DEBATE ON ANNUAL BUDGET STATEMENT

ANNUAL BUDGET STATEMENT: Order read for Resumption of Debate on Question [18th February, 2011],

"That Parliament approves the financial policy of the Government for the financial year 1st April, 2011 to 31st March, 2012." - [Minister for Finance].

Question again proposed.

Ms Sylvia Lim (Non-Constituency Member): Mr Speaker, Sir, one of the aims of this Budget is to foster social cohesion and to build an inclusive society.

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The term "inclusive society" has different meanings to different people. One important aspect of an inclusive society is that it should be one that integrates people with different physical and mental abilities into the mainstream.

By this yardstick, our society still has some way to go to qualify as inclusive.

This Budget does provide for a continuation of MCYS' programmes for the elderly and disabled and gives some support to special education (SPED) schools and students. I note that the Ministry of Education has also committed some money for the development of three SPED schools. However, to be truly inclusive, Singapore needs to commit rules and resources towards integrating persons with disabilities in a much more holistic way.

The Government recently submitted a report to the United Nations. The UN Human Rights Council has a process called the Universal Periodic Review which examines the human rights record of each UN member. This year is our turn and the Government submitted its National Report as part of that process.

In the National Report, the Government mentioned that it was considering signing four international human rights treaties, including the Convention on the Rights of Persons with Disabilities (CRPD). It also said that Singapore is "actively studying the provisions of the CRPD".

While some may see this as progress, we are actually laggards. We have not yet signed the Convention when 147 countries have already signed it, including all our ASEAN neighbours except Myanmar.As mentioned in the Budget Statement, social cohesion "cannot simply

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be left to market forces". All the more for persons with disabilities who usually have little bargaining power – there is a need for special protection to safeguard their rights and quality of life.

A look at the CRPD will reveal that Singapore falls short in several areas by international benchmarks. I will highlight just a few.

Article 7 of the Convention requires countries to take all necessary measures to ensure that children with disabilities have full enjoyment of all human rights on fundamental freedoms on an equal basis with other children. Article 24 recognises the right to education, including lifelong learning, and expressly prohibits excluding children from compulsory education on the basis of disability.

Currently, our Compulsory Education Act ensures that every child attends at least six years of primary school. However, the subsidiary legislations specifically exempt children with physical or intellectual disabilities from compulsory education. While this may have been gazetted for practical reasons, seen from the Convention's standpoint, it is a form of discrimination. The current situation is that special needs children in Singapore are not enjoying the same legal rights to education as other children.

It is largely left to voluntary welfare organisations to educate special needs children. The Government provides some subsidies, but parents of special needs children still bear a much heavier financial burden than other parents. Apart from the additional expenses parents will spend associated with the child, school fees are means-tested, unlike in the mainstream schools.

Early intervention is critical for special needs children to mitigate the effects of their disabilities but there are waiting lists

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for schools and therapies, suggesting a resource issue and losing precious time from the child's formative years.

If Singapore were to sign up to the Convention, investments will be needed to ensure that children with disabilities enjoyed similar educational rights.

Sir, Article 9 of the Convention provides that States shall take measures to ensure that persons with disabilities have access to the physical environment, to transportation, to communications, electronic services and other facilities on an equal basis with others.

We have made significant progress in implementing barrier-free accessibility. However, this does not apply to older buildings so many remain inaccessible to persons with disabilities. The public transportation system is also not yet completely barrier-free. For example, it is expected that buses will be completely wheelchair-friendly only by 2020. In addition, disabled persons should have a concessionary travel rate, just like students and seniors. Most importantly, how easily can a person with disabilities access public information? To what extent are e-Government initiatives disabled-friendly?

The Singapore Institute of International Affairs noted in a recent report that Singapore does not have comprehensive disability legislation aimed at moving away from viewing persons with disabilities as "objects" of charity and towards viewing them as "subjects" with rights and capable of inactive members of society (SIIA UPR submission 2011).

If we are seriously considering signing to the CRPD, the appropriate investments will need to be made. Recently, I came across cases of disabled adults being left at home due to lack of further education opportunities after they turn 18 years old,

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or the inability to afford daycare activity services.

There is still much more that can be done by the Government in this area. This aspect must not be forgotten if we are to achieve the vision mentioned in the Budget Statement – a truly inclusive society "where everyone can contribute and share in a nation's progress".

12.08 pm

Ms Indranee Rajah (Tanjong Pagar): Mr Speaker, Sir, thank you for allowing me to participate in this debate.

The two issues which are currently very much on people's minds are inflation and income disparity.

It is not within our power to stop inflation. Inflation has come to our shores because of world weather conditions and other natural disasters that have affected the world's food supply. The situation that is now playing up in the Middle East has inevitably affected the supply of oil, which in turn has had a knock-on effect, driving oil prices up.

Importing everything as we do, we are particularly vulnerable and susceptible to fluctuations in prices of food, commodities, fuel and our other necessities. We cannot stop inflation from coming to our shores. But the real issue is what we can do to help Singaporeans cope with it.

The Government's strategy for dealing with inflation is to grow real incomes for all Singaporeans. If costs go up but incomes stay the same, then we will be unable to cope. But if costs go up but real incomes also go up, then it is manageable. So, for example, if a household's expenditure goes up by $100, but the monthly salary also goes up by $100, then they will still be alright but not otherwise. Our strategy therefore is to try and ensure that increase in costs is matched by a corresponding increase in

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real incomes so that the differential between the two is maintained.

I agree with the strategy. I noted from the Minister's speech that for Singaporean households at the 20th percentile of incomes, real incomes went up by about 8% over the decade, not taking into account transfers from the Government. For median household, real incomes grew by 21% over the last decade. We have now set ourselves a target to raise real incomes by 30% over this coming decade. In order to do that, we have to achieve 3% – 5% economic growth and improve our productivity by 30% over the next 10 years. Can we do it?

It seems that every year, and every decade, we set the bar higher and higher for ourselves. Yesterday, the Deputy Prime Minister, Mr Teo Chee Hean, talked about productivity, in terms of brisk walking, rather than a marathon race. But when we see these targets that we set for ourselves, sometimes, it seems to me that we are doing the high jump but we should be aiming for pole vaulting. Can we pole vault? I think the answer is, "yes".

It is instructive if we pause and take stock of what we have achieved over the last decade. I still recall when I first became an MP after the 2001 elections – some of us may be old enough to remember this. This was just after the September 11 terrorist attack. Overnight, everything changed. The world was then rapidly sliding into a recession in the aftermath of the September 11 attacks. The travel industry was severely hit. Unemployment was up. The general feeling at that time in the business circles was that Singapore was not competitive enough – too much red tape in setting up a business; the financial sector said that we were too heavily regulated. With the

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spectre of recession at our back, we had to find new ways to grow the economy. Does that sound familiar? It should because it was the same challenge we were facing 10 years ago. The Government sent out a call to Singaporeans to be more entrepreneurial. We were looking for new ways to climb up the value chain because we were losing out to manufacturing in China which could provide labour at a much lower cost than Singapore. India had just become the outsourcing capital of the world and we were grappling with how to deal with the twin challenges posed by India and China. Singapore was not considered to be a "happening" place. The "happening" place at that time was Lan Kwai Fung in Hong Kong. Nightlife in Singapore was boring. Pubs and night spots could not open beyond midnight, or just past midnight. There was no barrier-free access at the MRTs or the HDB heartlands. And the arts was still regarded as a poor cousin to the sciences with people bemoaning the lack of a vibrant arts scene in Singapore. And there was a quota limiting the number of women who could study medicine at NUS. There was no five-day workweek. National Service (NS) was still at two-and-a-half years.

Ten years on, where are we? We went through three recessions, starting with 2001 with September 11, followed by the SARS crisis in 2003 and the global financial crisis in 2009. We came through each and every one of those with flying colours. We had the Economic Restructuring Committee, the Remaking Singapore Committee and no sacred cows! In that decade, we grew our economy, gave CDCs the task of providing job assistance, reduced red tape in setting up business, found ways to engage China and India through mutual benefit and advantage, got NEWater, found new high value-added services, launched the world's first night-time Formula One race, installed Singapore Flyer, built the IRs, transformed Marina Bay, redeveloped Sentosa. We are now a

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"happening" night place. People come to Singapore to party here, there is barrier-free access, no more quota on our women medical students, Singapore women had conquered Everest, Orchard Road has been rejuvenated, NS is down to two years and a 3G SAF, introduced ComCare, Workfare – the list goes on.

In 10 years, so much has changed. The question is: can we do it in the next 10 years to come? And I think the answer is, "yes". We started the last decade with a whole host of challenges which we surmounted. We surmounted them with the PAP Government at the helm, and we transformed ourselves.

We are now at the brink of another decade, looking at another set of challenges, asking ourselves: can we transform ourselves? And the answer is "yes".

That brings us back to our strategy for dealing with inflation which is to grow real incomes. I think this is the right strategy, and I think we are going in the right direction. What I am concerned about, though, is how we are to help those in the low-skilled, low-income group to achieve this. Because whilst we can talk in terms of raising productivity, business restructuring, skills upgrading, for this group, such discussions have little meaning for them. For them, it is a question of how to get enough money to get through each day of the week. As the growth in real income for the bottom 20th percentile was 8% in the last decade, what it means is that they were only able to cope because of Government transfers and financial assistance. And whilst subsidies and financial assistance are good things to help the lower income, that cannot and should not be the long-term solution. The long-term solution for them is to have real income growth, which means that they must be able to work and their work must have a real

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value so that it can attract a real and substantive salary.

I was thinking about the kind of strategy that we have for this group, and I think that we can have a more focused and targeted strategy for them. The typical profile of this group would be a young family, usually two or more children. Often, they are single-parent families, meaning the parent is either unwed or divorced and, often, they are single mothers.

For most of the parents in this group, pursuing further academic studies is not a realistic option. The mother does not go to work as she needs to look after the children. The father may work but getting him to go for skills upgrading is a challenge because he does not want to have the opportunity cost of spending the time to go for skills upgrading and not work and therefore lose out on his salary. He would rather have the short-term gain rather than to put in the long-term investment in skills training for the bigger gain at the end of the day.

So when you speak to them, you will find that the concept of having a strategy to grow real incomes is not something on their radar at all. They are more preoccupied with making ends meet day to day and have no long-term view of their future. We need to find a way to make this group part of the solution, and to have them aware of and involved in the strategy to grow real incomes.

So I think we need a more targeted, focused approach aimed at the children, the mothers and the fathers. Let us start with the children. A fundamental importance is early childhood education and getting the children into pre-school. But we can have more pre-schools or infant care and student care centres. I have feedback from my residents that they want to put their children into infant care or student care centres but there are not enough vacancies. The group which

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needs the most help is the low-income group. This group is most likely to be living in HDB rental flats, and they tend to be the ones having more children. They are also the ones where the mother is not free to work as she has to look after the children. They do not want to spend the money on transport to send the children to pre-school elsewhere.

If we want to raise the real incomes of the bottom 20th percentile, then we should invest more in building more infant care and childcare centres near to rental flats because that is the catchment area where the people who are likely to fall into that group live.

We should also help the children with tuition and other support programmes. I just want to share a little bit of experience of what we have done in my constituency. We have got what is called the WELL Programme – We Love Learning – and the whole idea about that programme is that it is supposed to encourage the children and give them a sense of self-confidence. We started as a reading programme. We now have a tuition programme. And I have one simple rule to my grassroots leaders and volunteers who help run this programme, which is that whatever we do for the children, it must be (1) fun; (2) educational, and the children must link the concept of learning with fun in their mind. The amount of effort put in by the grassroots leaders as well as the tutors – we work with MENDAKI as well as other self-help groups – has paid off. Because last year, out of the eight children in the programme who sat for their PSLE – these all come from low-income backgrounds – three of them failed their Mathematics and Science, two of them failed English in Primary 5 – six got into Express stream. You have to understand how remarkable that is when we consider that three of them failed in Primary 5. They were able

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to do this because of encouragement, support and, most importantly, because we believed in them and that gave them a sense of belief in themselves. So when Mr Sin Boon Ann talked about students in the better schools doing well and there being a gap, that may be true but it does not mean that the gap cannot be bridged. It can be bridged with help, effort, commitment and care.

I am glad to see that this Budget does reflect that because I was very heartened by the introduction of the Child Development Credit Scheme for all Singaporean children aged six and below as well as the enhanced Kindergarten Financial Assistance Scheme (KiFAS) and Centre-based Financial Assistance Scheme for Childcare (CFAC) schemes.

However, I think that we can do a little more to encourage the mothers to go to work. The reason often given by the mothers as to why they cannot work is that they have to look after the young children. In order to get round this problem and to encourage mothers to go to work and contribute to the family income, I suggest that the Government consider a scheme whereby a mother from a low-income family who goes back to work or who is on Workfare should get priority for her child in infant care or a student care centre. At the same time, we could consider additional subsidies (also contingent upon her working), to help pay for infant care and childcare fees. This would incentivise the mothers to go back to work and, at the same time, relieve them of their main concern which is who would look after the children when they work.

And for the fathers, the problem is slightly different. This is a typical example: a student came to see me. He wanted to go to ITE. I wrote for him, got a place in ITE, that was a year ago. Then at the end of last year, he came back to see me and asked for a place in ITE. I

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said, "What happened? I thought I had written the appeal for you." And he said that the family did not have enough money to cover the basic necessities, so the parents told him to go out and work and he gave up his place in ITE, which was very short-term thinking. So I made the appeal for him, secured funding for him to go to ITE and told him this time he should not give up that chance. But that kind of thinking is prevalent because of immediate short-term needs. I would suggest, therefore, that we consider a training subsidy or maintenance allowance that would allow the breadwinner to continue to provide for the family's basic needs whilst the breadwinner goes for skills upgrading.

With respect to the new Child Development Credit, I assume though that that is just for children of parents who are wed. In other words, it would not apply to illegitimate children. I would like to ask the Government to reconsider this. I appreciate and understand the underlying philosophy as to why they are not eligible, which is that the Government does not want to encourage or to be perceived to be encouraging people to have children out of wedlock. Ultimately, not extending this or some other form of help to illegitimate children who come from low-income families is self-defeating because that particular group is also the group that tends to have many children of single unwed parents. In fact, in one of my HDB rental flats, there is a single mother with six children. She is currently expecting her seventh child.

It is these children who are most likely to grow up with little or no education because the parents just cannot send them to school. And they are the ones likely to remain at the bottom 20th percentile, and they are the ones most likely not to experience real growth in their incomes.

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Just from a purely pragmatic and practical level, if we want to be able to grow incomes across the board at all levels, then we also need to start thinking in terms of what we can do to get children of unwed, single parents properly educated starting right from pre-school. If they do not get a good foundation, then they will be left behind.

Let me conclude by saying that this is a good Budget. It is a strategic and thoughtful Budget, and it is in the best interests of Singapore. I would call it a People's Budget.

With this, Sir, I support the Budget.

12.22 pm

Mr Yeo Guat Kwang (Aljunied): Mr Speaker, Sir, it seems that many Singaporeans look at the Budget as an angpow . This is understandable as everyone is concerned about the growing cost of living and the growing rate of inflation. But we also have to bear in mind that mere angpows or cash handouts are not a sustainable way to address growing economic pressures.

In fact, we already have in place numerous modes of relief that address both immediate and long-term needs for the low-income people. These include the Workfare Income Supplement, ComCare, and the various CDC-level assistance schemes plus many other forms of help that is in our "Many Helping Hands" approach.

To me, the most important and the great and best angpow we can hope for is, in fact, full employment, economic stability and the ability to grow our economic pie so that everyone can have a larger share. This is where the challenge lies – help Singaporeans from all income levels to improve their income levels through continued effort to increase their skills and productivity.

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I am pleased to note that this year's Budget continues to emphasise not mere handouts, but productivity and innovation for long-term sustainable growth and incomes. At the same time, the Budget has also made important outlays in social investments – catering for the elderly, the ageing population and other crucial social issues.

Sir, the Budget has done well to share the good things with all Singaporeans, especially the lower-income group. We must not forget the middle class, who continue to feel the pressures of inflation, but do not qualify for financial benefits and schemes that are aimed at the lower-income groups. We must therefore continue to support and reassure our middle-income professionals, managers, executives and technicians (PMETs) in the form of job stability, continued upgrading to enhance their employability, job enhancements and the Government's measures to continue to create more good jobs and give them opportunities to improve their livelihood. We must also reassure them that schemes are in place to alleviate some of the economic pressures they face. To this end, we must continue to strive for a "best wage for all". I welcome the enhanced training support for PMETs in the form of more places at Continuing Education and Training Centres as well as better subsidies for this group of people.

The recent report on incomes has revealed that the Gini coefficient – which measures the income gap – is increasing. While this may be of concern, we must also dig deeper to understand why this gap persists so that we can see it in perspective. With the Government’s transfers and benefits, the Gini coefficient was 0.452 in 2010. This shows that the Government's schemes have been helpful in moderating the income inequality. I hope that the Government will continue to

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do more in this area. We must also be mindful of what causes the gap to remain large – perhaps it is because the rate of income growth in the higher percentile outstrips the growth of the lower income group which, in fact, is also continued to grow, but at a smaller pace. At the end of the day, as the Chinese saying goes " ti di bu fen ti ", let us look how far the baseline has increased, rather than the gap that remains. Therefore, I welcome the various Budget measures that address the lower income – especially the enhanced Workfare Income Supplement and the Workfare Development Scheme.

With the increase in the cost of living, I would also like to ask the Minister to consider or look into whether it is possible for us to increase the dependant tax relief for spouses and children in view of the rising costs that is "squeezing" the budgets of many Singaporeans. In its latest budget announced, the Hong Kong government has increased the dependant tax relief by 20%. It has also raised its child allowance and the additional one-off child allowance in the year of birth by 20%.

Sir, I would continue my speech in Mandarin.

( In Mandarin ): [For vernacular speech, please refer to Appendix A.] Employers, as responsible citizens, must continue to also review wage policies and job training – especially those for our mature and low wage workers. While a large majority of our workforce has diploma-level qualifications and above, we need to ensure that those who do not continue to upgrade so that they do not get left in the cold. We must also emphasise not only "best wages" but fair wages. I am pleased that the NEA and Town Councils have schemes to recognise or elevate the skills of cleaners. Since employee skills training became a requirement in the Town Council cleaning contracts from 2008, a full-time cleaner can earn $1,000

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monthly, an increase from $650 to $750 previously. Those who are skilled in handling machinery can receive $1,200 to $1,400, compared to the previous average of $750. This is a very good move and I urge other organisations – particularly schools to do more. During one of my house visits, a school cleaner told me that his monthly income remains very low due to the MOE's outsourcing arrangement. The Government agencies should do more.

*Cols. 3413-3416.

Mr Speaker, the coming increase in foreign worker levy has been a matter of debate these few weeks. Some employers are complaining that the increases are coming down "like floodwaters" – and there are some resentments on the ground. A friend from a SME recently told me that the Heaven must be busy this Chinese New Year. I asked him why he said so. He said, "Because all Singapore bosses are now 'asking the Heaven' every day." I asked him how they do so and he said that they do so by singing, "Ask the Heaven". What are they asking? He told me that this is currently a popular Taiwanese song. It was originally a song about "endless love"; it has now become a song about "endless moans"! I cannot give you the lyrics in Hokkien so I have translated them into Mandarin.

This is how it goes:

"The wind is really angry, the rain is really angry
Angry because I've no backbone
The foreign labour is disappearing
The Levy is here to stay
What, oh what is Productivity?
I've asked around but what "cuts" have there been?
My business is tied so tightly by you
I ask the Heaven, I ask Earth.
Can you not make fun of me?
If you continue, I will be so tortured
I ask Heaven, I ask Earth,
Can't you not make fun of me?
I just want to forget this as quickly as possible

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But my dreams are all about the levy increase next year."

He said we have 3R – reuse, reduce, recycle – in our green efforts; now we have 3R concerning foreign workers – replace, reduce, return! While I can understand that the levy increases are significant, these must be seen in context. Firstly, the increases are staggered and the first increase this year was announced in 2010. The next increase will only kick-in in 2012 and again in 2013. Employers are being informed well in advance of the levy increase - the coming flood, if you will say. This being the case, employers have plenty of time to escape the flood, step out of the way and build up their "dams".

We should adopt a carrot and stick approach. We could look at incentivising companies that upgrade their foreign workers. We can also reward, instead of penalise, companies that obtain good productivity goals. Can we look at developing a productivity scorecard for companies, particularly SMEs? For those that obtain good productivity gains, we could give them levy subsidies or rebates. Currently, the levy hikes affect all companies, whether or not it does well in innovating or raising productivity. This should not be the case. The levy increases should be structured in a way that rewards innovation, skills upgrading and a productivity mindset.

As we continue to drive the productivity mindset in the labour market, we must also be conscious to ensure that this expectation of productivity applies to all our workers. Employers need to play their part to ensure that the qualifications, training and skills required of local workers are the same for foreign workers as well. Employment must continue to be skills and not headcount based. We must also continue to foster social integration among our diverse workforce.

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I believe that our current foreign worker reliance is not tenable and can be likened to an addiction. At present, I believe the 1:2 migrant-locals ratio is adequate for not only practical manpower needs, but in terms of perception of neutrality. Let me illustrate with an example that one of my friends raised. If you line up one foreign worker and two Singaporean workers, the Singaporean in the middle, looking to his right and left will see one foreign worker and one Singaporean. The perception therefore is that it is "equal". But raise the quota to 1:1 and the impression when looking beside him will be that there are two foreign workers versus only one other Singaporean. The perception will be that of being "crowded" out of a job.

"Change is constant" and the global competition is real. Companies and employers have to review the way they do things, innovate and keep one step ahead. Recently, my NTUC colleague Ong Ye Kung shared with me that he visited a food manufacturing factory that has automated many of its processes. Through IPG and innovation, the company has reduced its operating costs and reliance on foreign labour. Happily, it has also meant that the company has done better and rewarded its workers – mostly locals – with an 8% wage increase. I believe more companies can learn from such an example.

( In English ): Sir, as we continue to grow the economic pie, we must also not forget sustainability of our workforce. We can do more for education, especially in the early years to build a sound foundation, and in the later years to boost skills. Already we have taken steps to prepare our children for life with a broad-based and holistic education. But we should also see where we can support schools further in this regard. Even as we build strong educational foundations in the

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school-going years, we must also continue the lifelong learning approach.

For example, we should do more to nurture our young people. More and more Singaporeans want to have a more active part to play in their country and call for alternative views and channels. This is a positive thing but only to some extent. What we need is not just views or alternative views, but understanding the issue and coming up with a practical action. Already the platforms are out there. We have REACH, social media and many other online channels. All Government agencies should do more to further explore how we should respond and work with our young to help them turn alternative views and complaints into practical solutions. More so, we should also help them transform all the ideas that they have into workable actions.

One clear signal from this Budget is that the Government is being responsive to the practical needs of the people. In this Budget, we see fine-tuning of schemes to help businesses, more help for the lower-income and middle-income groups and moves to counter inflation in the long term by growing the economic pie.

I hope that the Government can also continue this people-centric approach in other areas of concern. One of these is the worry of many young Singaporeans on the affordability and timing of new flats. The recent revisions to raise the ceiling cap for DBSS and the shortening of the waiting time for BTOs are welcome. But perhaps the Government could also look into opening more options for couples waiting to start a family early. For example, can we revive and bring back the Interim Rental Housing Scheme for couples who have already booked flats under the BTO scheme for which they have to wait for about two to three years?

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Another area that need the review and response is in the area of industrial plot ratio of 1.4. As a land scarce country, I think we should not continue or confine our institutions that need more land. Flexibility in this area is needed so that we can intensify and maximise our land use. Ultimately, the Government has indicated it is listening to the need of the people and the Grow and Share Budget is one that will address our economic fundamentals while enhancing the social support for a strong and resilient society. It gives a helping hand where it is needed, and opens up opportunities for people to embrace and create a best home for all.

On that note, Sir, I support the Budget.

12.41 pm

The Senior Minister of State for Foreign Affairs (Mr Zainul Abidin Rasheed): Mr Speaker, Sir, thank you for this opportunity to speak on Budget 2011. I rise in support of the Budget. Having heard two full days of speeches, one wonders what more I can say. Moreover, I am sure all present here are more keen to hear from Mr Budget than me.

Nevertheless, I am sure you will agree that many of the good points are worth re-emphasising and remembering, especially the basics we need for our future. The Budget is not just about goodies.

Mr Speaker, Sir, how do we understand what the Budget means? Many of the figures given can be quite mind-boggling, especially for the average Singaporean. Here I would like the Minister for Finance, hon. Tharman Shanmugaratnam, to elucidate as to how we want Singaporeans to understand the Budget, especially in the context of the long-term and short-term messages we want Singaporeans to imbibe.

No doubt many, if not most, will see this as a GE Budget. Understandably, this

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is expected by most to be a GE year, although we can go on up to next year. There are many goodies to be given out. But understandably too, as our economy did very well last year. As Minister Tharman said, this is a growth-sharing Budget. This is after all the thrust of the Budget presented. Grow and Share.

Sir, I see this Budget as a $10 billion bonus for the people. Four billion dollars back to reserves, $3.2 billion for social investment and $3.4 billion for sharing surpluses. Yes, I even consider the $4 billion being placed back in the reserves as for the people. We have to remember that even in times of surpluses, savings for the rainy day must be part of our philosophy and our approach towards life. As the Malay saying goes, " sediakan payung sebelum hujan ". Better to have your umbrella ready before it rains.

Sir, this also reminds me about the spirit of the now famous Hokkien song which is like a Eunos mantra in my constituency which is ai pia chi ai ya. 70% hard work, 30% luck. So, we must not be afraid of sharing when sharing is due, especially when our people deserve it. I am also happy to see the spirit of humility shown by Minister Tharman when he said, "in addition to hard and good work, we also had good fortune". Now, that reminds me of the other song about the heavens, wo men ti, meaning, you can turn to the heavens.

Mr Speaker, if I may digress a bit to say that, in Eunos, many people thought that I have been singing this ai pia ai ya (in Hokkien ) song too long so they wanted to change. I asked them to look for another song. But most of the time they come back with love songs. I know I love my residents and I hope they love me too, but I wanted something like the ai pia spirit, which is about strive, about hard work and this is about Singapore. Then

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they suggested, "what about wo men ti? " So I said, "are you sure that would be appropriate?" Because in an election year, people may think that when they ask for something which the Government cannot deliver, then we say, "just turn to Heaven." So, that song might not be appropriate too.

But, anyway, I think we know what Singapore represents. In times of hardship, in time of surpluses, we must get our basics right. This approach of Grow and Share is fair and not "under-the-belt" Budget as I overheard one Opposition member said. Neither is it right to say its pork-barrel politics. It is not Singapore style. It is haram. It is not what we believe in. The Government believes in fair and equal sharing and when it is due, we will give what is due. Those who claim as such – the pork-barrel politics – just reflect that they do not understand the philosophy and principles of Singapore's basics for our future.

**** Mr Speaker, Sir, before we get overwhelmed by the euphoria of the surpluses, allow me to remind ourselves about these basics. Singaporeans should not lose sight of our basics for the sake of future generations. I was glad to hear over radio this morning one listener saying that she was worried that Singaporeans are expecting goodies from every Budget. Let us not develop, she said, a "jelly fish" mentality among Singaporeans, and she said that emphatically. Let us not get soft.

Sir, it is about hard work of our people, good governance, cohesive and harmonious multi-racial, multi-religious Singapore. Allow me, Sir, to share two examples of how I see these basics being translated in real life. I was at the seminar on "Wills, Islamic Law of Inheritance and Inheritance Planning" two Sundays ago. A thousand people attended, and this was

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organised by Barakah Capital Planners and supported by MUIS, Warna the Malay radio station, Berita Harian and Hongkong-Shanghai Bank. That says a lot about those who were interested in the subject. That must also say about people who have inheritance and are concerned about distributing it fairly and correctly.

Two of the attendees were Ali Daud and his wife Sharifah Talhah. Both are visually impaired. They have a daughter in Secondary 2. She is not visually impaired and she is doing very well in school. Ali and Sharifah are two excellent examples of Singaporeans who have their basics in life right. Through their hard work, skills upgrading and a positive outlook to life, they have been given opportunities to excel, in their own ways. British Council, Ali's employer, had bought Ali computer software so that he could do his work in customer services well, despite being visually impaired. In fact, he is now even entrusted with student counselling. Even Sharifah, his wife, has been given special software by her company, Pratt & Whitney, to do well in her receptionist work. But as we all know, it is not just about software or hardware but mindshare. The spirit must be right. I have always been impressed, and indeed, inspired by such Singaporeans. I look forward to more Singaporeans to follow such good examples of the right Singapore spirit.

Another anecdote I would like to share, Sir, is Libya. We all follow what is happening now in this North African Arab country. I was there last October, and again two years ago, in Senior Minister Goh's official delegation. And in fact, even much earlier in 1973, attending an international youth conference. In the exuberance and idealism of the post revolution years in the early 1970s, Libya embarked on lots of rhetorics and dogma of exclusivity. The leader, Muhammad Gadaffi, introduced the Green Book and

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the so-called The Third International Theory . He said capitalism was decadent, communism on the verge of collapse, thus Islam is the only answer to the world's woes. Interestingly, the conference rejected the idea instead, asking for inclusivity rather than exclusivity.

Yes, Mr Speaker, that brings me back to the Budget, where Minister Tharman had emphasised inclusivity. Yes, we will Grow and Share but let us also remember the spirit of inclusiveness. Allow me also to add that inclusiveness is not just about improving the skills and economic performance of the different income groups but also social programmes to bring about greater and better cohesiveness and harmony.

Here I would like to urge the Government to enhance the good work done by MCYS and the various VWOs and religious organisations. Government should not shy away from doing more and thus increasing the resources available at MCYS and these VWOs and members of the Inter-Religious Organisation (IRO) to play an effective role. I welcome the extension of the 250% tax reduction for contributions to the Institutions of Public Character (IPC) and hope to see it as a permanent part of our Singapore charitable landscape. Government should continue to be big-hearted to those who are generous towards charity work and programmes that will bring our people as one united Singapore.

Mr Speaker, Sir, allow me now to say a few words in Malay.

( In Malay ): [For vernacular speech, please refer to Appendix A.] Mr Speaker, this Budget is a heartening one. It fulfills the need of Singaporeans from all aspects, whether for the benefit of the people, the private sector's growth, and, more importantly, for the lower-income and middle-income Singaporeans.

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We have seen from the two days of debate in the House that Members of Parliament show concern towards issues that is worrying Singaporeans, be it about the cost of living, the cost of medical bills and inflation. I believe and I hope that the Government will do whatever is necessary to ensure that our people will continue to have the confidence and self-belief to overcome any challenges that they may face.

This should convince us that the Government is concerned about the short-term and long-term needs of the people. As we enjoy the goodies and assistance provided, we must not forget the long-term messages that are being conveyed, for instance, the need for skills training and looking at educational and job opportunities that the people can take advantage of.

As we accept the Government's "Grow and Share" approach, we must also be thankful that the Government pays a lot of attention towards the issue of inclusive living. No matter how much the economy grows, it will not be perfect without a harmonious and cohesive living environment. This inclusive living environment should not be limited only to the issues of income and skills upgrading, but also to social and community programmes. However, this is our collective responsibility. I hope MCYS can be given more provisions in order to perform its role as best as it can.

( In English ) : In conclusion, let me close by suggesting that we Singaporeans should see this Budget as an opportunity to Grow and Share and strive for an Inclusive Society. In short, let us see ourselves as players and contributors towards this Grow and Share Inclusive Society.

Sir, I support the Budget.

*Cols. 3417-3418.

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12.54 pm

Mr Wee Siew Kim (Ang Mo Kio): Mr Speaker, Sir, thank you for allowing me to catch the tail end of the debate. Looking through the list of the themes of each Budget for the past 10 years, in seven of the 10 years, the themes have the words society, home, community and future in them. This is no mere coincidence. Each Budget puts a little something into strengthening our Singapore society, and in bumper years like 2010, the Finance Minister brings forth three large vats of rice to distribute.

This is what sets Singapore apart from many other countries. We squirrel away our reserves; taking some out on a rainy day and immediately putting them back when it is sunny again. We sow seeds for the future and continuously inject vitality and nourishment into our societal sinews. We know that when we believe in doing something, we persevere year after year, so clearly demonstrated by our Armed Forces which have grown unrecognisably from nearly two boats and a couple of platoons; and our societal networks and infrastructure are built up strength by strength, like a helix, growing more complex and stronger year after year.

One piece of our infrastructure, the sinew that binds our people networks that I like to highlight is the People's Association and its group of Grassroots Volunteers. As I understand it, People's Association and the CCCs grew out of villages, kampong networks and councils. Progress brought along more modern facilities, and even the methods of outreach evolved to suit the times. But the spirit and the people element will never change. The very success of the People's Association, I dare say, is because of the people – the PA staff and its volunteers. PA's success came at the expense of the countless hours its staff toil in the thick of the community, smoothening the jarring edges, polishing

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the melded pieces. It is a job that cannot be done on a 8.00 am to 5.00 pm basis, and the best PA staff I have encountered have treated the community that he has been entrusted with almost with the same love and care as his own extended family. Many lived and breathed their work. And the multiplier of their efforts is the grassroots leaders. The very reason why grassroots leaders volunteer, eschewing the comforts of their homes and working voluntarily for the betterment of their fellow community brethren. And many a times, also parting with their own funds because they have seen the importance of PA and grassroots' work. This work is relevant, and in fact a cornerstone to our continued societal strength.

I hope that we continue to see this group as key to our societal firmament and to continue to more than adequately fund it so that we have the right type of people and the right number of people working in our community for our future continued good health. We can be too easily enamoured by KPIs and it is not easy to measure this intangible thing we called social capital. Hence, I hope we continue to put aside funds to ensure that we continue to fund the build-up of our treasure of social capital. For the very nature of this beast we call social capital is that it has to be continually fed, so that its reach remains extensive, its influence pervasive and its internal constitution intensively cross linked. For this to happen, PA needs funds and people.

Trust and faith in society is assured only if every person in it feels that they have a stake. This is no new revelation. Our mantra of Inclusive Society sums it all up nicely. Here I hope that more can be done for two groups within our midst: dysfunctional families and the mentally ill. In the past 10 years as an MP and advisor, I have seen more and more schemes that came along that address many of these problems. Workfare and ComCare are two key instruments.

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Through Workfare, a person acquires the monetary resources to live better, cope with rising costs and at the same time have the pride and self esteem that he is able to do his utmost to fend for himself, with society supplementing. ComCare addresses immediate crisis – it is a band-aid. We have to recognise that we need the resources to customise aid to every case post ComCare. If not, we will not have made a dent at the problem. Here, I am asking for more social workers to be dedicated to each Division on the ground for they are the ones that when appropriately complemented by the community and grassroots, ensure that the Many Helping Hands actually get their hands around the problems and reach out with the appropriate solutions. Where people are involved, broad brush cookie-cutter solutions may not be effective. We need to deploy social workers on the ground intimately working the cases. Just as society's continued good health needs PA, its staff and volunteers, social workers are needed for the dysfunctional families, mentally infirmed and bring about some relief to the strains on their families.

1.00 pm

The sooner we act, the sooner we deploy more resources to the ground, more Singaporeans will be helped. Let me just illustrate with one case in my ward. A young woman, aged 17 is a resident in Block 541, Ang Mo Kio Avenue 10. She is a single mother at 17 years and also the eldest of three in the family. She has a younger brother aged five years old and sister aged two years old who are taken care of by her grandmother aged 65 years old. She has a son aged two years old born out of a wedlock. She is unemployed. Both her parents are now in Changi Prison for drug related offences. But she is determined to support her child and siblings while her parents are in jail, and she wants to work. In the meantime, the flat arrears are building up and the day of reckoning is approaching. Five lives, four of them young ones with the future

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ahead of them. They require very special assistance so that the young have a decent start in life. We wish that we could have worked with the parents before they turned to drugs and jail. Now, we must pay close attention to the kids that they left at home.

Sir, the strains of coping with such dysfunctionality in families and also with the mentally infirmed tear at the seams of both families and the immediate community. Solutions to such problems, I argue, will further fortify our inclusive society and build the resilience that will prepare us for storms and challenges that we cannot yet foresee.

We can only achieve if we have a good Government, good leaders who continue to grow the economic pie so that we can have the resources to blossom as a society. Execution is through an efficient and service oriented civil service. Here, I just want to make a small suggestion.

We have the "no wrong door" policy. It is already a great step forward. It reflects the awareness that it could be frustrating navigating the milieu of administration. Still, more could be done. Why not take the "no wrong door" policy a step further to a "no wrong lap" policy? If it lands on your lap, you go and solve it. Take ownership and make it your business to get the matter resolved. Why do I say that? Let me illustrate with a recent example.

Just two weeks ago, we launched a 3G centre for the residents of Ang Mo Kio. Just days before the official opening ceremony, the short strip of road in front of the centre needed to be paved. It cuts across the jurisdiction of three agencies. Eventually, three agencies came and got the job done, but one after the other. The good thing is that, of course, the job got done, but it could well have been more efficient, and probably a lot cheaper if one party did it all at once, instead of three

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groups mobilised one after the other, all doing roughly the same work on three adjacent strips of pavement. I can well understand why it happened. Different agencies, each protecting its own budget and inevitably creating artificial boundaries.

Empowerment and ownership are needed in order that the "no wrong lap" policy could work. Someone has to take the lead. And somebody has to take on the role of the honest broker so that no one agency eventually feels short changed. But I believe, eventually, it will be more efficient and costs will be reduced. Public appreciation of our civil service will be infinitely enhanced.

With this, I support the Budget.

The Minister for Finance (Mr Tharman Shanmugaratnam): Mr Speaker, Sir, I thank all Members for their views and suggestions. I have listened closely to all of them, on a few occasions when I have had to take a biological break, I have made sure I read all the transcripts. I will address in my round up all the key issues that pertain to the Budget.

But there are many other issues that the Members have raised which should be taken up by the respective Ministers in their COS. Issues concerning marriage and parenthood, specific policies concerning the environment, the elderly, the disabled, policies concerning the arts and sports, measures to help youth and families at-risk. It has been a rich debate and I am sure my colleagues will take into account not just what will be said during the COS cuts but also what has been said during the Budget Debate itself.

The key issues that I want to address during my round up are basically four: first, whether we have adopted the right strategies to boost productivity; second,

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how we can keep social mobility going and uplift lower-income Singaporeans; third, how we are addressing the issue of rising cost of living and in particular whether we should we cut the GST; and finally, how do we sustain a progressive fiscal system whilst meeting future expenditure needs.

Raising productivity

Let me address each of the four issues in turn. Deputy Prime Minister Teo has provided an overview of our strategies to boost productivity, including what's already been rolled out, including many examples of how businesses are in fact taking advantage of our schemes. They are upgrading, taking advantage of the various new grants under the National Productivity Fund as well as existing grant schemes that SPRING and other agencies have. And as Deputy Prime Minister Teo and several other MPs have emphasised, MP Denise Phua, NMPs Paulin Straughan, Mildred Tan and many others, tripartite collaboration is important in all of these. And our Labour MPs, in particular, spoke in some detail about what they are doing, what the unions are doing to work with specific industries and companies to redesign jobs, raise skills, raise productivity and thereby raise wages.

The Productivity and Innovation Credit (PIC) was introduced last year and enhanced this year. I think everyone, including our businesses, recognises that it is a generous scheme. It effectively amounts to a significant cut in corporate taxes for companies that are investing in productivity. But we have received feedback since the Budget. In fact since a week and a half ago, we have received further feedback from our chambers, associations and several individual businesses. Our SMEs do face an impediment in taking full advantage of the scheme. They want to invest now. They want to take advantage of the scheme but they have cash flow problems. The

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scheme provides them significant rewards later. So we studied various options how we can help these businesses because I agree this is a valid concern.

I have therefore decided to allow tax deferral under the PIC scheme. Tax deferrals that will allow businesses to obtain cash in the same year as their investments – by deferring the taxes that they need to pay in the current year to the following year. For up to $100,000 of qualifying PIC expenditures in the current year, businesses may defer the same quantum of tax to the next year. One hundred thousand dollars cater to a very broad base of SMEs, when you talk about the types of investments or the types of training expenditures they intend to incur. This tax deferral allows businesses to effectively enjoy their tax savings under the PIC scheme one year in advance, if they so wish. It will apply to expenditures incurred for the year of assessment 2012 to the year of assessment 2015.

Some Members have mentioned that businesses are under the impression that the PIC claim process will be complex. This is in fact not the case. PIC benefits can be claimed as part of routine tax filing. In fact, for companies, no additional supporting documents are required specifically for the PIC claims. And for smaller outfits like sole-proprietorships and partnerships, for whom it is not a requirement to submit audited accounts together with the tax returns, they will only need to furnish in a simple form the details of their expenses for PIC. So we will keep this very simple, easy to understand, easy to make your claims. Businesses that wish to opt for the cash grant option under the PIC can do so anytime after their financial year has ended, although I would say that with the new enhancement that I have just announced – the tax deferral scheme, many businesses will choose to take advantage of that and not wait until the cash grant becomes available in the

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following year. The Government will provide support through our Enterprise Development Centres at key business chambers and associations to advise businesses not only on how they can improve their productivity; but also on how they can tap on the whole range of government schemes available including our grants as well as our PIC scheme.

IRAS has in fact been very active in publicising the PIC. It sent out brochures to 225,000 businesses late last year, conducted 50 PIC seminars for 7,600 participants. But it is going to do more. I urge industry associations and chambers to continue to work actively with IRAS to increase awareness and help get maximum take-up rate of the PIC scheme. We will work with them.

Key driver for productivity – the tight domestic labour market. To complement business restructuring and productivity investments, we also need to manage the supply of foreign workers (FWs) – as many MPs, including MPs Arthur Fong and Yeo Guat Kwang just this afternoon, have mentioned. We want to make a quantum leap in productivity. Ten years from now, we want to be in a very different place from where we are now. We know we will not get there if we continue to rely extensively on low-skilled foreign labour.

We introduced one round of foreign worker levy increases last year, and we extended and accentuated the increases this year. But the foreign worker levy increases are not the fundamental driver for the business upgrading that has to take place. The key driver is a tight labour market. We have virtually full employment. The growth of our labour force going forward is also going to be extremely low. Wage costs will go up. In a full employment economy, it is not just wage costs, but rental costs and many other costs that will go up. So, businesses will have to restructure and

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make adjustments because we have succeeded and we have a full employment economy. Going forward, the flow of additional local workers entering the workforce is going to be limited. We have to restructure in order to adapt to a high cost environment and to be able to grow without ever increasing labour inputs. That was the context in which we decided to extend and accentuate the FWL increases we announced a year ago.

In fact, the increase that we announced a year ago was measured. We were just coming out of a crisis. No one knew for sure how strong the growth would be. It was a series of measured steps over a period of two years. The growth turned out to be much stronger than expected and now local wages are going up. In fact, if we do not raise foreign worker levy further now, there is a real likelihood that the cost of foreign workers will go up less than the cost of local workers. Everyone knows that means an increasing demand for foreign workers.

So we have to extend the FWL increases beyond what we introduced last year. And it is better to do it now while the economy is still doing well and maintain that gradual schedule of increases rather than wait till later and introduce steeper increases in one go. The increases starting from where we were last year up till 2013, which is where the schedule of new increases ends, will impact business costs. But it is a measured impact. The total increase in labour costs for the business sector will be less than 2% when the changes are fully phased in.

Some sectors will be affected more – the more labour-intensive ones or, as many MPs have mentioned, sectors that depend on the human touch such as hotels, restaurants and the retail sector.

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They depend on people. But these are the same sectors – construction, hospitality at large – the same sectors where productivity is relatively low compared to the industry leaders globally. There is significant headroom for us to reach productivity levels of the cities that are in the lead in these sectors.

1.15 pm

Some Members of Parliament have also questioned the effectiveness of FWL as a mechanism to achieve what we want – to reduce the demand for foreign labour and encourage firms to upgrade. There is no perfect way of doing this. But there is no workable alternative to the FWL increases as a means of controlling the demand for foreign labour – for deciding on which firm or which industry should receive more or less labour at each stage of the economic cycle. There is no workable alternative besides using a clean, straightforward price signal.

Mr Low Thia Khiang also questioned the effectiveness of the foreign worker levy. But he offered no alternative in his speech this year. Earlier, I think it was last year, he had suggested an alternative which essentially meant that bureaucrats set quotas for different sectors and company sizes, and gradually reduce the dependency ratio to encourage productivity growth. This is not workable. It would only mean constraining businesses' flexibility to get the necessary manpower to expand when they got opportunities. And no group of bureaucrats will be able to decide on which company or which industry is more deserving and what are the peculiarities of the circumstances they face. So it is far better for us to use the price mechanism to provide clean incentives for employers to reduce dependence on low-skilled foreign manpower, while giving them the flexibility to manage cyclical changes in manpower needs.

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While we cannot increase the number of foreign workers indefinitely – and we certainly do not want it to exceed, on any sustained basis, the one-third of the total workforce target that we have set – we will still require a significant foreign workforce to keep our economy diversified and competitive. We need a critical mass of workers, talent and expertise, to ensure we have viable economic clusters in Singapore, and a diversified range of economic clusters. Not just one or two clusters but several. We need this diversification. First because it provides some resilience – some industries go down while others are going up, it provides some resilience across the economic cycle. But importantly, it also provides a variety of good jobs for Singaporeans. Not all Singaporeans are best suited to working in the frontline of a hotel or in a restaurant. Some are very good with their hands, very inventive with their hands, some are good in logistics. So we really need a wide range of sectors – manufacturing, including traditional and high-tech manufacturing, logistics, a range of service industries to provide good jobs for Singaporeans. And to provide good careers so that all Singaporeans can realise their aspirations in a thriving economy.

It is not a zero-sum game. Speak to any business that hires foreign workers and they will tell you it is not a zero-sum game. They will tell you that they are able to create good jobs for Singaporeans up and down the ladder because they have access to a certain number of foreigners. The foreigners complement the locals and make possible the story that we had in recent years. Increased demand for local workers that has pushed up their wages.

There are many examples. And I am just going to cite one, the only one in my speech. Small company, SME – Chun Cheng Fishery – it is a company that processes and exports frozen tuna. They

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are a company of about 60 to 70 people, about half are locals. They employ foreign workers – first, to fill positions in its freezing facilities, as local workers are not accustomed to working in a cold environment. Freezing conditions. Tuna comes in, they are slicing. Local workers – hard to get them for this particular task because they are not so accustomed to working in such a cold environment. They also brought in two experts last year from Japan to teach them how to identify the different grades of tuna and use automated cutting technology from Japan to maximise the efficiency and quality of their cuts. I will not go into the details but real productivity improvement.

We did not have the knowledge locally to be able to do this, so they got in some foreign experts, very helpful. Now they are expanding, so more demand for workers. They are opening up a new facility to increase their processing capabilities and diversifying as well into tuna sashimi processing – higher-value product. In fact, they are now planning to quadruple their output and this means more job opportunities for locals. Small firm. We are not talking about a huge number of job opportunities but multiply that example across the economy. No zero-sum game. Provide them the workers they need. Give them continuous incentive to upgrade and reduce the need for low-skilled workers but try not to squeeze them out of business.

_Social mobility
_

Many MPs have spoken about social mobility, including Mr Sin Boon Ann, Dr Lily Neo, Mr Yeo Guat Kwang and, just a short while ago, Ms Irene Ng. Actually I can mention many names. We are all concerned about the widening income gap, and it is a concern for all of us. First, why is our income inequality high? It is because we are a global city. They are like that. If you look around the world, the global cities that compete with us,

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especially Hong Kong, New York, they all have high Gini ratios. In fact our Gini ratio is a little lower than most other global cities – Hong Kong, New York and in fact seven or eight American cities.

The reason lies in the nature of the economy of a global city. They require a significant pool of highly skilled people who are also on the upper end of the income ladder – a significant pool of highly skilled professionals, executives and entrepreneurs. That is what makes the cities tick, and they compete with each other on that basis. Second, their entire economy, up and down the ladder as well as across the sectors are highly exposed to global competition, so wages are influenced by what competitors are offering. Each company you talk to, multinational or local, that is involved in the international market will tell you that they have got to track what the competitors are paying and what is being offered for the same type of talent or skill, so wages are significantly influenced by what is happening in the international markets and cities show this up in an accentuated way, which is why the Gini is high.

Income inequality is not irrelevant. It is something we should be concerned with. What matters most is not income inequality itself, but whether we succeed in raising incomes and living standards for all Singaporeans, including and especially the lower income groups. Second, as Mr Sin Boon Ann and several other MPs said, whether we can keep providing opportunities – so that all Singaporeans regardless of their family background or starting points, have the chance to fulfil their potential and aspire to a better future.

Those are the key issues. Can we keep raising incomes, and related to that, can we keep providing opportunities for

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everyone to realise their potential and their aspirations? If we want to achieve this, we need a dynamic economy and society; opportunities for all; we need to generate sufficient resources so that we can make the required transfers to help the lower income to uplift themselves; we must maintain a sense of community where everyone participates, and those who have got more, give back to the community and try to help the others.

Singapore has done well in growing incomes for our people; in fact we have done better than most countries with a much lower degree of income inequality, as measured by the Gini index. If we look at the median household across countries and growth of real median household incomes, real median household incomes in Singapore grew by 1.7% per year from 2000 to 2009. We have done better than the other advanced Asian economies [ Chart 1* ]. Hong Kong, Taiwan and Japan have seen declines in median incomes over the decade. Median incomes in South Korea have risen, but by less: 1.1% per year. We did better than economies that have a lower degree of income inequality.

Likewise, as a result of having grown our incomes, if we look at income levels, we are not doing badly either. When we compare median income levels in Singapore to other countries – and I compare here again to the more advanced Asian economies and a set of the most advanced nations – Switzerland, UK and US – median wages in Singapore are higher than in Hong Kong, Korea and Japan, when adjusted for purchasing power parity. There is no perfect method for comparisons across countries, but exchange rates based on purchasing power parity are what the IMF and World Bank use [ Chart 2 ]. I will also include as an Annex a comparison of median incomes using market exchange rate, which will show an essentially similar story. However, our median wages have

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not reached the levels of developed economies such as Switzerland and the US. If we grow incomes by 30% in the next decade, we will catch up with the developed countries' standards of living.

Growth in incomes has been accompanied by growth in employment. Singaporeans have benefited from the growth in employment. From 2006 to 2010, 228,000 new jobs went to Singaporeans. In fact in 2010 alone, 44,700 new jobs went to Singaporeans. This has led to a higher employment rate among our citizens. If you look at the working age population and see what proportion of them are employed, we used to have a significantly lower rate than the developed countries, but we have now caught up. Our employment rate has caught up with most of the developed countries. The big difference, however, is that our high employment rate is a result of a very low unemployment rate among those in the labour force. Whereas the same employment rate in the developed countries is a reflection of higher labour force participation rates, particularly among women, but offset by a very high unemployment rate. So we are in the right place, high employment rate because we have got very low unemployment – and that is because we have a dynamic economy. One aspect of maintaining a dynamic economy is ensuring we have rational policies, and this includes our policies on foreign labour. Have a price mechanism to encourage upgrading, but recognise that foreign labour is part and parcel of the growth that can help Singaporeans raise incomes.

*Cols. 3397-3398; 3399-3400.

1.30 pm

Indeed, that is what we have seen. I have got another chart which I am going to show. I will focus now on the lower end, the 20th percentile household. Mr Low Thia Khiang and some others have felt that the infusion of foreign workers has been to the disadvantage of

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Singaporeans. I did, in fact, address this last year and I am going to do it again now, updated to 2010. As I mentioned in the Budget speech, if Members would look at the blue bars first [ Chart 3* ], we have had significant growth in incomes at the lower end of workforce in the second half of the decade. This fortunately helped offset the rough period they went through in the first half of the decade.

The second half of the decade was, in fact, the same period where there was a significant growth in the foreign workforce. The share of foreigners in the work force saw a significant increase, by about eight percentage points in the second half of the decade. But it was not inconsistent with growing local incomes. Why? Because local incomes and, in fact, wages generally, are not just dependent on the supply of labour but also dependent on the demand for labour. Yes, there was an increase in supply of foreign labour, but it went hand-in-hand with increased demand for labour across the economy. As every firm that employs both foreign and local workers will tell you, if they did not have the foreign workers, they could not have more local workers.

So demand for labour picked up, unemployment went down, wages went up. That is the basic story. But we know that we need to change the way we grow going forward because our local labour force is now going to grow much more slowly. And we want to avoid an ever increasing proportion of foreigners in our workforce. That is why we have shift to productivity-driven growth.

Social mobility is a crucial aspect of our inclusive growth model as MPs Mr Baey Yam Keng, Mr Zainudin Nordin, Dr Lily Neo, Dr Amy Khor, Ms Irene Ng and Mr Sin Boon Ann have argued. We maximise opportunities for everyone to do well. Our meritocratic system allows any Singaporean with drive and perseverance,

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and talent of different types to succeed. But we have to do more. In particular, we have to do more to prevent a permanent underclass from forming – an underclass that replicates its condition across generations. Let us put it in perspective. We have achieved phenomenal mobility in the last few decades. Very clearly since the 1960s but even since the 1980s. If we look at the generation that is now in their late 40s and 50s. Their parents started off with little. But many of the children have done well through a meritocratic system and moved up. Shift forward one generation, look at the present generation of young adults. They, too, have done far better than their parents. In 1980, less than 10% of those aged 25 to 39 young adults had diplomas or degrees. The proportion of 25- to39-year-olds with Polytechnic or higher qualifications has increased to 64% in 2010 [ Chart 4* ]. So a significant shift even for that generation – not the first wave of mobility that happened in the 1960s and 1970s but what happened after. A very significant shift.

Then move forward to today's generation of school kids. It is still happening. Not as fast as before, but still happening. The Minister for Education will be talking more about this in the COS and Minister for Community Development, Youth and Sports, Dr Vivian Balakrishnan, will be talking about it too – what we are doing to keep mobility going. If Members would look at today's PSLE students, today's generation of young kids, amongst those who are in the bottom one-third of socio-economic backgrounds – defined by parents' education and type of flat they are living in – half of them end up in the top two-thirds of PSLE scores. There is still significant mobility working through the system. But it will get more difficult in each successive cohort. As Mr Sin Boon Ann rightly pointed out, it is precisely because of the success of past

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generations, precisely because we achieved a very high degree of mobility in the past.

This means that we have to put much more effort into our mobility efforts as we go forward, to prevent a cycle of disadvantage for those from lower-income backgrounds. This has been and remains our approach to helping the lower-income group. Ms Indranee Rajah gave an interesting example of the type of work required. Intensive scheme involving eight children, all had failed Primary 5. A lot of effort went into mentoring them and providing additional support. Of the eight children, six managed to get into the Express stream. That is the type of work that is required, but it is also the type of results we can still get out of our system. How we go about this is somewhat different from many other countries. How we go about ensuring that we keep up to this degree of social mobility, and try to alleviate the consequences of income inequality and reduce it whenever possible.

First, education is fundamental. We invest heavily in education. Particularly at the early stages to reduce the disadvantages faced by students from low-income backgrounds. The more we do early on to help children discover their strengths, the more likely they will be able to move up and do better than their parents. Since 2006, our expenditure on childcare and primary school education has grown much faster than for secondary and tertiary education. Childcare – 150% increase per child. Primary school – 60% increase per student. Pre-school fees are extremely low for lower-income groups so that no family need worry: $6 per month for childcare." Even less for kindergarten.

Improve teaching quality. Since 2006, primary schools have seen a 15% improvement in the number of teachers per students, and a 60% increase in Allied

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Educators and executive and administrative staff complement teachers.

What New York Times columnist, Thomas Friedman, observed one month ago about Gan Eng Seng Primary School, is true of our neighbourhood schools generally. We have principals and teachers who are passionate about what they do, and try to make learning interesting for each student. This is unlike many other countries with huge disparities in facilities and teaching standards, between schools in poor and wealthy neighbourhoods. So, that is education.

I want to briefly address what NCMP Ms Sylvia Lim had mentioned about the disabled. The disabled are indeed a part of our vision of an inclusive society. In fact, we are doing, frankly speaking, far more than many other countries that have signed on to the CRPD that she spoke about. But we want to do more. MCYS will be elaborating on this in the COS. It has the Enabling Masterplan that addresses the needs of the disabled comprehensively, not just the hardware aspects, barrier-free accessibility, but also the software – education, employment opportunities, the whole spectrum of issues that we want to address satisfactorily.

We are doing more in early intervention, we are doing more for our SPED schools, we are doing more to achieve barrier-free access. By the end of this year, 70% of our MRT stations will have at least two barrier-free access routes. We are spending a lot of money on this, $116 million. By 2020, all our public buses will be wheelchair-accessible. It takes some time but, in fact, by end of last year, 40% of our public bus fleet already comprised wheelchair-accessible buses. In this budget alone, we have done more for the disabled. We have extended the financial assistance scheme that MOE has to help needy children to our SPED schools; provided additional funding to the schools directly for them to

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decide on how best they can help needy pupils. And importantly, the Community Silver Trust will include the disabled adults. I quite agree with Ms Sylvia Lim that we have to do more for our disabled adults. The Community Silver Trust will enable us to do that by bringing in donors, bringing in charitable organisations, bringing in passionate volunteers. With the Government putting in significant resources to help match every contribution that is made. We need to do more, and we intend to do more.

So that is the first plank – education. Next – housing, which I am not going into detail on, Minister Mah Bow Tan will be talking about this in the COS. We are helping the lower-income group own their houses so they can have an asset that appreciates over time. It goes beyond that. It is also about what MP Muhammad Faishal Ibrahim mentioned, which is about providing a sense of stability and a sense of belonging to the community amongst everyone. Because owning their flats gives them that addition sense of belonging and makes them feel that they too benefit from Singapore's success.

We are also constantly improving and rejuvenating the estates in which they live. That also keeps up the value of the flat. It keeps a unique feature of Singapore, which is common space of a very high quality – where the broad spectrum of Singaporeans, low-income group, all the way to at least upper middle-income group, live in the same estates, enjoy the same facilities, the same parks, the same playgrounds, the same new sports complexes that are coming up under our Remaking Our Heartland programme. High quality common spaces: that, too, is part of an inclusive society. Mr Lim Biow Chuan and Er Lee Bee Wah have also asked about the private housing estates. We are not neglecting them. In fact, MND has set aside $46 million over the next three years to upgrade our private estates – improving the parks, the

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playgrounds, footpaths, drains, rain shelters and so on.

The third plank is what we do to reward work. Workfare and everything we are doing to help workers keep training and keep upgrading while they are in the workforce. We are putting a lot of resources into it. Many Members of Parliament had suggestions on how we should refine our schemes. Mdm Halimah Yacob, Ms Irene Ng, and Mr Lim Biow Chuan suggested various refinements to Workfare – raising the income ceiling, making permanent some of the changes we introduced in this year's budget, such as some aspects of the Workfare Special Bonus and the Special Employment Credit – whether we should not make it permanent. We will consider these holistically when we next review Workfare in two years time. But I think we have to bear in mind what Mr Hri Kumar mentioned yesterday, which is that there are real trade-offs involved in all our assistance schemes, including Workfare. We want to provide assistance to the low-income group; and in Workfare, we are topping up their wages. We want to prevent income inequality from widening. But we also want to make sure that we retain a strong incentive and reward for people who upgrade their skills and raise their income so they move out of the Workfare net. And that is a real trade-off that any Government has to face, regardless of how you intervene, whether it is regulated minimum wages or topping up wages through Workfare as we do.

*Cols. 3401-3402.

That is a real trade-off between helping people more and, at the same time, making sure that we retain the drive to upgrade, which is the basis of dynamism in our society. When we review Workfare holistically in two years' time, we will have to look at this very carefully – what is the right balance?

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1.45 pm

When we add up all the planks – education, Workfare training, housing and assets – how do they add up? In the bottom 20% of household incomes, we choose a young family because I wanted to trace how much they will be getting over a lifetime. Husband and wife still young, in their late 20s or so. One of them earning $1,000, another one working part time, say, $500, very low income family. They purchase a 3-room HDB flat near their parents. Let us say they have two children, one makes it to polytechnic, one makes it to ITE – I am not saying that is all they will achieve, but I am using it as an example. Add up all the benefits that we are providing, including what we have introduced in this year's Budget. Our schemes will enable this family to receive about $490,000 over their lifetime – or about 60% of their lifetime income.

This is not a small-minded Government when it comes to intervening to help the lower income group. Not small-minded at all. Sixty percent of lifetime income coming from the Government. The difference is how we do it, not how much we do. We are doing a lot but we are doing it a way which ensures that we retain the drive to upgrade, keep improving. The majority of the benefits – about 60% – will come in the form of investments to their children's education, their continuous education and training, and in their assets. Forty percent comes in the form of cash and other subsidies. I should mention that the $490,000 figure that I gave excludes discretionary transfers – the special transfers that we give from time to time which are, in fact, a further part of our subsidy framework. They are quite significant – if we look at the last 10 years alone, for this type of families, although they are young, they would have received more than $10,000 in the last 10 years in discretionary transfers.

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Cost of living and GST

The cost of living issues and, in particular, whether we should reduce the GST. We are all concerned with the rising cost of living, and know that it affects particularly our retirees and those with lower income.
Overall, we expect inflation to be 3% to 4% in 2011, although higher in the first half of the year. Sometimes, in public perception, we think that it is much higher than that because we are looking at the items that have gone up faster, for example, coffee, sugar, garlic, and cabbage. However, other items in the food basket have not gone up much or have declined, such as bread and tomatoes. So if you look at the overall food basket for the average household, it costs 2.8% more in January compared to a year ago.

Likewise in health, Members can identify some costs such as certain in-patient bills which have gone up significantly, depending on the type of illness and treatment. But overall healthcare costs have gone up by just 3% in January. Still unsettling, but the increase is not as much as often perceived. We have to look at the entire basket of expenditures of the average household, which is what the CPI is about. The "Grow and Share" Package in this year's Budget provides more than what is required for lower- and middle-income households to tide over this temporary period of high inflation.

We are providing more than required to offset the increases in cost of living for lower- and middle-income households this year. Take for example a retiree household living in a 3-room flat, because that is the type of household that would be most hurt by the rising cost of living. Not working anymore, so they have to rely on their savings and some other forms of support from their children. Their expenses are expected to increase by about $400 for the entire year. They will

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receive more than six times this amount in transfers in 2011 from the "Grow and Share" package – $2,750 [ Chart 5* ]. This holds true for most other types of households, for example, if you look at a larger, lower-income household with two children, they will receive about five times the increase in cost of living this year. Their costs go up by about $650, but they will receive more than $3,000. And if you look at a middle-income household, with three generations, they will receive about 1.8 times more than their cost of living increase.

The figures I have given are excluding the permanent changes that we implemented this year, such as the removal of Radio and TV licence fees, the revision of Public Assistance (PA) rates, enhanced bursaries and so on. I should mention that contrary to Mr Low Thia Khiang's observation that our PA rates have lagged inflation, we have increased Public Assistance (PA) rates by 21% since 2009. For a single-person household, the rate increased from $330 per month to $360 per month in 2009, and again this year from $360 per month to $400 per month.

There will invariably be some needy families with unique circumstances for whom the package does not fully cover the increase in cost. Not large in number but there will invariably be some such families. For those who need extra help, we have other schemes to help them. We all know about these schemes, such as ComCare and other local as well as national schemes.

But as Mdm Halimah Yacob has emphasised, the lasting solution is not these transfers that we are able to provide because we have a good budget this year. The lasting solution is the most important part of Budget 2011, which is to raise incomes and productivity – in other words grow incomes on a real basis so that

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purchasing power goes up over the next 10 years.

Mr Low Thia Khiang dismissed all that we are doing to help families fully offset the cost of living increases this year. And I have shown Members the chart, it is more than a full offset. More importantly, he had nothing to add on to the longer-term strategies that we had introduced and reinforced through the Budget, strategies to strengthen our economy, raise productivity and incomes; to strengthen our society for the future; develop long-term care for the elderly; substantially enhance bursaries for lower- and middle-income students; and lower income taxes for the middle income. His solution to the rising cost of living was instead to control prices. He did not specify what mechanism would be used to prevent prices of items like food from rising. But he proposed reducing GST by two percentage points from 7% back to 5%, and waiving GST for basic necessities. That is his solution.

Let me explain why this is the wrong solution, and would only involve giving more money back to wealthier groups, while taking something away from the poor. First, the bulk of the GST we collect, in fact, comes from higher-income groups and foreigners. It does not come from the lower- and middle-income groups. Based in fact on our 2010 collections, the bottom 20% of Singaporean households contributes only about 4% of all GST paid. The first 60%, in other words, from the lowest end to the 60th percentile of households, pays about 16% of all GST [ Chart 6* ].

Furthermore, the GST is a core part of a fiscal system that provides substantial transfers to our lower-income group, including Workfare, which we introduced together with the GST; including bursaries, healthcare subsidies, housing

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grants for low-income families; and also including special transfers which we do from time to time to help the lower- and middle-income groups, as we have done this year. So when we add it all up and see what happened with the introduction of the GST – how much more they have to pay, and what additional benefits they are getting, let us have a look. When we raised the GST from 5% to 7% in July 2007, first, we provided a substantial package of GST offsets to help take care of the higher costs for the low-income group as well as the middle-income group. So for a household in the bottom 20%, the annual increase in GST paid was itself fully made up for by the GST Offset Package. The annual increase in GST paid, $370 per year, but the GST package per year was $910. On top of that, we introduced permanent programmes to help the lower income group, including Workfare [ Chart 7* ].

When you add it all up, this bottom 20% household, if you include both the GST Offset Package and the permanent programmes, would have received five times their increase in GST costs. The GST Offset Package by itself was adequate to offset the increase in GST. But of course, the GST Offset Package is not forever, hence, we have permanent programmes which are far larger than the increase in GST costs for the household. For middle-income households, similar picture, they received roughly five years of full offsets for higher GST costs. Less permanent benefits, but full offset for five years. And for all Singaporeans, the GST was part of the fiscal changes we made to enhance growth – to invest in capabilities, reduce corporate taxes and encourage investments so that incomes could rise over time. And that is exactly what we have succeeded in doing.

It will also be the wrong solution to have different GST rates for different items, such as to have a zero percent rate for basic necessities. I had addressed this

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fully in 2007. Mr Low Thia Khiang had raised it again in 2008 and I had addressed it then too. Let me go over it again. Exempting basic necessities from GST is an extremely inefficient way to help the poor. It sounds good, but it would be counterproductive. Firstly, even for bottom 20% of Singaporean households, the commonly cited eight essential food items – rice, salt, sugar, edible oil, soya sauce, vegetables, flour and fish, comprise only 6% of their total household expenditures. Including all other uncooked food items, the total is still only about 15% of their total expenditures.

Secondly, even when we look at basic necessities, the bulk of the GST comes from the better-off groups. They consume more of everything, not just luxury items, but basic necessities as well. It is therefore much better to collect the GST on essential goods from everyone, and use the resources to support the poor directly.

There is much evidence, too, from other countries that a multi-rate GST ends up raising business costs significantly, and we know that this means that the costs are passed on to consumers. In fact, the OECD did a recent comprehensive study including countries with a broad-based and flat-rate GST system and concluded that a broad-based and flat-rate GST system is the best policy choice.

*Cols. 3403-3404; 3405-3406.

Its reasons were exactly the same as ours when we decided to go for a flat rate system.

2.00 pm

The experience of many countries showed that a multi-rate GST system subsidises the consumption of the higher-income groups more, distorts consumption and production, and raises administration and compliance costs for businesses.

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Exempting or reducing GST on certain goods and services also does not mean that these tax savings will be passed to the consumer. When France reduced the VAT rate on restaurants by 14 percentage points – a very significant reduction from 19.6% to 5.5% – in 2009, suppliers absorbed most of the savings and prices hardly fell. And that is a typical story. There is also the legal uncertainty created by multi-rate GST systems. In the United Kingdom, there are endless disputes on the classification of food products. Recently, the Courts had to decide on whether smoothies were beverages or liquid food in order to determine its VAT rate. There are many other examples, by the way. The Courts in Belgium had to decide on whether shops that show pornographic films could be classified as cinemas or cultural venues and, hence, have a lower GST rate. It went all the way to the European Court of Justice before it was, fortunately, settled not in favour of the pornographic shops. That may sound funny but there is a whole set of similar examples that have arisen. There is great legal uncertainty as to what to classify as essential, and what is not.

Switzerland recently had a public consultation, and the result was that most people preferred moving from their multi-rate GST system to a single-rate GST. A major study in November last year in the UK, led by a Nobel Laureate Sir James Mirrlees. The study concluded which that the poor would be much better supported if the government were to remove the lower tiers of VAT on various items that the poor consumed, and instead help the poor more directly instead. Ending these reduced rates would mean more government revenues, which could be completely returned to the bottom 30% via means-tested benefits, with another ￡11 billion to spare. So they could completely offset the increased VAT to be paid by the poor by raising means-tested benefits, plus have an extra ￡11 billion pounds to spare, which could also be

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used to help the poor. The Mirrlees study concluded that the UK tax system was "costly and inequitable."

Mr Low Thia Khiang's proposals have precisely this drawback – they would be costly and inequitable. They would mean that the better-off in society pay less taxes, leaving us with less resources to help the lower-income groups. As Mr Christopher de Souza and Assoc. Prof. Koo Tsai Kee have also asked, who exactly is Mr Low trying to help when he proposes to cut the GST or exempt some items from GST?

The same point applies to the foreign domestic worker levies, which a few Members of Parliament have raised. The bulk of the levies are borne by higher-income households. Removing or lowering it will benefit them more than anyone else. It is not that they are the only ones hiring maids, but the bulk of the levies are borne by the higher-income households. The levy helps to control the growth of the foreign domestic worker population, which is a large population even compared to Hong Kong on a per capita basis. But we provide targeted help where it is needed, particularly for those who care for elderly or young children.

Progressive fiscal system that can meet future needs

GST is part and parcel of an overall system of taxes and transfers that is efficient and equitable. The system has three major features. First, the overall tax burden is one of the lowest in the world. The total taxes paid by a Singaporean are on average about two-thirds that paid in the United States. You have to bear in mind that the US has somewhat lower taxes than most European countries. So taxes in Singapore are in fact significantly lower than that paid in most developed countries. Second, the system is pro-

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growth. Income taxes are low and the majority of the workforce does not pay income taxes, so that they reward effort, enterprise and the constant urge to move up. Third, the system is fair. Taking all our taxes together with the transfers that we make to the population, the overall system is highly progressive. That means that those who are well-off pay the bulk of the taxes, and the low- and middle-income groups receive the bulk of the benefits. For the lower-income groups, the permanent transfers they receive – leaving aside special transfers – significantly exceed the total taxes they pay.

I will take Members through Chart 8*. If we just look at the second decile first. Those between the 10th to 20th percentile of incomes pay GST – that is a significant component of the total taxes they pay. But the permanent transfers that they receive through Workfare and other schemes are far in excess of the GST they pay. If we add up all the taxes they pay, that is also significantly lower than all the transfers they receive.

I have shown earlier what happened after we introduced the GST but my earlier chart had to do with the increases after we increased GST in 2007. It shows that the increased GST paid was more than offset by increased benefits. Chart 8, however, looks at the total picture, not just the increases in recent years but what the total picture is if we took a snapshot now. Total benefits received are far in excess of total taxes paid including GST for the lower-income group.

For the upper-income group, we choose the eighth decile as an example – the picture will be even stronger if I choose the topmost decile. They pay much higher taxes than the benefits they receive. They pay more GST than everyone else, they also pay more income taxes, property taxes and other indirect taxes than everyone else. And they receive less benefits.

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So it is a highly progressive system. A fair and efficient fiscal system does not and should not mean that every tax is progressive. It means that taken together, our system of taxes and transfers should provide significantly more benefits for the lower- and middle-income groups. It should do so whilst rewarding work and ensuring income growth across the board remains healthy, in other words, ensuring that we retain a dynamic economy and society.

The GST on its own is a flat tax, not a progressive tax, but what we have introduced is not just the GST but the "GST plus". In other words, the GST plus Workfare and other schemes to benefit the lower-income groups. Taken together, they make up a highly progressive system.

We were able to arrive at this fair and efficient system because of two important changes that we have made in recent years. First as I have mentioned, we increased the GST, from 5% to 7% in 2007. Second, we implemented the new Net Investment Returns (NIR) framework in 2009. We made the constitutional changes in 2008, implemented in 2009. We were fortunate that we did this in time, ahead of the financial and economic crisis in 2008 and 2009. In fact, many Members including MP Josephine Teo and others have contrasted our situation now, through the crisis and now, with what has happened with most developed countries. Their public finances are under severe strain. Their people will have to go through wrenching adjustments in the coming decade. Many countries had to borrow and spend heavily just to try and stay afloat during the crisis, and had to cut back on important programmes for their long-term future.

We raised the GST when we were not under strain. We did not wait till we were under strain to raise the GST. That

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allowed us, first, to provide a strong package of offsets to help the lower- and middle-income groups, full offsets, for several years. Second, by doing it in time – not that we had perfect foresight and knew the crisis was coming – we were able to intervene forcefully during the crisis to help our businesses and workers and avoided an even larger draw on past reserves. In particular, we did it in time, we were able to address needs during the crisis whilst retaining our focus on the long term. We were unique in being able to cut corporate income tax rate during the crisis to enhance our competitiveness, and make substantial investments for the future, building public infrastructure, rejuvenating our neighbourhoods, implementing sustainable development initiatives, ramping up the quality and capacity of our educational institutions, boosting healthcare provisions. Kept our focus on the long term whilst addressing short-term crisis needs.

Our second major move was to revise our NIR framework. It is an important part of our revenues, the NIR. Our Net Investment Returns now provide us an income stream of our budget of around 2% of GDP per year – significant part of our total revenues. Significant contrasts with the developed countries which each now have to spend a growing part of their annual budget just to service their debts. In other words, they have to take away from what they get in tax monies, a growing amount just to service their debts. The UK is spending already 3% of GDP to service their government debts; Japan is spending more than 4% of GDP; and the United States, by the end of this decade, is projected to spend more than 3% of GDP taken out of tax dollars to service their debts. So we are in a very different situation. How do we sustain this revenue stream of about 2% of GDP? To do it, we have to preserve our reserves and ensure that they grow in line with our economy. This is why when we amended the Constitution in 2008, we limited the

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Government to spending no more than 50% of the long-term expected real returns on the reserves. The remaining returns accrue to the reserves, and we can keep growing our reserves.

It is also why the GIC and Temasek have to keep their focus on the long term. Their objective is to achieve good long-term investment returns, across economic cycles. Mr Ong Seh Hong and Mr Liang Eng Hwa have asked how our reserves have performed, having gone through this crisis. Both GIC and Temasek saw significant drops in their portfolio values during the crisis in line with the decline in the markets, and similar to other large funds. They have both recovered their pre-crisis values and have done creditably relative to comparable market indices.

Ms Jessica Tan has asked a very fundamental question which is whether our revenues will be sufficient to meet our increasing expenditure needs in the future. The two major changes that we made to our revenue structure in recent years, raising the GST to 7% and implementing the NIR framework were, in fact, aimed at meeting our growing expenditure needs in the future. They were not to plug a short-term gap in revenues. They were aimed at allowing us to build new capabilities and infrastructure for Singapore's future in education and training, health and long-term care, transport, housing and neighbourhood rejuvenation; and allowing us to intervene decisively to help the lower-income groups through Workfare and other means.

*Cols. 3405-3406.

2.15 pm

Our expenditures are increasing. Expenditures were around 14.5% of GDP in the last five years from 2006 to 2011 – that excludes special transfers. In fact, by the last two years, expenditures had

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increased to about 16% of GDP. And is expected to go up further to about 16.5% of GDP over the next five years, reflecting the major investments that we are making for our future. So from 14.5% over the last five years to 16.5% over the next five years, a significant 2% of GDP increase. As a result of the changes we have already made in our revenue structure, we will be able to fund these projected expenditures over the next five years. Our overall revenues have increased from around 15% of GDP before we made the changes to around 17% of GDP currently. We expect to sustain our revenue at this level over the medium term.

Dr Amy Khor has asked if we should be spending more on healthcare. Indeed, we expect to invest considerably more in healthcare in the next few years. We are expanding both the acute and step-down care sectors, which Minister Khaw Boon Wan will elaborate on at the COS. We have also provided in this budget a significant top-up to Medifund to ensure that the needy are well taken care of. Dr Amy Khor has compared us with some other countries, and at face value, it appears that we are spending significantly less. But the Singapore system is one that is well-recognised, is one that delivers superior healthcare outcomes per dollar spent by tax payers and by patients.

Our national expenditure on healthcare – that is both Government spending and patients' own spending – is about 4% of GDP, less than the OECD countries' average of 9%, but we achieve better outcomes than most. On a whole range of indicators – infant mortality, life expectancy, cancer deaths and so on. Today, two-thirds of surgeries in our hospitals are day surgeries, which cut down significantly on expensive hospital stays. And most fundamentally, our 3M framework encourages Singaporeans to take personal responsibility for maintaining a healthy lifestyle. So when you

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look at it all together, it allows us to limit the use of tax dollars as well as patients' dollars, while achieving superior outcomes. Minister Khaw Boon Wan will be elaborating on this at the COS.

Mr Ong Ah Heng had asked if we should spend more on MHA's budget, and highlighted the need for adequate counter-terrorism resources. I can assure Mr Ong that we are providing adequate funding for counter-terrorism efforts. However, MHA's budget is not the only one involved, as MINDEF, Ministry of Transport and MTI, too, have set aside significant resources annually for our counter- terrorism initiatives.

Assoc. Prof. Fatimah Lateef and Er Lee Bee Wah and Ms Joscelin Yeo have likewise asked about sports and MCYS will be addressing this during the Committee Of Supply (COS). But I just want to add that expenditure on sports – both from the Government budget and Tote Board – has in fact increased significantly in recent years, and this is without taking into account the YOG. Beyond our expenditure in sports, the overall MCYS's budget, too, has increased significantly, and I am mentioning this because there is some misperception coming out of one or two charts that were produced in the media, which showed a drop in MCYS's budget this year compared to last year. Our overall MCYS budget has increased significantly over the years. Over the last five years, the budget has increased on average by 13% per year. So the reduction in the budget in Fiscal Year 2011 compared to last year is simply because we are not holding another YOG this year, at least Minister Vivian Balakrishnan has not told us we are.

Finally, GST and income taxes. Mr Low Thia Khiang had asked a question on this. He had noted that GST as a percentage of total tax revenue had increased from Fiscal Year 2005 to Fiscal

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Year 2011. However, direct taxes, specifically personal income taxes, had not gone down as a share of personal tax revenue. This is no surprise because we have not cut Personal Income Tax rates. We only cut Personal Income Tax rates this year and, in the meantime, income growth has been rapid, so Personal Income Tax collections have naturally increased. No cuts in tax rates but high income growth, so Personal Income Tax collections have increased. What we did cut was Corporate Income Tax rates effective from Year of Assessment 2010 and, indeed, Corporate Income Tax has gone down as a percentage of total tax revenue. So if you add together our direct taxes, our Income Taxes; Corporate and Personal Income Taxes; their share of tax revenues has gone down, from 41.9% in 2005 to 41.5% now [ Table 1* ]. Strong income growth has helped to bolster them as well.

Mr Speaker, Sir, if I can now conclude with a point which several Members have emphasised: that the Government cannot build an inclusive society on its own. An inclusive society is about keeping our community spirit alive and about all Singaporeans participating actively in their communities and taking responsibility for each other. That is indeed why a key part of the Government's effort is to put aside resources to support the voluntary sector, our School Advisory Committees, our SPED schools and to foster a culture of philanthropy. An inclusive society is about everyone taking responsibility. It is about the Government partnering with many good people and groups to make this a truly caring society. It is about each of us as individuals taking responsibility to keep improving our own skills and to look after our families as best as we can. Like the resident that Miss Penny Low had cited – a lady who refused all financial help from her and only wanted help to obtain a licence to sell ice cream so that she could remain independent and look after her family. Or the young man whom Mr Sam

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Tan got to know, whose mother gave him the courage to live out his dreams. As Mr Zainul Abidin Rasheed put it a short while ago, 三分天注定，七分靠打拼 (in Hokkien ) – translated directly in English: 30% is decided by the heavens, 70% depends on hard work. It is this spirit of personal and collective responsibility that will enable us, with our hands, our wits and our hearts, to make this a first-rate developed country. [ Applause .]

*Cols. 3407-3408.

The Chairman: Yes, Mr Low.

Mr Low Thia Khiang (Hougang): " Ai pia, ji ai yia " is very good. Sir, the Finance Minister has covered himself well, almost in every aspect. He said that whilst the total tax package is progressive, not all taxes are progressive. Yes, I think he knows very well that the GST is regressive, that is why we needed the Offset Package.

My question is – and perhaps I would like the Minsiter to clarify – why did he, first of all, tax a low-income family and then give them the Offset Package? I will not tax them and also give them some help. Does he not agree that the fundamental of tax principles must be whether you really need to tax? Do you really need the revenue from a GST that is 2% higher than I proposed? We now have two Integrated Resorts, new streams of income coming in – betting tax and probably from the increase in tourism visits.

Next, I would like Minister to clarify why is it that the chart shows that the lower income pays about 16% of the total GST tax? But if you look at the different percentiles of people who pay the GST, will it be – because the tax is wide-based – that the middle-class, middle- and upper-middle groups are actually paying much more in totality? In view of the higher inflation that we are expecting in

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the coming year, will it be a serious middle-income squeeze? And they will be adversely affected.

Well, I think some Members want to know who we wish to help. The Workers' Party helps and aims to help –

The Chairman: Mr Low, if you are seeking a clarification from the Minister, what are these comments about the Workers' Party?

Mr Low Thia Khiang: Mr Speaker, Sir, the Minister asked in his speech who to help, so I am clarifying who we want to help. [ Laughter .] I am not making a speech. Sir, we are a nation-based party, we help the whole spectrum of society and with the focus on workers. Workers, of course, refer to people who are employees. So, whilst we are focused on looking at the lower-income family, we are also looking at the middle-income family as well.

Sir, the next issue which the Minister for Finance has mentioned – and to which I agree with him – is that what is important is whether we can keep raising income for Singaporeans. That is what he said. I wish to clarify with him. He put up a chart to show that from 2000 to 2009, there was a 1.7% increase per year. And the target is to raise income by 30% over the coming decade. I would like to ask him how confident is the Government to raise incomes by 30% over the next decade given the situation in the last decade where we only managed half of it.

Would the whole picture change if, let us say, in the charts that were shown to us, we removed 2010's incomes? Would it show a different picture in terms of income growth of Singaporeans in the past 10 years?

The Chairman: Mr Low, please allow the Minister time to answer.

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Mr Low Thia Khiang: Sir, I am asking the Minister to clarify. This is what he has said in his speech. I am not introducing new questions or new points for debate. In his speech, the Minister also showed that the incomes have grown significantly and especially in 2010. But the Minister for Finance also said that 2010 was an exceptional year. So, my question is whether or not we are going to have more exceptional years to grow the same level of income for Singaporeans. Or would we be derailed, somehow, depending on the global situation, as the Minister also mentioned that we are a global city affected very much by changes in global circumstances?

Mr Tharman Shanmugaratnam: Sir, I would like to thank Mr Low for his questions, which I will take in turn. First, I think I will have to go over very briefly what I have just explained about how the GST together with GST plus – Workfare and the other transfers we provide – amounts to a highly progressive tax system.

Mr Low may not have followed everything that was on the chart I showed. Essentially, what I had shown is that first, the GST being a flat tax impacts all in society. Secondly, the wealthier groups pay more of the GST. Third, we use the revenue thereby collected to provide more benefits to the low-income group. This is not limited to the GST Offset Package. The Offset Package is not permanent although it lasts for several years for the lower-income group.

The real part of GST plus that I am emphasising is not the Offset Package. It is Workfare and the other enhanced permanent schemes to benefit the lower-income group. Sir, I have displayed a chart which showed that the permanent benefits, introduced together with the GST after 2007, themselves exceed the increased GST costs that the low-income group has to pay. And when we add that

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to the Offset Package, we have a very substantially larger number. As Members can see, the bar comprising the green and the yellow components which consist both permanent and one-off transfers significantly exceed not just the GST but all taxes they pay.

That is the GST plus system. GST alone is a flat tax; it is not a progressive tax. But the GST plus which came with it and motivated it, is a highly progressive system.

Secondly, I really have to emphasise that the more fundamental issue that concerns us in Government when we think through these schemes – and it has to concern any government – is that there are trade-offs in everything we want to do.

Ideally, we should be able to reduce taxes on the lower-income group, if possible, also the middle-income group, and perhaps even some of the higher-income group. Foreign domestic maid levies, why not? And still do everything that we are doing – Workfare, enhance the support for the poor, plus investing in the future. It does not work out that way. The arithmetic is simple. You have to balance your budget. If you are taking out these revenues, you also have to put back less expenditure, and you have to decide what to cut.

2.30 pm

What we are doing is having a broad-base type tax system in the GST that thereby allows us to have much lower GST rates than most developed countries. In fact, the US is the only developed country without a consumption tax and most reasonable observers will tell you that it is a matter of a few years, not even a decade by which they are going to have to introduce one. But our GST rate is far lower than the VAT rates that apply across the developed world. Why?

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Because we kept it simple, flat across the board, collect as much as possible from the upper-income group through the GST and use that revenue to subsidise and help uplift the lower-income group. That is the basic trade-off we have to address, and I would say it is a trade-off not just for the Government to address but for any responsible Opposition to address. That is what First World government and First World opposition has to be about, addressing the real trade-offs in every public policy, including what I was talking about earlier, which Mr Hri Kumar has spoken about yesterday. The real trade-offs that we always face between doing something to reduce inequality and doing something to keep up the drive to upgrade and improve, and raise incomes.

Casino taxes: that has been built into my projections already, that is, built into the 17% of GDP revenue that we feel will comfortably assure us of being able to pursue all the important programmes we want to do over the next five years. It is not as large as some people imagine, and I think Ms Denise Phua's point is a very important one. Besides our core taxes, let us not assume too much for taxes that we get from specific business activities, nothing is secure. Competition, growths and shifts, do not bank on large casino revenues forever and base your fiscal policies on that by making permanent changes that assume the casino revenue will continue to grow rapidly.

The Member asked about the middle-income group. First, I think he has misunderstood the chart I showed. The 16% of GST that is being paid is not from the low-income group. It is from the lower end middle-income group. Sixty percent of our population, the bottom 60% pays 16% of GST.

That is the chart [ indicating ] – 16% is paid by 60%, and the remaining 84% is

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paid from upper-income groups and foreigners. A remarkably efficient system and a fair one. I recognise Mr Low's desire, particularly at this point in time, to emphasise that he serves a wide spectrum of Singaporeans. I recognise too that the wide spectrum includes, in particular, the wealthy which his proposals would serve even better, as I have explained.

I do not think that was intended. I do not think it was his intention to deliberately favour the wealthy. But this illustrates the forming of policies that do not address trade-offs, that do not address how we have to fund expenditures and that concentrate only on trying to give and give away. I do not think he intended to do this but it illustrates the danger of ignoring trade-offs and ignoring the fact that if you want to do something good, you need some revenue and you have to decide on the most efficient way of raising the revenue.

The Member also asked the question about raising incomes of Singaporeans. I am glad that I get the chance to clarify. I have shown a chart to compare with other countries for 2000 to 2009, what was happening to median households. I must first explain two things. This chart is for the purpose of comparing with other countries. It is looking at all resident households, not just employed households. Therefore, the growth rate of incomes that Members see here, 1.7% per year, is a little lower than what we get for employed households because the chart includes retirees, it includes people who are temporarily not working, so on and so forth. For all countries, Members will find that is the case that when we include all households, the income growth rate is a bit lower because there are many people who are not actually in the income-earning group. So it is 1.7%, better than other countries. Secondly, this is only up to 2009. I did not include 2010 because there is no comparable

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data for the other countries. If you want the 2010 data, look at the Budget speech. It showed a 20% increase in median incomes over that decade from 2000 to 2010, and it will be a challenge to raise our incomes by 30% in the next decade. It is a real challenge. That is why everything that Deputy Prime Minister Teo was talking about yesterday, everything that the MPs were talking about, will not be easy work. It is not going to come easily, whether it is the Inclusive Growth Programme (IGP) scheme, or all the other schemes we are doing, starting from young and helping kids discover their strengths. This is going to be hard work and we may not succeed, but we want to give it our best shot and we are putting significant Government resources to support our businesses and our workers to try and achieve this.

Mr Low Thia Khiang: Sir, I thank the Minister for Finance for a comprehensive reply. On the issue of GST, he says revenue collected from GST will provide the necessary resources to help the lower-income families, and this is a trade-off. It seems to me that this Government looks at GST as a panacea to everything, as income to help the lower income. Sir, my concern is whether this mindset is a risk, that is, using GST as a way of being able to get the resources to help the lower income, to fund many other projects, even social projects. Will Singapore one day end up to be like Japan – high costs, high tax, very expensive and then low-income growth?

Mr Tharman Shanmugaratnam: I think Mr Low has repeated his question in a slightly different way, not that very differently but slightly different. So, I will try and give the Member an answer in a slightly different way. First of all, the trade-off I was talking about by the way is not a trade-off between taking something from you and giving something back to you. It is a trade-off between taking out a source of revenue that comes

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from a broad base of people and being able to provide benefits to where you feel it is most important for the low income, for the elderly, for the disabled and for all those whom we feel we have to do more for.

It is also a trade-off between providing benefits and retaining the urge to improve and succeed, which is at the core of Singapore success. All countries, including those in Europe which are best known for having built up a system of welfarism are now having to address this because of the persistence decline in the work ethic that came about because they gave more and more benefits on an entitlement basis. It is a real trade-off that all governments have to assess. As I mentioned, it is a trade-off which any Opposition has to address. The alternative policy cannot be about giving more and more. It is also has to see where you can to get the money from, and in the Member's case, if he is going to take less money from the rich, he has to explain how he is going to give more to the poor. So, we do not see the GST is a panacea. We see it as part of an efficient and equitable system because it is part of GST plus.

On the contrary, Mr Low did see reducing the GST as a panacea because, as I mentioned, he commented on nothing else in our Budget. All our long-term programmes, the most important ones, like Ms Jessica Tan, Mdm Halimah Yacob, and everyone were talking and making suggestions on – how we can improve them. Those were not his concerns. His panacea was 7% down to 5%, food bring it down to zero. Voila ! [ Interruptions ].

The Japanese, in fact, are now in the middle of a debate. They have 5% GST, but because they have extremely high income taxes and there are many other inefficiencies in their fiscal system, they are now in a fiscal bind. They anticipate having to raise their GST to 15%, some people say even more. Even those who

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are not fiscal conservatives in Japan are now increasingly recognising this. That is what happens when you do not keep the system as a whole in balance where you retain the drive to excel and to grow incomes and, in the meantime, fund your expenditures by borrowing on future generation's accounts. That is what happens.

So let us not pursue easy giveaways without a means to finance them. First, it is not fiscally possible or sustainable; secondly, more fundamentally, it is the way we decalcify our society.

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 2011 to 31st March, 2012.

Mr Speaker: I propose to take the break now. I suspend the Sitting and will take the Chair again at 3.00 pm.

Sitting accordingly suspended

at 2.41 pm until 3.00 pm

Sitting resumed at 3.00 pm

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[Mr Speaker in the Chair]: