HEAD M - MINISTRY OF FINANCE

COMMITTEE OF SUPPLY: Head M – Ministry of Finance

The Chairman: Head M – Ministry of Finance. Mr Inderjit Singh.

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Efficient and Enterprising Government

Mr Inderjit Singh: Madam, I beg to move,

That the total sum to be allocated for Head M of the Estimates be reduced by $100.

Looking, first, at efficiency. The goal must be the optimal use of public money in running of the Government. I understand that the Manpower Management Framework was implemented in 2004 in line with the Government's policy of keeping the public sector "lean and trim". Along with manpower reduction, the Government wanted to encourage the outsourcing of non-core operations to the private sector with the following objectives. First, to allow the private sector to perform jobs that it could perform better than the public sector. Second, to allow the Government to trim the wage bill for Ministries and Government departments, while helping them to focus on their core areas.

And I understand that the goal of 3% annual manpower reduction from 2004 to 2006 was implemented for all Ministries. In many areas, reduction goals were achieved through corporatising departments and subcontracting work out.

In my view, this encouraged reductions in the official staff strength, without necessarily too much emphasis on the productivity of Ministries. I would like to ask the Minister whether, in terms of dollar amount spent on payments to cover the costs of these outsourced functions, did we enjoy productivity gains? In other words, have we trimmed staff on the one hand only to bear increased services costs on the other? Reducing headcount with resulting higher costs might not make sense.

I also would like to highlight a common problem that accompanies

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outsourcing. And this is the temptation to go for the cheapest tenderer versus fierce competition among private sector companies that may unwittingly drive salaries of Singaporeans lower, especially of the corporatised organisation.

Sir, I also have specific questions with regard to a few increases which I noticed in the Budget Book. The Elections Department has increased its budget, by almost 100% from $14 million to about $28 million; MEWR, 107% to $13 million; and MOH's bill went up by 443% to $402 million plus. Could the Minister please explain these increases?

Sir, the Government is now correctly focusing on R&D, especially for SMEs for our long-term competitiveness. We need a coordinated push in Government for this to succeed.

So we can learn from the US. In 1944, the then President Franklin D. Roosevelt started the process by getting his wartime Office of Scientific Research and Development to find ways to mobilise science in times of peace, among other things, for the creation of new enterprises and bringing in new jobs. The resulting report was one called " Science: The Endless Frontier" . It led to a tremendous focus in the US for more active government role in funding research in the private sector as well as to engage the private sector in Government research work.

In the US, therefore, many government agencies have budgets to fund research by or together with the private sector with a particular focus on smaller companies. An example is the programme called Small Business Innovation Research, or SBIR, where government agencies are required to reserve parts of their funds for small businesses, typically funding the critical startup and development stages and also in innovating

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new products, whether outside or within government. In the US, government as well as private sector big companies do not shy away from partnering startups for high-risk development work. We need to develop such a culture here and the Government can start this process for us.

Sir, recently, the position of a Chief Innovation Officer (CIO) was announced, in fact, in the Budget. The type of person engaged in this role is very important. The Civil Service's reward structure may not incentivise long-term efforts such as R&D and capability development. The reward structure therefore needs to be reviewed if we want success. The CIO has to be someone, I believe, with substantial private sector experience if we want this to succeed. Also, key performance indicators should not just be pegged to the number of projects implemented but the number of projects undertaken, even those that failed. Otherwise, we will likely just see betting on winners and just big companies and Government officers shying away from risky but worthwhile projects. Could the Minister please elaborate on the intended role of the CIO?

_Manpower Planning
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Mdm Ho Geok Choo: Madam, MOF and PSD are joining hands to promote greater efficiency in the Government. Headcount numbers have been falling since 2004 as a result of the implementation of the Manpower Management Framework Reduction plan. This manpower reduction has been partly achieved through outsourcing specific services. I would like to ask the Minister what is the profile of those who have been asked to leave, eg, age, skills, and the cost-effectiveness of this approach.

It has been suggested that outsourcing is being implemented not to just private sector firms, but to GLCs and statutory boards. While there is no indication that

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this is the case, it has been suggested that some functions that used to fall within the ambit of MINDEF have been transferred to DSTA. Could the Government clarify how rationalisation and outsourcing has helped to raise cost-efficiency in the Government? It has been suggested that public money is just moving from one hand to another, that is, there has not been a serious revisitation of how we can make our Government leaner, not just in terms of manpower size but also in terms of cost. Can the Minister also elaborate on the Manpower Management Framework in the Civil Service and how this contributes to making the Government more efficient?

Government E-services

Mr Baey Yam Keng (Tanjong Pagar): Madam, Singapore has been ranked top internationally in terms of provision of Government services online. This is indeed a great achievement, in line with worldwide trend and increasing computer literacy of our population. As a user myself, I enjoy the convenience provided by the SingPass.

I understand Ministries and Government departments are assessed on the availability of their services online and their utilisation rate. To boost the utilisation rate, I am not sure if services are only made available online and other channels are removed. Is this a key performance indicator in the public service? Are there services to date which have been removed or made inaccessible through other means?

During the GST Offset Package registration period last year, thousands of Singaporeans thronged CPF offices during the last few days. According to a Zaobao report, many of them are senior citizens. They have chosen to queue up at the counters personally, some even with

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walking difficulties, to sign up or just to confirm that they have signed up. I suspect among the 4% of eligible citizens who have signed up then, as reported, or about 100,000 of them, a fair proportion of them are computer illiterate.

No matter how Internet-savvy Singaporeans become, as with any society, there will always be a group of people, either elderly, disabled, poor or lowly educated who will not use the Internet, or will not find using the computer an accessible and convenient experience.

They will need human service personnel to help them. While we should move with changing times, adopt new technologies, while most Singaporeans will be able to catch up in tandem and benefit from the greater efficiency, I urge the Government to continue sparing a thought for this minority group and make provisions for face-to-face service points, even if it will not be the most productive and efficient use of financial and manpower resources.

Sovereign Wealth Funds – Investments by GIC and Temasek

Mr Inderjit Singh: Madam, I would like to make two points that relate to Sovereign Wealth Funds (SWFs). The first concerns risk management and MOF's oversight over GIC and Temasek, while the second concerns how both of them can take a leadership role in the changed environment that SWFs operate in.

Sir, the Minister responded to my earlier questions in Parliament some months ago that MOF does not want to micro-manage GIC and Temasek. I understand his reason. Lately, however, we have seen both GIC and Temasek adopting different investment models when investing in banks and other companies with different results and I feel

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that MOF needs to establish certain minimum standards for investments.

The current hands-off approach has resulted in both GIC and Temasek investing heavily in banks – a total of more than $30 billion, with a further investment of $14 billion being injected to GIC which was announced on 28th February.

While for each of the GIC and Temasek funds their portfolio may make sense individually, does the Minister not think that if we look at Singapore as a whole, the Singapore portfolio may be too over-invested in financial institutions? These massive investments are over and above Temasek's substantial stakes in DBS and Standard Chartered Bank.

I feel that MOF needs to better manage the two SWFs to protect our reserves. Instead of investing all in banks given the circumstances, would it not have been beneficial from both a balanced portfolio consideration and also the fact that commodities and food prices will continue to rise for GIC and Temasek to perhaps invest part of the money into agricultural type of companies?

My point is that some rationalisation needs to be made for both GIC and Temasek to have some coordinated pattern of investment and MOF is best positioned to do this. One way, for example, could be, if MOF makes an assessment that a portfolio of, say, X%, $20 billion is appropriate for total investment into banks by both entities, then MOF could monitor the investments made by each of GIC and Temasek at their own pace, based on their own investment rules. And when the total investments of the two reach close to a limit of $20 billion set, MOF could alert and pay closer scrutiny on further investments, and perhaps even require both GIC and Temasek to operate on

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different rules when this happens and get MOF's approval for these investments.

Sir, recently, we have also seen a changing environment for SWFs and there is a need for greater scrutiny and the operating environment is rapidly changing. In fact, we are seeing discussion of this every day in the press. There are calls for greater transparency of all SWFs. The fears around the world are of SWFs investing to serve the national interest, instead of just on commercial principles on the basis that governments might also reject major investments based on this fear.

Earlier, we saw fierce resistance of DP World's bid to acquire port interests in the US and the mistrust sweeping the world with regard to investments by Chinese funds to secure energy resources, and generally by Arab-based funds. We have also seen similar

nationalistic efforts in Indonesia to sabotage investments made by Temasek in Indosat, and also in Thailand for the investments in Shin Corp.

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The European Commission plans to discuss the SWFs at their coming Spring meeting and the topics will include increasing transparency, predictability and accountability of SWFs. The aim is to establish a code of conduct, including standards in areas of transparency and governance. And this is happening in many other places.

We know that GIC and Temasek operate for profit, as they have done for decades now. But I do not think they have completely convinced everyone of their objectives. I believe that unless our SWFs show greater transparency and adopt certain accepted standards of governance, they might find themselves targeting investments which could be derailed. I am not calling for them to disclose all that they do. This is

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impractical and unnecessary and does not serve any interest. We can, however, take a leadership role in the present debate by coming up voluntarily with perhaps the following:

(1) The major objectives of the funds;

(2) A transparent set of guidelines on their investment principles; and

(3) The decision-making process, to show that they are independent from the Government.

I think the MOF can play a very big role in:

(1) Trying to manage how both the portfolios of GIC and Temasek are coordinated; and

(2) Setting up these new standards so that we can take a leadership role in this changing environment.

GIC and Temasek Holdings

Ms Sylvia Lim: Madam, in recent months, Sovereign Wealth Funds have been put in the spotlight. As SWFs venture to buy stakes in businesses in other countries, suspicion about their motives and resistance to sensitive industries falling into the hands of foreign governments, are understandable.

To assess the transparency of SWFs, Edwin Truman, Senior Fellow at the Pearson Institute for International Economics, came up with a scoreboard for Sovereign Wealth Funds in October 2007. He and his team assessed 32 SWFs, including our GIC and Temasek, on whether systematic, public information was given on the fund's structure, governance, transparency, accountability and behaviour. Out of 32 funds, Temasek

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came out 11th, while GIC was third from the bottom.

Domestically, there is a high public interest element in keeping Singaporeans informed about the management and returns on funds under the charge of GIC and Temasek, which are collectively estimated to be between US$200 billion and US$500 billion. While more is known about Temasek, 10 other SWFs still scored better than it on the Truman scoreboard. The GIC scored poorly in all categories.

In January 2008, Minister Mentor spoke to the media as Chairman of GIC and said that the International Monetary Fund was looking to Singapore, among others, to set disclosure benchmarks for SWFs. He said that this would lead GIC to become more transparent about its activities, "but we are not going to disclose just how much year by year we make or lose because that is none of their business. What they want to know is: are we manipulating the market."

Madam, even if it is none of their business to know how much GIC makes year by year, surely it is the business of Singaporeans to know this.

What are the areas that GIC and Temasek are looking into where more public and systematic disclosure can be given about their structure and activities?

Change of Mindset

Er Lee Bee Wah: Madam, a concern I would like to bring up today is that of a surplus mentality among the GLCs, TLCs and statutory boards. This means an organisation's main aim is to reap the profits at the end of a year that can be published proudly in its annual report.

I think this is an area where the mindset should be changed. We are living in a new enlightened economy where the

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bottomline is not only financial responsibility but environmental and social as well. This change of mindset will help the masses and indeed live up to the spirit of public service by showing their genuine concern and sincerity in helping the people rather than show the company's profitability. They must fulfill a social responsibility and look out for those from lower-income groups in times of difficulty. They need not be apologetic for their lack of surplus numbers but remember that they were set up with public funding and public patronage.

I, therefore, urge the Ministry to look into the terms of reference for quasi-Government bodies to temper the over-zealous focus on surplus at the expense of public interest. These companies include those that provide basic necessities, such as food, transport, water and power supply. Instead, I propose that these quasi-Government organisations or companies put emphasis on increasing societal support and be more transparent in any decision-making process and be benchmarked against their ability to deliver public service.

Financial Reporting Standards

Mr Low Thia Khiang: Madam, the financial statement of the People's Association ending 31st March 2007 has been qualified with an adverse opinion by the auditor. This was because PA did not provide audited financial information on its more than a thousand grassroots organisations (GROs) in its financial statement. The auditor is unable to assess the financial impact on the financial statement of the PA arising from the non-inclusion of the financial statements of the GROs. These qualifications are in relation to non-compliance with Singapore's Financial Reporting Standard 24 as well as FRS 27, consolidated and separate financial statements. I understand that this arises from the Ministry of Finance allowing statutory boards to be

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exempted from certain disclosure requirements of related parties through its minutes or circulars.

Madam, Singapore is proud to have an efficient and transparent public sector. However, such qualified audited report of the PA does not help to enhance the reputation of the public sector. Moreover, PA handles hundreds of millions of dollars of public funds. I would like to ask the Minister:

(1) What is the rationale for MOF to exempt statutory boards from certain disclosure requirements in FRS 24?

(2) What has prompted the MOF to issue such an exemption against international standards? Even the private sector listed companies are not exempted from such disclosures of related party transactions.

(3) How would this impact the transparency of statutory boards, given that many Government functions are now performed by them as agents of the Government?

(4) Does the Ministry of Finance accept that the financial statement of GROs under the management and supervision of the PA be left outside of PA's financial statements and, effectively, out of the public's scrutiny and accountability?

Tax Changes

Mr Inderjit Singh: Madam, I have some tax-related suggestions for individuals and companies.

First of all, the NOR scheme for Singaporeans. The Not-Ordinarily-Resident scheme has been successful in attracting talented high-earners to base themselves here, in particular, if they travel frequently. This is applicable only to foreigners. There has been feedback by Singaporeans who

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travel frequently that they should not be treated differently from foreigners. Specifically, some of them are asking to be included under the NOR tax incentive scheme, by apportioning their tax liability for the time that they spend in Singapore. This will encourage more of them to take up opportunities in the region and will catalyse them to internationalise.

Sir, I would also like to suggest that, to assist businesses with the cost crunch, we levy a concessionary rate of property tax for commercial or industrial properties that are owner-occupied, quite like the owner occupancy concessions for property tax we have on residential properties.

Presently, the foreign-sourced income received by a resident company that satisfies the qualifying conditions is not taxable. This is narrower than the exemption given to individuals for foreign-sourced income, which is not taxable outside some specific exceptions. I would suggest that we equalise the two rules for companies and individuals.

According to industry feedback that my GPC got, the present system for companies does not allow them an easy way to decide whether their foreign-sourced income is indeed exempt. They have to go through a very onerous application process, following which a decision will be made on the subject income by IRAS. This is presently retarding the consolidation of group accounts and resulting in income being managed out of Singapore but not consolidated here. There is a lot of benefit for us to streamline this process.

With regard to mitigating inflation, I hope that we can review our tax brackets and, if needed, adjust them, since people's nominal income may have been growing but their real income may not

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have been keeping pace with inflation, so they may end up in a higher tax bracket with a higher tax liability while at the same time earning a smaller real income due to higher costs. An alternative to this is what I suggested during the Budget debate, ie, to have higher reliefs for self, children or elderly parents to keep up with the costs that have gone up.

Finally, I want to repeat the point made by Mr Banerjee regarding the implementation of the R&D incentives which could pose some problems. I also agree with him that the definition of R&D is quite narrow and supports high-technology product companies. I ask the Minister to review the definition to allow more companies, especially service companies, to benefit from innovation-driven activities.

The Chairman: Prof. Thio Li-ann is not here. Dr Loo Choon Yong is also not here. Miss Penny Low.

Budgeting for National Resilience

Miss Penny Low: Madam, this Budget seeks to build a resilient community. But, so far, we have emphasised more on building economic and social security resilience. This is insufficient. Real resilience must come from within our people and the good news is that we already have it, and that is what helped the human species survive for so long.

Hence, I urge urgent investment into a climate to bring out our natural resilience so that we can become a nation of navigators rather than victims of change. Here, three conditions are needed:

(1) A warm and supportive environment to turn challenge into opportunity;

(2) Encourage high expectations; and

(3) Offer rain-making opportunities.

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Madam, we can leverage on the passion of the non-profit sector to build national resilience. We could inject resources to NGOs, NPOs and self-help groups. We could do a few things:

(1) Update our current tax and legal infrastructure to favourably nurture the 3rd and 4th sector economy;

(2) Provide land, secondment of manpower from public to people sector, tax credits for private sector and secondment or pro bono services;

(3) Extend tax credits to donations for non-IPC self-help groups of all types, and allow a thousand flowers to bloom; and

(4) Develop a non-profit park, like Biopolis, when we wanted to develop the life-sciences, to capacity, develop and nurture the spirit of self-help and mutual help.

Last but not least, we cannot expect everyone to be a rainmaker, but the key is to increase these numbers. When we have a critical mass of resilient citizens, we can then make systemic changes and weather any storm. Let us make this our top national agenda.

The Minister of State for Finance (Mrs Lim Hwee Hua): Madam, let me first thank hon. Members for their comments and suggestions. The issues they have raised fall under the following five broad categories:

(1) Public sector performance and accountability;

(2) GIC & Temasek;

(3) Statutory boards;

(4) Taxation; and

(5) Budgeting for national resilience.

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Madam, our public sector continues to be rated highly for efficiency and trust. We were recently ranked second in the world, after Denmark, for government effectiveness by the World Bank, and our public sector expertise is highly sought-after by other countries. We have managed this while keeping our public sector small, compared to other developed countries, through various measures.

Mr Inderjit Singh and Mdm Ho Geok Choo have asked whether one of our measures, ie, the Manpower Management Framework (MMF), is cost-effective and whether the manpower cuts are merely passed on to the statutory boards or to the private sector through outsourcing.

The MMF is imposed on a Ministry Group basis, ie, Ministry-HQ, Departments and statutory boards. There is no headcount reduction at the public sector level if the staff were merely moved from the Ministry-HQ to its statutory board.

The public sector achieved a reduction of almost 4,000 officers or 5%, between the years FY2004 and FY2006. This excluded manpower cuts due to corporatisation. The reduction was achieved through, firstly, outsourcing of non-core functions only when market-testing indicated better value for money and, secondly, from internal restructuring through job redesign and process streamlining. Outsourcing accounts for about a third of the 4,000-odd headcount reduction. There was also natural attrition through resignations and retirement.

Tenders and quotations are called for outsourcing projects. It is done in the usual open and transparent manner, with no advantage given at all to any company, and regardless of whether the Government is a shareholder. Mr Singh has asked if Government has tended to choose the cheapest tenderer in its outsourcing. Let me assure Mr Singh that

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the Government is mindful not to turn Best Sourcing into cheap sourcing. In fact, for the record, about a third of all Government tenders last year were not awarded to the lowest bidders.

Since FY2004, 70% of the non-core functions that were considered for Best Sourcing have been outsourced, resulting in total contracts worth $2.1 billion. The remaining 30% continued to be done in-house after market testing. The profile of officers affected by outsourcing varied. For example, in the outsourcing of car-park enforcement by URA, mostly junior level positions were affected. For the outsourcing of Government chalet operations, those affected included Division 1 positions.

Madam, I would like to assure Mr Singh that productivity gains were achieved through outsourcing of non-strategic functions. For instance, the outsourcing of carpark enforcement by URA and HDB has resulted in annual savings of about $3.8 million, while ensuring the performance of the service provider remains satisfactory and desired outcomes are achieved.

Internal restructuring has also led to productivity gains. One such example is the setting up of Vital.org to provide shared services for 38 public sector agencies. This has resulted in manpower savings of 33 headcount or annual cost savings of $1 million since FY2006.

The somewhat small reduction number belies the actual achievement. It does not take into account the increased workload and new functions that our agencies have been undertaking. For example, MFA has established new missions in regions such as the Middle-East, whilst CAAS has added the Budget Terminal and T3 to their operations at Changi Airport.

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But there is a limit to how much more we can pare down manpower in the public service. In view of the growing needs of the economy and the population, as well as increasingly complex issues that the service has to deal with, MOF has reviewed the MMF framework. Ministries and statutory boards will now be allowed to grow their manpower but in line with the overall growth rate of the resident labour force.

The specific cost increases that Mr Singh has cited are due to the following reasons, but should he require more details, I would encourage him to file the necessary Questions.

As a matter of course, the Elections Department annually sets aside sufficient funds to hold a General Election as it is the Prime Minister's prerogative to call for one at any time. At the revised estimates stage last year, the Elections Department may have assessed that the likelihood of an election being called was low, and reduced its revised estimates accordingly.

The main increase in MEWR's projected costs was due to the ongoing demolition of the 33 pumping stations and the reinstatement of land occupied by these stations.

The increase in the Ministry of Health's bill for supplies and services is largely due to new initiatives to enhance healthcare manpower capabilities, hardware and software to improve clinical outcomes which are consistent with the objectives that the Minister for Health has just elaborated on earlier.

Madam, efficiency and productivity alone is not enough. The public sector has to innovate and find creative and better ways to deliver quality service to

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its customers. Mr Singh has commented on the importance of R&D and innovation. Indeed, the public sector would be more active both in adopting innovation in providing better public service and helping to catalyse private sector innovation.

As mentioned in the Budget, a new Public Service Innovation Framework enhances previous efforts to bring about breakthrough public services. The emphasis would be on experimentation and innovation with the recognition that many creative ideas can come from small and nimble companies besides the large firms.

Mr Singh has also commented on the ideal Chief Innovation Officer. The post of Chief Innovation Officer is currently being filled by senior officials within Ministries who have ample policy experience and who have a broad view of Government's operations that transcend Ministry or agency lines. Many are Deputy Secretaries. I believe they are well qualified and well placed to facilitate the development of more innovative public services. Within the Public Service Innovation Framework, other stakeholders such as the industry development agencies, the research institutes, and of course the private sector companies themselves will provide valuable perspectives on market trends and technology directions.

Next, Madam, on e-services. Putting public services online can provide greater convenience to our customers. Customers can then transact with the Government 24/7 and on the go, without having to visit Government counters in person. According to the e-Government Customer Perception Survey, which was carried out last year, nine out of 10 customers had transacted with the public sector electronically at least once. Of these, 93% were pleased enough with the experience to recommend others to transact with the public sector by electronic means.

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As Mr Baey has noted, such e-services have recently gained approval of the business community as well; with Singapore being regarded as the most business friendly economy by the World Bank. Accenture has also rated Singapore very favourably in its 2007 e-Government ranking which focuses on leadership in customer service.

Mr Baey has asked, however, if many of the elderly, disabled, poor and lowly-educated Singaporeans would face difficulty gaining access through the traditional offline channels. Let me assure Mr Baey that we are mindful that a small segment of the society may be less IT-savvy or not have Internet access, and we have therefore implemented several initiatives to complement the appropriate amount of offline service channels.

Firstly, 28 CitizenConnect centres have been set up; conveniently located all across the island at community centres and clubs, and Government agencies such as CPF and IRAS. Trained officers are around to help. In 2007, more than a hundred thousand individuals have used such centres. Eighty per cent of them expressed confidence that they will use the Internet to transact with the public sector in the future.

Secondly, beginning November 2007, IDA will be investing some $43 million in programmes to help the elderly, the disabled, the poor and the less educated acquire IT literacy. Apart from basic computer and Internet skills, they are also taught digital lifestyle skills, such as how to make video calls over the Internet, and how to access Wireless@SG. Needy families with school-going children are given help to acquire personal computers and broadband access for the children.

Madam, I will now move on to issues related to the financial stewardship of the Government's assets. Mr Inderjit Singh and Ms Sylvia Lim have touched on

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whether the Government has sufficient oversight of GIC and Temasek. Mr Singh has also asked whether the Government should set some broad guidelines which GIC and Temasek should abide by.

Madam, let me explain how the Government relates to GIC and Temasek. GIC and Temasek operate independently of each other and of the Government. Their mandates are to maximise the overall returns of their investments within their respective risk tolerance limits. GIC's and Temasek's performance is assessed and monitored on the basis of the overall returns of the respective portfolios. Up to now, as Members would know, they have done creditably, with GIC averaging an annual return of 9.5% in US dollar terms over a period of 25 years to March 2006; and Temasek's total shareholder return by market cap since 1974 has averaged over 18% annually in Singapore dollar terms.

Both have achieved these good returns because they have professional management teams drawn from all over the world and without interference from the Government. They do their jobs with the single objective of maximising the long-term returns on the portfolios, without any political agenda whatsoever.

That said, it does not mean that the Government has no responsibility to ensure these institutions continue to be managed well. The Government ensures that both GIC and Temasek have competent boards who oversee their performance and risk management frameworks. The Government regularly reviews reports from GIC and Temasek on the overall investment performance, the portfolio risks profile and risk management. This is the right balance when exercising oversight. The danger of any higher level of oversight is that the Government could end up micro-

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managing. It would give others the mistaken notion that the Government influences the individual investment decisions of GIC and Temasek, and will raise even more concerns.

I know Mr Singh, like many others, is understandably curious about the recent high profile investment made by the two agencies. He should be assured that these investments were made after very thorough assessments of the market developments, risks and potential returns including factoring in the opportunities and risks that they can afford to take in a down market. GIC and Temasek are long-term players out to seek long-term returns.

Madam, Mr Singh's advice on diversifying their investments would no doubt resonate with GIC and Temasek. GIC already manages a diversified portfolio across a wide range of asset classes in markets worldwide, including publicly-listed equities, fixed income instruments, commodities, real estates, private equities and across different industries and different geographies. Temasek, too, has a substantially diversified portfolio.

The recent high profile investments by GIC and Temasek do not signal any shift in their investment strategies. As they have stated, they made these investments because the current financial situation in US and Europe offers unique and unprecedented opportunities for long-term investors. As long-term investors, they are able to take calculated risks in the short to medium term.

Mr Singh suggested that the Government has some level of coordination between the investments by GIC and Temasek so as to limit the risks for Singapore as a whole. The Government does not coordinate GIC's and Temasek's investments, but does look at the risks in totality to ensure that, firstly,

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they are within the Government's overall risk threshold and that, secondly, GIC and Temasek are likely to be able to provide Government with good long-term returns on their overall portfolios.

Madam, it is absolutely critical that GIC and Temasek remain strictly independent of each other in their strategies and execution, and that the Government does not get involved in managing the investments. The role of the Government in the investment process is clear – it is to ensure that the right structures, processes, systems and controls are in place to fulfill our objectives. We set our expectations and constraints for the investment agencies; but these agencies make their own independent commercial and operational decisions. Both GIC and Temasek are well regarded in global markets as savvy and reputable long-term investors, and their track records stand as testimony.

Both Mr Singh and Ms Sylvia Lim have suggested that our investment agencies work towards more transparency and accountability. We already have a clear accountability framework in place; and one which has worked well thus far.

The Government, as shareholder in Temasek's case, and as fund owner in GIC's case, holds the respective Boards of Directors accountable for delivering good overall financial returns. In turn, the Boards oversee the respective management teams which are responsible for each company's investment and operational decisions.

There are also constitutional safeguards for the protection of reserves under which GIC and Temasek are additionally accountable to the Elected President. The Elected President serves as a check, independent of the Government. The Elected President is empowered under the Constitution to obtain information to enable him to

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monitor these reserves and he must concur with the appointment or re-appointment of any person to the Boards of GIC and Temasek.

Madam, Mr Singh has asked how we are tackling the sovereign wealth funds debate, or the SWF, which has gained significance recently. We would like to assure him that we are not passive observers in the debate.

GIC and Temasek's long-standing and good track records, that are referred to earlier on, have given the markets as well as the recipient countries assurance of their commercial orientation. However, MOF as well as the two agencies are actively engaged in dialogues with the investment recipient countries, including the US which is where the SWF debate is most prominent. The major recipient countries have had a high degree of respect for both GIC and Temasek, and an understanding of the commercial orientation.

There is also a consensus to date amongst the major countries on the importance of an open investment environment that does not discriminate against SWF as compared to the other players. Singapore is also viewed by many as being in a good position to advance the development of voluntary best practices for the SWFs. This will ease international concerns about their operations. We are supportive of the IMF's effort to develop a set of voluntary guidelines and are open to sharing of views at the appropriate platforms. In fact, last year, we participated in the SWF Outreach Dinner with the G7 Finance Ministers as well as IMF Roundtable of Sovereign Asset and Reserve Managers.

As regards Edwin Truman's Scoreboard that Ms Sylvia Lim referred to, that is actually a work-in-progress and, in fact, Mr Edwin Truman has been seeking our inputs. It is a useful process. MOF is

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currently still in touch with the US authorities as they regard us highly and would want us to be intimately involved in setting the guidelines.

We will disclose what is in Singapore's interest and what is necessary to assure the markets.

6.30 pm

On the specific issue of transparency and public disclosure, I agree with Mr Singh's comments that this must be practical and serve a purpose. In particular, this should be aimed at ensuring that GIC and Temasek continue to be commercially oriented, be professional investors, and be credibly perceived as such. At the same time, the type of disclosure should not compromise the competitiveness of our investment agencies relative to other global market players.

Temasek has published an annual Temasek Review since 2004, which gives an overview of their investment strategy and governance framework along with the group's activities and performance. Temasek has also obtained Triple-A credit ratings by Standard & Poor's and Moody's, and has issued a global bond. GIC has already disclosed information on its website relating to its investment process, long-term performance, strategies of the various investment groups and investment highlights. The Ministry of Finance is in discussion with GIC on a public document that will further clarify the processes, governance and purposes for its investments.

Madam, let me now move on to Ms Lee Bee Wah's cut. Ms Lee Bee Wah has asked whether the GLCs that provide basic services relating to food, transport, water and power supply should look beyond surplus achievement and shareholders' interest to social obligations.

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First, let me clarify that Government-linked companies are not in any way "quasi-government". They are totally independent of the Government, which maintains strict arms-length relations with them for sound corporate governance reasons. All companies, regardless of ownership, must operate on an economically viable and sustainable basis. In this regard, companies which have the Government or Temasek as their shareholder have to operate on commercial principles and are no different from private sector companies in terms of focusing on the financial bottom line. This is critical for their long-term survival as they do not enjoy any advantages from the Government and are subjected to the same regulations and competitive market forces as any other company.

Madam, it would be wrong for the Government to impose any social obligations on the management strategy or operations of any company regardless of ownership. It also places unfair obligations on the company's board of directors who have the fiduciary duty to act in the company's interest, and not in the interest of some other groups. It could, in addition, distort market pricing and affect competition in the marketplace. The way to keep prices of essentials affordable is not for Government to place social obligations on companies but to promote a competitive marketplace, or where there is market failure, to put in place a transparent regulatory framework. For Singaporeans who need help, the Government will provide targeted assistance so that they have access to essential goods and services, eg, the Government has given out U-Save rebates instead of requesting Singapore Power to lower its prices.

That said, many companies do discharge their social responsibility voluntarily. For example, in 2007, the transport operators contributed public

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transport vouchers to help the lower-income households cope with the fare increase. Likewise, NTUC has also given out $1 million worth of food vouchers to lower-income families. It is encouraging to see such voluntary practices of corporate social responsibility amongst our local companies.

Madam, let me now move on to Mr Low's cut on the statutory boards. Mr Low Thia Khiang has asked for the reasons for change in disclosure requirements for statutory boards and comments by auditors on the People's Association's accounts.

Before November 2007, MOF, through the Accountant-General's Department, issued finance circulars to prescribe the accounting standards for statutory boards. The key guiding framework used has been the Singapore Financial Reporting Standards, or the SFRS. However, these standards are designed primarily for profit making entities in the private sector. Therefore, the relevance and the appropriateness of each standard to statutory boards has to be examined first before they can be adopted.

In November 2007, this House passed the Accounting Standards Bill, and the Act came into effect, empowering the Accountant-General to prescribe accounting standards for statutory boards. A committee of independent members with representatives from the Auditor-General's office, the statutory boards, the academic community and the public accounting firms, has been formed to advise the Accountant-General.

New SFRS and amendments to standards will continue to be examined for their relevance and appropriateness to the statutory boards. As such, there has been no change in the substance of preparation and presentation of accounts by statutory boards. Neither has there

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been any move to change the disclosure requirements of statutory boards. Our arrangements are similar to the UK where the Treasury prescribes the standard for public sector entities.

As regards PA's non-consolidation of grassroots organisations' accounts, the auditor, PriceWaterhouseCoopers, has qualified the financial statements of People's Association on the basis that the accounts of the grassroots organisations were not consolidated. PA's view is that the accounts of grassroots organisations should not be consolidated for the following reasons.

Firstly, the funds in these accounts belong to the grassroots organisations. Secondly, the Government grants and the cost of staff support are already accounted for in PA's financial statements. Thirdly, the grassroots organisations are operationally self-funding through revenues from activities, courses and donations. Fourthly, the grassroots organisations decide on how their money should be spent for the benefit of the residents. And, finally, proper procurement procedures, financial control and good corporate governance practices apply to the grassroots organisations.

I would like to clarify that this adverse opinion pays more emphasis to the FRS27, than to the FRS24, which is the general exemption granted to all statutory boards on account of the onerous work that would otherwise be involved in the disclosure of related party transactions. This is because related party transactions are much more onerous for statutory boards compared to private sector entities due to the wide range of Government related entities. I should also add that other countries have similarly found a need to depart from the FRS24. For example, Australia fully exempts its not-for-profit public entities from such disclosures as well. The Accountant-

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General's Department and the Ministry of Finance are discussing this FRS27 issue with PA.

Madam, let me now move on quickly to the issues relating to our tax regime. Mr Singh has asked if the Not-Ordinarily-Resident, or NOR, scheme results in unequal tax treatment between Singaporeans and expatriates, and asked if we could accord time apportionment to the Singapore-sourced income of Singaporean employees based on their time spent outside Singapore.

Madam, it is important to note that the NOR scheme is not intended to give a protracted tax concession to individuals who newly base themselves in Singapore over those who are permanently resident here, especially our own citizens, for equity reasons. The tax benefit expires after five years as the aim is to encourage individuals to settle down here thereafter. We do not intend to do away with this five-year limit.

Mr Singh has also asked the Government to consider granting a concessionary property tax rate for owner-occupied commercial and industrial properties.

Madam, the same tax rate of 10% of the Annual Value is applied to all properties irrespective of whether the property is owner-occupied or rented out. We only make the exception for owner-occupied residential properties where a concessionary tax rate of 4% is granted as part of the Government's policy to encourage home ownership. For commercial and industrial properties, it is a business decision whether a business chooses to buy or to rent a property. There is no policy reason to favour one over the other. Giving a concessionary tax rate for owner-occupied commercial or

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industrial properties will only distort business decisions and unwittingly put SMEs at a disadvantage since they are less likely to buy their own properties.

Mr Singh also suggested equalising rules on foreign-sourced income for individuals and companies. Most countries in the world continue to tax worldwide income of corporations. This includes countries like Ireland, the Netherlands and Switzerland. In Singapore, locally-sourced income and only foreign-sourced income remitted from abroad are subject to tax. For foreign-sourced income remitted, active income, which includes branch profits, service income and dividends, are exempted if they are earned in countries where the headline tax rate is at least 15% so as to encourage our companies to venture and operate abroad. However, foreign-sourced income like interest income is generally passive and, therefore, not exempted. So, if we were to do so, this will entail significant revenue loss. However, to make our regime more friendly to the repatriation of foreign-sourced income, the recent Budget 2008 extends unilateral tax credit to all income including interest income earned in non-treaty countries. So companies will not be doubly taxed when they remit such income regardless of whether the income is earned in treaty or non-treaty countries.

Mr Singh has also asked if we could review our tax brackets or raise the amount of personal income tax reliefs as a permanent fix for our middle-income groups who face rising cost of living. Madam, our personal income tax system is already very progressive. About two-thirds of our resident labour force do not pay taxes due to our $20,000 income exemption threshold and various reliefs and rebates.

The Chairman: Your time is up, Mrs Lim. But perhaps you may like to take two minutes to wrap up.

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Mrs Lim Hwee Hua: Yes, thank you. Increasing the exemption limits or tax reliefs will only erode our already narrow tax base further and work against our efforts to keep our personal income taxes low.

I should also add that our reliefs are not meant to offset expenditures and, hence, are not pegged to inflation. Rather they are given in support of our social policies, for example, parents and child relief. Increasing reliefs or adjusting the tax brackets will tend to benefit the higher income group as the lower and middle income groups already pay little or no taxes.

Let me just clarify that our R&D definition for income tax purposes is consistent with that used in countries such as Ireland and the UK. This would cover both downstream and upstream R&D, and is applicable to both companies in the manufacturing and services sectors. We recognise the need for simplicity in implementing the R&D incentives, and we will be working with IRAS to issue guidelines to clarify the operation of the R&D incentives.

Finally, on Miss Penny Low's cut. Miss Penny Low has rightly pointed out that real resilience must come from within our people. Madam, the Government has always adopted a "Many Helping Hands" approach with self-help and mutual help as central philosophies. The community, Voluntary Welfare Organisations, grassroots organisations and self-help groups play a very important role in this approach, reaching out to the needy to help them achieve self-reliance while building up a strong community spirit.

The Government supports these efforts in many ways. Just to clarify, today, charities are exempt from income tax and property tax for premises used exclusively for charitable purposes. Donors to IPCs can also claim a double

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tax deduction for their donations. We have restricted this to IPCs so that we can target the tax concession at organisations whose causes benefit the Singapore community as a whole, as opposed to those with sectional or commercial interests. Apart from the favourable tax treatment, there are other measures which, I believe, MCYS would be addressing in greater detail in its COS, following the recommendations of the Social Enterprise Committee.

Just to summarise, the Government has provided substantial support towards the people sector organisations and we will continue to work closely with them.

The Chairman: We still have time for perhaps one, or at most two, clarifications. Do Members wish to seek any clarification? Yes, Ms Lee Bee Wah.

Er Lee Bee Wah: Madam, from the Annual Reports and various interviews, it gives the public the impression that our public transport providers like SMRT and SBS Transit emphasise too much on shareholder returns at the expense of commuters' interest.

By the nature of their business, they have very low business risk and, hence, lower return for shareholders is quite reasonable. What I am asking for is to strike a balance between the interest of the commuters and the interest of the shareholders.

6.45 pm

Mrs Lim Hwee Hua: Madam, the fare review mechanism seeks to strike that balance and, as commercial operators for the transport industry, the operators would know well how to strike that balance in terms of making sure that they have sufficient ridership at affordable prices. That is not usually an easy balance to strike. But it would be wrong for the Government to impose or to

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regulate the fares in any other way such as dictating a certain level.

Ms Sylvia Lim: Madam, I would like to seek a clarification from the Minister of State. She mentioned earlier that GIC and Temasek would work towards disclosing what is in Singapore's interest to disclose. I find this quite general. I wonder if she could elaborate a bit more on what she means by that. For example, is GIC looking towards preparing an annual report of some sort? Is it prepared to review the worth of its funds, its returns, which sectors it is involved in, for example?

Mrs Lim Hwee Hua: Madam, it is useful to recap the many discussions that this House has had, regarding the revelation of the size of our reserves. The Ministry of Finance has carefully considered this and concluded that it does not serve our national interest to disclose the overall size of our financial reserves. That is not what is required. The whole discussion about the Sovereign Wealth Funds actually relates less to the size of the funds and more to the demonstration of commercial orientation. As regards what the MOF is doing with the GIC, we are working on a public document that would further clarify the processes, the investment purposes as well as the corporate governance structures.

The Chairman: Mr Inderjit Singh, do you wish to withdraw your amendment?

Mr Inderjit Singh: Madam, I would like to thank the Minister of State, Mrs Lim Hwee Hua, for comprehensively answering all the questions, especially on the SWFs. I think we had a very good answer for that and we are reassured that MOF is indeed reviewing what needs to be reviewed. With that, Madam, I beg leave to withdraw my cut.

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Amendment, by leave, withdrawn .

The sum of $459,148,900 for Head M ordered to stand part of the Main Estimates.

The sum of $142,033,400 for Head M ordered to stand part of the Development Estimates.

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COMMITTEE OF SUPPLY REPORTING PROGRESS: * * *

Mr Tharman Shanmugaratnam: Mdm Deputy Speaker, may I seek your consent to move that progress be reported now and leave be asked to sit again tomorrow?

The Chairman: I give my consent.

**** Resolved,

That progress be reported now and leave be asked to sit again tomorrow. – [Mr Tharman Shanmugaratnam].

**** Thereupon Mdm Deputy Speaker left the Chair of the Committee and took the Chair of the House.

Mr Tharman Shanmugaratnam: Mdm Deputy Speaker, I beg to report that the Committee of Supply has made further progress on the Estimates of Expenditure for the financial year 2008/2009, and ask leave to sit again tomorrow.

Mdm Deputy Speaker: So be it.