ECONOMIC AND FINANCIAL POSITION IN COLONY (Request for statement)

Mr John Ede asked the Financial Secretary whether he will make a statement on the present economic and financial position in the Colony.

Mr T. M. Hart: Sir, I have been asked to make a statement on the economic and financial position of Singapore at the present time and I welcome the opportunity of being able to do so.

There is, Sir, little doubt that Singapore is at present experiencing a recession in trade. There are on all sides complaints of difficulties in moving stocks, of restrictions in normal entrepot outlets, of tightness of money and difficult trading conditions generally. There is, however, more concrete evidence in other directions. There has been a certain contraction in the circulation of currency and over the past two months banks have purchased some $30 million worth of sterling. Customs duty receipts have fallen below the estimates in some directions and are barely holding their own in others. There has been a marked falling off in the consumption of liquor and receipts have fallen some $2,300,000 below the estimate for the first six months of the year. Petrol duty receipts have also fallen below the estimate by about half a million dollars and although consumption still increases, the rate of increase is considerably below that of pravious years. Receipts from entertainment duty are slightly ahead of the estimate but here again the rate of increase in the purchase of cinema seats is lower than in previous years. The number of new motor cars registered has also fallen considerably below the level for the same period last year. On the other hand, the consumption of tobacco appears to have gone up but this may be due more to the successful efforts of the Customs Department in suppressing smuggling than to any real increase in consumption. Again, there is an even more marked reluctance to pay income tax and company tax this year than last year when tardiness also gave some cause for concern. All these facts point clearly to the existence of a recession in trade.

It is impossible to say with any certainty what course the recession is likely to take in the future. Too many imponderables are involved. There are indications of an improvement in conditions in the United States of America and elsewhere and there is perhaps reason to hope that the corner has been turned in these countries. There are also encouraging signs in the local economy. The price of the higher grades of rubber has been maintained and rubber interests seem confident that the price of other grades will improve as the year progresses. Statistics suggest that the trade with Indonesia has been well maintained. There are therefore perhaps grounds for reasonable optimism about the future. At the same time, just as the effects of the world trade reces sion are delayed in reaching Singapore, so recovery is also delayed, although to a lesser extent. Therefore, even if the corner has been turned in the United States and elsewhere, we must expect the present recession to be with us for some time yet. It might be well into next year before the effects are finally thrown off. On the other hand, events could quite easily take place which might deepen and prolong the present recession. In the unsettled state of the world today, it is difficult to be certain of anything.

When, Sir, it became clear that Singapore was going to be affected by the general recession in world trade, the Government decided to take stock of its position. As hon. Members are aware, a considerable proportion of the Government revenue is derived from sources which are affected to varying degrees by fluctuations in trade. Forty-five per cent of the revenue comes from duties on liquor, tobacco, petroleum, entertainment and betting. The yield from all these sources is affected to a certain extent by contraction of spending power which is often due to a recession in trade. Twenty-five per cent of the revenue comes from income tax and company tax. The yield from this source is directly related to earnings which in turn are directly related to the state of trade. In the circumstances, it will be appreciated that even a mild recession in trade must have some effect on revenue. A serious and prolonged recession could have a corresponding effect.

Hon. Members will recall that when presenting the Budget for 1958, I said that provided there was no marked recession in trade and provided that Government expenditure and applications for supplementary vote were kept to an absolute minimum, revenue and expenditure should balance at the end of the year. It will therefore be appreciated that even a slight contraction of revenue could upset this balance and that a serious contraction could have a serious effect.

Hon. Members are also aware that the very ambitious development plans which Government has in hand are financed to a considerable extent each year by a contribution from revenue in addition to the development fund and surplus funds. Any marked contraction of revenue would limit the capacity of Government to make these contributions and might have serious effects on the implementation of the development plans. Again in this connection, the implementation of these plans gathered momentum in the latter part of 1957. More work was done and more money was spent than was expected. This in turn meant that the balance of the development fund carried forward into 1958 was smaller than estimated and meant that a greater proportion of the surplus funds available will have to be used to finance development in 1958.

That, Sir, then was the background against which the Government took stock of its position in the light of the uncertain economic situation. Now, Sir, perhaps I may be allowed to explain what action Government took as a result of its stock-taking.

With regard to the recurrent expenditure position, it seemed clear that there must be at least a slight contraction of revenue in 1958. On the other hand, the possibility was that it might not be very large, and the returns for expenditure for the early months of the year suggested that the estimates for expenditure which were made in December of last year would not be very far out. The most obvious way to offset this possible slight contraction of revenue was to cut expenditure and it was therefore decided to make a determined drive to reduce expenditure in the various departments within their portfolios. All vacant posts in the Establishment were frozen until Ministers had an opportunity to re-examine the need for them in the light of a change in the economic position. Proposals for special expenditure were treated in the same way. The recurrent expenditure in departments of Government was examined with great care to see what economies could be effected. This examination has proved to be a long and laborious business and has not yet been completed. On the other hand, sufficient information is now available to suggest that considerable economies can be effected and that these may go a considerable way towards offsetting the effects of any contraction of revenue which may take place in 1958. In short, therefore, when the accounts are made up, it may well be found that the deficit between actual revenue and expenditure in 1958 is comparatively small.

The position with regard to 1959 perhaps gives cause for a little more concern. As I have explained, the effect of any recession in trade on income and company tax returns is delayed and any marked decrease in individual earnings and company profit in 1958 could have a considerable effect on revenue from income and company tax in 1959. It has not so far been possible to obtain any reliable information on these points or to obtain any idea of the position in the Colony as a whole. I can however assure hon. Members that this particular question is engaging the close and constant attention of the Government and that whatever steps may be necessary to meet any situation which may develop will be taken.

With regard to development, as hon. Members are aware, the Government is already heavily committed in respect of development plans which all Parties are agreed are essential for the well-being of the people of Singapore. The implementation of these plans will stretch the resources of Singapore to the limit. Any shortfall of funds from any source which has been taken into account in planning might have an embarrassing effect. It was therefore essential to consider the possible consequences of any shortfall of contributions from revenue and contraction of reserves and to make sure that the Government was not over-committed.

Work in hand, Sir, at the present time will involve the expenditure of well over $70 million in 1958. This is more than has ever before been spent in one year on development and represents the fulfilment of all the Government's planning for the development of education, medical and health facilities, communications and public housing over the past three years. About $24 million will be spent by the Public Works Depart ment on capital works including the Polytechnic. About $22 million will be spent by the Singapore Improvement Trust on public housing. $5 million will be spent by the Singapore Telephone Board on telephone development; $4 million on rural development; $7 million on the purchase of sites for schools, etc, and on the resettlement of squatters, and the balance on miscellaneous special development expenditure. Expenditure of this order by Government will go a very long way to offset the effects of a recession in the building and allied trades and in many other directions in 1958.

With regard to next year, work and services now in hand but uncompleted at the end of this year will necessitate expenditure of about $24 million in 1959. Of this total sum, $16 million will represent capital work by the Public Works Department. There will also be other unavoidable commitments of which account must be taken. These commitments will total a sum of $30 million including some $15 million for public housing, $4 million for rural development, $2 million for telecommunications development, and so on. In brief, work in hand at the end of 1958 and additional commitments of a general nature which must be added in 1959 will involve expenditure in that year of the order of $55 million. This is a very sizeable sum and represents a level of development expenditure well up to that of previous years. It will go a long way to offset any effects of the present recession which may still persist in 1959.

All things considered, no serious difficulty is anticipated in financing these programmes. At the same time, until such time as the probable course of the recession and its possible effects on the revenues of the Colony are quite clear, care will obviously have to be taken not to enter into any fresh commitments which might subsequently be found to be embarrassing. With this in mind, Ministers are at present examining the list of additional items of public works which could possibly be started this year with a view to determining those which should be proceeded with forthwith and those which are of less importance and which can safely be kept back until a later date. It is hoped that this examination will be completed at an early date.

Mr John Ede: Mr Speaker, Sir, while we are grateful to the Hon. the Financial Secretary for his lengthy reply, is he aware that there is grave dissatisfaction in industrial circles at the failure of the Government to lay down a clear and unequivocal policy of support to local industry and that this is one reason for the economic setback?

Mr Hart: I would like to have notice of that question.