If the government takes a prudent approach to mark-to-market the unrealised loss on the investment (probably in the billions now), such a conservative approach will give a better picture of the true "Net" Capital gain/loss position (including unrealised loss) of its investments.

However, if the government chose to take only the realised gains into the equation, this will mask the "true" net position since theoretically, the incumbent government can (and will) defer divesting the loss-making investments in order to dip into the reserves.

Therefore, to prevent a situation where a "rogue" government in the future can take full advantage of the above scenario in order to circumvent the loopholes, may I suggest any redefinition of "Net Investment Income" to include mark-to-market unrealised loss on investments in addition to realised capital gains.

(Note: It is ironic that the incumbent government is trying to tweek the Constitution to allow it to have wider scope to dip into the reserves (the people's money) by redefining the Net Investment Income while at the same time, it does not allow the citizens (CPF members) to dip into the capital gains on their CPF investments for withdrawal - they can't touch their very own money!!!)

As an aside, I find SM Goh's comments "We don't try to mislead the people" amusing. Wouldn't it have been even more upfront if this initiative to help the lower-income group (the justification for the GST hike) were part of the PAP's manifesto and was made an election issue? Surely such a noble gesture would have gone down well with the electorate? No?



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