What will Singapore do with its NIRC?

‘NIRC’ – it’s a uniquely Singaporean economic abbreviation that stands for net investment returns contribution…

The total size of Singapore’s total reserves is a state secret, but estimates by most analysts put it at well above S$500 billion (US$370 billion)…

The Temasek Holdings chief executive wrote about how returns from the firm she leads, as well as GIC Private Limited, and the foreign reserves held by the central bank were the “single largest contributor” to the Singapore budget.

“Without tapping on the dividends or returns from GIC, [the Monetary Authority of Singapore], and Temasek, the government would have had to raise taxes long ago for social spending,” Ho wrote.

Without the NIRC, the Pioneer Generation Package – a S$9 billion programme unveiled in 2014 to help cover the health care costs of citizens born before 1949 – would probably have been funded by “higher taxes or cuts to other essential programmes”, according to Ho.

Here is the full story, via a loyal MR reader.  If you wish to understand Singapore’s relatively low rates of taxation, you also need to understand NIRC.  Here is my earlier post Singapore as financial corporation.


What is stopping America from having sovereign wealth funds like Singapore or Norway or the Gulf states? I agree that this is a great way to fund government and lower the tax burden. This must be attractive across the political spectrum, left and right, but don't hear much about it as a potential option.

The US would have to accumulate funds to create a sovereign wealth fund. Whenever that happens, Republicans and conservatives in general demand tax cuts to "return the money to the taxpayers where it belongs".

+1. Sovereign wealth funds are the way to go. Trump wanted a one time wealth tax in the 90s to pay off the national debt. This might be a better idea since at least in Singapore's case you get annual recurring dividends rather than a one time thing. It also opens up access to the broader world of investing that the average taxpayer couldn't normally participate in like private equity, hedge funds, venture capital, etc.

"Sovereign wealth funds" are only worthwhile in high-trust societies.

Making the United States a high trust society is, I guess, a worthwhile goal.

Creating sovereign wealth funds in societies that are not high trust societies is at best futile.

Are Gulf states high trust societies? If we can't do this at the national because red and blue states don't see eye to eye, then we need the states to look into it. In California, Newsom wants tech companies to cough up more cash come tax time. California instead should invest in these companies with a wealth fund and earn cash through capital appreciation and dividends. A lot of wealth is created in their own backyard but taxes are like killing the goose for a one time meal while dividends/cap gains are like keeping the goose alive to harvest a stream of golden eggs. The state will get its money but how you get it matters.

There are lots of counties in the USA that can be considered high trust societies, at the county level, but if one of those counties really prospers from a sovereign wealth fund, people will move in and take advantage, won't they?

Consider the Mormon counties of Utah, or Martha's Vineyard.

Or consider Elizabeth Warren's oft-expressed desire to move to a place where casino revenues are high! Or the barely disguised nostalgia for redlining we see in places like Chappaqua or Silicon Valley ....

Norway, the Gulf States, and Alaska get the money for such funds from oil and gas. Screw the Green Raw Deal: Drill, baby, drill!

Venezuela got its money from oil and gas and so did the old Soviet Union but Drill baby drill didn't work for them. DBD has never worked everywhere it has been tried. It is a failed totalitarian ideology that has caused so much death and human suffering.

Alaska has a sovereign fund that's quoted by politicians and the media. But, there are others:

Texas Permanent University Fund (PUF) is around 22 billion and gives ~1 billion to the state's universities each year, it's wealth started with land grants....which had oil below them =) Texas has a second sovereign fund (less famous) for primary education worth more than 35 billion dating from 1854. Wyoming has 7 billion sovereign fund from mineral taxes. New Mexico has a fund worth 20+ billion from oil & gas taxes. After 150+ years of oil history, West Virginia started a sovereign fund on 2014. Better late than never. https://www.swfinstitute.org/sovereign-wealth-fund-rankings/

There are also examples of funds that don't work: FEMA gets 3.5+ billion yearly of insurance premiums and anyway loses money.

So, why not look at history before commenting?

That just further confirms the point that historically most sovereign wealth funds have relied on resource extraction industries (primarily oil and gas) as the source of revenue and therefore would raise hackles among environmentalists (even assuming a federal one would be administered well).

Today's topic is Singapore which doesn't have much of resource extraction industry and yet is able to generate so much surplus. This is something everybody should be looking at. I imagine most people want both lower taxes and public surpluses.

What are the benefits of having a sovereign wealth fund vs privately owned funds? I know I would rather have the money in my bank account or personal pension fund rather than in some Government managed central fund. Maybe the Singapore or Norwegian governments are more trustworthy than some, but it still seems a hell of a risk to me. If I don't like the fund manager of my private fund, I can change them. Try that with the Government.

I think CalPERS owns a fairly significant chunk of America's commercial real estate.

It owns my neighborhood strip center. I learned this only because I was trying to figure out whom to contact about the sad state of the landscaping. The management company actually complied, or close enough. Hey, thanks, California taxpayers!

Let me tell you a short story. In the late 1960s, Chile's President EF was persuaded to save the windfall gain from the large increase in the price of copper caused by the Vietnam War. In 1971-72, Chile's new President SA spent all the savings. After SA was thrown out of power in 9-11-1973, EF questioned those that persuaded him not to spend the savings because by then he believed that his party could have won the 9-4-1970 election by spending the windfall gain (I think he was right).

I bet that in the next 2000 years, no U.S. federal government will save any windfall gain or use it to reduce the stock of debt. Americans will continue discussing how much to rely on debt to finance an increasing level of federal spending.

Maybe you can find examples of savings of windfall gains at the local level of government, but hardly at the state level.

Texas has both a Permanennt School Fund and a Permanent University Fund, both established in the 1800’s.

Very interesting. I see that it disbursed about $2.5 billion to support schools last year. That's fairly small in comparison to total TX public school education spending of nearly $50 billion, but not a bad supplement.

You mean the fund that bought real estate as speculation instead of building university campuses, eg class rooms, labs, libraries, dorms, nor invested in productive human capital of scholarships for Texas citizens?

"I bet that in the next 2000 years, no U.S. federal government will ..."

I'm not sure it'll last another hundred years.

"What will Singapore do with its NIRC?"

Among other things, it will help finance a Bicentenniel Bonus of $1.1 billion in payouts to the elderly and lower income. See:

Perhaps less financial corpororation than standard vote-buying establishment.

The Goods and Services Tax is the real lesson for the USA here. No deadweight loss from accounting games allowing Amazon to pay $0 federal tax. Instead, an across the board value-added tax. But no chance of that as long as the corrupt entrenched interests so capably catered to by the US political system are able to pile up more debt on future generations.

And props to Singapore too for intelligently managing immigration: https://www.straitstimes.com/singapore/singapore-budget-2019-lower-foreign-worker-quota-in-services-sector-continued-support-for

It is amazing what a country can accomplish when it chooses to act in the interests of its citizens instead of spew platitudinous garbage to promote low wages and high unemployment.

The VAT aka GST is the corporate income tax which lowers the rate and eliminates the biggest tax dodge of every business: paying workers wages and benefits.

Free lunch political economists latch onto ideas and then implement only the "benefit": the lower rate, but not the "cost": eliminating the tax dodge of deducting labor costs.

What is worse, they then change the rules on tax dodges, giving tax credits at higher tax rates in order to restore the benefit of high tax rates on reducing costs. Ie, with a tax rate of 50%, paying workers more means the IRS pays 50% - the way Milton Friiedman described in in the 60s.

Lower the rate to 21%, and paying workers more means the IRS pays only 21%, UNLESS YOU CREATE A REFUNDABLE TAX CREDIT OF 25% OR MORE. Now the IRS is paying 46% of the cost of paying workers more. Limit these tax credits to things that benefit a large firm over the long term, say building a big factory, and now the small business that rents gets screwed into paying more for workers while getting less in public services like good transportation and well educated workers.

"Sovereign wealth funds", especially funded from general taxation, which is the case when they are funded from government surplus, seem really un-Libertarian. Effectively accepting them is stating that private citizens can't, or won't, invest that income equally or more productively. That central planning is OK, when it comes to investment.

In the same respect, sovereign wealth funds should be a cause for anger, since they represent forgone opportunities for private investment.

File under "Another example of the surprisingly un-Libertarian statist authoritarian political economy of Singapore"?

Forced saving for state-party control of the economy and exchange rate manipulation.

Singapore cracked down on labor unions and radicals in the 1960s. They like to make money.

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