TR EMERITUS

Matters of national concerns arising from new or amendments to legislation draw no comments from the Law Society. The general medical community stays absolutely silent on serious concerns over mRNA vaccines. Zero input from the Society of Accountants to the conundrum of our reserves is no surprise. The apathy of people in leadership roles in relevant professions in Singapore is a crying shame. It is testament to the veracity of my old blog on kiassu, kiassi, bo-chup. Indomitable opposition MP Leong Mun Wai had spoken recently in parliament on the high cost of public housing in which land cost is the underlying factor. Leong's argument was the government sells land at market value thus making significant gains in reserves, and since the state already has a reputedly high reserve, public housing cost can be lowered with land sales at below market prices. The 2nd Minister of National Development M/s Indranee Rajah responded thus: “When we sell State Land, we convert the physical asset into a financial asset. For example, if we sell a parcel of State Land at its fair market value of, say, S$1 million, we no longer have the land for the term of the lease sold, but we have S$1 million. There is no net increase in the reserves. We have merely changed the physical land in our reserves into a distributed amount of financial reserves. There is no new value created and hence no addition to the reserves.” This legal-economic obfuscatory statement to an accounting issue is now template explanation in various government websites. Never mind that it goes against the grain of every ordinary person's understanding of changes in asset values. Obviously, the intricacy of government accounting has a lot to do with this. Should we walk quietly into the financial hell of astronomical HDB prices in accepting this anguished verbiage, or do we try to understand what it is all about? Let's look at simple accounting 101 Supposing a plot of land is bought for $1m. It was sold 5 years later for $2.5m, netting a profit of $1.5m. Government accounting is on a cash basis, thus recognition of the net profit is upon sales of the land. Reserves is the net unencumbered assets. Thus in year 1 where assets-liabilities = 0, there was no reserves. Upon sales, it is irrefutable wealth has increased by $1.5m. This is so fundamentally simple I am insulting readers' intelligence with the above chart. In magic tricks, the performer uses what is known as the Art of Misdirection. It is a deception to get the audience to focus on something else so they miss out on the mechanism of the actual trick. In reference to the chart above, Minister Indranee attracts your attention to the left, the Assets. Like all good magicians, she fills your mind with irrelevant details to retain your attention on the deception. She tells you it is purely a monetisation of land, changing one form of asset to another. And so she talks of land as non-earning assets and cash as financial earning assets. For good measure, she screws your brain with term of leases. By then, brain fog would have gotten hold as you go thinking of 99 year HDB leases which she did not even have to bring up. Meanwhile, you are missing out on the right hand side and see the increase in wealth of $1.5m. Indranee's explanation in parliament was either a verbal magic trick or mis-information. Land acquisition and land reclamation by the government is funded by past reserves. To this extent, Indranee's explanation about changing reserves from one form to another without increase in reserves is absolutely correct, but only in respect of year 1, the year of acquisition, not sales. A financial asset ($1m of cash from past reserves) is changed to land (investment). There was no change in reserves, thus I assume presidential consent was not necessary in year 1. The more discerned readers would surely be asking where is the cash coming from when past reserves fund some payments, such as land acquisition, land reclamation and pandemic aid packages? To explain this, I refer to my old chart on government cash inflows and outflows. Regular readers should be familiar with this chart by now. The operating revenue cash inflow (from taxes, duties, fees, fines, rental, NIRC from SWF. part of earnings from MAS) all goes into the Consolidated Fund to meet the government's fiscal obligations. Using past reserves to pay non-fiscal disbursements, the transactions are not routed through the Consolidated Fund. The government simply pays out from the cash account at MAS. So for the land acquisition in year 1, there is no change in the net value of assets. In the government Statement of Assets and Liabilities, there are only 2 asset types -- Cash and Investments. So cash goes down by $1m and Investments increase by $1m. A change from a financial asset to land. No net change in reserves. On disposal of the land in year 5, Cash goes up $2.5m, investments down $1m as the land has been sold, making a net asset increase of $1.5m. This should be matched by $1.5m on the liabilities side in one of the fund accounts, representing the profit on the land sales, in other words, the increase in reserves. I am not certain which funds account it ended up with. My guess is The Development Fund. I am not quite sure if Indranee said this, but a Petir (PAP newsletter) article in relation to this subject matter, stated : "The land will not do much for Singaporeans when it’s just left unsold. But converted into liquid cash at fair market value, it helps appreciate Singapore’s reserves indirectly and eventually for the next generation." This could be referring to the fact that proceeds of the sales are invested by GIC which provides investment returns in the form of NIRC to help fund the national budget. It could also mean when converting to liquid cash, or sales, at market value, it appreciates the reserves, meaning, it increases the reserves. Take it which way you want. This here is a bit off track, but I cannot help resist a little tale to add spice in connection with the Petir quote "... "land will not do much for Singaporeans when it’s just left unsold". SLA is the agency that manages some of the government properties as well as the sales of state land, amongst other functions. Some state land is left for temporary use, managed by SLA. Readers may remember a large plot of fantastic land in the Dempsey Road area. In deference to ONE very important gentleman who likes to jog in the area, the plot has been left undeveloped for decades. So a small community of quaint little shops prospered there and were left undisturbed by officialdom as there was no development plan. By and by, SOMEONE UNKNOWN came along with new ideas for the land. Not a full land development, but just to spruce up the area. Whose idea, we don't know. The agency concerned started talking to existing shop owners who were all sub-tenants. As compensation is an issue, a brouhaha ensued as it became clear no one knew who was the MASTER TENANT, and the government had no master tenancy agreement with anyone. Those in the know knew the master-tenant is the brother of another VIP. Eventually the area was tendered out which was not won by the highest bidder, but by someone with a lower bid. The reason was the winner had a better proposal, ahem. And the winner is a well-know VIP who is the wife of another VIP, someone who likes vroom-vroom, hint, hint. So unsold land can and do help earn some returns for the benefit of Singaporeans. Sometimes, we wonder which Singaporean.     * Article first appeared on Down The Rabbit Hole.      Read More →

I make these suggestions to introduce "common prosperity" in Singapore. 1. Provide an adequate wage for every worker that is sufficient to meet the cost of living. The wage should be guided by national statistics of the supply, demand and average wage for each job category. The wages should not be depressed by unrestricted entry of foreign workers from low cost countries. 2. Keep the cost of living low, by removing levies, GST and price gouging by suppliers. 3. Make education, health care and housing affordable to the average income earners. 4. Encourage people to save for the future and provide them with suitable non-speculative investments that offer a fair rate of return. They should get a better return than that offered by private banks or asset managers (who take off a large part of the returns). 5. Adjust the working hours according to the economic cycle to minimize unemployment and allow those who are unemployed to withdraw their retirement savings or access low cost government loans. This is in lieu of providing unemployment benefit. 6. Create suitable employment opportunities for every person who is fit to work until an advanced age, say 75 years. Allow the older workers to work for fewer hours and in non-strenuous jobs. 7. Manage the supply of housing to keep the prices in line with increase in median income, and avoid the excessive prices due to speculation. 8. Encourage a free market for small business, but keep large businesses under public ownership, e.g. energy, infrastructure, telecommunications, public transport, schools and hospitals. The capital cost can be funded by national savings and the operating cost by user fees. 9. Have a fair tax regime to collect tax on high incomes and luxury purchases. I will elaborate more on this topic in separate articles.   Tan Kin Lian      Read More →

It’s now a matter of hours before 2022 comes to a close and we start on a New Year. Everyone is going to be singing Auld Lang Syne and making all sorts of New Year resolutions that will probably not be kept: After the singing and partying to welcome the new year, many people around the world are going to be worrying about the issues that came up in 2022 and are likely to carry on into 2023. Things like the rising cost of living and inflation are going to be issues that all of us need to deal with in addition to the fact that Covid has not gone. Since I work in the insolvency business, these pains that everyone else is facing, look like positive signs. Business should boom for us in the “scavenger” section of the global economy as government support for the global economy during the pandemic period dries up. In a way, this is what you call a necessary cleansing where you find out which companies were actually run properly and which ones were engaging in “interesting” practices to keep afloat. So, how would someone like me look at 2023 based on what happened in 2022? For me, the most hopeful signs for anything were from the world of sport, specifically the retirement of Roger Federer and the death of Pele. Both Mr. Federer and Pele were living examples of what greatness should be about. They were great artist in their fields and at the same time decent people who earned the admiration of competitors. They were honoured as people who made other people better. Why is this significant? The thing is, the years before 2022 were about “anger,” and people wanting to stick the proverbial middle finger at the world. We had leaders like Trump in the USA and Bolsonaro in Brazil who thrived on the politics of divisiveness. It was “cool” to blame someone else for your problems and wanting to put other people in their place had been a growing fashion. I think of people in Asia who actually liked Trump for being “tough on those black people” for rioting but being perfectly happy with the January 6 sacking of Capital Hill as the people wanting to stand up for their country. Well, while there’s plenty to be angry about, the politics of divisiveness have been not very good at solving problems and people do want to approach the future with some sense of optimism. Sure, there are signs of despair in the world. The Russians don’t seem likely to leave the Ukraine anytime soon. A right-wing government bent on stealing land has come to power in Israel. However, there are signs of optimism. In America, the “red wave” turned out to be a “red puddle” and many of the more extreme Maga candidates were rejected at the polls. The most optimistic sign was perhaps in Malaysia, where long time opposition leader, Anwar Ibrahim finally became Malaysia’s Prime Minister. Whilst these are early days, Mr. Anwar has made man of the right noises about leading with honesty and integrity. As a Singaporean, I am actually praying for Malaysia to enter a good phase under Anwar. Call me naïve if you like but I’ve always believed that you can only achieve peace and stability when your neighbours achieve the same. A prosperous Malaysia governed by decency can only be good for Singapore. I grew up in the 1990s in Europe, where nobody was able to imagine a war breaking out in Western Europe and Western Europe had the highest standard of living in the world. However, a generation ago, nobody could conceive of peace in Western Europe. Sure, Putin’s invasion of Ukraine has shocked many Europeans out of the complacency that comfort and success brings. However, getting the French and Germans to work together for greater prosperity has ensured that any future world war will not start in the heart of Europe. So, if the Europeans can work together, why can’t we in Asia do the same. If Singapore can play a pivotal role in making Malaysia succeed, we will too will succeed. On an individual level, I look forward to looking for new horizons. I was fortunate enough to rekindle trying to build new connections that were placed on hold because of the pandemic. There are possibilities to play a small and insignificant role in making life for those who touch my life, a little better, which I believe can only be good for me.   Tang Li *Although I’ve been based mainly in Singapore for nearly two decades, I’ve had the privilege of being able meet people who have crossed borders and cultures. I’ve befriended ministers and ambassadors and worked on projects involving a former head of state. Yet, at the same time, I’ve had the privilege of befriending migrant labourers and former convicts. All of them have a story to tell. All of them add to the fabric of life. I hope to express the stories that inspire us to create life as it should be.      Read More →