ANNUAL BUDGET STATEMENT

3.22 p.m.

The Minister for Finance (Dr Goh Keng Swee): Sir, I beg to move,

That Parliament approves the financial policy of the Government for the financial year 1st January, 1969 to 31st March, 1970.

Sir, in last year's Budget, Defence Expenditure did not occupy a prominent position. Although the Republic had been building its Defence forces since 1965, the first announcement of British withdrawal plan called for no change in the Republic's Defence Programme as the assumptions on which these plans were based took into account the probability of total withdrawal of the British presence by 1975. It was then proposed to expand our Army to seven Infantry Battalions. These with their supporting arms and services will provide the elements of two Infantry Brigades. Last year I was able to make the following statement in my Budget address:

'Provided there are no further changes of mind on the part of Her Majesty's Government, the build-up of our Defence Forces on land will continue as planned.'

The reservations contained in the proviso struck an ominous note at that time and unhappily for us the fears on which they rested were realised. The ac celerated withdrawal plan had totally upset the assumptions on which the first Defence plans were made and it was therefore necessary to revise and draw up an entirely new plan. From time to time, Ministers of the Government had made public statements about the buildup of this or that element of the armed services. I myself made a forecast last September that there would be a very substantial increase in the Defence Budget for the forthcoming year. I mentioned a figure of Defence expenditure reaching some 10 per cent of our gross national product, as a result of which tax increases were hardly avoidable.

It is clear that this very large and rapid increase in our Defence expenditure sets the dominant theme in this Budget. In a closed totalitarian system, it is possible to incur expenditure of this size in secret without any need for a public explanation as to how the money is being spent. In an open Parliamentary system such as ours, it is not possible to conceal increases of expenditure of this magnitude. Nor is it desirable to do so. Our young men are being conscripted by the thousands into the Defence forces. Soon taxpayers will be asked to pay more. Obviously the public has a right to know what we are spending the money on, what they can expect to get in return for it and whether they are getting value for their money.

I will therefore deal with the Defence build-up over the next few years taking each of the three services in turn. I will start with the Navy. Our original plans made no provisions for naval expansion (until the early 1970's) nor was there any provision for the establishment of an Air Force this year. But obviously with the end of British protection in three years' time, we should waste no time in creating these services.

In the case of the Navy, the first phase of development is envisaged to take the form of establishing a force of six patrol craft. Orders for these craft have been placed in June of this year with Vosper's. Two will be constructed in Britain and four in Singapore. Delivery will commence in the middle of 1970 and will be completed before the end of 1971.

Pending the arrival of these craft the present naval effort is confined to training of personnel. Four naval officers are now undergoing training in the United Kingdom with the Royal Navy and another four are in Australia training with the Royal Australian Navy. A school of naval training was established on the 15th November this year and the first intake of recruits will commence training in February next year. This will be concerned purely with training of seamen, navigation, care of ships and so on. Naval crew who will take charge of radar, or mechanical equipment, will receive their basic training in other training institutions of the Armed Forces dealing with these subjects.

I now turn to the Air Force the establishment of which is proceeding apace. Fifteen young men selected by a rigorous procedure out of several hundred, are now undergoing training with the Royal Air Force in Britain. Another four are doing helicopter training in France. This month another five pilots are going for training in the United Kingdom and more will be sent there next year. On their return they will be attached to the Flying Training School in Singapore which will turn out the additional pilots required by our Air Force.

The Air Force requires not only pilots but also ground crew to service the aircraft and technical and operational teams to operate radar and air defence systems. A Technical Training School will be established to train such personnel and the staff of this school is now being trained overseas in mechanical, electrical, electronic and other trades.

The Republic's Air Force will be operational before the end of 1971 and it will consist of squadrons of Cessnas. Jet Provosts, Aloutte Helicopters and Hawker Hunters. The Cessna serves as a primary trainer. It can also perform the role of spotter aircraft. The Jet Provost is the basic jet trainer. It can double-up for counter-insurgency operations and for ground attack. Aloutte Helicopters are capable of performing a variety of useful duties. The Hawker Hunter is an interceptor aircraft which can be used also in ground attack operations. It is a fine and versatile aircraft.

Orders for these aircraft together with the electronic gear and weapons systems have been placed and delivery will be effected over the next two-and-a-half years. The task of building an Air Force from scratch is an exacting one. We are indeed fortunate to have the whole-hearted assistance of the Royal Air Force. The Singapore Government is also fortunath to be able to secure after his retirement from the Royal Air Force in February next year the services of Air Marshal Sir Rochford Hughes. Sir Rochford Hughes, currently the Air Commander of the Far East Air Force, has a long and distinguished career as an Air Force Officer and we can have every confidence that with his advice and guidance the Republic's Air Force will be one of high quality.

I now turn to the expansion of the Army. This was the first arm of the service to be expanded after independence. The build-up is proceeding satis factorily. The present state of the Army is as follows. We have increased the number of Infantry Battalions from two in 1965 to five today. Two of these Battalions are fully operational. Another two are in an advanced stage of training and will be fully operational by the middle of next year. The fifth Battalion will be operational in December next year. Next March the sixth Battalion of the Singapore Infantry Regiment will be formed.

I wish to say here that the two Battalions we inherited in 1965 are not just being retained in the condition that we found them. The 1st and 2nd Battalions of the Singapore Infantry Regiment are being reconverted into the new battalion structure using new weapons and manned by National Servicemen. Regular soldiers of the two Battalions have been distributed to other units of the Armed Forces.

The control and command of the Battalions are vested in a Brigade Headquarters established in October this year. It is now fully operational and a second Brigade Headquarters will be established in the middle of next year.

Infantry Battalions have to be served and supported by other combat and technical units. An Artillery Battalion has been established and has reached an advanced stage of training. It is expected to be fully operational by the middle of 1969. A second Artillery Battalion will then be raised. These Battalions use the 120 mm mortars which provide close fire support for front line troops.

One Battalion of Combat Field Engineers raised this year will be fully operational by the middle of next year. The Engineers will perform the conventional roles expected of such units, that is, to help in infantry assault by breaching all types of obstacles, including mine-fields. They will also have other capabilities, such as providing for river crossing, carrying out all types of demolition missions, constructing fortifications, and so on. The Signals Battalion has been formed and is functioning to provide communications between the higher formations and headquarters. All units of the Singapore Armed Forces are equipped with the most modern signals equipment available.

In addition to the Battalions which are performing full-time military duties, we have units of the People's Defence Force. The P.D.F., as hon. Members know, consists of civilians who give up part of their time after work or during periods of leave for military training. At present, the P.D.F, is organised into three Infantry Battalions with a fourth to be raised early next year. Their present functions are confined to internal security duties. A P.D.F. Engineer Battalion also exists and is trained in the running of essential civilian services during an emergency. The command and control of P.D.F, units is vested in the Brigade Headquarters which has been set up.

The units which I have described have been raised in accordance with the original expansion plan for the Army and according to the same time-table. However, as a result of the accelerated British withdrawal, it has been found necessary to increase the force strength of the Army in 1971. In addition to the two Infantry Brigades, it is proposed to raise an Armoured unit consisting of tanks and armoured cars. The preparations for raising this Armoured unit are at an advanced stage. Orders for the vehicles have been placed and a nucleus of officers and technical crew for the unit is now being trained in the Israeli School of Armour. The main strength of the unit will be drawn from officers and men to be trained in the School of Armour which we shall establish in Singapore. The Armoured unit is expected to be fully operational by 1971.

One noteworthy feature of the expansion of the Army which has not drawn public comment is that the entire body of Officers and Non-Commissioned Officers are staffed by our own citizens. It may look to us as a natural occurrence. But if we compare our Army with those recently raised in many developing countries, we will notice that many of their defence units are staffed by a substantial force of expatriate officers and technicians. In our case, apart from 23 members of the Israeli Defence Mission, serving as instructors and advisers, and, at the end of next year, Sir Rochford Hughes, the entire Defence establishment is staffed by our own officers at all levels.

This satisfactory outcome is the result of a sound system of training institutions which has been established and which is even now being rapidly expanded. The Singapore Armed Forces Training Institute, or SAFTI, provides the major training effort. In addition to infantry training up to platoon level, it is now giving advanced training to officers at company and battalion levels as well as specialised training in support weapons and military medicine.

In addition to SAFTI, a School of Artillery has been established as well as a School of Field Engineers. These are attached to the respective battalions. Training activities are also carried out to provide various technical personnel required in an armed force. A School of Electronics will be formed in 1969. Already in existence are a School of Catering, a School of Drivers, a School of Provost and, believe it or not, a School of Military Accounting. The P.D.F, training centre has been established and it runs courses throughout the year to upgrade P.D.F. officers and N.C.O, cadres.

The above account outlines the expansion of our defence forces up to 1971. It will be a costly undertaking, the annual cost in cash terms reaching some 10 per cent of our current gross national product, that is, rather more than $300 million a year.

I have come across two kinds of reaction to our defence build-up programme. As they seem widespread and further appear to me to rest on an incomplete understanding of our defence effort, it may be worth while to dwell at some length on them. The first takes the position that Singapore, being small in population and in land area, is incapable of defending herself against armed attack by countries bigger in size. The other point of view accuses us of arming ourselves in a precipitate manner and to an extravagant degree. I believe neither of these views is correct.

The first view regards the building of defence forces principally in terms of its nation-building value. Young men are conscripted into the army by national service and are brought together in a collective life. They have instilled into them certain values of discipline, loyalty, leadership and other useful qualities. While in no way denying the real worth of the nation-building functions of the defence build-up, I would like to say that these people overlook two important points. The first is that we are not creating a large body of enthusiastic amateurs. On the contrary, we expect our soldiers in all units and at all levels to attain the highest professional standards. The rigorous training systems created with the advice of the Israeli Defence Force Mission ensure that they get the best training possible. Further, members of the armed forces are equipped with the best weapons money can buy.

The same holds true of communications equipment, transport and other logistic requirements.

All these preparations will ensure that we have adequate fire-power, mobility and professional skill. The second point which the pessimist overlooks is that the full-time units of the army in this case, two infantry brigades and one armoured unit operational as from 1971 do not represent the total potential of our army force strength, or "Order of Battle" as the professionals call it.

This is the result of National Service which allows us to have a comparatively small full-time army while building up a reserve army of increasing size in the course of time. It works out this way. The national serviceman, after serving two years in the army, leaves the full-time army and takes on a civilian occupation. He is, however, liable for reserve service for ten years. During this period of ten-years' reserve service, he will be called up for full-time training one whole month each year. This enables us to build up reserve battalions as national servicemen leave the active battalions on completion of their two years' service. All that is necessary to establish these reserve battalions is to store up weapons, ammunition, equipment and transport for these battalions, as well as to maintain a nucleus of regular officers and men. The bulk of trained personnel is provided by reservists. An infantry battalion in full-time service would reproduce itself every two years into a reserve battalion. Similarly, elements from the armoured unit, artillery, engineer battalions and other units will also be released into the reserves, thereby creating a complete infra-structure of fighting units in the reserves.

The complete cycle is 12 years, with national servicemen doing full-time service for two years and ten years as reservists. At the end of 12 years from the beginning of national service, that is to say, in 1979, 30 to 35 infantry battalions would have been formed as reserves. In other words, by 1979, under the present rate of enlistment, we would have available on immediate mobilisation, 45,000 well-trained troops.

This is a substantial force by any standard. It should be adequate to protect Singapore against any foreseeable military threat. To give some idea of the scale of operations which our army can eventually undertake, let us consider the Japanese assault of Singapore during the Pacific War. The assault was carried out by three Japanese Divisions. The 5th and 18th Divisions landed at Pasir Laba and Lim Chu Kang, whilst the Imperial Guard Division landed to the left of the 5th Division, the front extending to the causeway. Unfortunately for us, the troops then defending Singapore, consisting mostly of conscripts and regulars of other countries, did not put up a distinguished performance for reasons which need not detain us here. But if at that time, we had forty battalions of our own men, I have little doubt that the Japanese army would have found the going a great deal harder. Of course, the sensible thing to do, if there is today a repetition of an offensive of this nature against Malaysia and Singapore, is to send our troops to fight on the beaches of Kota Bahru and by the Slim River alongside Malaysian forces rather than wait for the invading army to reach the causeway This rather fanciful illustration from past history serves to underline what has often been said of the indivisibility of the defence of the Peninsula and Singapore.

I now turn to the other criticism, namely, that we are arming ourselves at too rapid a rate. This point of view can be quite easily disposed of. At present, only 20 per cent of national servicemen are selected to do full-time service in the Armed Forces. Even with the expanded Defence programme it is unlikely that the percentage of intake into full-time service will substantially increase. Further, the build-up of the army strength takes the form of increases in reserve battalions. These increases take place in gradual measured steps, and are quite the reverse of the hasty action we are alleged to be taking, it will not be until 1979, that is, the end of the next decade, that we would reach the full potential of the order of battle. This assumes, of course, that we will continue to provide weapons, ammunition, equipment and transport for each and every reserve battalion. We shall certainly do this for the next few years, but whether we should accumulate vast stores of military hardware right up till 1979 is a matter that can be decided in the light of circumstances prevailing. By the same token, we are also keeping our options open for a faster build-up should this prove necessary. With the training units and the know-how that is being rapidly acquired, we would have the capacity before the end of 1971 to vary the rate of expansion to such levels as may be judged appropriate, taking all prevailing circumstances into consideration.

I mentioned a short while ago the kind of attack which our Armed Forces in co-operation with the Malaysian Forces would be in a position to repel. This would be approximately the kind of effort mounted against us by the Japanese in the Pacific War, that is an invasion force consisting of three to four divisions which in itself required a tremendous logistical effort. However, if a really major threat develops, say an invasion by 50 divisions or a threat to deliver a nuclear attack, then a situation arises which concerns not only ourselves but all the major world powers. An assault by 50 divisions or a nuclear threat can only be mounted by a superpower or by countries acting with the connivance and support of a superpower. As such, other super-powers will be drawn in and the resolution of a conflict of this scale will rest with the giants.

Sir, I now wish to turn our thoughts away from the horrendous possibilities of super-power conflict to more mundane matters, and that is the second consequence which we have to face as the result of the withdrawal of the British military presence. This is the decline in our gross national product and the loss of employment of large numbers of people. I want to go at some length into the number of locally employed civilians and enlisted personnel who will be laid off as a consequence of the closing down of the British bases.

I have circulated a Table* for the information of hon. Members as the facts are best set out in this form. I would like to say at the outset that while some of the figures are very accurate, others are not so. For instance, the number of civilians employed in the Armed services and the number of locally enlisted personnel are derived from accurate records. On the other hand, the number of domestic servants employed by British service families is very approximate, as no central registers are maintained in respect of them.

• Following is the Table: BRITISH WITHDRAWAL Locally employed civilians and personnel Apr. Dec. Dec. Dec. Dec. Dec. 1967 1967 1968 1969 1970 1971 Locally engaged 25600 24000 19000 16500 11000 Nil civilians by the Armed Services Locally engaged 4000 4000 3200 2700 2200 Nil civilians by MPBW, NAAFI, AKC, etc. Locally enlisted 4550 4350 4100 3200 2300 Nil personnel Domestic servants 8000 7200 5800 4900 4000 Nil ----- ----- ----- ----- ----- --- Total 42150 39550 32100 27300 19500 Nil ===== ===== ===== ===== ===== ===

In April last year, there were some 42,000 persons employed, and by the end of this year we estimate that 10,000 would have lost their jobs. Of this 10,000, 3.000 have been re-engaged by the Sembawang Shipyard on the transfer of assets of the Naval Dockyard to this enterprise. Therefore, the total number retrenched so far is only 7,000. Next year we shall see a further retrenchment, but not in substantial numbers some 5,000. The following year will see a larger decline in employment another 8,000 or so. But the real crunch will come in 1971 when 19,500 persons of all categories would have been declared redundant on the closure of all Service establishments. The annual redundancies, as recorded here, differ from the figures I gave earlier this year when, in the absence of accurate data, I had assumed a constant rate of rundown. The British time-table is now made up, and the rundown begins at a slow pace until the very last year. Accordingly the counter-recession programme outlined earlier needs to be revised.

So the year 1971 from all accounts will be a difficult one, and it is well that we lay up a store of fat to meet that lean year. We have taken a number of measures which are intended to help redundant base workers. They include the Central Provident Fund scheme into which all gratuities are deposited and from which regular amounts can be drawn, so that the redundant worker can have a longer period during which to find work and adjust to the new situation. We have also introduced a training scheme to fit them for new occupations in industry. It is obviously not possible to ensure that each and every redundant worker finds a job congenial to him. Nor is it possible to deal with redundant workers individually. The problem is too large for an approach of this kind.

The best guarantee that adjustment to new conditions will be relatively prompt and painless is to ensure a sufficiently fast growth of the economy. With rapid economic growth, there will be a rising demand for all categories of workers, and within this rising demand there will be more opportunities for redundant workers to find new jobs. This leads me to discuss the general economic conditions now facing us and the immediate prospects ahead.

State of the economy

This year the economy has had another good year. Trade continues to expand. Port activities remain at a high level. Manufacturing output and sales are up because the productive capacity of the industrial sector has been enlarged. Construction, too, shows good progress and, all in all, there has been satisfactory all-round growth.

Preliminary estimates of the gross domestic expenditure for 1968 indicate that despite the British military rundown the economy has grown by 7.7 per cent since last year. Gross domestic expenditure is estimated at $3,850 million. With population growth now at less than two per cent a year, per capita gross, domestic expenditure has increased by nearly six per cent to a level of $1,940.

Economic growth is associated with the rate of investment in fixed assets undertaken by the economy. It is particularly gratifying, therefore, to note that this year, gross domestic capital formation or, to use a more familiar term, total investment has increased by 17 per cent over 1967. Total investment this year is estimated to be $606 million, as compared with $518 million last year. The share of investment in gross domestic expenditure has increased to 15.7 per cent from 14.5 per cent in 1967.

The good performance of the economy is reflected in no small measure in the upward surge of trade. Total trade for the first nine months of this year was valued at $6,720 million, up 14.5 per cent from the corresponding period last year. Exports totalled $2,880 million and imports $3,840 million. Cargo handled at the harbours reflected this increase in trade activities. From January to September this year, a total of 26.5 million freight tons were discharged and loaded at the ports as compared with 22.6 million freight tons for the same period last year. This represents an increase of 17.4 per cent. Reflecting this, increase, more ships called at our ports. Up to September this year, 11,600 vessels. with a total tonnage of 47 million tons had called at Singapore, an increase of 15.0 per cent and 11.5 per cent respectively over 1967.

The expansion in trade is partly the result of continued growth in the manufacturing sector. As the manufacturing sector grows, it requires more raw materials, plant and machinery to be imported. Similarly, as industries go into production, they too export more and more of their products. The quarterly index of industrial production for the first quarter of this year stood at 121.3; for the second quarter at 129.4; for the third quarter, at 131.4. The average for the whole of 1967 was 111.1; the base year for the index is 1966. As at the end of June this year, there were 174 pioneer firms in production, an increase of 47 firms over last year. These have a total fixed investment of $436 million and a combined output of $472 million. Investment and output increased by no less than 19.0 per cent and 64.0 per cent respectively from the previous year. Pioneer industries now employ 18,780 workers, an increase of 5,380 over last year.

Another indicator of increased commercial and manufacturing activities is the volume of electricity consumed by industrial and commercial enterprises. This has gone up from 521 million kilowatt hours for the first nine months of 1967 to 659 million kilowatt hours up to September this year, an increase of 26.5 per cent. To meet this increased demand for electricity, a new power station is being constructed in Jurong with an eventual capacity of 480 megawatts, or slightly larger than the present total installed capacity of 464 megawatts. The first phase will be completed in June next year when a 120 megawatt generator will be commissioned. A second 120 megawatt generator will go on stream in April 1971. By 1974, the total installed capacity in Singapore will be 944 megawatts, more than four times the 202 megawatts we had in 1961.

Building and construction, too, are making good progress. Commencement of new buildings, however, has slowed down somewhat. In the first half of this year, 6,140 units were commenced as against 8,320 units for the same period last year. The decline was mostly in the public sector. In terms of floor area, however, there was only a 3.0 per cent decline, from 6.7 million square feet to 6.5 million square feet. But in terms of value, which is really what counts, there has been an actual increase of 8.8 per cent. The value of the buildings commenced in the first six months of 1967 was $72 million as against $78.3 million for the same period this year.

Tourism, too, is having its day though the rate of increase in arrivals is only a shade of the previous year's spectacular increase of 70.5 per cent. Never theless, total arrivals of passengers by air and sea to Singapore numbered 181,570 up to the end of September this year, an increase of 25.3 per cent from the corresponding period last year. This is likely to be the normal rate of growth in future years rather than the spectacular figure achieved in 1967.

There are now 58 tourist hotels with 2,570 rooms. The occupancy rate is 83 per cent. Eighteen new first-class hotels are being built. These, when completed, will add some 6,000 rooms to the current stock. Six of the hotels are expected to be completed by the end of 1969, increasing the number of hotel rooms by 1,610. With all these facilities, accommodation will not be the bottleneck constricting the inflow of visitors to Singapore in coming years.

Symptomatic of the well-being of the economy is the rise in the level of bank deposits. At a time when the international economy is beset with monetary crises, when sterling, the U.S, dollar and the French franc are being attacked by speculators, bank deposits in Singapore continue to increase, from $1,650 million at the end of September last year to $2,105 million at the end of September this year, an increase of 27.3 per cent. The large increases in bank deposits month after month since June 1967 could not possibly be due to the expanding economy alone. Inflow of funds from abroad is possibly an important contributory factor. If this is so, it is a cogent reflection of the confidence that people have in the currency of Singapore, and, in the final analysis, it is a vote of confidence in the stability and strength of the Singapore economy. Future Prospects

Last year, our economy was considerably boosted by panic capital from Hong Kong and a good proportion of this year's crop of new industries represents the fruition of this capital inflow in 1967. But in the next two years, the main impetus to our growth of industry will come not from Hong Kong capital, but from American capital. As Hong Kong recovers from its political troubles of last year, the number of panic enquiries has tailed off. However, Hong Kong interest in Singapore remains at a gratifying level. Projects in the pipeline represent genuine investment in search of profit opportunities. Investment of this kind is likely to be more productive and more enduring.

Although our investment promotion programme in the United States and Europe is still in its initial stages of development, the results achieved so far are encouraging. Large international companies, mostly American, are increasingly becoming aware of the advantages that Singapore offers to investors. Amongst the factors that they find attractive are our political stability, the national determination to work and overcome problems as manifested in the general acceptance of the new Employment Act, our price and wage stability, a sound currency, a strategic location, an honest administration, an abundance of hardworking and adaptable workers, high labour productivity and excellent transport facilities. No less important are the investment and export incentives provided in the Economic Expansion Act. Also capital is available in abundance and on good terms. These ingredients for success have been confirmed by the well-known American independent business consultants, Business International, who in their "Report to Managers of World Wide Operations" in February this year rated Singapore as an excellent place to do business.

The American companies are particularly interested in two fields of activities in Singapore. First, there is a group of companies like Caterpillar, Allis Chalmers, and International Minerals Corporation which are keen on using Singapore as a distribution centre and an assembling base for South-East Asia. Other American companies like Santa Fe-Pomeroy, Dillingham Corporation, McDermott and Procon are also interested in using Singapore as a supply and fabrication base for oil and mineral resources development projects in this region. Singapore can provide all the necessary engineering and supporting services efficiently. This would not only benefit the large international companies but also the neighbouring countries, as the provision of an efficient supporting base could accelerate their development programmes.

Secondly, there is a group of companies interested in manufacturing a wide range of electronic components, electrical appliances and other instru ments. These companies include National Semiconductors Corporation, Texas Instruments and Continental Devices. All three are American com panies. These are very substantial investments and they will employ large labour forces.

In addition to what has been mentioned, there are other projects involving international consortiums for the development of petrochemicals, steel, paper and pulp, fertilisers, watch-making, construction of fishery vessels and other specialised ships and marine structures, prefabricated houses, internal combustion engines, farm implements and machine tools. Most of these projects should get off the ground in the next two years.

To sum up, there are enough industrial investment projects in the pipeline to keep the economy going at a brisk rate the next two years. All this will make it easier for redundant workers to find new employment than would otherwise be the case. In my previous Budget Statement I commented on the need to establish new institutions to strengthen the industrialisation effort. In my series of broadcast talks last April, I elaborated upon the theme.

The proposal was to set up three new institutions. Two grew out of the Economic Development Board; the third is an entirely new project, an international trading company. All these three institutions have been launched and it seems appropriate on this occa sion to report on progress achieved. The Development Bank of Singapore, which was formed to take over the financing functions of the Economic Development Board, has been successfully launched. It was formally incorporated on July 16th, 1968, and commenced operations on the 1st September. The staff of the Bank was drawn initially from the E.D.B.

In addition to financing purely manufacturing undertakings, the Bank's financial scope extends to include tourist and estate projects, the latter relating mainly to projects established under the urban renewal programme. The Development Bank has taken over from the Economic Development Board its entire loan portfolio. This includes loans to small industries advanced by the Light Industries Services as well as special loans for ship-breaking operations. The amount of loans transferred to the Development Bank comes to $48.9 million. In addition, some $30 million worth of loan committed by the Eco nomic Development Board has been taken over by the Bank. The transfer of loans from the E.D.B, to the Bank is a comparatively simple operation.

The position in regard to equities, that is, shares in industrial ventures owned by the Economic Development Board, is more complex because of problems of valuation. Where the share is listed in the Stock Exchange, a clear-cut basis for valuation exists, though the trouble here is that stock prices fluctuate from time to time. Where shares are not listed, it is not easy to find a mutually acceptable price. In the event, it was decided that the entire equity holding of the E.D.B, should be taken over by the Government. The Government will similarly undertake to pay up the balance of equities which had not been fully paid up. The value at cost of these equities comes to $25.2 million with a further $3.4 million equity capital remaining to be paid up. In addition to these, there are a number of equity commitments made by the E.D.B., paid-up capital of which has not been called. Such equities will be taken over by the Bank and the value of these equities comes to $8.5 million. In addition, the Bank has taken over guarantees made by the E.D.B, on behalf of manufacturers making purchases of plant and equipment. The value of outstanding guarantees as on 26th November this year is $14.1 million.

The Bank has a total paid-up capital of $100 million. An invitation to subscribe to this capital by providing subscription to local banks and financial institutions as well as by public invita tion was well received. In the allocation of shares to the public, special consideration was given to small investors and all applications of $2,000 or less were accepted in full.

As regards the Bank's future operations the Government will extend to the bank credit lines of $30 million in the first instance and another $50 million on exhaustion of the first line of credit. Interest will be at a rate of 4 per cent per annum. These funds will be used by the Bank to extend loans to industries at a rate of interest not exceeding 7 per cent.

The Bank will also raise additional funds from local, foreign and international institutions. These operations of the Bank will be governed purely by commercial considerations. A high level technical team from the Investment Bank of the German Federal Government, Kreditanstalt fuer Weideraufbau (KFW), arrived in Singapore last month to advise the Bank on internal organisation and in the formulation of its operating policy. The KFW team stayed in Singapore for three weeks and has submitted a preliminary report. The German Investment Bank has also been asked to assist our Bank in the initial years by seconding a number of senior staff. The Chairman of the Bank is Mr Hon Sui Sen who has rendered such distinguished service as Chairman of the Economic Development Board. I have little doubt that under his leadership and guidance, the Bank will grow into a powerful institution for promoting economic development in Singapore.

I now turn to the second institution, the International Trading Company, or INTRACO, to use its registered name. The Company was incorporated on the 5th November, 1968. With an authorised capital of 50 million shares of one dollar each, of which 20 million shares are being issued, only 50 cents per share is being called up immediately.

INTRACO will be jointly owned by the Government of Singapore with six million shares, the Development Bank with 3.8 million shares and the private sector with 10.2 million shares. The private sector allocation has been substantially over-subscribed.

[Mr Deputy Speaker in the Chair]

4.15 p.m.

The Minister for Finance (Dr Goh Keng Swee): Of the three institutions, INTRACO, in my opinion, is the most complex, difficult and challenging undertaking. While the Development Bank and the Jurong Town Corporation were built on the foundation of solid achievement ol the Economic Development Board, INTRACO has to blaze its own trail not in Singapore but in the outside world. It has to meet fierce international com petition from all quarters in promoting the export of Singapore's goods. This is not a task that can be accomplished over-night and the directors of INTRACO have wisely decided upon a phased programme. The Company is still in its infant stages and its future progress will no doubt be watched with interest.

The third institution, the Jurong Town Corporation, takes over from the E.D.B, the ownership and management of the industrial estate in Jurong and six other places in Kallang, Tiong Bahru, Kampong Ampat, Tanglin Halt, Kallang Park and Tanjong Rhu. The number of factories in production on the Corporation's land totals 293 at the last count in October this year. They gave employment to more than 21,000 persons and involved a capital investment of $588 million. In addition, the Corporation runs a number of other enterprises. It owns 4,450 flats and 150 shophouses in Jurong. The flats are virtually full up. There is, in fact, a shortage of housing in Jurong and some 1.384 flats are under construction, some of which will be ready for occupation in the middle of next year. As a result of industrial investment reaching a rate which exceeded planning expectations, there is currently a severe shortage of available factory space. To meet this excess demand, nine blocks of flatted factories are under construction with a total floor area of more than a million square feet.

One of the major enterprises undertaken in Jurong is the construction of a new port there. More than $25 million was spent, with 3,000 feet of wharves and various facilities for the mechanical handling of bulk cargo. The increase of cargo handled in Jurong since the completion of the port has been satisfactory. In 1967 the volume of cargo handled was 342,000 tons. In the 11 months of this year the volume of cargo handled was increased to 478,000 tons; in addition some 121,000 heads of livestock were also handled. This latter is a direct result of the construction of the abattoir in Jurong.

Some problems still remain to be resolved in Jurong in addition to the preparation of more factory sites and dwelling houses. It is necessary to improve social amenities there. The Corporation is taking action on this. One pleasing outcome of the establishment of the Corporation has been the comprehensive review undertaken of their accounting system. The new system of accounts enables a separate assessment to be made of each separate operation of the Corporation to assess its profitability as determined on commercial principles. It was a pleasant surprise for me to discover that after allowing for an adequate rate of depreciation of assets, the overall return on capital invested by the Government in Jurong's social and industrial infra-structure comes to three per cent. I had expected a lower figure and was even prepared for a loss. This outcome reflects credit on the land and lease policy of the E.D.B. In future years, we can expect the revenue accruing to the Jurong Town Corporation to increase both with the increasing number of industries as well as increases in lease payments. Eventually, we can hope to get a return of seven or eight per cent.

Estimates, 1969

Mr Speaker, Sir, I now turn to the Estimates before Parliament. Last year I promised that I would circulate a Treasury Paper each on the Ordinary and Development Estimates setting out in detail, under each Head and Subhead, changes in such expenditures and the reasons therefor. These two Treasury Papers are now before the House and provide all the details required. This arrangement will allow me to comment on the Estimates in broad terms and thus to avoid a tedious enumeration of figures. Those who want particular details can refer to the Treasury memoranda.

The first major change in the presentation of the Estimates is the change in the basis of the financial year. Since living recollection, the financial year in the Singapore Government accounts has been the calendar year. It is now proposed to take the financial year as the period 1st April of one year to 31st March of the following year. There is an advantage in so doing. It will be possible under the new arrangement to give a proper account of the functioning of the economy during the preceding calendar year. At present Members would have noticed the rather sketchy manner in which the economic performance of the Republic has been reported in annual budget statements. Statistical records of foreign trade and calculations .of balance of payments and national income aggregates are made in periods of calendar years. Putting the start of the financial year forward by three months should enable us to obtain a proper account of these useful statistical aggregates.

However, the effect of this change in the Estimates of this year is to complicate the presentation of this and the next budget. The figures in the Estimates before Parliament relate to a period of 15 months, whereas the figures with which comparisons are made, that is for the calendar year 1968, cover a period of 12 months. This complication will eventually be eliminated in the financial year commencing April 1971 and thereafter. For purposes of comparison in my address, I will not take the amounts as entered in the Estimates, that is to say the 15-month totals, but the annual rate so that a meaningful comparison can be made with 1968.

The substantial increase in Defence expenditure has affected the entire financial policy of the Government. In order to finance expenditure of this magnitude, the Government has to adopt the following policy:

(a) As far as possible, advantage is to be taken of deferred credit payments from suppliers of equipment and weapons.

(b) Full advantage is to be taken of the British defence aid proposal which offers a total amount of �50 million sterling in soft loans and grants for the purchase of goods and services from Britain, both for defence and for non-defence ex-penditure.

(c) As far as possible, non-defence expenditure is to be retained at existing levels, increases being allowed only for normal annual salary increments and for new proposals which have exceptional merit.

(d) In spite of savings produced by stringent economy and by recourse to credit payments and to

British aid, it has been proved necessary to introduce new taxes and to increase the rates of some existing taxes.

Certain Ministries and departments which provide economic services, for instance, the Telecommunications Department and the Civil Aviation Department, are not to be starved of funds and are to be given normal additional expenditure required to meet the demands of normal growth. Similarly revenue-producing departments are allowed reasonable increases in staff. Apart from this, any increase in expenditure will only be sanctioned if the Ministry concerned can offer offset reductions in other items of expenditure.

If the total Defence budget to be incurred in the calendar year 1969 were to be paid on the normal Government basis, that is, on a cash basis, a sum of $337.5 million would need to be provided. This refers to the expenditure of the Armed Forces alone and does not include Police and other expenditure of the Ministry of Defence. This is a substantial increase on the $47.6 million provided for the Armed Forces in the 1968 Estimates. I should, however, mention that the expenditure actually incurred on the Armed Forces in 1968 is considerably larger than this.

Of the sum of $337.5 million, a part must be paid in cash. For instance, the pay of soldiers and payments of contractors' bills can hardly be settled on credit terms. The amount of such expenditure comes to $117.3 million. A further sum of $156.3 million relates to purchases of weapons and equipment for which recourse to credit is available. Finally there is a sum of $63.9 million which could be paid out of United Kingdom Defence Aid funds. These are the three components adding up lo $337.5 million.

The financial provision required in the calendar year 1969 to meet such expenditure comes to $205.1 million. This is made up of inescapable cash expenditure of $117.3 million and a further sum representing advance payment on credit purchases that have to be made in the calendar year. This sum includes payments on credits incurred in previous years. The total amount of such payments on credit purchases comes to $87.8 million.

Of the total of $205.1 million, a cash liability, that is, the total cash liability, for 1969, $157.2 million is incurred in respect of items in the Ordinary Estimates and $47.9 million is expenditure on development projects appearing in the Development Estimates. In addition to these cash outlays, there is of course the item I referred to earlier of $63.9 million, being purchases of British equipment and weapons paid out of the United Kingdom aid fund. This expenditure is not entered under the head of "Ministry of Interior and Defence", but under the "Ministry of Finance". As a contra item the same sum has been entered as a revenue item. The reason for putting this under the heading of the "Ministry of Finance" is that payments for these items will have to be made in the first instance out of the Consolidated Fund and subsequently recouped from the U.K. Aid account. To keep the accounting of such transactions under direct supervision, the unusual device of entering the Defence expenditure under the Finance Ministry has been resorted to.

[Mr Speaker in the Chair]

4.30 p.m.

The Minister for Finance (Dr Goh Keng Swee): It is not necessary for me to discuss non-defence expenditure at any length a~ the Treasury Papers give all the numerical details. The broad policy of keeping non-defence expenditure, especially that on education and social services, on a standstill basis has enabled most of the substantial increases in Defence cash expenditure to be met out of the normal growth of revenue. The revenue for the calendar year 1969 is estimated at $759.2 million as compared with the 1968 Estimates of $646.7 million, in other words, there is an estimated revenue increase of no less than $112.5 million. This increase results partly from increased revenue yields due to economic growth and partly because the 1968 revenue estimates appear to have been substantially underestimated.

The curbing of non-defence expenditure together with the increases in revenue yields has enabled us very nearly to secure a balance on revenue and expenditure on the current cash account. Taking the financial year of 15 months, that is to say, 1st January, 1969, to 31st March. 1970, expenditure is estimated at $1,024.9 million. Total revenue almost comes up to this amount, the shortfall being a mere $9.2 million. However, this does not take into account the need to transfer money from current account to the development fund, a practice which has continued without fail since my first Budget of 1959. In recent years, the annual transfer is $30 million, and over the 15-month period this would mean $37.5 million. Taking the shortfall of $9.2 million and $37.5 million, there is a total sum of $46.7 million to be met. I propose to meet this by raising additional taxes to yield $35 million for the 15-month period. The balance of $11.7 million can be met by transfers from our reserves.

New Taxes

I now come to the subject which everybody is waiting for - and in most instances wrongly guessed namely, the new taxes. There has been a good deal of speculation about this and it had been necessary for me to issue a clarification to dispel unwarranted gloom and to reassure people that the new taxes would not have any damaging effect on investment incentives. This, of course, is a sine qua non of our economic strategy. We try to get increased yields mostly by fast growth of the economy. Even for the coming year, as I have explained, the greater cost of Defence expenditure will be paid for more out of increased revenue yields due to economic growth than by new taxes.

I have in mind seven new tax proposals: three of them involve increases or changes in existing rates of taxes, four of them are completely new taxes. By spreading the load over seven tax measures, we reduce the risk of adverse effect either on the economy or on the revenue itself which might come about by concentrating on one or two items. These new taxes will not have the effect of impairing incentives to economic development or of discouraging and disrupting the flow of foreign investment. They have also been so selected that the least burden will fall on the poorer sections of the community. The four new taxes are as follows:

(i) A 10 per cent levy on monthly charges of the Public Utilities Board.

(ii) A small duty on liquid petroleum gas.

(iii) A 15 per cent levy on telephone bills.

(iv) A 15 per cent import duty on made-up garments, excluding furs.

As regards old taxes, there will be a change in the basis of valuation of motor vehicles, a general revision of stamp duties, and an increase in the transfer fee of motor vehicles. Let me discuss each of these new tax measures in turn.

The levy on public utility services supplied to consumers will take effect by legislation which will be introduced in Parliament shortly. The levy will be collected by the Public Utilities Board on behalf of the Government. The advantage of this arrangement is that 110 new machinery of tax collection need be established, and the additional cost of tax collection is virtually nil. The rates have been so calculated that families in the lowest income group will not be affected. Large numbers of these families live in Housing Board flats and elsewhere and their monthly bill does not exceed $10. No rate of tax will be imposed on those whose monthly bills do not exceed $10. No less than 58,000 consumers, or 25 per cent of the total, fall in this category. For those whose bills fall between $10 and $20 a month, a lower rate of five per cent is levied. The number of consumers falling in this category amounts to approximately 73,000, that is, 32 per cent of the total. The full 10 per cent rate will apply to households whose monthly bills exceed $20 a month. This means that only the wealthier 43 per cent of consumers pay the full rate.

This tax will apply to all consumers of public utilities with two exceptions. The first are the poorer families I referred to. The next are industries which depend on power supply to a significant extent. They already qualify for special industrial power rates. In order not to reduce their competitive position, I intend to exempt them from this levy.

The yield of this tax is expected to amount to $11 million for the coming financial year.

It is necessary to protect P.U.B, gas and electric supply as a means of fuel supply for cooking and therefore a compensating tax on liquid petroleum gas is necessary. A rate of three cents a pound will maintain the comparative advantages of the different sources of cooking fuel at their present level, and this tax is expected to yield $800,000 for the financial year.

As from 1st January, 1969, subscribers to the Singapore Telephone Board will pay a tax of 15 per cent on their bills. This amounts to an additional payment of $27 a year by each domestic subscriber and $37.50 per line per year for each business line. Collection will be undertaken by the Singapore Telephone Board. The yield of tax is estimated at $3.8 million for the financial year.

Import duties are to be introduced on made-up garments for the first time. It is quite amazing to me that while we are exporting substantial quantities of garments to the United States, Britain and Western Europe, we continue to import vast quantities of made-up garments. The value of annual imports comes to more than $50 million. The receipts from these duties are estimated at $12 million for the financial year.

There is, of course, no reason why local consumers cannot buy our locally-manufactured garments when Americans, Swiss, Englishmen and Europeans are satisfied with their quality. If, however, people still prefer imported clothes as against locally-made clothes, it is not unfair to require them to make a special contribution to the Defence effort.

I propose to revise the present system of assessing the value of motor vehicles on which the additional registration fee is levied. The present basis of assessment for imported vehicles is a C.I.F, value and for locally-assembled vehicles the equivalent of C.I.F, value. This latter figure is a notional quantity and is likely to become increasingly fictitious as an increasing proportion of vehicles registered come from our local assembly plants. It is, therefore, necessary to revise the system and adopt a more realistic basis. With effect from today, the additional registration fee which will remain unchanged will be based on "open market value".

Under the "open market value" system, the assessment is based not only on the C.I.F, value but also on other incidental costs, such as handling charges, advertisement costs and agency commission. Generally, the "open market value" will be between 10 and 15 per cent higher than the C.I.F.

There have been instances of under declaration of C.I.F, values by importers in collusion with suppliers, which has resulted in an evasion of revenue collected by the Registry of Vehicles. The new basis of assessment is in line with the practice in Malaysia and in the Customs Department.

The result of this change to a more realistic valuation is to increase slightly the additional tax payable.

The increases are likely to range from $20 in the case of a cheap car to $180 in the case of the more expensive models.

Hitherto, locally-assembled commercial vehicles and omnibuses have not been subject to tax. This was because until recently there have been no local assemblies, it is proposed, with effect from today, to impose an ad valorem tax of five per cent on commercial vehicles and omnibuses. This levy is similar to the existing levy that has been payable on commercial vehicles and omnibuses imported from Commonwealth countries. The yield from these two measures for the financial year is estimated at $1.6 million.

I also propose to levy a transfer fee of two per cent on the value of vehicles ~ transfer of ownership subject to a minimum fee of $5 for a motor-cycle and $20 for a motor car. The yield is expected to be $2 million for the financial year.

There will also be a revision of stamp duties At present, the annual yield from stamp duties amounts to $9 million. As hon. Members know, stamp duties are payable on a large variety of documents and instruments - on receipts, cheques, transfer of title deeds, and so on. The last revision was done in 1952. Previous to that, the last major revision was way back in 1931. In fact, nearly half the rates applicable today were levied in 1931, and the present revision does not introduce any drastic changes in rates and charges, but is more in keeping with present-day conditions. The revisions in stamp duty rates are expected to yield an additional $3.8 million in the coming financial year.

Sir, I began my address with Defence expenditure and I will conclude on the same theme. The new taxes which I have just announced will help to pay for rather less than 10 per cent of our Defence expenditure incurred next year calculated on a, cash basis. We are fortunate in being able to offset part of the expenditure with British aid while, in respect of another substantial amount, we can take advantage of credit terms offered by suppliers. But in the main, the additional expenditure has been financed by siphoning off the major part of additional revenue away from non-defence expenditure towards Defence. This is achieved by maintaining non-defence expenditure on a virtually standstill basis.

The same pattern of expenditure is expected to continue over the next three years, that is to say, by placing a ceiling available for the development of the social services and on health and education. We allow most of the additional revenues resulting from economic growth to be channelled towards Defence expenditure.

This is the price that we are paying. The cost is not so much the additional burdens which taxpayers have to meet by the new measures. The cost is in the limitation of expenditure on non-defence items. We get a bigger armed force by spending that much less money on schools and on universities and on better health and social services.

It goes without saying that nobody regards this with any great pleasure. But there would be few who would be bold enough to say that what we are doing is unnecessary and wrong.

When the British military withdrawal is completed in 1971, a new era will dawn on us. This event is likely to he no less significant than our departure in 1965 from the Federation of Malaysia. Since 1965, we have proved that as a separate economic entity Singapore has a far greater survival potential than many people, here and elsewhere, had believed possible. After 1971, we have to go through another test, perhaps a more exacting and rigorous test, and that is our survival potential as a separate political entity in a difficult and turbulent part of the world. If in the intervening years we have put to good account our resources in money, manpower, skills and organisation, I believe we shall pass the test of political survival as adequately as we are now passing the test of economic survival.

Sir, I beg to move.

Mr Speaker: The Question is, "That Parliament approves the financial policy of the Government for the financial year 1st January, 1969 to 31st March, 1970." In accordance with paragraph (1) of Standing Order 82, the debate now stands adjourned.

Dr Goh, debate to be resumed, what day?

Dr Goh Keng Swee: On the 12th of December.

Mr Speaker: I propose to take the suspension now and will take the Chair again at half-past five.

Sitting accordingly suspended at 4.48 p.m. until 5.30 p.m. Sitting resumed at 5.30 p.m.