ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Resumption of Motion.

Section II

Dr Tony Tan Keng Yam: Mr Speaker, Sir, I now turn to the FY 83 Budget.

As in 1982 the Expenditure Budget seeks to achieve the following objectives: * to increase the supply of skilled, tech-nical and professional manpower required to propel the restructuring and upgrading of the economy; * to promote infrastructural, industrial and commercial development to acce-lerate economic growth and restruc-turing; and * to intensify public housing construc-tion to meet the demand for Housing and Development Board (HDB) flats.

The total budgetted expenditure (excluding the transfer from the Consolidated Fund to the Development Fund) for FY 83 is $14,671 million, an increase of 18% over FY 82. Expenditure on education and manpower training; infrastructural, industrial and commercial development as well as public housing will take up $8,263 million or nearly 57% of the total allocation.

A sum of $6,882 million is required to meet the recurrent expenditure of Government programmes in FY 83. This is 24% higher than the FY 82 figure. It is the minimum required to maintain the existing level of Government services and cater for expansion of essential functions such as education and manpower training as well as medical and health services.

Expenditure on manpower will grow by $253 million or 19%. The rate of increase is held down by a net total reduction of 1,803 posts on the permanent establishment. A total of 4,152 posts is no longer required because of the merger of the Postal Services Department with the Telecommunications Authority of Singapore, conversion of the Department of Trade into a statutory body and the new method of paying trainee medical ancillary staff from block votes instead of from the provisions for established posts. The reduction in manpower is partly offset by a total of 2,349 posts provided for new or expanded areas of work. Of these, 2,027 are for the Ministry of Education to meet staffing shortfalls in the schools and Ministry and to regularise the position of Government teachers posted to aided schools and junior colleges. Most of the remaining 322 new posts are taken up by the Medical, Engineering and Prison Welfare Services.

Excluding the Armed Forces expenditure, Other Operating Expenditure will go up by $60 million or 10%. Of the increase, payment of agency fees to the Urban Redevelopment Authority for managing the sale of state lands will account for $20 million. The balance is largely to meet higher costs of maintenance, rental, supplies and materials.

There is a jump of $351 million or 49% in Grants, Subsidies and Other Transfers. This is attributed mainly to :- * the 1982 salary revision, annual salary increments, increase in CPF/MPF con-tributions and a contingency provision for the NWC wage supplement in FY 83 for the staff of statutory boards, tertiary education institutions and aided schools; * a sum of $153 million to top up the Advance Accounts; and * an allocation of $40 million to augment the Contingencies Fund for recurrent expenditure.

The bulk of the increase of $395 million or 29% in the provision for Public Debt is to meet interest payments on domestic loans.

The recurrent expenditure will be fully met by the anticipated revenue of $8,871 million, leaving a surplus of $1,989 million for transfer to the Development Fund to help finance development projects.

The total development expenditure for FY 83 is estimated to be $7,789 million or 53% of the net total budget. The provision is 14% more than that for FY 82. Outlays on public housing, infrastructural, industrial and commercial development as well as education and manpower training account for $6,645 million or 85% of the development bud et.

Some $3,102 million or nearly 40% of the development budget is set aside for the public housing construction programme. HDB expects to complete about 40,200 units in FY 83. This is 74% higher than the target set for FY 82.

Infrastructural, industrial and commercial development account for $2,966 million or 38% of the development outlay. This includes $1,240 million for lines of credit to the Development Bank of Singapore, the Petrochemical Corporation of Singapore and the Ship Financing Scheme; $1,060 million for the development of the Kent Ridge Science and Technology Park, industrial estates, reservoirs, mass rapid transit system, roads and Changi Airport, Phase II, as well as $143 million for the Capital Assistance Scheme for the Construction Industry, and the Economic Development Board's Capital Assistance Scheme and Product Development Assistance Scheme.

Expenditure on education and manpower training will take up $577 million. This is for the School and Junior College Building Programme, construction of a new complex for the Nanyang Technological Institute and expansion of the Kent Ridge Campus of the National University of Singapore, Singapore Polytechnic, Ngee Ann Polytechnic as well as vocational and industrial training institutes.

The Civil Service computerization programme is allocated $69 million for the purchase of hardware and software development.

Section III

Revenue

I come now to the third part of my Statement which deals with revenue and tax changes.

For FY 83 recurrent revenue is estimated at $8,871 million, which represents a decrease of $452 million or 4.8% compared with the revised estimates of $9,323 million for FY 82.

Income tax is still the largest single source of revenue accounting for nearly 35% of total revenue. Income tax collec tions for FY 83 are expected to reach $3,100 million, a fall of $200 million or 6.1% from FY 82 collections. The main reason for this decline is because the corporate sector is expected to have smaller profits. Corporate taxes account for 74% of the total income tax for FY 83.

The total budgetted expenditure for FY 83 is $14,671 million comprising recurrent expenditure of $6,882 million and development expenditure of $7,789 million.

Even after taking into account the Development Fund income of $2,058 million, the total revenue of $10,929 million is insufficient to finance total recurrent and development expenditures. The deficit of $3,742 million has to be financed by public borrowings and a drawing-down from the Development Fund.

Tax Changes

Honourable Members will no doubt be interested to know what will be the tax changes proposed in this Budget. I hasten to assure them that, for FY 83, there will be no increases in the rates of Income Tax. Instead I intend to give three concessions to encourage the older workers and speially qualified married women to remain in the workforce and thereby contribute to our economy.

Earned Income Relief for Taxpayers Beyond the Age of 55 Years

In 1976 the earned income relief for individuals aged over 55 years old was increased from $1,000 to $2,000 and that for individuals aged over 60 years old from $1,000 to $3,000 as they need more money to stay healthy and continue working beyond their normal retirement age. To further encourage them to remain in the workforce and to take account of the cost and pressures of the elderly in working life, I have decided to increase the earned income relief from $2,000 to $3,000 for those over 55 years old, and from $3,000 to $4,000 for those over 60 years old. The increase in earned income relief will take effect from the Year of Assessment 1983.

The revenue loss is estimated at $2.4 million. Earned Income Relief for Handicapped Persons of 55 Years Old and Above

In 1982 the earned income relief for handicapped persons was increased from $1,000 to $2,000. However, when a handicapped person continues to work beyond the age of 55 years, he can only claim the increased earned income relief either as a handicapped person or as an elderly person. It is appropriate to give recognition and encouragement to a handicapped person who continues to work beyond retirement age. I have therefore decided that such a person should be given earned income relief of $2,000 as a handicapped person as well as the earned income relief of either $3,000 or $4,000 for continuing to work beyond the age of 55 years or 60 years, as the case may be. This tax concession will also take effect from the Year of Assessment 1983.

Enhanced Child Relief for Specially Qualified Married Women

At present, all specially qualified married women can claim enhanced child relief for up to three eligible children. For the first and second child, the relief is $2,000 or 5% of the woman's earned income and for the third child, it is $2,000 or 3% of her earned income, whichever is the lesser. This enhanced relief was given with effect from the Year of Assessment 1974 to encourage the more highly qualified married women to continue to work even after they have children.

As the cost of domestic help has gone up, I am improving the existing enhanced child reliefs by removing the limit placed on such reliefs but the reliefs will still be confined to the first three eligible children. With effect from Year of Assessment 1983 the enhanced child relief will be the normal child relief plus 5% of the woman's annual earned income for each of the first three eligible children.

The cost to revenue is estimated at $1.4 million.

Tax Changes for Companies

Members will have gathered from Part I of my Statement that I expect 1983 to be a grim year with only minimal economic growth. Indeed we shall be doing well if we can limit the number of retrenchments and create enough jobs to continue to provide full employment for our citizens. This will depend on our corporate sector remaining strong and vigorous. To give a stimulus to companies in these difficult times, I have decided to give the following concessions.

Loan Syndication

The Asia Pacific region has been identified as a high growth area in this decade. There will consequently be greater demand for financial services in this region. In addition to providing continuing encouragement for the upgrading of domestic banking services, the Monetary Authority of Singapore is promoting international loan syndication activities as part of the further development of Singapore as an international financial centre.

The efforts made to develop loan syndication activities in Singapore include measures taken to improve the supporting infrastructure such as telecommunications, legal and printing services. A special tax holiday scheme will now be introduced to further promote loan syndication activities. Under the scheme, all income derived by the Asian Currency Units (ACUs) of banks and financial institutions in Singapore from loans syndicated in Singapore within the next five years beginning from 1st April, 1983 and for such further period as the Minister for Finance may approve, shall be exempt from tax if the loans meet the following requirements:

(a) The lead manager is an ACU of a financial institution in Singapore. If there are two or more lead managers, at least half of that number should be financial institutions in Singapore;

(b) The Ministry of Finance is satisfied that the larger part of the whole syndication process is done in Singapore;

(c) There are at least three lenders; and

(d) The loan is an offshore loan [as defined under Section 3(a) of the Income Tax (Concessionary Rate of Tax for Asian Currency Unit Income) Regulations, 19791.

Tax exemption on income from syndicated loans will be granted on a case-by-case basis. However, there will be flexibi- lity in the implementation of the scheme and the tax exemption will be applied to all income earned during the entire period, or tenure, of the loan.

Stamp Duty on Cheques and Traveller's Cheques

In line with our development as a financial centre, stamp duty on all cheques, including traveller's cheques, will be abolished with effect from 1st April, 1983. Travellers will now find it easier to encash their cheques and banks will be relieved of the administrative burden of accounting for all cheques issued to their account holders. The imposition of stamp duty is anachronistic and inequitable, particularly when there are in existence other similar banking facilities such as credit cards, cash dispensers and automated tellers, and the Giro system which do not attract stamp duty.

The loss in revenue is estimated at $6.2 million.

Tax on Royalties

As an encouragement to creative talents such as authors and composers, a tax concession will be given on royalties received. With effect from Year of Assessment 1984, the chargeable income will be deemed to be only 10% of the royalties. However, where an author or composer is entitled to claim as deductible expenses under existing tax provisions more than 90% of the royalties, (ie his chargeable income is less than 10%) this will continue to apply as it provides the author or composer with greater benefits. This concession will enable local publishers to offer better terms to authors and composers living in Singapore and abroad. Foreign talents will find it worthwhile to get their works published here.

First Year Depreciation for Computers and Office Automation Equipment

To remain competitive, we must pursue efficiency relentlessly, not only in the fac- tory but also in the office. Manufacturing enterprises are presently allowed to write-off their plant and equipment over three years. I propose to give some encouragement to non-manufacturing enter- prises to modernize their operations. With effect from Year of Assessment 1984 all expenditure on computers and office automation equipment can enjoy 100% depreciation in the first year. This means that expenditure on such equipment can be written-off completely against taxable profits in the year following the year of purchase. If the enterprise does not have sufficient profits to take full advantage of the 100% depreciation allowance, the balance will be available for deduction in subsequent years. Residual allowance from Year of Assessment 1983 in respect of such equipment will also be available for full set-off in 1984. 1 hope that all enterprises in Singapore, both manufacturing as well as non-manufacturing, will take advantage of this concession to automate and mechanize their operations as rapidly as possible.

Finally, Mr Speaker, Sir, I come to the tax increases.

Duties on Cigarettes and Tobacco

Duties on cigarettes and tobacco were last revised in March 1980 by harmonizing excise duty with import duty. The increased duties, however, did not have any effect in discouraging smoking. In fact, consumption of cigarettes increased from 3.9 million kilograms in 1979 to 4.0 million kilograms in 1980. It went up further to 4.2 million kilograms in 1981.

In line with our policy to discourage smoking, the duties on cigarettes and tobacco will be raised again. The import duty on cigarettes, cigars, cheroots and cigarillos will be increased from $45 per kilogram to $50 per kilogram; while the excise duty on cigarettes will be raised from $9 per kilogram to $14 per kilogram. As part of the move towards the harmonization of duties, excise duties will be introduced on beedies, snuff and other tobacco products at the existing import duty rates. Details of the revision are set out in Appendix I (Cols. 441 - 442). I will ask the Clerk of Parliament to distribute Appendix I to Members. (Copies distributed to hon. Members.) Appendix I - DUTIES ON CIGARETTES AND TOBACCO (Cols. 441 - 442)

The revision in duties on cigarettes and tobacco, which is expected to yield about $15 million, will come into effect today. Duty on Liquors

With effect from today the import and excise duties on intoxicating liquors excluding beer and stout, will be revised. The import and excise duties on brandy, gin, rum, whisky, liqueurs and bitters in bottle form will be increased to $210 per decalitre (dal), while the import and excise duties on brandy, gin, rum, whisky, liqueurs and bitters in bulk form, vodka, ethyl alcohol and other spirituous liquors will be increased to $280 per proof dal. The import and excise duties for arrack and pineapple spirit will be increased to $130 per proof dal, shandy exceeding 2% but not exceeding 5% proof strength and shandy not exceeding 2% proof strength will be harmonized at $11 per dal and $10 per dal respectively.

New excise duties will be introduced for grape must, still wines and vermouths, sparkling wines, cider and perry, sake and mead and other fermented fruit juices. Details of the revision in import and excise duties on intoxicating liquors are listed out in Appendix II (Cols. 443 - 446). (Copies distributed to hon. Members.) Appendix II - DUTIES ON LIQUORS (Cols. 443 - 446)

The additional revenue yield is estimated at $4 million.

Duties on Petroleum Products

As part of the policy on harmonization of duties, excise duties will be introduced on two petroleum products - benzole and benzene - at the existing import duty rate of $2.86 per dal.

The new excise duty takes effect immediately. There is no revenue gain because here is as yet no local manufacture of benzole and benzene. (Appendix III, Cols. 445 - 446). (Copies distributed to hon. Members.) Appendix III - DUTIES ON PETROLEUM PRODUCTS (Cols. 445 - 446)

Deduction for Expenses on Private Hire Cars

There has been a marked increase in the number of private hire cars, commonly known as 'SZ' cars, in recent years, Cars are hired by companies not only for short term use by their executives but also to replace their company registered cars or 'Q' cars.

The company which hires the 'SZ' cars can claim full tax deduction for rentals and expenses while the car rental companies can claim full capital allowances on the car. If the company had purchased its own company registered car, the capital allowances would be limited to $35,000 and the tax deduction for expenses would be restricted to the proportion of the total expenses that the $35,000 bear to the capital expenditure of the car.

Although full tax deduction on expenses and capital allowances is granted only if the 'SZ' car is not rented to the same person for more than six months in a year, companies have circumvented this restriction by changing cars every six months. This arrangement confers unintended tax benefits to both the rentee company and the car rental company at the expense of revenue.

With effect from 1st April, 1983 no tax deduction will be given for the whole amount of rentals and expenses incurred in the hire if the company or business enterprise hires 'SZ' cars for periods which, in aggregate, exceed 183 days in the accounting year. If the rental periods of the 'SZ' cars overlap, the overlapping periods will be counted only once for the purpose of determining the 183 days limit.

Concluding Remarks

Mr Speaker, Sir, the tone of my Budget Statement this year is sombre, reflecting the gravity of the economic malaise that has been afflicting the world since 1980. And more grave problems lie ahead. World trade is shrinking. Protectionism is rising. Commodity prices are depressed. Many countries are being forced to pursue deflationary policies all at the same time. Output has declined, throwing many workers out of their jobs. The international banking system is threatened with a breakdown as a result of the massive debt problems of a number of developing countries.

In the midst of these troubles we can take comfort that, through prudent management and stringent avoidance of waste, we have accumulated sufficient resources to enable us to avoid having to cut back on our development programme. We can take advantage of these recessionary times to build up our infrastructure, both human and physical. We will build more public housing, more schools, more roads, more offices, more factories, more harbours and the MRT. We will continue to improve our education system, both in the schools as well as in our institutions of higher learning. We must not falter in our drive to train our workers, sharpening their skills and enhancing their expertise. And it is when the going gets rough that the importance of cooperation, of working as a team, of discipline and cohesiveness can be brought home to Singaporeans.

I cannot promise Members that Singapore will remain unscathed if there should be a global economic crisis triggered off by the default of a major debtor country or the failure of a large international bank. But I can say confidently that we have the resources and the determination to ensure that our physical and social fabric will not suffer permanent damage. When the storm ends, and all storms no matter how severe must end, we will emerge a fitter, stronger and better nation.

Sir, I beg to move.

Mr Speaker: The Question is, "That Parliament approves the financial policy of the Government for the financial year 1st April, 1983 to 31st March, 1984." Inaccordance with paragraph (1) of Standing Order No. 84, the debate now stands adjourned.

Debate to be resumed on what day, Dr Tan?

Dr Tony Tan Keng Yam: On Monday, 14th March, 1983, Sir.

Mr Speaker: So be it.