ANNUAL BUDGET STATEMENT

Order read for Resumption of Debate on Question [27th February, 1978].

"That Parliament approves the financial policy of the Government for the financial year 1st April, 1978 to 31st March, 1979.". - [Minister for Finance].

Question again proposed. 3.20 p.m.

Mr Ho See Beng (Khe Bong): Mr Speaker, Sir, in 1954 the People's Action Party, in enunciating its determination to strive for a more just and equal society for all citizens, spelt out this fundamental principle in its Constitution in the following terms, and I quote: -

'To abolish the unjust inequalities of wealth and opportunity inherent in the present system; to establish an economic order which will give to all citizens the right to work and full economic returns for their labour and skill; to ensure a decent living, and social security to all those who through sickness, infirmity or old age can no longer work.'

This basic objective was steadfastly adhered to when our Party first came to power to form the Government and the financial policies of the Government were directed towards this end. There were inevitably some minor modifications in procedures from time to time, to meet changing situations, but we did not swerve from our declared principles of democratic socialism - for a more just and equal society.

It is understandable since ours is an open economy that we should take into account international situations and take the necessary precautions to cushion our Republic and our people from the adverse effects of conditions that arise from time to time in our region and on the international scene. We have rightly developed an economy which can be described as a capitalist-socialist mix, Such an economy is required for our survival.

During the last few years, however, Mr Speaker, Sir, we have observed a disturbing trend towards rank capitalistic practices, with no corresponding countervailing action to maintain our socialistic objectives. These changes in policy have been rationalised as being necessary for our continued economic growth in the face of changing world situations. And the people of Singapore, having confidence in our Government which has led us through difficult times and given us a higher living and continued economic and social development despite the many problems that have beset us from time to time, have accepted the new strategies of the Government as being the inevitable concomitance of development and economic progress for their continued welfare.

But, Mr Speaker, Sir, the budget of the Minister for Finance represents a major departure from the fundamental principle of the People's Action Party for a more just and equal society. It is obvious that this budget is a capitalistic budget, for the benefit of the rich and the affluent. It is a budget aimed at making the rich richer and the poor poorer, negating the fundamental principle of socialism.

It is evident from a glance at the proposed tax schedules that the so called "tax concessions" are calculated to mainly benefit those in the upper income brackets. The new tax rates clearly indicate that it is only those who draw above $35,000 a year are the real beneficiaries of the reductions in the income tax rates. Those in the lower income brackets get practically nothing except what may be termed a "token concession". It would appear that the token concessions for those in the lower income brackets are merely to justify the substantial concession for those in the higher income brackets. It is difficult to understand the rationale of the Hon. Minister for Finance for this unprecedented budget.

Mr Speaker, Sir, the Minister for Finance has informed us that the Consumer Price Index has increased by 3.2% since last year. It will be appreciated that the Consumer Price Index variations are of greater concern to those in the lower income brackets - any increase in the Consumer Price Index will affect them more than those in the higher income brackets. But the tax reduction for those in the lower income group - those who really need concessions - is only around 1% to 2%. It will be evident, therefore, that the so-called "tax reduction" for those with small incomes has been more than eroded by the increase in the Consumer Price Index. This means that the larger section of the society - those at the bottom of the economic scale - will be worse off this year than last year.

Mr Speaker, Sir, 1977 was a difficult year and we were asked to work harder and to be more prudent in our spending habits, and to accept certain other constraints, in the interests of national survival. This we all did cheerfully and collectively. The end-result was that, as a consequence of the cooperation and co-ordination of the efforts of the Government, Labour and Management, our economy grew by 7.8%. It is a credit to all concerned.

But it would seem from the Hon. Finance Minister's budget that he seeks to reward only management and those in the higher income brackets through tax concessions. What about the poor working class? Do they not also merit some consideration? But no. Their pittance is 1% to 2% which has already been wiped out by the rise in the Consumer Price Index of 3.2%; whereas the more affluent and the rich get tax reductions of up to 18%. Where then is the equality in treatment? Are we not still dedicated to a more just and equal society?

Mr Speaker, Sir, I find the budget even more puzzling because in 1976, when the Consumer Price Index dropped by 1.9%, there was apparently no need for tax increases in the 1977 budget. But now that the Consumer Price Index increased last year by 3.2% bringing with it attendant hardship to those in the lower income brackets, the Minister for Finance has chosen to add insult to injury by increasing the tax on telephones, televisions, cars, etc. - small amenities which bring happiness to workers when they are able to afford a little luxury here and there. It would appear then that the intention is to make the working class pay dearly for the small pleasures of life. They will feel acutely the additional tax burden, especially as the illusory tax concessions for them - the 1% to 2% - have already been wiped out by the rise in the Consumer Price Index. It is clear, therefore, that they were better off last year when there were no income tax reductions.

Mr Speaker, Sir, during the last few years several voices have been raised in this House urging that the personal relief of $2,000 which was fixed in 1948 at the inception of income tax in Singapore, and has remained stagnant since then, be raised in view of the inflation that has taken place during the last three decades. All our representations, which reflect the sentiments, especially of those in the lower income brackets, have fallen on deaf ears, as far as the Ministry of Finance is concerned.

Various excuses have been given to reject any increase in the personal relief. It would seem that this inflexible attitude is because wage earners are captives in the income tax net. The Income Tax Department finds them easy prey, although the revenue collected from those in the lower income brackets is minimal in terms of the $3,400 million collected by the Income Tax Department last year. The fact that a disproportionate amount of manpower is required to collect this minimal tax does not bother the Income Tax Department.

It will be noted that on this rare occasion, in justifying the income tax concessions for those in the higher income brackets, the Minister for Finance has had at last conceded that he has taken into account the matter of inflation. I quote:

"Fuelling this tendency was the effect of inflation, relatively mild in Singapore, which has pushed some income earners at all levels into higher taxation brackets."

Mr Speaker, Sir, now that at last the Minister for Finance has conceded that there is inflation in the context of income tax, has he taken into account how this inflation has hit those in the lower income brackets and eroded the purchasing power of their hard-earned dollar? The 1% to 2% tax reduction for those in the lower income bracket is a mockery in the face of the rise in the cost of living and inflation during the last 30 years.

One wonders at times whether the Minister for Finance is at all concerned with the views expressed in this House, or whether he is solely guided by the advice of his bureaucracy? I say this because on the one hand, although there have been frequent requests in this House for increasing the personal relief, the Minister for Finance has chosen to ignore the views of elected representatives. On the other hand, out of the blue, he has chosen to lower the rate of income tax for the benefit of those in the higher income brackets, although there was no representation in this House for such a change. One wonders what prompted the Minister to do this. Perhaps he has his own advisors.

I am astounded at the rationale given for the concessions for those in the higher income bracket. I quote:

"Aggravating the problem of equity or fairness in sharing the tax burden is the ability of many self-employed professionals to incorporate themselves into companies in order to sell their personal services, and thereby quite legally avoid paying tax at more than 40%, the company rate. Professionals and executives working for the public sector on salaries are unable to take advantage of this loophole in the law. Nor do they enjoy the perks of tax free 'expenses'."

Mr Speaker, Sir, I am appalled at this argument. This is tantamount to saying that because some of those in the professions are organising themselves into corporations and have thus been able to avoid paying a higher rate of income tax, the Government has to grant them income tax concessions although they are perfectly within their rights to band themselves into companies. In any case, it is not at all certain that they are forming themselves into companies to avoid a higher rate of income tax. They may well be organising themselves into companies because the boom is over and money is more tight, thus making it more prudent and profitable for them to work in groups.

Mr Speaker, Sir, the tendency for many self-employed professionals to "incorporate themselves into companies in order to sell their personal services" is as old as the hills. A large number of the older professionals incorporated themselves into companies many, many years ago, after working independently for a few years. This is a natural process among professionals. The ambitious young professional prefers to operate alone for a few years in the open market to prove his worth. After a few years, having demonstrated the value of his services, he seeks a greater measure of stability by getting together with a few colleagues and incorporating themselves into a company, so that collectively not only do they have greater security, but are able to offer more expertise by pooling their talents and resources. A closer examination of the newer companies will probably show that it is the younger generation who are now incorporating themselves into companies. This is a logical development. But the Hon. Minister for Finance appears to have misconstrued the situation and having been unduly alarmed by his misconception, has been stampeded into making concessions for fears which are absolutely unfounded.

I am also astounded by the argument that tax reductions at the upper levels of income are necessary because "professionals and executives working for the public sector on salaries are unable to take advantage of this loophole in the law" and that they do not enjoy the "perks of tax free expenses".

Sir, in regard to salaries it should be remembered that Government salary scales and allowances especially for professionals have increased considerably in recent years with rapid promotions so as to bring them almost at par with their colleagues in the private sector. Therefore, there is no need for those in the public sector to seek any "loophole" because at present under the existing tax schedule, they are subject to the same levels of taxation as their colleagues in the private sector.

In regard to the so-called "perks of tax free expenses", what exactly are they? Is the Minister referring to entertainment allowance or the use of the company car? Or the company house? Surely all these perks have to be declared by those in the private sector to the Comptroller of Income Tax, and my understanding is that they are also taken into account in assessing the income tax payable. An entertainment allowance has to be justified as being necessary for the promotion of business.

In any case comparable facilities are also available to senior officials in the public sector. My understanding of the situation is that if they have to entertain on official business, funds could be made available, provided the Minister for Finance is satisfied that such entertainment is necessary. Senior civil servants go abroad on official business at Government expense in the same way as their counterparts in the private sector proceed on company business. It is obvious, therefore, that the so-called perks are also available to the professionals in the public sector and if perchance the rules for these perks are a bit too rigid they could perhaps be liberalised by administrative action. Thus parity in treatment could be achieved without having to reduce the taxation rates in the upper income brackets and widening the gap between the haves and the have-nots.

Mr Speaker, Sir, a few years ago at an UNCTAD meeting our Ministerial representative, in protesting against certain GATT regulations, pointed out that the end-result of certain regulations was that the rich countries were becoming richer and the poor countries poorer. He underscored the need for a revision in the existing regulations so as to close the gap between the rich nations and the poor nations. That was indeed necessary. But while on the one hand, we are seeking a more equitable distribution of wealth on a global scale, on the other hand, in our own Republic, new taxation scales are being introduced to make rich Singaporeans richer and poor Singaporeans poorer. There appears to be a contradiction in our approach.

Finally, Sir, I would like to turn to another weak excuse given by the Minister for Finance to justify the increase in tax to meet the shortfalls created by reductions in income tax rates. I refer to the 150,000 people who, he says, should be paying tax on their income but do not do so because they are self-employed and keep no accounts.

Mr Speaker, Sir, the Income Tax Department has been in existence for nearly 30 years and if at the end of 30 years they still say that they are unable to assess the income of 150,000 people, that is to say, another 50% of the existing number of 300,000 taxpayers, then something is radically wrong with the department. Or the Income Tax Department is content only to collect tax from law-abiding citizens while letting those who are clever enough to get away scot-free. This is a most inequitable situation. It is high time that those responsible bestirred themselves and made an effort to ensure that all Singaporeans are treated equally before the Income Tax law.

Mr Speaker, Sir, there is an old Chinese saying that "a journey of a thousand miles begins with the first stop". Has the first step been taken by the Income Tax Department in this direction? They have had 30 years to work on this problem and I feel sure that the 300,000 captives of the Income Tax Department would be glad to learn whether they are paying a higher rate of income tax because there are 150,000 income tax evaders whom the Income Tax Department have so far been unable to reach and give parity of treatment in the matter of income tax.

Mr Speaker, Sir, it may well be that this budget could be the proverbial straw to break the camel's back. 3.43 p.m.

Mr Hwang Soo Jin (Jalan Kayu): Mr Speaker, Sir, in 1976 we had a GDP growth rate of 7% and in 1977, which is generally considered a difficult year, we have bettered our economic performance to finish up with a growth rate of 7.8%. Little wonder that with such consistently good track record we are having difficulties convincing people that we are still a developing country. Our position is an exceptional one, so we say, and we should not be judged on the sole criterion of per capita income level. We have a good cause and let us hope that we succeed in our arguments with the world at large. However, what I am concerned about is not so much what outsiders come to regard us although this is important; what is equally, if not more, important is how our own citizens view the economic situation.

Despite forecasts of difficulties, we have had good news year after year of continued growth so much so that I suspect that a large number of our citizens do not really take seriously the repeated exhortation to work hard and to prepare for hard times ahead. They have come to take for granted, "Come what may, the political leadership will be there to take care of things". To these people, 'energy crisis', 'stagflation' or 'protectionism' are no more than meaningless jargons. Frankly I do not blame them for their indifference to the economic realities and the difficulties that are being experienced elsewhere in the world, when we take note of the obvious signs of affluence around us. Our success is paradoxically also our dilemma - the dilemma of having to go on satisfying the rising expectations of our people on the one hand and yet making sure that they do not become soft and opt for a hedonistic attitude in life.

It leads me therefore to wonder whether there is not a better way to report on our economic situation from year to year so that it can be seen more realistically, not in isolation but very much more in the context of the entire world, that over-emphasising GDP growth as an indicator of growth does not, to my lay mind, put things in their proper perspective and is extremely misleading. A cursory glance at our balance of payments position for the year 1977 shows us that we are in surplus by $717 million. However, the capital inflows have amounted to approximately $1,500 million, that is, more than twice the sum total of the surplus in 1976 which was $737.4 million, as against capital inflows of $2,097.7 million. Are such inflows of a portfolio nature, or are they direct investments? To what extent do these capital inflows contribute towards our diversification programme and our exports earnings? To what extent do direct investments from external sources result in transfer of technology in real terms benefiting the indigenous sector, and for how much longer do we have to go on relying heavily on these inflows to produce the surpluses for us? These are in my humble opinion some of he pertinent points that need to be examined in much greater detail than hitherto.

The present analysis as contained in Chapter VI of the Economic Survey of Singapore 1977 is, to my mind, far too brief to be meaningful. There will come a time when the level of capital inflows will reduce drastically, and it is then important for us to ensure that at that point of time our export trade does pick up sufficient momentum and that our invisible earnings increase to the extent that the combined earnings from these sources are more than sufficient to offset any reduction in capital inflows.

For the financial year 1978, on the face of it, there are plenty of tax concessions and incentives for the corporate sector. But if these well meaning measures are to achieve their desired objectives, then I submit there is need for those responsible for implementation to be much more responsive and sensitive to the problems faced by the business community. I am saying this upon the reflection of a number of instances of delays in the implementation of the announced policies of Government. For example, during last year's Budget debate, the Hon. Minister accepted quite enthusiastically the need for the setting up of an Export Promotion Agency or Trade Development Council as it is now called. There appears to be quite a bit of feet-dragging in this connection. After a lapse of exactly a year the matter is still under discussion with the various Chambers of Commerce. Although we now have the Export Credit Insurance Scheme, Members will recall that the idea was mooted at least some five or six years ago but it did not take off until quite recently. Some few years ago the Export Incentive Scheme was introduced. I believe it is still in existence but I understand that in practice the system is so complicated and the requirements so stringent that only a handful of companies were able to qualify. The Small Industries Finance Scheme, which has been paraded as a shining example of Government's efforts to assist industries in export promotion, has only granted loans totalling $9 million to 60 establishments. This works out to be a meagre $150,000 per establishment and the disbursements and approvals of the $9 million have taken place over a period of, I believe, more than 12 months.

Sir, I do not consider this to be an impressive record. Surely there must be many more small industries worthy of help but due perhaps to inadequate publicity given to the scheme and the lack of promotion efforts at the administrative level, many industries which would otherwise have benefitted were either not aware of the existence of the scheme or simply they were not sufficiently encouraged to come forward.

For the ensuing year, six types of tax concessions will be extended to the corporate sector. I can only hope that the performance of those responsible for implementation will parallel the excellent intentions behind all incentive schemes, otherwise they will remain forever incentives on paper. Let us hope also that red tape will be kept to the minimum and a good common sense approach will prevail throughout the civil service.

Turning now to the change in the personal income tax structure, I have a feeling that the year 1978 will go down in history as an important turning point in our basic thinking on taxation. It signals a gradual shift in emphasis from our traditional approach of taxing on incomes to taxing on consumption. It is, in my view, a much better system in that the high spenders who obviously belong to the more affluent will have to pay more for their higher standard of living. This is socially equitable. Unlike the Member for Khe Bong, I feel sure that the change will continue to ensure a more even distribution of wealth provided, of course, that we take care to differentiate between luxury and necessities. For items failing under the category of luxury, I do not think many people will be too unhappy if heavier taxes are imposed, but to tax on items that have universally come to be regarded as necessities there should be sufficient reasons on the part of the Government before doing so. A case in point is the telephone tax. I do like to question the rationale behind it. A telephone has become very much a part of our daily life and bearing in mind the substantial capital investments that the Government has already committed on exchange installations and equipment, not to mention the very substantial profits being made by TAS from year to year, one would have thought that our policy should be to encourage even greater use of telephones and not to discourage.

In selecting items for application of consumption tax, we must not overlook also the social and cultural values that we are trying to cultivate and how our efforts in this direction may be affected. Take, for example, the increase in entertainment duty introduced for FY 78. It would have been more logical to treat stage plays, concerts, recitals, music performances and dances of significant cultural worth on a different basis entirely from, say, nightclub acts and shows. As things stand, they are all lumped together, giving the impression that we are totally indiscriminate in our cultural and artistic tastes. If it is not too late, I would urge the Minister to seriously consider granting special exemptions to all cultural activities aiming at qualitative improvement of our life-style. We talk so much against "moneytheism" and of the need to guard against the emergence of the "ugly Singaporean" and yet, in practice, we do not seem to take quite seriously what we preach. Only too often we have shown our pre-occupation with revenue generation for the purpose of economic development almost to the total exclusion of social and cultural activities. This unbalanced attitude should be corrected. This is, I feel sure, well within the capability of the Hon. Finance Minister to do so. As we put on the extra gallop in the Year of the Horse, let the gallop be not only energetic but graceful. 3.55 p.m.

Mr Sia Khoon Seong (Moulmein): Mr Speaker, Sir, this year's tax measures introduced by the Finance Minister demonstrate that he is capable of inflicting pain, as well as soothing away some of the pain, on the taxpayers. He implements his measures with such artifice that at the end of it he generally gets more cheers than boos for his tax proposals.

He has done the unexpected this year by decreasing income tax rates for the benefit of the taxpayers to the tune of $53.9 million. This move certainly makes a lot of sense and brings good cheer to the taxpayers. Making sense and bringing good cheer, I must say, is not one of those things that the Finance Minister often does when it involves the giving away of money. This is clearly illustrated in the Finance Minister's rigid adherence to his ruling on the non-payment of the 13th Month Allowance, even on a prorata basis, to civil servants who retire or to their dependants if they die before the 31st December of each year.

Perhaps with the passage of time, the Finance Minister will develop a greater sense of generosity towards such civil servants or their dependants as the case may be, and a more propitious time may yet come when the Finance Minister will relent on this issue. Let us hope that this propitious time is not too far away.

Coming back to his tax measures, Mr Speaker, Sir, allow me to make certain observations in regard to the Finance Minister's proposal to increase the rate of entertainment duty. Like the hon. Member for Jalan Kayu, I must point out here, with regret, that no distinction is made between nightclub entertainment on the one hand, and cultural and recreational entertainment, on the other. To impose an additional rate of entertainment duty on nightclub entertainment, including strip tease, lewd and sexy shows, is a proposal with which no one can find fault. But to impose an additional duty on admission charges for cultural entertainment, such as stage plays, concerts, music performances and dances, etc. is, I think, to put an unnecessary impediment in the way of the organisers and promoters of such cultural performances. As it is, such people are already finding it hard to stage such performances simply because the cost of staging them is quite high. The prices they fix for admission tickets to such performances have to be related to the costs of the production; as a result, the prices of admission tickets are often too high for the shows to be popular, since they are within the reach of a small circle of Singaporeans, among whom young Singaporeans are not likely to be found.

It is often lamented that Singapore is a cultural desert. It is bad enough that the Government has not seen it fit to give greater financial aid for the promotion of such cultural pursuits. Now the Finance Minister wants to impose an unnecessary burden on the enthusiasts, who are doing what they can in promoting the cultural development for the enrichment of our society.

The imposition of additional duty on admission to the cinemas is also ill-conceived. We can be quite sure that the cinema-owners, sooner or later, will pass on the additional duty to the cinemagoers, most of whom must surely be our HDB flat dwellers. Cinema-going is surely one pleasant source of recreation - one safe outlet for the great bulk of our flat-dwellers, who at times need to escape from their crowded environment. After all, there are insufficient recreational facilities in Singapore within the reach of their pocket to cater for their recreational needs. How much can Government get out of this additional duty? Is this additional duty really necessary to balance the Budget? The ordinary man must have his share of entertainment and recreation. Due recognition must be given to his right to such entertainment and recreation if we are earnest in what we say about caring, not only for his material well-being, but also his social needs. There is already a duty on admission charges. There is also talk that the cinema-owners are contemplating raising admission charges to cinemas. Increasing further the duty rate on admission charges will only provide them with an excuse to raise the charges at the expense of the cinemagoers.

4.02 p.m.

Mr Ng Kah Ting: Mr Speaker, Sir, I rise to make some observations on the tax proposals of the Hon. Minister for Finance. First, the personal income tax. When i read the Table that was handed out, I would have thought that the tax burden would be shared more largely by those who earn more. However, this is not the case. Those earning a chargeable income of $2,500 will only get 1%, and it goes up to 10% for those earning a chargeable income of up to $200,000. Sir, if I may refer to the Inland Revenue Department's Annual Report of 1976, page 55, Income Tax, Abstract E:

'For assessments paid up to 31st December, 1976 for the year of assessment, 1975, there is a total of 229,970 taxpayers.' Out of this, Sir, those earning $30,001 to $200,000 make up about 13,000 taxpayers and those earning over $200,000, 228 taxpayers. The total tax concession is, according to the Hon. Minister for Finance, about $53.9 million. So the figures that I have given just now go on to show that those who earn between $30,000 and above $200,000 are the ones who benefit more in terms of dollars and cents. Those who earn $10,001 to $30,000 which make up roughly 71,000 taxpayers will get less benefit in terms of dollars and cents. They form the majority, as my good friend, the Member for Khe Bong, has also observed. So where is the equitable distribution of wealth? This is the point. It widens the gap rather than narrows it down. I do hope the Minister for Finance will bear this in mind when presenting his next Budget.

Next, Sir, along with the $53.9 million loss of revenue, the Minister for Finance introduces a number of measures to recover the revenue loss. First, when he imposes with immediate effect the 25% Additional Registration Fee on private motor cars, as well as the 25% increase on Preferential Additional Registration Fee, he says, and I quote him:

'This additional tax is most necessary if we are to prevent the release of $54 million freed by the new income tax rates for the lower and middle income groups from going into private cars excessively, once again cluttering up the roads.' Sir, I cannot follow the rationale. To my lay mind, at the moment if a person wishes to purchase a new motor car, unless he can look around and get an old car to scrap off he will have to pay more tax. Even if he has an old car to scrap, and the tax that he will have to pay is less, is there any real advantage to him? I cannot follow the logic that the release of $54 million will mean cluttering up the roads with new cars. I hope the Hon. Minister for Finance can enlighten this House on how he arrives at this solution of a so-called equation of loss of revenue against increase in motor cars.

Next, Sir, as pointed out by the Members for Moulmein and Jalan Kayu, is the question of entertainment duty. Singapore is such a small place. What are the places of entertainment? I do not think many of our people can afford to go to night clubs. So perhaps one of the forms of entertainment would be the cinemas. The additional rate will bring in only $7.5 million. Is it really worth it? Then the driving licence, 100% increase. I think this is quite reasonable. But I cannot agree with the increase of another 5% to the telephone bill, also mentioned by my good friend, the Member for Jalan Kayu. This no doubt will net some $5.7 million. But the telephone is a necessity for speedier and easier communication. It is a form of social service. So why impose additional tax by another 5%?

I will come to another point, Sir. Colour television licence goes up from $36 to $54, an increase of 50%. If my mind serves me right, what is broadcasting service for? What does broadcasting service provide the programmes for? It is to entertain, to be informative, to explain Government's policies and the like. Just because the TV is a colour set and with more colour TV programmes, the Government chooses to increase by another 50% of the TV licence fee. I recall that sometime ago there was a leek that television licence fee would be increased. But as a result of the leak, Sir, the licence fee was not increased. Then there is the airport tax.

All these measures will bring in a total sum of $41.8 million, not forgetting the good cheer that the Minister for Finance has brought by abolishing the 5% tax on PUB bills ranging from $35 to $50. This is something which the Housing Board flat dwellers have been grumbling about for some years. Everything is taxed. Even the consumption of water is taxed. Electricity that is used is also taxed. So this small sweetener is most welcome by the lower income group in the Housing Board estates. Whilst this may incur a loss of revenue of some $17.1 million, as the Minister for Finance has pointed out, I think it certainly softens the burden of having to maintain a HDB flat. On the one hand there are tax concessions, but on the other hand the hand stretches out and grabs in all directions to recover the loss of revenue.

The Senior Parliamentary Secretary to the Minister for Labour (Mr Fong Sip Chee): Give and take!

Mr Ng Kah Ting: Give and take, that is right. Now, one last point. This has been mentioned by the Member for Khe Bong. Over the last 30 years some 150,000 persons have escaped the tax net. How come? The Minister for Finance mentioned that it is difficult to bring them in. I do not see where the difficulty is. If there are measures to ensure that all these 150,000 persons, whether they are self-employed or otherwise, do submit tax returns, it may cost the Government some money and manpower, but surely over a period of time these people will realise that it is better to declare their income and to pay tax than to be in default and to pay heavily. The penalty should be more than, as suggested by the Member for Khe Bong, 200% or maybe 1,000%, so that they will be discouraged from evading payment of income tax.

Another good source of revenue, I suggest, is to impose tax on luxury items. I agree with the Member for Jalan Kayu that we have got to differentiate between what is a necessity and what is a luxury. All basic necessities should not carry extra tax. But as far as luxury items are concerned, yes by all means increase the tax. This will make up for the loss in revenue. There are so many luxury items.

An hon. Member: Such as colour TV?

Mr Ng Kah Ting: No, not colour TV because a colour TV set is a necessity at home. Maybe cosmetics is a luxury. The Finance Minister previously mentioned about the bad habit of smoking and drinking. This has escaped him this year. I wonder why.

What I am trying to say, Sir, is that surely there are many other ways and means by which the Hon. Finance Minister could not only recover the loss in revenue but also bring in more revenue if he had studied the matter in greater depth. 4.17 p.m.

Mr P. Govindaswamy (Anson): Mr Speaker, Sir, during this period when the world economic growth has slowed down and yet to recover from the shocks of the oil crisis, for a City state like ours with no natural resources to speak of and with no agricultural sector, except for manpower and providing services, to achieve an economic growth rate of 7.8% is a marvellous achievement, when compared to the major countries of the OECD whose growth was only 4%. This achievement is due to the wisdom of the Finance Minister and the stable Government with its prudent policy, efficient management and hard work of the productive workers. I do not want to criticise. I must support the Minister for Finance. I therefore join my colleagues to commend the Finance Minister for producing an excellent economic survey of the country and delivering an excellent Budget address in this House on 27th February.

Sir, this year's Budget statement is indeed a glorious example of a realistic, well-thought out and, needless to say, an express statement of great achievements despite the very many setbacks we have faced since the middle of 1973.

Since the PAP took office in 1959, year in and year out we have seen continuous progress in every field and no stone was left untouched. This is proven by the statistics produced over the last 18 years. We are able to control our population growth. The crude birth rate is now 16.8 per 1,000 people, whereas in 1960 it was 37.5 per 1,000 people. This shows our Family Planning Scheme has been a success. Our unemployment rate too has gone down tremendously during the last decade. In 1968, the rate was 7.3% whereas today it stands at a record figure of 3.9%. These are just some examples. This is possible- because of the stability of our government, whose leaders have a great sense of foresight and are prepared to work hard for the interest of the nation.

Sir, over the last two weeks there has been much talk all over the island about the tax changes that have been announced in this House by the Finance Minister. There seems to be a misconception. In my opinion, this year the Finance Minister has presented a "caring budget". If we are to study the tax changes, we will notice that the tax increases are levied on non-essential items. As long as food, shelter and clothing which are the main necessities and essential items are not restricted, then there is no ground for any one to grumble.

As I have mentioned, the "caring budget" has given great thought for the workers, for the Finance Minister has revised the income tax rates. The tax reduction varies from 7.8% to 18.8% depending on the tax bracket and the average tax cut is 14.6%. This tax reduction is indeed long over-due and will definitely benefit the majority of the taxpayers whose sweat and toil has contributed to the fine performance of the economy.

The Budget has also abolished the 5% tax on PUB bills within the range of $35 to $50. This is also a timely gesture to the majority of the low-consumption consumers whose bills are within that range. This gesture will also help other consumers to be thrifty in the use of utilities so as to avoid paying the 10% tax on bills which are above $50. These two benefits will be felt directly by the individuals.

On the other hand, to keep up with the challenging year ahead, tax concessions have also been considered for companies. This is in the form of an investment credit scheme where a number of benefits have been granted so that we can secure markets for our exports which we greatly need.

Sir, it is noted that the loss in revenue due to the income tax revision is estimated at $54 million and the revenue loss on tax on PUB bills is estimated at $5 million. With the various tax increases on non-essential items, the Government faces a total revenue loss of $17.1 million for the first year. In other words, the Government will not gain from the tax changes but it is fair to the masses who have a moderate living standard.

The income tax issue has been a controversial one over the past few years. Year after year, Backbenchers have voiced for increased relief for taxpayers. Even the present Senior Minister of State for Finance who was on this side of the House last year, had also strongly supported the move. At last, we have seen some concessions in this year's budget.

Sir, the Minister is aware that social circumstances are unfair because the burden falls heavily on the honest and hardworking salaried wage-earners who faithfully and loyally pay tax on their earnings. However, there are many loopholes for the 'big fish' to dodge paying tax on their income with legality and frequently these loopholes are not noticed by the income tax department.

I remember some six months ago, during the Public Accounts Committee's inquiry, it was stated by the Commissioner of Inland Revenue that $22.2 million was not collected from taxpayers and he gave reasons which were the perennial problem of shortage of manpower, equipment and space. It seems that the outstanding amount is more than what the Minister expects to collect from the increases of taxes on any of the non-essential items. What steps are being taken to recover the uncollected taxes expeditiously?

It was also mentioned that the Inland Revenue Department has $42 million in its coffers which should be returned to the taxpayers. What steps are being taken by the Department to return the credit balances of taxpayers who have over-estimated their tax assessments? What is the guideline here? Is there any precaution taken that the refundable amount is given back to the taxpayers? No wonder in their midst a single clerk outwitted all the tax intellects and managed to get away with a large sum of money amounting to a million dollars. This had been going on for many years and right at their doorstep. What measures have been taken to ensure that no such repetition occurs, not only in the income tax department but also in other Government departments?

Sir, the Inland Revenue Department collects the main source of revenue for the Government which amounts to some 40% of the total revenue. It is time that the Department was properly organised. Priority should be given to this Department in the allocation of manpower and equipment and all its other divisions should be put under one roof instead of locating them in different parts of the city. If urgent attention is not given to this matter, we will notice a heavy "bad debt" in the long run and legal administration would be impossible and economically unwise.

Sir, the large expenditure on Development has been made possible because of stringent pruning of the recurrent expenditure estimates especially on staff and manpower in the civil service. This is quite reasonable. But then the working conditions of many civil servants are not properly attended to. We find that many officers are working in cubicles with neither comfort nor privacy. This could be due to their supervisors' lack of interest on the working conditions of the staff.

There has also been a certain amount of dissatisfaction in the civil service, e.g. the 13th month annual allowance. A retiring officer who has put in many years of loyal and dedicated service is denied this allowance even if he were to retire just one day before the end of the year whereas a new recruit who has been in service for just two months is entitled to this benefit. Sir, the question here is, why are the civil servants who have put in so many years of loyal and dedicated service given a poor deal? Are they all being neglected? These are some of the frustrations that affect the work performance of the civil servants. We must remember that these are the workers who have played a major role in our Government's efforts in achieving excellent performance over the years and also in maintaining a stable Government. These people should not be forgotten. They are partly responsible for our success.

Sir, to educate the people and to maintain discipline and a healthy society, in our legislations we have penalties in the form of fines. But then it appears that there are too many people who are involved in the issuing of summonses. Many years ago, only the Police were given the authority to issue summonses. At the moment, the masses are rather confused. It looks like any Tom, Dick and Harry from the various departments have the authority to book offenders. And some of the summonses are issued indiscriminately. I will quote a few instances when the Committee of Supply is in session. At times, offences committed are not intentional and the persons involved are not given a chance to explain but are advised that they can give their explanations in Court. How many of our citizens would really want to go to Court and argue their cases, which may be economically unwise?

It is apparent that once you are on the road either as a pedestrian or a motorist, there are so many regulations to abide and if you make a slip, the lawman is there to book you.

On this subject, even a day's delay of payment on certain bills will subject a person to a fine, despite going to the department concerned to explain the reasons. However, some officers at the counter will invariably give a negative reply. It is only when one makes a nuisance there that a senior officer will intervene to help solve the problem.

Everytime this happens, the law is always quoted, that is, the regulations in the notices, etc. It appears there are numerous minor instructions and regulations to be complied with and if one does not comply with any regulation, one is liable. On the other hand, if the mistakes are committed by the department concerned, then the matter is covered up after the wrongly booked person had been inconvenienced by having to go to the department to explain. What is the reason for the double standards? I hope the civil service will work with better understanding and courtesy with the erring public. It is true that laws have to be observed. But then surely discretion too plays a part, but in many cases there is no discretion and everything is being referred to the court. No wonder there is a glut of cases being pushed to the courts, where our learned Judges are already burdened with so many other cases. So it would be wise to maintain some sort of control over the issue of summons from the various Ministries and thus avoid the impression that is being created that fines are revenue-orientated which, in fact, is not true.

Sir, at present we see extensive developments taking place in the Republic. We find the city entirely different from what it was some 20 years' ago. We find many skyscrapers replacing the old dilapidated and low structures. These developments are, in fact, changing the skyline and also uplifting the image of the country. But then some of the skyscrapers are under-utilised. Probably because of the heavy overhead costs the business community does not want to occupy the buildings. Some of these buildings are therefore made to look as though they are 'white elephants'. Every attempt must be made to get all the vacant units occupied.

Very frequently we notice road digging taking place along many roads, paths, circuses, etc. Sometimes we find developments going on in the same location over a short period of time.

Development is good for the country. But then it should not be over-emphasised. I know that there is a co-ordinating committee to look into this and that it has got the final say. The question here is, how effective is the co-ordinating committee in its functions? Though there may be acceptable reasons for the changes, I think the planning and the co-ordinating committee should play a greater role in this control. I personally feel that the change in officers, which is quite common in the civil service, is the cause for the frequent changes in the physical outlook. This is because every new officer has his own way of thinking and working. Therefore, the now officer might not accept the ideas and plans of his predecessor and so changes have to take place.

Sir, over the years the public bus transport has improved tremendously after the numerous complaints voiced by the Members in this House. Credit should be given to the Government and the bus workers for this improvement.

During the last few years, in the hope of limiting vehicles on our limited stretch of roads, the motoring public has been greatly hit by the various taxes and restrictions imposed by the Government. Many car owners have given up their vehicles and are prepared to rely on public transport. However, in this respect there arises a new problem, and that is a great demand for taxis. Even though statistics have shown that there are many taxis on the roads, what has happened to them? Every taxi is seen to be fully occupied, so much so that some taxi drivers take advantage of the situation and do not provide the good services as before. The Ministry should seriously look into this matter and rectify the problems. Otherwise the Government will not be able to further reduce the number of private cars on the roads. It is very difficult to get a taxi in Maxwell Road at one o'clock in the afternoon.

Sir, the Health Ministry is aware of the plight of those who are over 60 years of age and who are vulnerable to illness because of the degenerative process. Old people in most cases are not well-off like the others. The marginal utility of money for them is great. With the present high cost of living, medical bills are quite often a burden to them. It is a fact that a general reduction of hospital charges will not be possible. Perhaps a concession for the aged could be considered. I know of many old people who do not consult doctors because of the heavy charges. It is no wonder that on scrutinising the statistics for the last few years, this age group has got the most number of suicides, attempted suicides, missing persons, etc., when compared with the age group of 30 to 60 years over an interval of 10 years. Something must be done to help this group of people.

Sir, to sum up the Economic Survey of Singapore over the last 13 years, Singapore has made tremendous progress in all fields of human activity, as has been analysed. To have achieved so much within so short a period is a great credit to the Government and the people of Singapore. The Government's ceaseless efforts at mapping out a clearly unique, self-reliant and undauntingly surging Singapore has created a facade of truth, honesty and incorruptibility of and a great faith in her leaders. The people of Singapore have a share in the cake of achievement, and it is no little share in these efforts, who by their faith and confidence in and unstinting co-operation with their leaders have made this possible.

Thus, we can proudly say that it is now a Singapore which is the "Pearl of the Orient" and a model city in this part of the world. Let us hope the 'Horse' would gallop better in the Year of the Horse, leading to a brighter budget for next year.

I give my wholehearted support for the Budget address presented in Parliament by the Finance Minister on the 27th February, 1978. 4.40 p.m.

Dr Augustine H.H. Tan (Whampoa): Mr Speaker, Sir, last year was a turbulent year for the world economy. Inflation was persistent and economic growth was sluggish and rising unemployment particularly in OECD countries gave impetus to the tide of protectionism. In the face of all these difficulties, our economic performance of 7.8% real GDP growth was commendable.

The Hon. Minister for Finance has rightly warned that difficult economic conditions in the OECD countries will persist despite attempts at expansionary policies. Unemployment, inflation, balance of payments difficulties and turbulence in currency markets are but symptoms of a deeper malady. The engine of growth in the industrial countries is faltering and the best indication of this is the insufficient and uncertain pace of new investments. The energy crisis has, of course, further compounded the problem by raising costs of transportation and production and by creating huge imbalances in trading accounts. The U.S. Government has announced a tax cut and has been trying to persuade West Germany and Japan to expand their economies so as to pull the world economy out of economic stagnation. Unfortunately, expansionary fiscal and monetary measures have only a limited and temporary impact. Moreover, the cost could be high in terms of greater inflation.

The declining fortunes of the US dollar vis-a-vis the Yen, the Mark and the Swiss Franc should be cause for concern. The net effect will be inflationary and a retardation in the growth of world trade. The depreciation of the US dollar will raise prices of imported goods in the United States but the corresponding appreciation of the Yen, the Mark and the Swiss Franc will not lead to a lowering of import prices to the same extent in Germany, Switzerland and Japan. At a later stage, higher US inflation will be re, exported. In the meantime, the volume of world trade will suffer as imports into America are reduced while United States exports will not enjoy compensating expansion because her exports comprise high technology, military and agricultural goods which are not so responsive to changes in price competitiveness.

We are at one of those critical junctures in world economic history when failure to identify common interests among nations leads to adoption of myopic and nationalistic measures which can only hun every nation in the world. The balance of world economic power in the non-Communist world has shifted significantly since the Second World War. Although the United States is still predominant, its share of market-economy GNP has shrunk from almost half to one-third. The EEC has increased its share of G NP from 19% to 27% while Japan's share has increased from 3% to 10%. The pattern of shares in world trade has also changed significantly. This shift in the balance of economic power lies behind the U.S. exhortation to Western Europe and Japan to assume their proper share of responsibility for the orderly development of world trade and finance. Abdication of such responsibility and failure to achieve the required degree of coordination can have disastrous consequences. One recent historical parallel is a chilling reminder, as one noted observer puts it: "part of the reason for the length, and most of the expansion for the depth of the world depression [of the thirties], was the inability of the British to continue their role of underwriter of the system and the reluctance of the U.S. to take it on until 1936." (Charles Kindleberger, The World in Depression 1929-1939). He was referring to the consequences of the shift in the balance of economic power from Britain to the U.S. in the years immediately preceding the Great Depression. Today we are witnessing a shift in a balance of power from the United States towards Western Europe and Japan.

Unfortunately, we in Singapore can only watch with apprehension, developments in the industrial countries and do our best to avoid being swamped. We can expect more protectionism in the developed countries. Euphemisms like orderly marketing arrangements, organised free trade, orderly growth of trade cannot hide the ugly reality of protectionism. Honourable Members are undoubtedly aware of increasing restrictions on our exports like electronic calculators, plywood, black and white T.V. sets and textiles. And when the French hit a spell of dry weather, their umbrella industry suffered. An investigation found that umbrella imports were mainly from Singapore. The consequence was a quota on our GSP exports. Even our orchid exports to the EEC have been the object of lobbying by tulip growers in the Netherlands and Italy.

The tragedy of protectionism is that it is a negative sum game for everybody. Cheap imports from developing countries like Singapore have lowered costs of living significantly for workers in industrial countries. There has been net job creation in these countries as a result of trade. Yet imports are now chief targets by trade unions in the advanced countries as a result of rising unemployment.

We are also in danger of re-classification of our status as a developing country, as the Finance Minister and other hon. Members have mentioned. This is patently unfair. We are being penalized, as it were, for the successful efforts we have made to reduce unemployment, poverty and inequality. We should bend every effort to resist the re-classification. At the same time, we should realistically prepare for the day when GSP and other concessions are removed. Even under the GSP, products are easily re-classified as sensitive items, subject to onerous quotas. The Finance Minister's call to shift our production to goods and services which are less sensitive to protectionism should be implemented expeditiously.

The incentives he has announced to encourage the diversification process are steps in the right direction. The investment credit scheme should give a boost to capital formation. Hon. Members may note that our Gross Domestic Fixed Capital Formation or investment, in short, rose by only 1.3% in real terms last year. Machinery and equipment investment was less than the previous year's by 2%. Indeed, the private sector's investment in this category declined by 6.2%. There is every need therefore to stimulate investment in Singapore.

We now have a wide variety of measures to encourage new investments, including the accelerated depreciation allowances for industrial buildings and concessions on earnings from export and offshore financial activities. We have not been given any idea of the cost of these measures nor any evaluation of the effectiveness of past measures. Perhaps the Finance Minister can enlighten us on this. Furthermore, concessionary measures require control and monitoring. It may be simpler and more effective to simply lower company taxes generally so as to provide greater stimulus all around to investment activity.

The lowering of the maximum marginal tax rate on profits which are repatriated back to Singapore to 40% may not be sufficient incentive to encourage repatriation when unremitted income is not taxed at all. It may be more effective to exempt entirely repatriated profits or income which are put to investment purposes.

The proposal to provide a 20% concessionary tax rate for overseas-oriented sales and service companies is a good one except that the scale of operations required seems unduly high if the intention is to promote local entrepreneurship. It might be more effective to offer a graduated scale of concessions with a low enough minimum scale of operations so as to attract new entrants.

The emphasis on trade development may well be critical for us. If OECD economies remain sluggish and turn increasingly protectionist, we shall need new markets. West Asia and China are two likely growth areas. Greater efforts should therefore be made to tap these markets and to orientate our production accordingly.

The personal income tax concessions have been widely welcomed. The intention of providing greater incentive for individual effort and enterprise is a sound one because our economy depends upon such effort and enterprise. However, the Minister could have spread his present more evenly, to provide more relief to the middle and lower income ranges. The upper income groups would not have lost in the process by the spreading because their tax benefits are cumulative.

The concession on the tax on PUB bills is most welcome because it has been a burden to the lower income group.

The shift from income tax to taxes on expenditure is a sound move. Burdensome income taxes in more advanced countries have stifled initiative to the detriment of growth and job creation. We need to give encouragement to our entrepreneurs who, through their skill and enterprise, can create the industries that provide the jobs and rising standards of living.

The loss of revenue from income taxes has to be made up by other taxes unless we are prepared to dispense with some Government services. Taxes on expenditure can provide the shortfall in revenue. Moreover they discourage wasteful consumption and encourage saving. Last year, private consumption expenditure rose to $9.9 billion or 8.7% in real terms. Transportation, particularly new cars, and communication expenditure increased by 17.5% while residents' expenditure abroad rose by 26.4%. The Finance Minister is therefore understandably concerned. But he should not forget that expenditure taxes add to the cost of living, especially when they bear upon necessities, and that the cost of buying and maintaining a car has already risen by a fair amount. Government has been very prudent in its fiscal management but I am sure there are always economies that can be made to save taxpayers additional burden. I would urge the Finance Minister to increase productivity of civil servants. All of us, however, need to realize that we are now in an era of much slower growth - thrift in general is necessary. Thrift will also enable us as tax-payers to avoid paying the expenditure taxes that the Finance Minister may feel the urge to impose from time to time.

Sir, subject to these few qualifications, I give my support to the Motion standing in the name of the Minister for Finance.

Mr Speaker: Order, I suspend the Sitting and will take the Chair again at 5.25 p.m.

Sitting accordingly suspended at 4.53 p.m. until 5.25 p.m. Sitting resumed at 5.25 p.m.