FINANCE

Members will recall that a year ago the State of Singapore faced many financial and economic difficulties. There was a deficit looming on the horizon. There was considerable uncertainty as to the stability of the political foundation of the State and this led to hesitation on the part of potential investors. Our two great neighbours, the Federation of Malaya and Indonesia, then looked upon the events in Singapore with some reservation.

The far-sighted policies of the Government announced last year were firmly carried out and in 12 short months we have seen a complete reversal of position. The State ended the year's budget with a small surplus of $9 million.

Relations with Indonesia entered a stage of cordiality. This was principally due to a more realistic appraisal of relations between the two States. With regard to the Federation of Malaya, the danger then was that the Federation might pursue policies which did not take into account the legitimate interests of Singapore. This danger was happily averted. On major matters of financial and economic policy, the two Governments have taken pains to carry out mutual consultations. Examples of these are the Income Tax (Amendment) Bill, the new Currency Agreement, fiscal proposals over a broad field and, last but not least, the current talks on the Common Commodity Market.

In the field of trade and private investment, the economic policies of the Government have borne substantial fruit. The last 12 months saw considerable improvement in the volume of trade both for domestic market and for the entrepot. The atmosphere of uncertainty and hesitation in the field of private investment was replaced by a climate of confidence. Proof of this was the substantial volume of private investment now seeking permission to operate in Singapore. Applications for exemption under the Pioneer Industries Ordinance alone give a total paid-up capital of more than $101 million from 13 major concerns. These new industries range over fields as wide apart as oil refining, rolling of aluminium products, flour milling, sugar refining, production of foodstuffs such as chocolate, condensed milk, etc.

It will be necessary to ensure that the momentum which has been achieved at the cost of much hard work and planning should be sustained and increased. The most important single objective of the economic policy of the Government is to increase the rate of gross capital formation in the State. In the past years, gross investment in this island hardly exceeded 11 per cent of its national income. This proportion is quite inadequate, not only to provide work for our expanding population but even to maintain our present level of per capita national income.

It will be necessary to increase the rate of gross investment to something like 20 per cent of the gross national income. This will be the prime objective of the Five-Year Development Plan, the first draft of which has been prepared and which will form the basis of financial discussions with the United Kingdom Government.

In terms of money value, it will be necessary to plough back something like $400 million a year in investment. About half of this investment will take place in the public sector. This will include the expansion of economic services such as power, water and gas supplies, the construction of roads and bridges, improvement to the sea port and Airport and the Singapore River, enlargement of telecommunications facilities, provision of industrial sites and so forth, as well as investment in the social services the main item of which will be housing, schools and medical facilities. The proportions in which the demands for economic services and social services are to be satisfied have been provisionally estimated in the Development Plan. An assessment must be made of what overseas finance is available. It is expected that the answers to this will be known before long and the final copy of the Development Plan will then be tabled in this House.

The greater part of the money for public investment, however, must be found from our own domestic resources. This will mean the exercise of strictest economy in annually recurrent expenditure which provides for the normal economic and social services which we now have. The aim is to provide as large a surplus as possible in the annual budgets of both the Government and public authorities to finance development projects.

Industrial Expansion

Several factors which have generated confidence and stimulated industrial expansion are worth noting. They must be strengthened to consolidate the advances we have made.

The first of these must be a firm and stable Government whose policy and actions are consistent and predictable. These would allow long-term forecasts to be made by private investors with a degree of assurance that their calculations would be right. Next there must be stability in the basic elements of the economy. Foremost among these is that the value of the currency must be stable beyond any possible doubt. Then the basic economic services, such as the port services, transportation, power supplies, must maintain the highest degree of efficiency. A further important factor is stability in labour-employer relationships, for nothing is more harmful to economic expansion than the unpredictable outbursts of industrial strife. The labour policy of the Government which will be elaborated later is designed to secure this balance of competing interests between industrial peace and industrial action for higher benefits.

Trade

While it would be the principal objective of the Government to bring about accelerated industrial growth in Singapore, this does not mean that we are unaware of the importance of trade. For many years to come Singapore's trade will be the principal support of the economy and, as such, it will be Government's policy to avoid taking any action that will damage our trade. Indeed the Government will do what it can to promote and expand the volume of trade, although in the free port economy such as we are, the prime responsibility for trade promotion must rest with the traders themselves.