Why is WP’s proposal to use land sale proceeds a raid on the reserves while using the NIRC is not?

why is wp proposal to use land sale proceeds a raid on the reserves while using the nirc is not

In an exchange on Facebook with Richard Weng, WP Leon Perera asked why the WP’s proposal on using land sale proceeds is considered a raid on the reserves while the Government’s use of NIRC for budget spending is not. 

The answer to this question is simple and straightforward.

The principle of prudence demands that before you spend, you must first create the wealth for spending. 

Why? Because if you borrow to spend, you have a debt to repay. If you spend from your savings, your savings will eventually be depleted.

The reserves are our savings. And land is part of our past reserves
When land is sold, no new wealth is created. 
The sale of land merely converts the physical asset to a financial asset. You understand that when you pawn your gold ring, you merely convert it to cash.
The land is disposed, and in its place, the proceeds. The ring is gone, and in its place a sum of money.

What does the Government do with the proceeds?

They reinvest the proceeds to create new wealth through investments returns.
They spend from the new wealth thus generated through the Net Investment Returns Contribution (NIRC).
Importantly, the land sale proceeds remain as a financial asset in the reserves, and provide a continual stream of income for our budget over time.

What is the WP's approach?

The WP proposed to spend the proceeds from the sale of land.

What's the difference?

In the Government’s approach, land remain as a financial asset in the reserves that continues to generate new income.

In the WP’s proposal, land is disposed and the money spent, and we end up with fewer assets in reserves to generate future income.

Simply put, the Government spends from the returns (new wealth) generated through investment. 

The WP proposed to spend from reserves/savings. There is no wealth creation from land sales. There is only spending. And that’s a raid.

Over time, this shrinks the reserves.


On Key

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