MEMORANDUM PRESENTED TO PARLIAMENT AS AN ADDENDUM TO THE ADDRESS BY HIS EXCELLENCY THE YANG DI-PERTUAN NEGARA ON THE LEGISLATIVE PROGRAMME AND THE POLICIES OF THE GOVERNMENT FINANCE

Economically, Singapore has achieved creditable progress in the past year. Our nation not only completely overcame the economic effects of Indonesian confrontation but indeed achieved a net increase in national income. When Indonesia began its hostile confrontation against us in late 1963 it was estimated that the consequent severance in trade with our neighbour would lead to a decline of about 8.7 per cent in national income. Happily the resilience and dynamism of Singapore's economy not only absorbed the loss but we were able to show a net increase of 2 per cent in our national income. In 1964 Singapore's national income totalled $2,811 million compared with $2,744.6 million the previous year.

The strength and resilience of Singapore's economy is best reflected in the increasing rate of capital formation achieved. In 1964 gross capital formation totalled $415 million which represents an increase of 28 per cent over 1963. This rate of capital formation is a significant break-through for it exceeds the average rate of annual increase of 22 per cent for the period of 1959 to 1963. Though this rate of capital formation is gratifying, gross capital formation in 1964 still accounts for only about 15 per cent of national income. To achieve sustained self-generating economic growth, Singapore would need to invest 20 per cent of its national income annually.

The economic progress made in 1964 is not an isolated achievement. It is a step upward in the chain of steady progress achieved in the past five years. In 1965 we see the close of Singapore's First Five-Year Development Plan. By the end of this year total planned expenditure will have amounted to $944 million of which $588 million or 62 per cent would have been spent on economic development projects and $343 million or 36 per cent on social development projects. The remaining 2 per cent was spent on administration facilities. Expenditure in the public sector in turn stimulated investment in the private sector. In the first four years of the plan period, i.e. 1961 to 1964, gross capital formation totalled $1,219 million. At the same time Singapore's national income also rose from $2,304 million in 1961 to $2,811 million in 1964.

Though the rate of progress achieved has been gratifying, the task ahead is still a challenging one as we begin our first year as an independent sovereign nation. The basic economic challenge is one of providing remunerative and meaningful employment to our predominantly youthful people. Whilst the problem of unemployment is within manageable proportions at present, the future both economically and politically will be fraught with danger if we do not create enough employment opportunities for the rising expectations and rising sophistication of our people.

Hence my Government is constantly exercising its mind in the search for new avenues for solution of this problem. Our long-term economic development will be based on a continuation of the policies successfully applied in the First Five-Year Plan. My Government will devote a large part of its resources to expand and firmly consolidate the infrastructure necessary for progress. At the same time it will also provide adequately the social amenities such as education, housing and health facilities which are necessary to enable our citizens to lead meaningful lives. Hence about $976 million or 64 per cent of total planned expenditure in the next five years will be spent on economic development projects. Social development expenditure will account for $486 million or 32 per cent of plan outlay.

An onerous but necessary drain on our resources will be the provision of capital expenditure for defence and internal security. This burden we accept as one of the hard facts of our existence as an independent nation.

The Second Five-Year Plan envisages an expenditure of $1,520 million. It is hoped that this will in turn generate matching private development expenditure of between $1,250 million and $1,300 million. This should result, given favourable opportunities for exports in the growing industrial sector of the economy, in an increase of national income of about 5 per cent per annum. As Singapore's rate of population increase has now fallen to about 2.5 per cent per annum this would enable Singapore to achieve sustained economic growth.

As an independent sovereign nation, we have reluctantly to assume that our neighbour Malaysia will from now on treat Singapore as any other third country in trade relations. On our part however we hope that Malaysia will treat us in terms no worse than any other third country. Singapore will have to search for more alternative foreign markets for its' manufactured products. Excluding processing activities industrial output in 1964 increased by some 16 per cent over 1963. To export we shall on our part have to raise industrial productivity. On the other hand, we hope that our friends and allies will not place artificial and discriminatory trade barriers against our products. We shall therefore explore ways of expanding trade with our traditional partners and also look for new opportunities in Africa and Eastern Europe.

While we shall strive to export more of our products my Government will not overlook the necessity to maintain Singapore's present level of entrepot trade. This will be achieved by creating a free trade zone where imports can be broken down and re-exported expeditiously without payment of duties.

In order to protect Singapore's new infant industries in their first crucial years, the Government has imposed tariff duties as well as quantitative restrictions on a range of imported products. The protective duties will have to be imposed for some years to come until the new industries have established themselves. Quantitative restriction will be removed as soon as it is opportune to do so.

Although the emergence of Singapore as an independent nation has brought about new challenges it has also given us independence of action. Thus regressive taxes imposed while we were in Malaysia have been rescinded.

In mid-November purposeful fiscal incentives were announced to encourage manufacturers to export as well as advertise more abroad and locally. A faster rate of write-off for depreciation of key industries which are export orientated can now be granted. The fuel tax imposed during the Malaysian phase was also lifted for manufacturers using fuel oil for manufacturing purposes.