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 FY 84 Budget.

Our economic growth in the last two years has been sustained partly by the stimulation of domestic activities through Government spending. Now that the outlook is more favourable it is an opportune time to pass the initiative back to the private sector to spearhead the drive for further growth. The FY 1984 Budget is accordingly directed towards three objectives:

(a) restraining the increase in Government spending;

(b) encouraging greater efficiency and productivity in companies; and

(c) rewarding individual enterprise and hard work.

As compared to FY 83, the allocation for infrastructural, industrial and commercial development in the FY 84 Expenditure Budget is increased. A bigger provision is made for education and manpower training to expand the pool of skilled, technical and professional manpower required for upgrading the economy. More funds are provided to the Housing and Development Board (HDB) to sustain its public housing construction programme.

Total Government spending (excluding the transfer from the Consolidated Fund to the Development Fund) for FY 84 is estimated at $16,561 million. This exceeds the FY 83 figure by $1,889 million or 13%. This rate of increase is lower than the average annual growth of 24% in actual total expenditure over the period FY 78-82. Outlays on economic and manpower develop- ment and public housing together account for $9,624 million or about 58% of the total allocation.

The total budgeted recurrent expenditure for FY 84 is $7,567 million. This is $684 million or 10% higher than the FY 83 figure. The rate of increase is much lower than the average annual growth of 24% in actual recurrent expenditure over the FY 78-82 period. The growth in recurrent expenditure has been reduced to make more funds available for development projects. Nevertheless the allocation for recurrent expenditure should be adequate to cover the higher manpower and operating costs as well as the expansion of such services as education and manpower training.

Expenditure on manpower will go up by $102 million or 6%. A total of 489 additional posts is provided for new or expanded areas of work. Of these, 209 are for the Neighbourhood Police Posts, Ang Mo Kio fire station and vital installations. The bulk of the remaining 280 posts is for the new Changi Airport fire station, Ang Mo Kio and Bedok branch libraries, Tuas incineration plant, Curriculum Development Institute of Singapore and clerical and other support services for new schools and junior colleges.

Excluding the Armed Forces expenditure, Other Operating Expenditure is expected to drop by $21 million or 3% mainly because of lower agency fees to the Urban Redevelopment Authority for managing the sale of state lands on behalf of Government, transfer of major equipment purchases to the Development Estimates and a smaller allocation for the Fixed Rate Export Financing Scheme.

There is an increase of $257 million or 24% in Grants, Subsidies and Other Transfers. This is due largely to higher manpower and operating costs of statutory boards and other institutions dependent on Government financing, a sum of $192 million to top up the Advance Accounts and an allocation of $50 million to augment the Contingencies Fund for recurrent expenditure.

The increase of $76 million or 4% in the provision for Public Debt is due to a bigger allocation for interest payments as the volume of domestic loans has increased.

The recurrent expenditure will be fully met by the anticipated revenue of $9,969 million, leaving a surplus of $2,403 million for transfer to the Development Fund to help finance development projects.

Total development outlay for FY 84 is estimated to be $8,994 million or 54% of the net total budget. The provision is $1,205 million or 15% higher than the FY 83 figure. Allocations for public housing, infrastructural, industrial and commercial development as well as education and manpower training take up $7,809 million or nearly 87% of the development budget.

About 45% or $4,000 million of the budgeted development expenditure is for the public housing construction programme.

The allocation for infrastructural, industrial and commercial development is $3,178 million or 35% of the development outlay. Included in the provision is $2,019 million for new land reclamation projects and the development of industrial estates, mass rapid transit system and roads; $1,076 million to meet the requirements of Temasek Holdings, Petrochemical Corporation of Singapore, lines of credit to the Development Bank of Singapore and the Ship Financing Scheme; as well as $83 million for the Capital Assistance Scheme for the Construction Industry and the Economic Development Board's Capital Assistance and Product Development Assistance Schemes.

The budget for education and manpower training is $630 million. This is for the school and junior college building programme, and expansion of the National University of Singapore, Nanyang Technological Institute, Singapore and Ngee Ann Polytechnics as well as vocational and industrial training institutes.

A sum of $52 million is provided for the purchase of hardware and software development for the Civil Service Computerization Programme.

Section III

Revenue

With existing tax rates, recurrent revenue for FY 84 is estimated at $9,969 million. This represents a decrease of $552 million or 5.2%, compared with the revised estimates of $10,521 million for FY 83.

Income Tax will continue to be the largest single source of revenue, accounting for about 33% of total revenue. Income tax collections for FY 84 are expected to amount to $3,300 million, which is $169 million or 4.9% less than FY 83 collections. The main reason for this decline is the economic slow down which continued into the first half of 1983. This will adversely affect corporate tax revenue collection especially from the oil refining, ship repairing, shipbuilding, hotel, manufacturing and commercial sectors.

The total budgeted expenditure for FY 84 is $16,561 million, comprising recurrent expenditure of $7,567 million and development expenditure of $8,994 million.

Even after taking into account the Development Fund income of $2,670 million, the total revenue of $12,639 million will be insufficient to finance total recurrent and development expenditure. There is a deficit of $3,922 million which will be financed by public borrowings and a drawing down from the Development Fund.

TAX CHANGES FOR COMPANIES

I now move on to the tax changes. In the first pan of my Budget Statement, I mentioned four tax changes which are designed to stimulate the corporate sector and promote greater efficiency and productivity in our economic activities. I will now elaborate on these changes.

Accelerated Depreciation Allowance

Manufacturing enterprises are presently allowed to write off their plant and machinery over three years. Non-manufacturing enterprises are, however, precluded. I wish to emphasize that all firms should take the necessary steps to automate and upgrade their operations, regardless of whether they are manufacturing or non-manufacturing concerns. I propose therefore to extend the three-year accelerated depreciation allowance to all plant and equipment in all sectors.

With effect from Year of Assessment 1985, all new equipment will be allowed to claim an accelerated depreciation allowance of 33 1/3% over three years. Effectively, it means that expenditure oh all new equipment can be written off against taxable profits in the three years following the year of purchase. In order not to penalize those who have already purchased their equipment, unclaimed residual allowances in respect of existing equipment will also be allowed full set-off in three years.

To be consistent with our policy to restrain growth in the number of passenger vehicles, these concessions will not be given to motor cars, motor cycles and light goods vehicles. Computers and office automation equipment will continue enjoying the 100% depreciation in the first year. Investment Allowance for Local Companies to Invest in New Technology Projects

As I mentioned earlier, local companies which invest in approved venture capital projects in new technology industries will be able to write off up to 50% of the equity invested in such projects if the projects incur losses. This will take the form of an investment allowance of up to 50% of the equity investment by those companies which undertake projects approved by the Economic Development Board. A company is defined to be a local company if the majority (ie more than 50%) of its equity is owned by Singapore citizens or Permanent Residents.

The investment allowance of 50% will be granted to the investing company only if the new project does not make any cumulative profit during the three-year period commencing from the expected date of production.

This incentive should encourage our local investors to venture into new frontiers of technological advancement and serve to broaden our present technological base.

Extension of Offshore Syndicated Loan Tax Exemption

I have also indicated the Government's intention to extend the present tax exemption scheme for offshore syndicated loans to cover other syndicated credit facilities. Specifically, the tax exemption scheme will now include the syndication of guarantees, performance bonds and certain underwriting facilities, such as underwriting of bonds, floating rate notes and revolving underwriting facilities.

All income earned from the syndication of such facilities will be exempt. In the case of underwriting, the tax exemption will not cover income earned by the underwriter arising from the holding of part of an issue that has not been fully subscribed.

In keeping with the scheme for offshore syndicated loans, the tax exemption will be granted to credit facilities which meet certain criteria and are syndicated in Singapore during the five years from 1 April 1983. The criteria are essentially simi lar to those we have at present for offshore syndicated loans. Both schemes can also be extended by the Minister for Finance beyond 31 March 1988.

Tax Incentive for Financial Futures Market

The financial futures market will come into operation in June. As this is a new area of financial activity, I have decided to give tax incentives to help the futures market get off to a successful start.

The Singapore International Monetary Exchange ("SIMEX") will be given a five-year tax exemption on its income derived from futures activities.

Income of corporate members which arises from transactions with non-residents, Asian Currency Units and other SIMEX members will be taxed at the offshore concessionary rate of 10%. Individual members of SIMEX will also be able to enjoy this concessionary tax rate. Since futures transactions will be essentially foreign currency transactions, this concession is in line with those given to promote the offshore gold and Asian Dollar Markets. Income arising from transactions with residents will be taxed at 40%.

Market users will be taxed according to the normal tax laws. The tax treatment will vary, depending on the nature and circumstance of each transaction.

TAX CHANGES FOR INDIVIDUALS

I will now consider the tax changes for individuals. Budget speeches in recent years, including this year, have repeatedly stressed the need to reward individual enterprise and hard work. When individuals succeed, they benefit not only themselves but also society. People must be given the motivation to want to work hard, to better themselves, to invest in new ventures, to take calculated risks. In this Budget I propose to provide the motivation through two major changes:

(a) Reduction in Personal Income Tax rates, and

(b) Simplification of Estate Duty.

In addition, the scheme for Enhanced Child Relief will be improved. Personal Income Tax Rates

Our philosophy on Personal Income Tax rests on three basic principles. First, personal income tax should never be so high as to become a disincentive to work and enterprise. Second, the tax base should be as wide as practicable in order to drive home the message that the cost of services provided by the Government has to be borne by all citizens. The more citizens we have paying tax, even if it is a nominal amount, the more widespread will be the realization that welfare giveaways ultimately carry a price tag. The third principle is to ensure that inflation does not push income earners into higher tax brackets. Personal Income Tax rates should therefore be revised periodically to correct for inflation "creep".

Rates of personal income tax have been reduced three times since 1978. As a result, the share of personal income tax collections as a proportion of total income tax collections has declined from 34% in 1977 to 23% in 1982.

The last reduction in personal income tax rates took effect in Year of Assessment 1982. For the Year of Assessment 1984, I have decided to give a rebate of 10% on the tax payable. The rebate of 10% will more than mitigate the erosion of real incomes by inflation which, according to the Consumer Price Index, rose by 5% between 1981 and 1983.

For Year of Assessment 1985, the existing rates of personal tax will be reduced. With your permission, Sir, I would like to table a schedule (Appendix I) (Cols. 469 - 470) which shows the revised income tax rates. Appendix I - INDIVIDUAL INCOME TAX REDUCTION UNDER REVISED RATES SCHEDULE FROM YEAR OF ASSESSMENT 1985 (Cols. 469 - 470)

In the revision of tax rates, I have paid special attention to the middle income groups whose chargeable incomes fall within $10,000 to $100,000. They will enjoy average reductions in income tax ranging from 11.9% to 13.5%. The highest marginal rate has been reduced from 45% to 40% giving reductions of between 8.4% and 9.8% for our biggest taxpayers.

The rates of tax for the first three chargeable income groups, that is, up to chargeable income of $10,000 are, in my view, already low enough and will not, therefore, be changed. Instead, I intend to give a flat rebate of 10% on the tax payable in respect of the first $10,000 of chargeable income for Year of Assessment 1985 and future years.

The revenue loss as a result of the reduction in tax rates is estimated at $89 million.

Estate Duty

In the Budget Debate last year some Members pointed out that the present structure of Estate Duty is not consistent with Government's philosophy of encouraging people to work hard and save.

With the Government taking away a big chunk of what the taxpayer has worked so hard in his lifetime to accumulate, the Members felt that it would be more sensible for the taxpayer to spend his income rather than ret the Government take it away when he dies.

The present system of Estate Duty therefore encourages consumption and discourages saving.

I informed Members then that the Ministry of Finance was in the process of reviewing the whole rationale of estate duty and I promised to let Members have more information this year.

I am pleased to inform Members that the Ministry of Finance has completed its analysis and the structure of Estate Duty will be substantially simplified.

First, there will only be two rates of duty. The first $10 million value of estate chargeable to duty will be taxed at 5% and all subsequent amounts at 10%. This two-tier rate of duty will replace the existing complicated system of remission and taxation with tax rates ranging from 5% to 60%.

Second, the exemption limit for residential properties will be revised to $3 million irrespective of the number of residential houses which the deceased owned.

Third, the full Central Provident Fund (CPF) balance of the deceased will continue to qualify for exemption. Where the CPF balance exceeds $500,000, no further exemption will be given for other assets except for those which qualify for exemption as residential properties. Where the CPF balance does not exceed $500,000, the maximum exemption that will be given for other assets including CPF balance will be $500,000.

The period governing inter vivos gifts will remain at five years. Gifts made within five years preceding the date of death will be liable for estate duty.

With these revisions in the structure of estate duty, it should be unnecessary for the vast majority of our taxpayers to worry at all about estate planning to minimise estate duty liabilities.

The above concessions will take effect from 1 April 1984. The revenue loss will depend on the number and value of estates that will be assessed and for FY 1984 it is estimated to be in the order of $22 million.

Enhanced Child Relief

Last year I increased the enhanced child relief for specially qualified married women to be the normal child relief plus 5% of the woman's annual earned income for each of the first three eligible children.

This provoked a lively debate among Members. Some felt that the relief was "peanuts" and unlikely to persuade highly qualified married women to continue to work and give society the benefit of their talents and abilities. Others suggested that the relief should be extended to all working women or, at the very least, to those categories of married working women who have some form of tertiary training and education although this might not be at the University level.

In my reply I stated that I was not convinced that there was a case to extend the enhanced child relief to all working women but there might be merit in the suggestion to widen slightly the present narrow range of qualifications which would entitle married working women to claim the enhanced child relief.

I have considered the matter further and have now come to the conclusion that a somewhat more liberal scheme can be justified not only to induce our better educated married women to continue to work but, more important, to encourage them, hopefully, to have a second, if not a third child. This will go a little way towards correcting the present lop-sided pattern of procreation in Singapore which is a cause for concern.

I have therefore decided that, with effect from Year of Assessment 1985, the enhanced child relief will be increased to the following amounts: For the first Normal child relief plus qualifying 5% of annual earned in-child come or $10,000 which-ever is less. For the second Normal child relief plus qualifying 10% .of annual earned in-child come or $10,000 which-ever is less. For the third Normal child relief plus qualifying 15% of annual earned in-child come or $10,000 which-ever is less.

Furthermore the enhanced child relief will be extended to all married women who have successfully completed their secondary school education with at least five "O" level passes or who possess equivalent or higher qualifications. This will cover about one-third of our female working force. The loss to revenue is estimated to be $2 million.

TAX INCREASES

Finally, I move on to the tax increases. Our overall tax philosophy has been to shift the burden of taxation from personal income tax to tax on consumption particularly on those items which cannot be regarded as comprising the necessities of life. In line with this philosophy I intend to increase the duties on bets, cigarettes, tobacco, beer, stout and samsoo.

Duty on Bets

The present duty on bets is 15% on the amount of bets placed on any totalisator or pari-mutuel promoted by any racing club or association. The duty was last revised on 1 April 1981. It will be further increased to 20% with effect from 1 April 1984. The additional revenue yield is estimated at $26 million.

Duties on Cigarettes and Tobacco

Duties on cigarettes and tobacco were raised last year in pursuit of our objective to discourage smoking particularly among our younger population. Consumption was dampened for a few months but quickly picked up and in December last year, consumption of cigarettes and tobacco reached an all-time high. However, we must persevere in this noble cause and not give up. This year I propose to raise the import duty on cigarettes, cigars, cheroots, cigarillos and other tobacco products, which are now at varying rates, to a uniform $60 per kilogram. The excise duty on cigarettes will be increased from $14 per kilogram to $24 per kilogram. Excise duty on cigarettes is payable in addition to the duty of $36 per kilogram on imported leaf tobacco which is used for the manufacture of cigarettes. Excise duty on other tobacco products will be fixed at $60 per kilogram. Details of the revision are set out in Appendix II (Cols. 471 - 472). Appendix II - DUTIES ON CIGARETTES AND TOBACCO (Cols. 471 - 472)

The revision in duties will take effect from today and the yield in revenue is estimated at $43 million.

Duties on Liquors

Excise duties on beer, stout and samsoo have not been raised since 1975. Import duties on beer and samsoo were last raised in 1977 and import duty on stout in 1980.

With effect from today the excise duties on beer and stout will be increased by $6 to $22 per decalitre while the excise duty for samsoo will be raised from $75 per proof decalitre to $100 per proof decalitre. Import duty on beer and stout will also be raised by $6 per decalitre to $33 per decalitre and $45 per decalitre respectively, while import duty on samsoo will be raised by $25 per proof decalitre to $155 per proof decalitre. Details of the revision in import and excise duties on beer, stout and samsoo are listed out in Appendix III. (Cols. 473 - 474). Appendix III - DUTIES ON LIQUORS (Cols. 473 - 474)

The revision in duties is expected to yield an additional $38 million.

Duties on Motor Cars

I would like to say a word about duties on motor cars. Members will know that one of Government's objectives is to restrain the growth of the motor car population in Singapore in order to contain the problem of congestion on our roads. I had considered increasing registration fees and road tax in this Budget but eventually decided not to do so in view of the substantial increases announced in October last year. I hope, however, that the decrease in personal income tax rates, which I announced earlier, will not lead to an upsurge in purchases of motor cars. Should this happen, Government will have to review the situation and make adjustments accordingly.

CONCLUSION

Mr Speaker, Sir, steering the economy of a nation is a delicate exercise. Holding the brakes full on means there is no progress. On the other hand if you press the accelerator too hard you may end up in the gutter. The trick is to be able to read the weather signs correctly and proceed at a pace which will satisfy the natural aspirations of our people, but which will not result in a nasty crash.

In the last three years we, together with the rest of the world, have had to embark on unchartered waters. New perils, protectionism, instability of the international banking system, volatile exchange rates have arisen. While navigating the day-to-day obstacles we have had to make sure that the process of restructuring in our economy is not halted.

One consistent theme has recurred: the importance of manpower development, education, training and management-labour cooperation. While the slogans may be new, the theme merely reflects the self-evident truth that Singapore's only resource is her people. How well we utilize our manpower will determine how much progress we can make and how prosperous we will be in the future.

The economic policies and tax changes which I have outlined today are designed to keep up the momentum of our progress. It will be too much to hope that no new problems lie ahead. Problems and dangers there must be but, provided we do not slacken in our efforts and we work together, we will surmount them.

Mr Speaker, 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, 1984 to 31st March, 1985." In accordance 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, 12th March, 1984, Sir.

Mr Speaker: So be it.