STATE OF THE ECONOMY

11.17 am

Order read for Resumption of Motion [30th August, 1985],

"That this House, noting with concern the present problems with the economy, commends the Trade Unions and the workers for their responsible attitude towards wages; and supports the measures so far taken by the Government and urges the Government to take all further steps necessary for the Nation to adapt to the changing environment, including steps to strengthen the role of local businesses in the economy." - [Dr Ow Chin Hock].

Dr Ow Chin Hock (Leng Kee): Mr Speaker, Sir, when Parliament adjourned yesterday, I was talking about small and medium-sized local businesses. These businesses have great disadvantages. They have many handicaps, high labour cost, low productivity, low capital investment and dis-economies of scale.

Let me take some industries in the commerce and service sectors as examples. First, provision and sundry shops. In 1981, there were 4,625 provision and sundry shops. The total number of employees was 11,604 but value added per shop was $20,000 per year, operating surplus $12,000, capital assets $6,000. The second example is coffee shops. In 1981, there were 1,457 shops. The total number of employees was 4,959, value added per shop was only $31,000 per year, operating surplus $13,000 per year, capital assets at the end of the year $8,000. The third example is ladies hairdressing shops and beauty saloons. In 1982, there were 1,190 shops employing 4,556 employees, value added only $28,000 per year, surplus $7,000, capital assets $11,000.

Mr Speaker, Sir, all these statistics tell the same story: large number of establishments in the same industry, each with a small number of employees, low value-added, low operating surplus, low capital investment. When I walk down an HDB block, I find three or four provision shops, each offering the same variety of goods at about the same prices, and there is no location advantage between these shops because they are in the same block, I cannot help asking myself, "Can the shops survive?" It is very sad because these shopkeepers and their family members all work very hard and many of them are our supporters.

It makes economic sense for these shops in the same HDB block or the neighbourhood to merge into a more efficient-sized unit, but this runs against their great desire and wish of Singaporeans to be their own towkays. We have to respect their wishes.In that case, other avenues of cooperation must be found. Many provision shops in fact joined the Provision Suppliers Cooperative (PSC) and they enjoy the benefits of greater discount for bulk purchases. Some of them, about 130 shops, have gone a step further in 1982 to become Econ-Mini-Markets. These Econ-Mini-Markets enjoy not only a cheaper source of supplies, with free delivery of goods, they also have easier credit terms. And they also minimize the number of employees per floor space.

Yet these 130 shops form only a very small percentage of the total number of provision shops. Other shops still carry on, running and managing their businesses in the traditional way. We do not like to see these shops disappear as they are all owned by Singaporeans. But if they do not change, the final reality will come when the foreign supermarket chain moves into the retail market in HDB estates. The Government can buy them time and do whatever is practical to assist them. But eventually it is the shopkeepers themselves who have to decide their own future.

I have spent hours discussing with some shopkeepers and some of them confide in me that their children, with better education and training, will not want to continue with the family business. The shopkeepers therefore are faced with a dilemma. They will not survive if they do not upgrade; on the other hand, if they invest considerable sums of capital to upgrade, their businesses may not last beyond their lifetime.

Sir, the provision and sundry shops and beauty saloons perhaps represent somewhat extreme examples. Many small and medium-sized local businesses in other industries have taken the initiative to upgrade themselves. Others with some assistance from the Government in the form of training, consultancy and low-cost loans will be able to compete and compete efficiently.

There have been allegations that the Government tend to favour foreign companies. There are also complaints that local foreign contractors not only monopolize major projects but they also compete against local contractors for small projects. Here we see a conflict of interest and objectives between economic efficiency and non-economic considerations. By non-economic considerations, I include political considerations and, as some argue, moral obligation to look after our own people. While many local businesses may operate at higher cost, nevertheless, we have to preserve the local component and local sector. We must bear in mind that economically optimum solutions are not necessarily politically acceptable solutions. We may have to settle for the so-called "second best" solutions. The Government has to decide on the respective roles of the local businesses versus foreign companies. The Government must help strengthen the role of local businesses in the economy.

Sir, apart from the economic and technological environment, the political environment is also changing. The composition of the electorate has changed, the torch of political leadership has passed on to the younger generation. In the past 25 years, the people and the first generation leadership have gone through many difficult times and crises together. These crises and difficult times help to foster the bond between the people and the Government.

The present economic difficulties, in fact, present a great opportunity for Singaporeans, particularly younger Singaporeans, to work closely with the younger political leaders. Business leaders are a(ready now working closely with the Government. Trade unions and workers have responded positively. There is a sense of togetherness. So let us rally solidly behind the Government to overcome the difficulties facing us. When the storm is over, we shall emerge leaner, fitter, stronger and with the new accord well established between the younger leaders and the people. On this new relationship, we shall endeavour to achieve our social goals and vision, and our economy will shine like gold.

Sir, I beg to move.

Question proposed.

Mr Lim Boon Heng (Kebun Baru): Mr Speaker, Sir, Singapore workers are a thinking lot. They are not rated No. 1 for nothing. They are quick to note changes in the job market and they respond quickly to it. For example, when electronic firms were doing well and pinching workers from one another, the mobile worker moves to an employer who pays him more for his existing skills.

He is also quick to note a slow-down in demand. He can gauge whether a firm is doing well or not and he acts accordingly. How does the worker sense the change in the company's fortunes? He knows it when fewer ships come in for repairs. He sees it when production is slowing down, or when fewer customers come in to shop or to eat. He feels it when he gets less overtime or when he is put on shorter work week. He knows that it is serious, especially when retrenchment takes place.

The Singapore worker knew that business was slowing down last year. Towards the end of last year, it took a significant turn when mass retrenchments were carried out. This year, the mood was perceptively different as one retrenchment followed another. For once, there is a genuine worry about job security, notwithstanding the availability of jobs because there is the risk of difficult financial adjustments to make if a new job carries with it lower wages.

This year the low NWC recommendation was not totally unexpected. It was, of course, lower than what many workers had hoped. However, in some sectors, workers knew it was unrealistic to expect wage increases over and above annual increments. Union leaders in the shipbuilding and shiprepairing industry, as early as March this year, with retrenchments weighing heavily on their minds, were prepared to forgo NWC adjustments to stem the flood of retrenchments. They made public their decision in July.

Faced with the latest figures on retrenchments and the performance of the economy, other union leaders agreed it was time to act, to send a strong signal to managements that they too were concerned about the downturn of the economy. Hence the decision to forgo the NWC. That historic decision reflects the maturity of leadership. It shows that union leadership here in Singapore is realistic and practical. They know when is the time to ask for more and when is the time to give. Our unions are not of a one-track mind, fighting only for added wages and benefits. They fight to protect their members' jobs in the long term. Hence their decision to exercise wage restraint. This decision was overwhelmingly supported by the rank and file who were looking for a direction out of the recession. Their leaders showed them the way.

There will always be some employers who will exploit the situation. They must be made to realize that they do harm to the industrial relations climate if they misconstrue the unions' gesture as a licence to cut back on employment benefits arbitrarily and indiscriminately without due consideration of the situation of each company. The onus of proof for the need to forgo the NWC rests with the management. The key lies in the willingness to share information. In this respect, management must remember that sharing of information must also apply when the company is doing well.

What is wage restraint, wage freeze or wage cut? And how do the unions view these measures? Put simply, forgoing the NWC is a form of wage restraint. Accepting a lower annual increment is also a form of wage restraint. It is exercising moderation in wage increases. Wage freeze is accepting the present wage, for-going all annual increments or additions to fringe benefits. Wage cut then is obvious. It means accepting less than what you are currently earning.

How unions will respond depends on the circumstances of each industry and each company. The unions also take into account a number of factors, and this has been concisely stated by the UWEEI.

(1) the financial position of the company;

(2) existing wage level in the company in comparison with the industry;

(3) plans to increase productivity through mechanization, automation, rationalization and training;

(4) commitment to continue operation and to retain workers.

Management must realize that the success of wage restraint policies, be it wage moderation, wage freeze or wage cut, depends on the workers' perception of management's sincerity. Needless to say, when there is trust, negotiations will be smooth. Where there is a lack of it, discussions will be protracted. It would help in all cases if management gives a firm commitment on how they intend to reward employees for the sacrifices they now make, when the situation later improves.

The unions realize that adjustments are necessary. But it is necessary for us to be sure that when we have discussions between unions and managements, the right conditions apply. Any agreement that is made now in terms of wage moderation, wage freeze or wage cut, is going to set a precedent for the rest of Singapore. So it is all the more important that we select the right industry, the right companies, for such discussions. Otherwise if the conditions are not right, the wrong signals could be given to the rest of the workers.

I am particularly disturbed by press reports in the last couple of days of adjustments that are being made at the Jurong Shipyard. I think that we should call the exercise its proper name. If there are excess workers, let it be said that there are excess workers. We cannot condone a situation where the company undertakes to reduce its labour force through a system of so-called voluntary retirement. If it is voluntary retirement, it must be truly voluntary. There should be no force involved.

Forgoing the NWC for the unions was essentially a gesture of goodwill. It was a message to employers that unions and workers are prepared to cooperate with them to overcome current difficulties. It was a signal to all that temporary sacrifices have to be made and can be made. It was not a signal for an across-the-board wage freeze, or even more drastic, a wage cut. For individual companies, yes, if such measures are necessary, there can be negotiations. But the present situation does not warrant a nation-wide pay cut. Some companies are doing extremely well despite the recession. That is why trade unions view with concern the calls by employers and some Members of this House, for an across-the-board cut in CPF contributions.

CPF contributions, as the Member for Leng Kee said yesterday, whether they are from the employee or the employer, are part and parcel of the worker's wages. Any reduction in the employer's contribution to CPF is a wage cut. Those who champion a reduction in the employer's contribution to CPF are doing so against the interest of workers. The trade unions cannot allow such irresponsible elements to mislead the public that such a measure will solve our economic problems. It is a devious trick that must be exposed. Anyone who calls for a reduction of CPF contributions is anti-worker.

The Member for Anson has tried to pull the wool over workers' eyes by dangling the prospect of higher take-home pay if the workers' contributions to CPF is correspondingly reduced to match a reduction in employers' contribution. "e tries to hide the fact that such a measure is a reduction of workers' wages.

He has since realized that a great number of workers depend on their CPF to pay for housing, especially HDB home-ownership flats. He has realized that a reduction in CPF contributions will cause hardship to many workers who will have to make up for the CPF cash shortfall from their take-home pay. So he has called for a reduction in HDB financing interest rates. What this means is that he is calling for a reduction in the CPF interest rate. Public housing is financed by loans from CPF. You cannot lower the interest rate on housing loans for HDB flats without affecting the interest payable to CPF account holders. So let all Singaporeans be aware that the Member for Anson is now calling for a cut in the CPF interest rate.

Let us also remember that the CPF is the workers' only social security instrument. It is meant for old age and for the worker to provide for his health care needs and his housing needs. It is also our fall-back position in the case of a catastrophic collapse of the world economy. In such a situation, the CPF will be the workers' last resort, to weather the disaster. It is the emergency reserve oxygen tank. We cannot use up the reserve tank now. If we do, what do we fall back on should disaster strike?

Our present difficulties do not call on us to draw on the reserve tank, It calls on us to use our main tank carefully. The way to do it is to protect jobs by exercising wage restraint.

We must also be clear in our minds that wage restraint is only a temporary solution. It gives us breathing space. It buys us time. It allows us to make adjustments to weather the recession. In the long-term, wages must rise, especially so for the lower income group if they are to enjoy a better standard of living.

In a recession, every cent counts. Wages, of course, is the most visible of costs. It helps our industries if we moderate wage increases. But it is not a long term solution. We must view wage costs in proper perspective.

It was revealed in a survey by the School of Management of the National University of Singapore that direct labour costs in Singapore accounted for 14.2% of the cost of production, compared with Japan's 14.6%, North America's 15% and Europe's 18.7%. So we do not compare unfavourably. Obviously, there are other areas of costs that need to be addressed. Government has reduced costs, It is now for management to take a critical look at the way they operate.

Our Yearbook of Statistics published by the Department of Statistics gives us some interesting figures, to place wage cost in perspective. For the manufacturing sector, the ratio of remuneration to output value has hovered between 7.7% and 9.8%. Obviously, there is not that much that can be gained in attacking wages alone. Yes, a 2% difference in cost is not insubstantial when times are bad. But it is not the road to profitability. However, there is a case for the local firms, whose wage costs to total costs run at 21% against 7% for MNC's. There is substantial gain to be made. But let us remember, local firms or MNC's, both operate with the same pool of labour, and I think same levels of wages. Why is there that substantial difference between the wage cost of local firms and MNC's? I think that is a point for the management to consider.

In the retail trade, the ratio of remuneration to operating costs is an incredibly low 4.4%. How much does it take in wage cuts to make a difference to profitability, when wages formed only 4.4% of the operating cost? And mind you, this 4.4% includes CPF, SDF, and it used to include payroll tax. Any cut in the CPF is not going to make much difference. In the area of labour costs, would it not be more sensible to review the way in which sales are made, to review the way in which labour is utilized?

It is heartening to note, however, that some sectors have made substantial savings in labour costs without resorting to wage cuts. In the transport, storage and communications sector, the ratio of remuneration to operating expenditure fell from 23.6% in 1974 to 16.2% in 1982. That was done surely without transport workers lowering wages. Statistics may not tell the full story. During this period, fuel costs went up and helped depress the proportion of labour costs to total costs. But it would be interesting to see what savings SBS, for example, managed through rationalizing their operations. SBS could not have maintained bus fares at such levels if they had not improved operating efficiency.

Another sector that has successfully reduced wage costs, without wage freezes or wage cuts, is the finance and insurance services sector. The ratio of remuneration to operating expenditure fell from 6.0% in 1974 to 2.3% in 1982. We cannot attribute this to fuel costs, so something else must be responsible. During this period also, workers in this sector continued to enjoy wage increases.

To me, the statistics paint a telling story. We have approached productivity perhaps from the wrong end of the workforce. True, it is necessary to raise productivity consciousness. When all other things are equal, the workers' efficiency makes a difference against competition, But if we want to stay ahead of the competition, it is management productivity that makes the difference. And that difference can be dramatic. Wage costs would not be reduced by fractions. They can be reduced by factors, complete whole numbers. It is not merely automation and skills upgrading. What makes the difference is the expertise, the initiative, the innovativeness of the management. For example, not much automation was implemented by SBS in reverting to one-man-operations.

The problem seems to be that the way in which local businesses operate has not changed substantially over the years. There was little incentive to do so, so long as the economy kept on growing at a fast pace. But it is more telling when we are hit by a recession.

The economic restructuring policy was initiated in 1979. It is now six years. How much has changed? For those who have not changed, it is six years wasted. We are now adopting a policy of wage restraint. We may do so for two, even three years. We cannot afford to waste also this breathing space. If we do, we are condemning ourselves to low-cost, low-value added operations. This is not what Singaporeans want. We have to wean employers off their dependence on low-cost labour.

We had assumed, at the outset of the economic restructuring policy, that entrepreneurship and enterprise will flower. Perhaps we over-estimated the capability of local businesses to do so. Now, after six years, we find that only a minority have upgraded.

Government policy, at least over the next two to three years, must be directed at helping local business to help themselves. It is not that there are no schemes to assist local business, particularly the small businesses. It is that they are even at a loss as to how to take advantage of the schemes offered to them.

Take the case of the retail trade once again. If wage costs form only 4.4% of total costs, then obviously other factors of costs are more important. It cannot be that retail outlets cannot be profitable. Otherwise, why would a foreign department store chain want to expand into neighbourhood shops? What advantages does it have? Among the advantages, as pointed out by the Member for Leng Kee, must be economies of scale, exploitation of central stores, efficient inventory control. If local retailers are to compete successfully against such competition, it is time to shed the tendency to be individualists. Local business ought to get together to realize the same economies of scale. Within this, there can still be room for some individualism. But getting local business together and to agree to help each other is going to be a very difficult task. But it has to be done.

Giving local business more concessions, apart from stemming the bleeding, is not going to solve their long-term problems. Helping them to rationalize and upgrade will yield greater dividends.

What local business really lacks is management expertise, knowledge and ability to use technology. There is an urgent need for technology transfer. However, let us not delude ourselves that technology transfer will be offered for free. We have to fight every inch of the way to get it. No nation, however altruistic its pronouncements, willingly transfer technology for free and no company is going to give to a potential competitor its trade secrets for free. Local business can absorb management expertise and effect technology transfer through tie-ups with foreign firms. Such tie-ups should be entered into carefully, bearing in mind that there is a price to pay.

We can minimize that cost somewhat if we play our strengths and advantages to the maximum. Let me briefly illustrate with the example of the construction industry. We have one of the largest housing programmes, if not the largest in the world, for a city. It should have been an excellent opportunity for local contractors to develop their expertise. Yet, generally speaking, methods of construction remain conventional. It reflects on an overly conservative, if not archaic attitude of mind. Why is it so? Perhaps local contractors have been too accustomed to the quick profits to be made in each successive building boom.

The Housing and Development Board had the unenviable task of trying to make local contractors to upgrade. It introduced pre-fabrication and industrialized methods of construction. We have the largest prefab housing construction programme in the world. The opportunity is there for local contractors to learn from the programme, develop their expertise. I am afraid that, except for one or two local contractors, our contractors are not picking up the skills. It is ironical that a Japanese firm, starting with a lower level of knowledge of concrete technology, has been able to build up its expertise so quickly that it is now the best performer in Singapore. Can our local contractors afford to waste the opportunity? Can it allow more foreign contractors to use Singapore as the learning ground? It will be an opportunity lost if contractors and the Construction Industry Development Board continue to engage in a battle of brickbats. For those of you who are interested to know what I mean, refer to the Business Times of 29th August 1985. It is time for both the Board and the local contractors to get down to the serious task of upgrading the industry.

In concluding, let me state that our economic problems arise from a number of factors, as outlined by the Member for Leng Kee: fall in demand, structural adjustments and failure to absorb tech- nology fast enough. Wage restraint, reduction in cost of services provided by statutory boards, reduction in fees payable to Government - these measures merely buy us time. Long-term solutions depend on developing entrepreneurship, enterprise and raising productivity, not merely of workers, but more critically, of management.

Mr Speaker, Sir, I support the motion moved by the Member for Leng Kee. 11.53 am

Mr Jeyaretnam: Mr Speaker, Sir, I have an amendment to this motion and I propose to move it now and speak on the motion and the amendment.

Mr Speaker: All right.

Mr Jeyaretnam: Mr Speaker, Sir, I beg to move,

"To leave out 'and supports the measures so far taken by the Government' appearing in lines 3 and 4 and insert -

'but regrets the delay and the inadequacies of measures so far taken by the government'."

Mr Speaker, Sir, recessions are not something new. They have been with us ever since mankind formed themselves into societies, particularly as trading societies or business societies. The question is whether we are doing enough to correct or to cure the recession that is perhaps sometimes forced on us by means or by forces beyond our control.

I have no quarrel with the first two lines of this motion which notes the problems and commends the trade unions and particularly the workers for their responsible attitude towards wages. It again demonstrates that our workers are always ready to do their part for this country. We in the Workers' Party acknowledge this time and time again, and our complaint is that their contribution has not been recognized by this Government and adequately rewarded. So I have no complaint with that part of the motion, and I certainly echo the praise given to the workers, the labour movement, which I have done several times in this House - to praise the workers.

But what I wish to complain, and this is my complaint against the motion, is its failure to try and apportion the blame where it falls and to condemn the inadequacies of the measures taken by this Government in dealing with the recession. This motion by the two hon. Members lamentably fails in that respect. Mr Speaker, Sir, only last night while I was going home, somebody said to me, "Mr Jeyaretnam, nobody will blame the Government for the recession if it is honest with its people, if it admits that some of its policies in the past have brought about the recession. We will accept that. We know that everybody, any human being, can make mistakes; governments can make mistakes." But he said, "What I can't accept is this Government's inability to accept that some of its policies in the past have contributed to the state of the economy that we are at the moment faced with."

Mr Speaker, Sir, my complaint falls into roughly two heads. First of all, the delay by the Government in recognizing the crisis or the downturn (if you do not like the word "crisis", all right, 'the economic downturn") that has happened in this country. I am not suggesting that we have reached panic stations. But do we have to wait till we reach panic stations before we take any measures? Does a patient wait till he is on the verge of death before he goes to see the doctor in the hospital? Or does he go at the first sign of the symptoms? As I said last Saturday in our rally at Bedok, the indications were already there in 1983, and they came on increasingly towards the end of 1984. That was quite evident to everybody - that we were taking a downturn in the economic progress of our country. That seems to have escaped the Government and its leaders and, in the Budget sining in March this year, the then Minister for Finance referred to this downturn as a mere temporary slackness. I had to tell him that he had perhaps caught the British disease of understatement. And, at the same Budget sinings, the Prime Minister seemed quite oblivious that the country was perhaps heading into a recession and economic crisis, and he was gaily advocating increases in salaries for his Ministers. He seemed quite oblivious of what was happening around him. That is my first complaint.

Why has this Government, which prides itself on its pragmatism, on its ability to spot the troubles, taken so long to spot this downturn which was coming for a long time? What did we get in the Budget sittings? We had little, small, concessions but the economy was dealt a severe blow by this Government itself when it slapped on the petrol tax. Mention has already been made about the effect of this petrol tax on the businesses, particularly the small businesses, and I do not want to repeat what has been said. But that was the reaction of this Government in the face of a crisis that was staring at them in the face. Not only that, there was the diesel tax for the taxi drivers announced which threw the taxi drivers into untold hardship.

Apart from the delay in recognizing the situation, this Government has been dragging its feet in announcing measures to deal with the situation. That has been taken note of by almost everybody outside the Government. We have seen comments from the business sector, the private sector, and the usual comment was, "all that has been announced is too late and too little." That would sum up the general comment from outside.

Mr Speaker, Sir, I see that the Member for Telok Ayer (he is not here this morning), speaking at a National Day Dinner at the Havelock Community Centre, had this to say. It was reported in the Straits Times on 26 August 1985. He said:

'For immediate effect, the Government should reduce its charges. Help, if it were to be given, must be made available now. It should not come at a time when the company was about to fold up.'

Mr Ong also called upon the Government to cut back on its own expenditure and increase the productivity of the public sector accordingly.

So you have a call there from a Member of the ruling Party. And not only him, we had calls from other Members of the ruling Party - that help has to be given now, if it is to be given and to be of any use at all. That is the second part of.my complaint about the delay - that Government is dragging its feet over the measures that should be taken to help us over the crisis.

Mr Speaker, Sir, as I said a little while ago, the Government does not seem to be ready to accept its share in this downturn. The Prime Minister, speaking at the National Day Rally, made a two-hour analysis of the economic situation in Singapore and came up simply with this analysis - that our wages were outstripping productivity and that our wages were higher than in Hong Kong and Taiwan. It is curious that he always refers to wages in the private sector, He does not refer to wages in the public sector. Our wages in the public sector here are also much higher than in Hong Kong and Taiwan, but the reference is always made to wages in the private sector. And his advice simply was that workers must practise wage restraint; they should tighten their belts and we should wait until productivity catches up with the wage rates. That seems to be all he has to offer this country in the solutions that this Government has, or would appear to have, for the curing of our present illness.

It is quite apparent that it is the workers again, as I have said several times, who are somehow made to feel as though they are responsible for our present state; that no one else has any share in our present state but the workers somehow, because they have been given far too much in the way of wages. And who was responsible for that? In 1979, the Government embarked upon its policy of forcing up wages because they said they wanted to move on to higher technology, higher value-added goods to be produced in Singapore. And now that is seen to have been wrong. But the workers are blamed for it. Why should they get the blame? It would appear that the intention of the Government is that they should bear the full brunt of the economic crisis, our working class, not anybody else.

Mr Speaker, Sir, I have seen the calls for wage restraint and the resolutions by unions. I have already said once before that I hope wage restraints would not be forced upon our workers, regardless of whether the employers are able to pay NWC awards or not; because that would be entirely wrong. Only yesterday, I see in the papers that the Singapore Bus Services (SBS) is reaping a big harvest. But they have also forgone, or are not going to pay, the NWC awards.

Mr Speaker, Sir, it is quite clear to most people now, I think, that the reasons for this downturn are that largely our costs are making it too prohibitive for business to be done in Singapore. You see that day in and day out in the statements made from the private sector: the statutory boards and the Government between themselves have pushed costs to such a level that it is no longer profitable to do business in Singapore. And not only that, there has been the over-regulation of businesses, particularly in the finance sector, which has curtailed expansion of our financial services. There was the report in the Far Eastern Economic Review in December last year about Tokyo, perhaps, overtaking Singapore as the financial centre for this region, although they said that Singapore had a distinct advantage over Tokyo, and the reason given was the over-regulation by the Government. So it is quite evident to most people that one of the primary causes is the high cost of doing business in Singapore. But what are the Government's measures to reduce costs? Very little in the measures so far announced.

Mr Speaker, Sir, I was at Kandang Kerbau Market last Saturday and one or two stallholders said, "Mr Jeya, why don't you ask the Government when are they going to reduce the PUB charges, because we know that the cost of fuel has fallen tremendously everywhere? But the PUB still goes on charging us at the old rates." There, you have not an economist but a stallholder who can see what is wrong with Singapore's present state and what has brought it about.

We have got to make real cuts in the cost of services provided by the public sector to the private sector. We cannot be niggardly in our cuts and hope that the economy will somehow pull itself out of this depression into which it is sinking. The Prime Minister talks about the recession lasting for two or three years. It seems to me that it may well last another two or three years. But is it not possible that perhaps if we did something about it, did something worthwhile, effective, we might be able to cut short the period of the recession?

May I mention the other cause - the fall in demand which was mentioned by the mover of the motion. That is also responsible for our present state. Mr Speaker, Sir, private consumption expenditure fell from 8% or so in 1980 to under 5% in 1984, and private consumption expenditure makes up for 80% of the total expenditure. That is a startling fall - from over 8% in 1980 to below 5% in 1984. As was pointed out in two articles in the Singapore Business for June and July 1984, the fall in the demand, and has been mentioned by the Member yesterday, is responsible for our economic downturn. And what is needed is a stimulus for the demand side that will make it pick up again.

So these problems must be addressed jointly. There is the productivity, the cost to those who are producing the goods and services and, secondly, the demand, people who are consuming these goods and services. There must be a two-prong attack on these illnesses.

One of the measures that has been proposed outside is a cut now in the CPF contributions that are made by the employer and the employee. I see that the Prime Minister speaking on Sunday at the National Day Rally ruled out completely, "No cut in the CPF contributions." Well, the oracle has spoken. So I suppose there will be no cut. But he says, "Not until we are faced with a crisis." Obviously he does not think there is a crisis at the moment and therefore it is not necessary. He suggests that workers should be unemployed for two or three years before anything is done to help them with their CPF contributions.

I see that the leaders of the various Chambers of Commerce are very guarded in their comments, but one can see quite plainly their dissatisfaction with the refusal by the Government to cut the CPF contributions. What is asked is not a permanent reduction in the CPF rate but a temporary one, a year or two until we are able to go back to the old rates.

Mr Speaker, Sir, the Government, as I said on Saturday, would appear to be emotional over the CPF. Instead of regarding the CPF as an instrument of economic policy to which modifications have to be made if necessary, it regards it as an immutable pillar, a monument to the PAP's economic policy and that it cannot be touched or tinkered with. That would be a wrong approach and it is contrary to the oft-repeated PAP's pragmatic policies. So let us not get emotional over CPF.

We have never suggested that the CPF contributions are not the workers' wages. We know that it is the workers' monies. Funnily enough, this factor about it being the workers' monies and the people's monies was not fully recognized when we were debating the proposal last year that the Government should not pay out to the workers when they reach the age of 55 all their monies, that it should withhold the workers' monies. But now that there is the suggestion that perhaps there should be a reduction, there is all this cry about it being the workers' monies. Of course, it is. No one denies that.

The objects and purposes of the CPF, when it was first introduced way back, were three-fold. One, provision for old age. But I think this, Mr Speaker, Sir, has already been achieved and there is no danger in a temporary reduction in the rates. Then the financing of the Government expenditures. The Prime Minister himself in his two-hour speech at the National Day Rally said that the major projects of the Government had been completed and there was a slowing down, that there was perhaps not so much need now for projects. The Government is not in severe need of monies.

The other object and purpose was to build up foreign reserves. The need for substantial foreign reserves is admitted for an economy like ours, dependent on world trade. There is no questioning of the value in having substantial foreign reserves. But the question is: having built up our reserves to the amount of $22.7 billion, is it necessary that we should continue at the same pace? In fact, Mr Speaker, Sir, as I see it, some economists would argue that a cut in CPF rates would help the economy presently, particularly in the field of exports and thereby generating faster increases in reserves in the longer term. So I do not see that there will be any detriment to or detracting from the objectives and purposes of the CPF when it was first introduced, if a reduction is now made temporarily.

The Acting Minister for Labour speaking again, I think, at a National Day dinner in his constituency outlined four reasons: CPF, a pillar of Singapore's economy, part of workers' wages, servicing housing loans, and hard cash in a crisis. I do not want to go through the first and the third one regarding housing loans. I shall deal with them quite shortly. But the CPF savings as "hard cash in a crisis" struck me. This will be achieved if there is a reduction because it will result in more take-home pay for the workers. So I hope the Acting Minister realizes what he was saying when he spoke against this. Because you will, by reducing it by 5% for the employees, put more money into their pockets.

An hon. Member: That is their saving.

Mr Jeyaretnam: But what are the positive reasons for reducing the CPF rates? One, of course, is that it will reduce the cost of the wage packet for the employers and the businessmen. I do not want to repeat what has already been said outside many many times. They see this as one of the major factors in keeping up the cost. And I see in the papers that some of the economists in the National University of Singapore also favour a reduction in the CPF rates. So it is not just the businessmen. It is also some economists who see the value of reducing the CPF rate. So there is this positive side of its effect on the productivity in reducing the wage packet for the employers and the businessmen.

The other effect is on the demand side and this, I think, has not been stressed enough. As has been said, demand is failing. And if you put a little bit more money into the pockets of the workers, then it will help in picking up the demand again. That is too obvious a statement and needs no clarification. So we should look at its effect on the demand. And that would be a good reason even if the reason of its effect on the costs is not accepted. A good reason would be that it would stimulate demand in the market. It would help the producers of goods and services to sell their goods and services.

The main objection is, and we recognize this, is the problem it will create for workers and, particularly, I am concerned with those earning $1,000 and below in meeting their housing instalment payments. I gave out these figures on Saturday. But for the benefit of Members, if we take the case of a worker earning $500 a month and who has a loan of $30,000 from the HDB, spread over 20 years for a 3-room house or a 4-room house, or whatever it is, his payments come up to $222.50 pm. But he can pay this $222.50 with $200 from his account in the CPF. He can use the entire sum in his Ordinary Account every month, $200, leaving a balance of $22.50 that has to be met from his pocket, This is what he is doing now. And if the contribution is reduced from 50% to 40%, 5% on each side, the employer and the employee, then the amount available to him from his CPF savings will only be $160. $200 would be the contribution from the employer and the employee every month, and he can use 80%, which would be $160. So that would mean he has to pay, not just $22.50, he will have to pay $62.50 to meet his housing instalment, for a loan of $30,000. That is a lot, and I of course see that.

Is there no way out to help workers with this problem? I am again, may I repeat, concerned only with people who are earning $1,000 and below. We are not concerned with people who are earning $2,000 or $3,000 a month. It is this sector - those who are earning $1,000 and below and who have got these housing loans. I suggested that the HDB could reduce its interest on these loans to 4%, particularly to these workers earning $1,000 and below. Because if it did that, then the instalment drops from $222.50 to $183.95. So if he can pay from the CPF $160 of this $183.95, all that he has got to pay out of his own pocket would be $23.95, which is $1.45 more than what he is currently paying out of his own pocket towards the instalment. But against that, he takes home an extra $25 every month. He has that amount of money to spend if the rate is reduced by 10% , 5% for him and 5% for the employer. So in the end he is better off, if the interest rate is reduced for him. I see the Minister for National Development is studying me very closely, and I am going to be told, "Nonsense, the HDB cannot do this."

The Minister for National Development (Mr Teh Cheang Wan): He is talking a lot of nonsense.

Mr Jeyaretnam: He says, "He is talking a lot of nonsense." Mr Speaker, Sir, I do not want to reopen the question of whether the HDB is making profits or not. It is not something that has just been raised. I have been saying this ever since I came into this House in 1981, because the accounts of the HDB did not show the true position. We have been saying it from 1981 that the HDB has been making profits. I say it again in this House. If the Minister says no, I suggest we hold a public inquiry outside to determine this question once and for all.

But quite apart, because I do not want this debate to be side-tracked into this question of HDB making profits, let us keep on the rails of the economy at the moment. But even if it is not making profits from its house building operations, even if it is not (i say "even"), can the HDB not absorb this? I have mentioned about the millions - it is now perhaps over a hundred million dollars - that the HDB has got stashed away as profits in the MND Holdings. I have asked several times as to why this has not been brought over to the HDB, because I said that if it had been brought over and invested, there could have been further earnings for the HDB.

Mr Speaker: Mr Jeyaretnam, are you side-tracking?

Mr Jeyaretnam: No. I am saying it can be absorbed, that is all. I am not suggesting, as the last speaker thought I was suggesting, that there should be a reduction in the CPF interest rate. I am certainly not suggesting that because of a reduction in the HDB rate. My suggestion is that this reduction in the HDB interest rate, particularly for the small section of workers, can and should be absorbed by the HDB without any cut in the CPF interest rates. We know that CPF interest rates are already lower than what prevails in the market and I am not, for one minute, suggesting that the CPF interest rate be cut.

If the HDB is unable to absorb the reduction, what about the Government? That is a practical measure of help to our workers. I shall be talking about this a little bit further before I sit down, but I have said about the more than $1 billion that the Government has collected in payroll tax. Incidentally, I see that the Act which brought the payroll tax into force has still not been repealed. I pointed out that it was illegal to suspend payment and that the Act had to be repealed, and we were told that it would be. I have not seen any Act yet. But leaving that aside, is it not possible for the Government to absorb this as a practical measure to help our workers? Not just helping them, to help the economy at the moment, If you can do this, then there is no longer any problem for these workers to make their monthly payments. That is, I recognize, the real obstacle to reducing CPF contributions because it will impose a great strain on them. But if we can find a way out, then there will be no burden on our workers.

So I would commend to this Government that it should seriously consider the advice that has been given, not just by myself, but by the economists, by the business sector, and see whether it will be possible to reduce the CPF contribution rate, albeit temporarily, not as a permanent measure and, let me add hastily, find ways to alleviate the problems of the working class who will be put to some considerable difficulty in making the instalment payments if the interest rate is not reduced. That is one measure. There are other measures, Mr Speaker, Sir, and if I may go through them quickly.

Mention was made about the policies of neighbouring countries which have affected our economy. What is the Government doing about that, apart from playing golf across the Causeway? Is any attempt being made to come to some arrangement or economic agreement with our neighbours that we would not take measures against one another that would adversely affect our economy? I would like to hear from the First Deputy Prime Minister whether he did anything on his last visit two days ago.

There is again the policy of the Government to move to higher technology. I have no quarrel with that, but may I refer the House, Mr Speaker, Sir, to an article in the Technology Review written by an American Professor of Economics at Wel- lesley College in the United States. Do not ask me where Wellesley College is. It is in the United States. His point would appear to be that there are the "Gang of Four" countries, Singapore, Hong Kong, Taiwan and South Korea, which are moving to higher technology. And he argues that Singapore will lose out to Taiwan because we lack the specialists that are necessary for the higher technology. He sees this in the lack of adequate University graduates in this country, and he talks about people who leave, the brain drain. He says Taiwan has got this pool of trained specialists and he thinks Singapore will lose out to Taiwan in this race for higher technology. Is it necessary in our move to higher technology that we should snuff out all the other low technology industries or businesses? Is there not room for some of them still in this country? I hope the Government will give more thought to this.

The Prime Minister made this point, which is very valid and has been noted by others as well, that the recession affects our local businessmen far more than the big multi-national companies or the foreign companies. We have got to do something to help our businessmen, our entrepreneurs, our capitalists in Singapore, and particularly the small businessmen. So in our eagerness to move into the higher technology, and I am not saying it is wrong, it is a good thing, let us not snuff out everything else, because if we do not make the grade to the higher technology, then we would not have anything left. It is important that we should keep both going.

The other measure that I would seriously commend to this Government is greater tax benefits for individuals, and again I am talking about the lower income group, the wage earners. I am not in favour of corporate tax cuts. I do not think they are that high, and I see somebody else said that they did not think corporate tax cuts would do the trick. But if you can increase the benefits for the working class by giving them tax cuts, you would again stimulate demand. I am not asking for a reduction in the personal rates of income tax that are paid. But I think there is room and it is timely now for the Government to give greater personal reliefs. I have spoken on this at every Budget sitting since 1982. I have pointed out that the personal reliefs which we are now giving to our citizens are lower than what they were in 1947. Here is an opportunity to do something for them and at the same time stimulate the economy. I call this Government to immediately increase the personal reliefs.

What are we giving now? $1,000 for the wife if she is not working and $750 for the first child and $1,000 for any age-old dependants. They are hopelessly inadequate and a measure now to increase these benefits will not only help them but help the economy. I would ask the Government to consider that.

Finally, Mr Speaker, Sir, the hardship that has resulted to the working class. The Acting Minister for Labour yesterday, when I briefly touched on this, said I could make the appeal to the Minister for Finance. Well,[ make the appeal now. It is not good enough to say, "Let them be unemployed for two years, three years, before we make available some of the CPF savings to them." That is after all their own money. I do not see why they should not have it now, if it is necessary. But I am not thinking of the CPF savings. Is it not possible for the Government - we have after all a surplus - to institute some form of relief for those who are thrown out of employment and who remain unemployed for months at a time? I asked yesterday for figures from the Acting Minister for Labour, of workers who have been unemployed for six months or more. He said he was unable to produce those figures. I know of workers who have been unemployed for that period of time.

On paper, of course, we have got full employment. But that does not happen in practice. Even if they are able to get employment, it will often be at a reduction in the salary. They have got to accept lower wages, particularly those who are over 50 or 55 years now. It becomes increasingly difficult for them to find employment. What is our message to them? Are we going to say, 'Well, you look after yourselves. We are not really concerned about you."? Let us not forget that the economic success of this country that we were so proud of, and which we enjoyed until this economic downturn, was brought about largely by these people who are now out of employment, who are now worst hit. It is they who are hit more than anybody else. So what is our message to them? I have not seen any measures announced by the Government that speaks to these people. The measures so far announced speak to the businessmen. What about the workers? What measures have we got for them? I would ask the Government not to neglect the workers, As I said on Saturday, this Government's oft-repeated concern and care for the workers is mere lip service, It is an illusion, and I hope the Government will take this to heart and come up with some measures that will alleviate the hardship of our working class.

Sir, I beg to move my amendment.

Mr Speaker: It has been proposed, as an amendment, "To leave out 'and supports the measures so far taken by the Government' appearing in lines 3 and 4 and there to insert 'but regrets the delay and the inadequacies of measures so far taken by the Government'."

The Question is, "That the words proposed to be left out, be left out." 12.52 pm

Mr S. Chandra Das (Chong Boon): Mr Speaker, Sir, I rise to ask this House to reject the amendment moved by the Member for Anson.

Sir, the current economic problems are not new or sudden. The Government had anticipated the problems and there has been much public debate and discussion. One recurring feature in the Budget statements in the recent years has warned about this. Just to refresh the memory of some Members in this House, let me quote the Finance Minister when he presented his Budget in 1981. He said:

'We must be prepared for the worst but the worst must hold no fear for us. Recession, unemployment, higher oil prices, protectionism, regional conflict, security threats, international turbulence - all these threaten our livelihood. We cannot avoid getting wet in bad weather, but if we have adequate preparations, we can put our raincoats on, and when we get indoors, change into dry clothes.'

This was stated in 1981.

The statement in 1983 went on something like this:

'As individuals, our best contribution to Singapore's economic defence is to improve productivity at our workplaces. We have to tighten our belts and lower expectations for wage increases in 1983. We should not fear the storm because we are well prepared. But we must expect the rough going and, if we are unlucky, a drenching before the good times return.,

Last year, the Finance Minister was very categorical when he stated, and again I quote:

'The outlook for 1985 at this point of time is not as rosy as last year.'

Sir, in fact, we in Singapore should be thankful for having enjoyed years of growth when other countries in the world and in the region face severe difficulties. This one aspect has been totally forgotten. Maybe some Members would have been happier if the recession had come on to the people of Singapore in 1981.

Sir, the question now is to work out solutions, both short-term and long-term. We are all aware of the structural as well as the cyclical factors, both internal and external, which have contributed to the current downturn. Insofar as cyclical factors are concerned, a certain amount of pump-priming by the Government will alleviate the problem. As to the structural problems, the solutions are going to be far more complex and painful, especially to our small and local businessmen.

Our basic economic philosophies, I believe, are still sound and very valid. It is clear that the economic strategy embarked by the Government over the last six years to restructure our economy was a step and is a step still in the right direction. The only snag has been in our productivity growth. This has fallen way behind our wage and other costs. This has had a great impact on our international competitiveness and we have lagged behind other industrial countries and some OECD countries. Hence, we must correct this situation quickly so as to increase our competitive position. One way to do this is to quickly remove some of the rigidities within our present system. At this juncture, I would like to commend employers, employees and the NTUC for having recognized the problems and for making the necessary sacrifices to set things right.

Mr Speaker, Sir, the Member for Anson, in introducing this amendment, mourns about the delay and inadequacies of measures taken so far by the Government. When asked what he would do to solve Singapore's economic problems, he was reported to have said that Singapore businessmen must be given more scope. There should be a customs union with our neighbours and more transfer of technology. This great economic solution was reported in the Straits Times of 27th July 1985.

Let me first take on the question of customs union. Obviously, when the Member for Anson talks about customs union, I think he does not understand or fails to understand that we will have basically to compromise our free trade philosophy. Does he not realize that under a customs union we will have to raise tariff walls? For the information of the Member for Anson, let me explain the various possible forms of economic groupings starting from free trade area, customs union, common market and economic union. It will be advisable for him to understand the concepts and implications before making bold statements about having a customs union.

Greater economic cooperation within ASEAN has been considered, will be considered and is still being considered at all levels. However, the fundamental problem in regional cooperation stems from the difference in the levels of economic development. Addressing an ASEAN Economic Ministers' Meeting in February 1985, the Malaysian Prime Minister said, and I quote:

'Difference in the economic conditions in our countries rules out any common market type arrangements.'

We should, nevertheless, work with ASEAN countries to improve on our present ASEAN Preferential Trading Arrangements. Since its inception in 1977,l believe over 12,000 items have been covered under this PTA arrangement. Although the value is still quite small, I still think efforts should be made to extend the coverage of Preferential Trading Arrangements. If sig- nificant headway can be achieved under the PTA scheme, it will be a possible step and pave the way for a more advanced form of ASEAN cooperation.

Mr Speaker, Sir, another criticism levelled by the Member for Anson is that all the incentives and assistance are only given to the businessmen and that nothing is given to the workers. This allegation, l am afraid, must be debunked because, Sir, cost reductions through the various fiscal measures would further ensure the viability of our business enterprises, especially the small and medium-sized local companies. Viable companies mean jobs and no retrenchment for our workers. The alternative would be to increase the burden on our businesses until they collapse. The result: joblessness, social misery and political instability, All these are well known to the Member for Anson. A viable and strong corporate and business sector must mean more and more and better paying jobs.

Mr Speaker, Sir, finally, let me remind the Member for Anson that the tough times should help to breed tough people. But unfortunately tough times also breed false prophets. History fortunately has shown that false prophets also get flushed out in economic cycles. After all, a circus clown will fail to tickle his audience with the same trick over and over again.

Mr Speaker, Sir, I suggest this House rejects the amendment.

Mr Speaker: It is 1.00 pm now. This Sitting is suspended until 2.30 pm.

Sitting accordingly suspended at 1.00 pm until 2.30 pm. Sitting resumed at 2.30 pm

[Mr Speaker in the Chair]

Debate resumed.

Mr Chiam See Tong (Potong Pasir): Mr Speaker, Sir, I rise in support of the motion. If you look at the words which would be replaced, you will see that the words as appearing in the amendment would more accurately reflect the true situation, The original motion reads "supports the measures so far taken by the Government". As described by the Member for Telok Ayer, he said it is paltry. That about sums it up. If he were here, he would probably support the motion to this amendment.

Some hon. Members: Amendment to the motion.

Mr Chiam See Tong: Yes, amendment to the motion.

Mr Chandra Das: Support the motion or the amendment to the motion. Make up your mind.

Mr Chiam See Tong: The original motion of the Member for Leng Kee reads, ". . . supports the measures so far taken", and that is the part to be amended. He says he has talked to members of his CCC, and what does his CCC say? Are they happy with the measures taken by the Government? If he has his ears at the ground and gets his feedback properly, probably he would hear that most of them are dissatisfied with what the Government is doing. They want more. What has been done is insignificant, 0.1%. As far as a big steel mill in Singapore is concerned, it was featured in the Feedback programme, it says that the measures taken benefited only 0.1% of their operating costs. In fact, they complained that their production costs come to 18%, just for electricity. Perhaps if the Government could reduce the electricity cost, then it would be something to talk about because the steel provided goes to build public housing. And if its operating cost comes to 18% of the final product, then it would certainly bring up building costs. Workers who buy the flats will have to pay more.

To be more substantive, the Government should look really at the complaints of local businesses. The First Deputy Prime Minister has said he would be willing to throw a life buoy, wherever practical, to businessmen who are almost drowning now. I think they urgently do need that life buoy. Perhaps they could go into areas of property tax, more substantial rebates. And this question of tender of HDB premises - there seems to be no end, the spiral seems to go up and up. This method of letting out should be looked at and, for the long term, I think if we really are going into the high-tech, manpower is really needed. And I agree with the Member for Anson that we should have more specialists, that means more graduates, in other words, another university. Yes, I have spoken on this and it was part of our election platform. Dr Albert Winsemius himself has said that we should have another university, and I do not see why the Government should be dragging its feet. Now, if Members, as I say, have their ears at the ground, then they should vote for this amendment to the motion of the Member for Leng Kee. Thank you.

The Parliamentary Secretary to the Minister for Finance and the Minister for Home Affairs (Dr Lee Boon Yang): Mr Speaker, Sir, I rise to join the Member for Chong Boon in urging this House to dispose of the amendment proposed by the Member for Anson. The Member for Anson is highly predictable. As soon as economic trouble appeared, he hurries to this House to allege delays and inadequate effort on the part of the Government in dealing with the problem. He promptly placed the blame for the economic difficulties on the Government, hoping to speed up his political progress in the course of doing so.

Mr Jeyaretnam: That does not matter.

Dr Lee Boon Yang: Sir, this Government has led Singapore for the past 26 years to widely acclaimed heights of economic progress and success. It has created an economic structure which gives us prosperity, stability and security. The people have enjoyed two decades of social and economic growth. The development of housing for the people has gone on at a rapid pace resulting in the problem of housing being thoroughly licked. Today, nearly 80% of the people live in comfortable and, I must emphasize, Sir, affordable housing. This is an achievement which no amount of side-tracking by the Member for Anson can cover up or ignore.

In view of the present economic difficulties, the Member for Anson has asked: do we have to wait till panic station to react? But, Sir, we are far from a panic station. A slow-down, yes, a recession, yes, but panic, certainly no. Singaporeans who wish to work can still find worthwhile employment. Even today, in face of economic difficulties, we are not experiencing mass unemployment that had been seen in other countries. We are far from having to activate soup kitchens and similar measures that have been seen in some other countries.

Only yesterday, the Hon. Minister for Labour informed this House that jobs are still available for those who are prepared to work. They may have to accept some changes in the type of work. They may have to accept some changes in the pay that they receive. But a means to earn a livelihood is still available to those who are willing to work. Workers have realized that their own future and prosperity depends on the well-being of their company. They are in effect sharing the same cake with their employers, hence the highly commendable decision to refrain from seeking NWC wage increment this year. This is a sign of maturity in our workforce, maturity in the relationship between our workers, employers and the Government. We have achieved a high level of mutual understanding, trust, and sharing of objectives.

The Member for Anson tries, in his usual manner, to damage the good bond between workers, employers and the Government by alleging that the Government is blaming the workers for this downturn. This is far from the truth. The Government is well aware of the workers' sacrifices in joining the wage restraint policy. It is a policy of reacting to the realities of the market place. If our wages are higher than those in Taiwan or Hong Kong, then restraint is necessary to enable us to remain competitive in the world-wide market.

The Member for Anson alleged that this Government has been dragging its feet in dealing with economic problems. Is he not aware of the measures which have been put into operation by the Economic Committee? What has he got to add to the list of measures to assist aII sectors of the economy to survive and to overcome present economic difficulty?

Both the Member for Anson and the Member for Potong Pasir asked, "Why does the PUB not reduce its charges?" The Member for Anson says, "Fuel prices have gone down; why does the PUB not reduce its charges accordingly?" The Minister of State for Trade and Industry answered this question on the 23rd July 1985 in this House. He explained that PUB has to collect enough revenue not only to pay for its fuel and other operating costs, but to allow it to finance development expenditures which are required to meet the growing demand. Where possible, PUB by adopting a quarterly review of its rate has already taken into consideration the fuel cost. The Member for Anson and his erstwhile supporter, the Member for Potong Pasir, have chosen to ignore all these and instead accused the Government of tardiness in attending to the economic situation.

Sir, for 26 years, this Government has been solicitously attending and nurturing the nation's economy. The efforts and results are no illusion or lip service as alleged by the Member for Anson. This Government had planned and guided our economy to become a viable contender in the complex and competitive modern global market.

Mr Speaker, Sir, I do not expect the Member for Anson to pay tribute to the economic achievements of this Government. But I do expect Singaporeans to know that the economic well-being of this nation is of paramount concern to this Government. Sir, it is highly irresponsible to charge that this Government has procrastinated in tackling the economic difficulties which we are facing now.

The Hon. Prime Minister, in his National Day Rally Speech on the 18th August, gave us a clear and concise exposition of the reasons and sequences of events which led to this present situation. I do not propose to repeat his eloquent speech but strongly urge the Member for Anson to spend more time in a careful study of that speech.

Mr Jeyaretnam: I have done that.

Dr Lee Boon Yang: Perhaps he will then better understand the issues that are concerned.

Mr Jeyaretnam: Tell me what is that?

Dr Lee Boon Yang: Read it for yourself. I presume you can read.

Mr Jeyaretnam: No, I can't.

Dr Lee Boon Yang: Sir, what measures has the Member for Anson proposed to overcome the current problem? What brilliant ideas, what gems of innovation has he brought forth to help the people of Singapore in this situation of economic slow-down? If he has not, is he not the one who has procrastinated? But perhaps he is simply unable to bring forth sound and practical measures. On the 26th July 1985, he spoke to the NUS Guild members (i hope he remembers that). He suggested, Sir, that the problem of a drop in demand for our exports will vanish and mysteriously turn into a bullish trend if we were to form a customs union with our good neighbour, Malaysia.

Mr Jeyaretnam: What is wrong with that?

Dr Lee Boon Yang: I am just about to tell you what is wrong with that. Sir, I am just as amazed as my colleague, the Member for Chong Boon, at this ludicrous suggestion. Does he understand fully the implications of his words? Sir, I must believe that he spoke without fully understanding what he meant, without realizing the implications of his own suggestions. As the Member for Chong Boon has pointed out, is the Member for Anson suggesting that we give up our free trade with the rest of the world to form a customs union with Malaysia? We have done away with tariff. We have done away with taxes.

Mr Chiam See Tong: All those things have been brought up.

Dr Lee Boon Yang: We have built up a trading network based on the concept of free trade. The result - a steady growth in our trade and commerce. Can we in all seriousness accept the Member for Anson's proposal to impose customs duty and tariffs? Should we do away with the gains that free trade has brought us? Is the Member for Anson suggesting that we should form a customs union and, as a result, Malaysia would do away with their customs duties and their taxes and join us in our free trade policy? Is the Member for Anson suggesting, on the other hand, that perhaps we could adopt the structure of tax and tariffs that are in place in Malaysia today? Mr Speaker, Sir, we do not need further examination to confidently dispose of such a suggestion.

Mr Jeyaretnam: Scrap ASEAN!

Dr Lee Boon Yang: Sir, the Member for Anson has also proposed that we cut the CPF rate to 40%. He thinks that would solve all our problems. He knows full well that cutting CPF would in effect be reducing our workers' pay. If the result of cuffing CPF is insufficient savings, insufficient funds on the part of the workers, to finance or to pay their mortgages on their houses, no problem. The Member for Anson has another equally ludicrous solution. He proposes that we then cut interest rate on housing loans to 4 1/2%.

Mr Jeyaretnam: 4%.

Dr Lee Boon Yang: 4%. He is even going 1/2% better, 4%, Sir. Interest rate on housing loan is now 6 1/4%. Sir, as the Member for Kebun Baru has pointed out, loan interest rate is intimately tied to interest paid on CPF deposits which is 6 1/2% now. Is the Member for Anson actually suggesting that the HDB hand out another subsidy on the financing for the homes that are sold to Singaporeans? Is he suggesting that a cash subsidy be handed out to help them to further finance these mortgages? Or is he subtly suggesting that the CPF interest rate be reduced to 41/2%?

Mr Jeyaretnam: 4%.

Dr Lee Boon Yang: No. Interest rate on CPF savings be reduced to 4 1/2%.

Mr Jeyaretnam: HDB interest.

Dr Lee Boon Yang: Let CPF members be aware of what he is subtly proposing. Mr Speaker, Sir, the Member for Anson seems to be particularly confused at this juncture. Allow me a minute to explain to him. He is proposing that the interest rate paid for the mortgage on HDB apartments be reduced to 4%. How is that going to be possible without an equivalent reduction in the interest rate paid to CPF account holders in order to balance up? Somebody will have to pay for that interest rate.

Mr Jeyaretnam: I suggest you pay!

Dr Lee Boon Yang: Sir, the Member for Anson has gone so far as to suggest that cutting CPF will encourage everybody to spend more. And it seems his mission in life is to get everybody to spend more. Where is the money going to come from? That is far from his consideration. In his view, if the people have more money in their pockets and they will spend more, then our economy will be richer. He proposes that we cut CPF to stimulate demands. Demands for what, may I ask? Demands for more houses, demands for bigger, safer savings for future needs? Or is he suggesting more demand for Sony television, portable radios, video-recorders and cameras?

Mr Jeyaretnam: Ask the Member for Leng Kee.

Dr Lee Boon Yang: Are our people really better off in following the Member for Anson's suggestion? Can we stimulate enough domestic demand to keep our petroleum refineries working to prevent retrenchments? Can we stimulate enough domestic demand by cutting CPF to make sure that our shipyards will be able to work at its full capacity? Can we stimulate enough domestic demand to ensure that all the electronic factories will be able to hum away 24 hours a day on three shifts? Sir, the solution is not just to stimulate demand. We must strive to increase our competitiveness in order to sell our products to the world market.

Although the Member for Anson agrees that it is necessary to maintain a strong saving rate, he questioned the need to continue building up our national reserves. Is he suggesting that we are now in the happy position to "retire" in a manner of speech and to live off our national reserves? How long does he think our national reserves will last in that event? This is the first time that a Member has suggested that the national reserves be used for this purpose. It is precisely for this reason that the Government is considering moves to instal a second lock on the reserves to prevent irresponsible Members from raiding the bank. Without sustained efforts to maintain the reserves, we will lack the hard cash that is needed in a real crisis. The Hon. Prime Minister has already indicated that the strong and growing reserves is necessary to allow CPF withdrawals to finance the people during a sustained recession.

Mr Speaker, Sir, the Member for Anson has displayed total neglect and ignorance in touching on the economic problems that are facing us. He is not at all aware of the fundamental role of government in fostering economic growth and development. He is quite unaware of how Government finance its expenditure and he has not at all been lucid in pointing out how buying more imports will result in us getting richer.

Sir, I declare that there is no merit whatsoever in his amendment to the motion. It deserves to be rejected.

Question put, "That the words proposed to be left out, be left out," and negatived.

Mr Speaker: The Question before the House is the Original motion moved by the Member for Leng Kee, as it appears in the Order Paper. 2.54 pm

Dr Koh Lam Son (Telok Blangah): Mr Speaker, Sir, I rise to support the original motion moved by the Member for Leng Kee.

The present economic downturn is a cause of great concern for all of us. Even though I am not an economist, I know that this is not a crisis which is about to cripple the nation. I am therefore reassured by the Government's cool headedness and pragmatic approach to solve our economic problems. And I share the belief that the measures introduced by the Government so far will alleviate some burden off the employers who are now the hardest hit in the present situation. I have no doubt that this Government will implement more measures in the future, first, to hold the economy on an even keel and thereafter to steer it into another phase of steady growth.

Critics of the Government policy have blamed the high wage policy as the cause of our loss in cost competitiveness. They suggest an immediate wage cut. I am glad the Government disagreed. While a wage cut will have an immediate adverse effect on the livelihood of the ordinary workers, a wage cut in my view should be the last resort after all other measures have failed. However, a wage restraint is a different thing. It has a much lesser effect on the livelihood of the workers and, at the same time, an enlightening effect on the burden of the employers.

The response which we have observed over the Government's call for wage restraint is unprecedented. I must commend the trade unions and the workers for taking the same stand as the Government and for rallying behind the Government. This is another show of our political and industrial stability. It is a strong signal to our investors and will give them confidence. I believe the workers have made the right decision for their own future.

I share the Government's confidence that for the moment a wage restraint is enough to stop us from drifting too far from our competitors and to narrow the gap when labour cost in other countries eventually catch up.

On the other hand, any quick-fix theory that the economy will be back to normal once we cut our wages, CPF and taxes is totally unfounded and the reason is quite obvious. As quite succinctly illustrated by the Member for Leng Kee, our economic woe is not due to mismanagement of our economy but due to the global economic recession, especially in the USA. And as you know, Singapore is heavily dependent on external trade for its economic health. If the world economic gloom persists, there is really little that we can do. If we cut the workers' wages, their purchasing power will be reduced and this may affect local businesses. But it will add hardship to our workers as many of them, as we know, need CPF contributions to pay for their HDB flats.

The Government realizing the complexity of the problem has resisted the apparent easy way out by cutting workers' wages because this just does not provide the solution. And the Government feels that the workers' interests have to be upheld.

The Member for Anson at his recent Party National Day rally made a public call, as we have heard from previous speakers, to cut the CPF rate by 10% and the interest on HDB housing loan from 6 1/4% to 4%. And he claimed as usual that he was proposing this in the interest of the ordinary workers. Even if for one moment I do not doubt his good intention, the Members for Leng Kee and Kebun Baru have already shown that these simplistic remedies are unlikely to stimulate the economy and if implemented may actually harm the interests of the ordinary workers. So is he really serious in wanting to champion the cause of the workers? Or is he not trying to mislead the workers into thinking that by cuffing the CPF rate, they will become better off because there is an increase in take-home pay, But you and I know they would be the poorer for it because their actual income would drop.

Our economy has grown at a record rate over the last four to five years and this has resulted in what economists describe as "compressed growth syndrome". And many of our local businesses have found it difficult to keep up and are lagging behind with low technology and low value-added products. They have found themselves uncompetitive. There is really no way out but for these companies to trim their labour costs through automation, higher management skills and improvement in productivity.

The Government fully realizes that the local small businesses make up more than 90% of enterprises in Singapore and they have already taken steps to help the local businesses to improve the future. It does not need an economist to realize that this Government has done a first rate job for the economy of Singapore in the last two decades. Undoubtedly, this is the best Government to take care of the present economic problem. From the packages unveiled so far, we know that the Government is determined to stimulate the economy and to protect the local businesses on to the path of good health. The local businesses have to respond to make sure that things will happen. The Government has cut charges of statutory boards, give property tax rebate, aid through the Small Industries Finance Scheme and help export through the Small Enterprise Development Bureau. And to encourage investment in new technology, the Government has set up the $100 million Venture Capital Fund. This will cover ventures in micro electronics, computer system and softwares, robotics, telecommunications, biotechnology and so on.

During the past years when times were good, the Government had put aside money in its reserve and the workers had accumulated CPF savings. This has, as we know, proven to be a wise move. For now we feel safer, even in the face of adversities. These are backbone supports which we can fall on, if the downturn should persist for too long.

So far what we have heard from the Members for Anson and Potong Pasir has been but a very simplistic view of our present economic problems. They have no concrete suggestions to really help the economy. The Member for Anson has called not only for a cut in CPF, but, as the Member for Jalan Besar has stated, also implied that we should use our national reserves to stimulate the economy. In other words, we should spend our way out of this recession. But given no restraints, our worker's CPF savings and our national reserves will run dry in no time. This, Sir, is a very shallow, very irresponsible and dangerous approach. And it is precisely because of this easy temptation to dig into the till when times are bad, that the Government -

Mr Jeyaretnam: Mr Speaker, Sir, on a point of clarification because all these things get reported ad nauseam. I never suggested using the national reserves.

Dr Koh Lam Son: The Member for Anson has actually suggested a cut of 10% in CPF and a cut in HDB housing loan rate from 6 1/4% to 4%, without at the same time having an equivalent cut in the CPF interest rate. So the money must come from a grant of the Government. It must ultimately come from the national reserve.

Mr Jeyaretnam: Surplus.

Dr Koh Lam Son: We can see from his statement that the temptation is there, to dig into the surplus or the reserves. This is why the Government is now looking seriously into the need for Presidential Powers to protect our reserves. On the other hand, our Government's economic measure to boost the economy is a vision of a long-term economic health, that is, to attract high technology industries for our future growth and to ensure that we have a productive workforce to meet the future challenges. Sir, I call upon all working Singaporeans to give our Government full support. 3.05 pm

Mr Chng Hee Kok (Radin Mas): Mr Speaker,Sir,I rise in support of the motion moved by the Member for Leng Kee. The moves by our trade unions to place group interest over self interest and the rapid response of the Government to correct some of our economic problems has impressed even our most ardent critic, despite what the Member for Anson has said. This shows that Singaporeans, on the bright side, are standing up as a nation. Despite economic difficulties, Singaporeans are placing nation before self. As a nation, we are coming of age, and I am confident that in a crisis, Singaporeans will march forward as one. These are heart warming signs.

The move by our unions to practise wage restraint during this downturn is outstanding, to say the least. But, as what the Member for Kebun Baru has said, wage restraints should not be applied across the board. Employers and industrialists having companies which are doing well should assist by not just applying wage restraints asked for by the unions. On the other hand, unfortunately, in certain industries and enterprises, wage restraints may not suffice, and I would urge the unions and employees to be sympathetic to such companies if the question of survival is involved. I can only urge our policy makers to ensure that such restraints by the workforce are not further eroded by fiscal and monetary policies. There must also be a corresponding restraint or freeze on bus fares, public utilities and related charges, and others. This will ensure that what our workers are sacrificing should not be further eroded.

As the general workforce is asked to shift into jobs which were attractive only to foreigners at one time, our managerial and executive staff must also improve their effectiveness and their worth. As Singapore is too small a place for business and as we become increasingly more dependent on world trade and trade outside Singapore, our managerial and executive workforce must be prepared to relocate themselves and their families overseas. One common complaint I have received from employers about local executives is their reluctance to be assigned overseas, although many see the importance and long term benefits of doing so.

Still on the subject of manpower, one can only hope that our people will come through this recession with a better perspective on the value of a stable job and the value of a stable system. Up till now, one cannot help but feel that some Singaporeans tend to take our success for granted. When we are doing well, they take chances and they experiment. Today, as employees cling on to their jobs, we hear very little of poor work attitude or job-hopping, which was quite prevalent about two years ago. As we seek long term solutions to our economic problems, we must continue to inculcate work excellence and value of job stability, whether it is good times or bad times. This permanency of attitude and work ethic is important. It will insulate us against carelessness to calls by various people to go for soft or easy options when the going is good.

On CPF, I am in support of the Member for Leng Kee that we should not give in to calls to make adjustments to the CPF contribution rate now. If we do so, we will be actually pushing the panic button. We have not reached the position where we are painted into a corner, and I will urge the Government to resist resolutely any calls for such changes. At the moment, employers and employees must work smarter and improve productivity. If productivity increase is to be achieved by the loss of some jobs due to job enlargement or low cost automation, this must have the understanding and cooperation of the unions.

As I expect more measures to correct our economy to come up, I would now like to suggest some areas which I want the policy makers to look into.

On development strategy, studies in the United States of America suggest that high growth in the coming years will come from the high technology or high-tech sector. However, the low technology but high-value-added sector cannot be ignored. In the Singapore context, it is appropriate at this time to consider that we should perhaps pursue a high-tech/low-tech but high-value-added strategy. Where we are today, it is unlikely that we need to pursue one strategy exclusively at the expense of the other. In fact, a high tech/low tech strategy will fit in well with our development as long as the stress is on high-value-added. Our push into high tech or advanced technology must come from attracting multi-nationals to locate in Singapore. This is one area in which, I think, the Government-owned companies, or Government-related companies, can play a more effective role. High tech usually means high investments, high returns, high risks, and this can only be made by such Government-owned enterprises.

If I take the comment on high-tech made by the Member for Potong Pasir. He said that high-tech implies that we must have more graduates and more specialists and therefore more universities. I do not believe that this is the cause of our problems at this time. In fact, it is likely that high-tech will result in rather limited employment and even then, only among the highly skilled and the younger workforce. It is worthwhile for us to pursue a low-tech strategy at the same time. We have spent time and money on retraining, but this is of course a protracted process. As long as we accept that certain segments of our workforce will be paid lower salaries, and jobs are better than no jobs, this is a good intermediate strategy for the next few years. Low-tech high-value-added areas are suitable for the majority of our local industrialists, Of course, they must upgrade. They must go for low-cost automation. They must improve through office automation, but it is not likely that they can go into high-tech at this point of time.

Most Singaporean firms can at best acquire technology through licensing arrangements to undertake projects in manufacturing products using applica- tions technology rather than fundamental component and product technology. In the low-tech area, there is a broad class of products which Singapore firms can manufacture, and these are high value-added items. It is a fallacy to equate high-tech with high value-added. High value-added does not necessarily mean high-tech. Swiss jewellery watches is one such example. Other examples of high value-added items but low technology are high fashions, exquisite jewellery and even the famous Walkman cassette player is actually a high value-added but low-tech product. In other words, we need not shun the low,tech products area as long as it is high value-added. Singaporean firms can still identify narrow market segments which they can have a competitive edge. The result of such a strategy is that there will be different wage and cost structures and possibly different training needs. The market mechanism will play to set the different wage levels. This brings me to the Skills Development Fund.

Using the basis of a high-tech/lbw-tech strategy, which is what we, in fact, have today, the SDF will have outlived its usefulness. It discriminates against low-tech industries, which tends to employ lower paid staff and favour larger enterprises. Worse, the latter benefit more in their ability to send employees for SDF approved courses. In any event, the present additional 2% level on wage bills is unnecessary as there are other ways to promote staff training. A double tax deduction for training in approved courses is one such measure and companies which can afford will do so. In view of this, I am proposing that the present SDF levy be abolished and replaced by a discretionary system.

Planning, so far in Singapore, has been done mainly by the Government, and although the track record is generally good, somehow I feel that it lacks the business viewpoint. As we are plugged into the fast changing world of international and global economics, seeking high technology ventures and at the same time trying to keep an eye on our local industrialists and businesses, it is useful to consider the setting up of 'think tanks' to be sponsored by private enterprises. Such think tanks, if sponsored by the various Chambers of Commerce and trade associations will be able to generate alternative scenarios and strategies to complement those of the Government's. Bearing in mind that all economic outcomes are based on assumptions, we cannot underestimate the potential of such an arrangement between Government planners and a think tank sponsored by private industry.

Finally, much has been talked about lowering of our cost structure. I would like to make a proposal on how I see we can help to bring down the cost to attract multi-nationals in Singapore. Assuming we maintain our wages as they are, an effective method which the Japanese corporations practise in reducing production cost is sub-contracting. Sub-contracting enables the multi-nationals or large corporations to purchase component parts at lower cost due to the sub-contractor's lower overheads. It gives the large corporation flexibility and it lowers their equipment and investments. These are interesting features to attract MNCs.

To make up for our high wage cost and to do this we must enhance the environment for our managers, who have managed or worked in MNC plants, to go into sub-contracting. To a potential investor, if such downstream services are available, they can then discount part of our present high wage cost, Unfortunately, whilst a Japanese sub-contractor can manufacture in his backyard, the local entrepreneur will have to fork out sums of money in rental. He has to worry about the anti-pollution unit or the Factory Inspectorate and others. I am not advocating backyard manufacturing but we should create a more conducive environment to encourage those who wish to sub-contract manufacture for multi-national companies. Special concessions and also tax breaks may be necessary. For until we have the building blocks, it is very hard to reach the apex of high-tech.

On this note, I wish to echo the opening remarks of the Member for Leng Kee about the need for confidence. A community cannot remain strong unless its business community and its people have confidence, and this is a much needed commodity at this time.

Mr Eric Cheong Yuen Chee (Toa Payoh): Mr Speaker, Sir, the Member for Anson has, amongst many things, suggested that, in order to stimulate the economy, there should be a reduction in the contributions to the CPF, including the employer's contribution. May I ask why he has not declared his pecuniary interest on the matter? Sir, this is not the first time that the Member has not declared his pecuniary interest on the matter, and I believe he is an employer in his own right. I would like to know how much he would benefit arising out of a reduction of CPF contributions on the employer's part.

Dr Aline K. Wong rose -

Mr Speaker: You are not going to declare your interest, are you? I suppose most of the Members have to declare.

Mr Jeyaretnam: I have asked for a reduction in the income tax. Is that a pecuniary interest, Mr Speaker, Sir?

Mr Speaker: As I said, it will apply to almost all the Members here.

Mr Jeyaretnam: I think it is too ridiculous a suggestion.

Mr Eric Cheong Yuen Chee: I suggest that he should declare his pecuniary interest on the matter and how much he stands to gain arising out of a reduction of 5% of the employer's contribution.

Mr Speaker: Dr Wong. 3.20 pm

Dr Aline K. Wong (Changkat): Thank you, Mr Speaker, Sir.

In times like this, when everybody realizes that it is important for Government and people to rally together to pull through the recession, I found it particularly disturbing to hear that the Opposition was about to introduce an amendment which probably only serves to confuse the people and divide the nation by trying to find a scapegoat. It is only right and good that we defeated the amendment and carry on with the business of debating on the original motion.

I would like to contribute several ideas, or reflect the opinions of the public, espe- cially with regard to the issue of the local businesses, many of which are small firms. The small firms are hit the hardest in the recession. We must not belittle their role in the economy though, because in terms of numbers there are 60,000 of them, in terms of employment, there are 350,000 workers working for small firms, if you define those as employing less than 50 people as small firms. Thirdly, in terms of social significance, the small firms represent a very important avenue for outward social mobility. It is a dream for the average Singaporean to become his own boss. You can call it the Singaporean dream. It is there and it is your entrepreneurial spirit. Sir, I think every effort must be made to create a conducive environment for this entrepreneurial spirit to flourish.

In giving out this package of concessions, ie, in cutting charges, taxes, property tax rebates, and all that, the Government should be applauded for its concern for local businesses. But I think there may be a case for differentiating between the large and the smaller ones in giving out these concessions because it is quite clear that, for example, the suspension of the payroll tax, the halving of the SDF, may not really mean very much to the small firms because essentially they employ small numbers of employees. Rental reductions, of course, could be a big help. But in the case of the resettlement shops, the rental reduction of 15% may very well be eaten up during the next round of rental increase under the present rental concession arrangement. So my point is: in devising strategies to help the local businesses, the Government probably needs to differentiate between the large and small firms in devising the package of measures.

Much hope is now placed on the Small Industries Finance scheme. We have read in the press that there is a call among the private sector for this scheme to really act fast and now, otherwise the help to the small industries may come a little bit too late. In the last analysis, the small firms must also catch up with the restructuring process. There is no qualms about this. We have heard arguments inside this House and outside this House which actually re- emphasize this point and the message should really get across to our population. The workers' part in it is to help the business and themselves to upgrade their skills.

In the past, the SDF has come under a bit of criticism for the fact that a large proportion of the grants seems to have gone to the larger firms and to the middle-level managerial and technical staff. I know that the SDF is trying its best to do it the other way round. Make sure really that your training opportunities can filter down to the ordinary worker. BEST may be a very important step. But what is the next step to encourage workers who have gone through this BEST programme to go on to the elementary level of vocational and then further to technical training? I think we need to emphasize that we should continually encourage them to take up the whole process of training.

I would like to say something about the small-time contractor. I have quite a few of these in my constituency and I know there are many more in neighbouring Tampines. These small contractors have not been able to get jobs for quite a while now. Is it simply because they lack the economies of scale or lack the management capability? I think there might be an institutional factor at play. For example, in awarding contracts, are we giving out just big contracts and forget that there is also a role for small contractors? In laying down the conditions for awarding contracts, such as in the proportion of a certain technological component, like pre-fab and pre-cast, or the requirement for certain mechanization levels, or the requirement for certain kinds of management expertise, are we not then excluding the smaller contractors? So how are they going to benefit from the $4 billion of new investment commitments that the Government has promised to make over 200 new public sector projects?

Finally, I want to say something for the ordinary woman workers. Yesterday, I raised the question: why was the woman singled out for mention in the Constitution? But today I think they must be singled out for mention in connection with the economy. In the past, we have encouraged the woman workers to come out to work to help ease our labour shortage. They con- tributed significantly to our economy. They constituted in 1984 36% of our total workforce. What happens in a recession? Suppose unemployment becomes widespread. The first to go would be the foreign workers. Women will be next, It happened in 1974-75. I think it will happen again. It is probably because many people in society believe women are secondary income earners and therefore if they lose their jobs the impact on the family is not so serious. But I tell you that this is not so. Women's income may be supplementary but they are not secondary earners. For the lower income group, the income is necessary to help ends meet. Women also pay CPF, contribute towards paying for the flat; they need money for their old age, they also need money for their medical expenses. Are we going to leave them out in the restructuring process? Are we going to leave them out from the training courses? Has the Government taken real care of this particular segment of the workforce in helping them to come along while we restructure?

This House has only debated the question of child care centres. But what about the issue of training? If women want to take up training, take time off to study and upgrade, are there adequate child care centres and other facilities for them to take up these courses so that they can be free in the meanwhile from child care burden? There are lots of things I can talk about women but perhaps the first step is to raise the awareness of this House that women need to be a concern even in the restructuring process. 3.27 pm

Dr Tan Cheng Bock (Ayer Rajah): Mr Speaker, Sir, I would like to join this debate from a different angle. You have heard what Members of this House have said about the economy. Let me allow an ordinary Singaporean to join this debate by way of a letter written to the Feedback Unit. In this way, this House may have a better perception of the people on the ground, what they think of our economic downturn. I shall read his letter:

'Every citizen is concerned about the downturn in our economy. I know our government is doing its best to pull us out of this. I am confident that we will succeed. It has been identified that wage cost is one of the main reasons for our poor performance, while I agree with our Prime Minister that the answer to this high wage problem is in pay restraint and not pay cuts, I feel we should look carefully at the wage cost and see how we can reduce it.

The Government should also try to reduce the cost of living for the people, a number of whom have been retrenched and are unable to find alternative employment just yet. For those who are still working, they must be tightening their belts as they will not know when retrenchment will hit them.

I would like to raise the following points and I would be grateful if you would please pass them to the relevant authorities for their consideration.

CPF

I agree with the Prime Minister that we should not now reduce the CPF rate but we must at the same time not increase the contribution either. I think it was a mistake to raise the CPF ceiling from $5,000 to $6,000 last July. Perhaps at that time the Government did not thin.k that we should be doing this badly. If I remember correctly, the Ministry of Labour, when announcing the Government's decision to raise the CPF ceiling, issued a statement to the effect that it was the Government's decision to raise the ceiling again next July to $7,000 to bring the private sector in line with the public sector. This was the only concern of the Government then. I think the Government should not have raised the CPF ceiling last July and I sincerely hope that it will not raise the ceiling again next July. The Government should not be concerned with this differential at this point.'

Then he went on to talk about the SDF. Let me tell you that this letter is one of 51 letters written to the Feedback Unit concern ing the economic downturn. It is a fairly representative letter and I think this House should know. On SDF, he said:

'It is true that the Government has reduced the SDF rates from 4% to 2%. But I think the SDF should be suspended altogether until the economy picks up. I understand that we have some $400 million in the SDF. This is quite a sum. With the present economy, I think most companies are tightening their belts and are in no position to spend money on training, except in some very specialized and technical areas. The money we have in the SDF should be more than sufficient to provide grants to these few companies.When we have pulled ourselves out of this crisis in, say, two to three years' time, we can then think about re-introducing SDF.'

Mr Speaker, Sir, he has got something for the Ministry of Health concerning Medisave. He goes on:

'Most of us have quite a substantial sum in the Medisave. This is healthy but in our present state of economy, the money can be put into better use. Let me illustrate. I am a victim of this downturn. I was retrenched in March this year and have not been able to find another job yet. I bought an HUDC flat in December 1984, and took a housing loan from Credit POSB. I use my CPF to service this loan. As I have not been working for the last four months, there are no CPF contributions for me. Whatever I have got in my Ordinary Account would only be sufficient to pay the next two instalments. What is next? I have no income nor the CPF contribution to service this loan. It looks like I have to sell my flat soon. The irony of this situation is that I have over $22,000 in my Medisave Account which I cannot touch unless my family or I need medical attention. But do I need $22,000 on medical expenses? In all probability, no. Why can't I be allowed to keep, say, $2,000 in my Medisave Account and transfer the balance to my Ordinary Account to enable me to service my loan? I hope the Ministry of Labour will consider this and will take steps to amend the CPF Act as soon as possible.'

For the Ministry of Communications, he has this to say:

'Road tax

The recent increase in road tax was poorly timed. Such increase has put on tremendous pressure on both the employers and the employees. It forces the employers to increase their cost of operations and the employees, their cost of living. I understand that the intention was to curb the car population but the Government should know that with the slowdown in our economy, no one in his right mind will throw in thousands of dollars to buy new cars. If he buys one, it means he really needs one. And the increase will not affect his decision any way. Just look at the taxi fare saga. After several changes of minds and fares, the rate is now only marginally higher than the old rate. But what happens? The commuters have changed their travelling habits and moved on to buses. Why? The answer is simple. The commuters are holding back every cent they have got. This is not the time for spending. I suggest that the Government considers reducing the road tax to the previous level. When the economy picks up and every one has a job, the Government can then increase the road tax to achieve the objectives set out in the motor policy.'

And he went on to discuss about petrol duty, and he said that the Government should suspend this increase for the time being. Then he has got something for the Ministry of Labour:

'Foreign Workers Levy

The Government should suspend this levy until the economy recovers. With retrenchment going on in practically all industries, a number of foreign workers have been sent home. The need for such a levy to deter employers from hiring foreigners is no longer there. For these employers who still have the much needed foreign workers in their employ, the levy is an unproductive expenditure for them.'

Then, finally, he has got something for the Minister for National Development. Unfortunately he is not here. But I will still read out:

'I would like to take this opportunity to discuss about the property market. Mr Teh Chean Wan, speaking at the opening of a conference on property management, said that the over-supply of property in Singapore could not be prevented as the Government cannot stop anyone from developing his land if his plans meet all requirements. This is true. But Mr Teh must admit that his Ministry has aggravated the situation. When times were good and developers had lots of money, the URA simply offered parcels after parcels of land to the most attractive bidder. URA was not concerned about over-supply. When did URA stop offering land for sale? When there was no more attractive bidder. In other words, the URA operates like a commercial firm, with profits being its most important concern. I remember there was once when URA withdrew its offer when it found that the highest bidder was not attractive enough.'

Mr Speaker, Sir, that briefly is the type of letter we get from the people concerning the economic slowdown. Let me add a few points. Mr Speaker, people are people. Therefore, they are anxious, fearful and worried under difficult times. They are not panicky but apprehensive. They want to cooperate but they want guidance because we have made them feel too dependent on us. The measures, like the ones suggested by the Economic Unit, the first-aid package and the one-stop information centre for small industries, are some of the ways that people want to know. The businessman is worried that he will go under before help can reach him. The worker is fearful that the company will close down and leave him jobless.

Mr Speaker, Sir, coming back to this writer, if the Government feels that this Singaporean's thinking is erroneous, then it is up to the Government to explain and convince him. But if it agrees with some or all of his views, then please take note and respond accordingly. Mr Speaker, Sir, I support the motion.

Mr Jeyaretnam: Mr Speaker, Sir, on a point of order. The Member for Toa Payoh -

Mr Speaker: I have not taken note of that remark, Mr Jeyaretnam.

Mr Jeyaretnam: You have not. All right, Sir.

Mr Chiam See Tong rose -

Mr Speaker: You have spoken.

Mr Chiam See Tong: Yes. I would like to join in today's debate.

Mr Speaker: But you have spoken. You are allowed to speak once.

Mr Chiam See Tong: I was speaking on the amendment. But this is a separate motion.

Mr Speaker: All right. Keep it short.

Mr Chiam See Tong: Mr Speaker, Sir, I have heard speaker after speaker singing praises of the Government with regard to the good job it has done in the last two decades. Now when we have a recession, we hear that it is a disarray of the world economy, or we have not caught the wind. Is it also not correct that, in fact, in the last two decades, Singapore was just catching the wind? Conditions were just right for growth. So now, when we have a recession, we put the blame on the world economy. But when Singapore was enjoying good times that the Government for one moment tells the people that it is due to the surrounding regions -

Mr Tang See Chim (Chua Chu Kang): You have to have skill to catch the wind.

Mr Chiam See Tong: - but the Member for Rochore does not think so. It is the downturn. In fact, the blame for the downturn should be squarely placed on the Government. The main factor in not attracting foreign companies into Singapore is the cost factor. The graph given by the Prime Minister shows it very clearly. There is no better way. You see the Singapore graph goes right up, while the Taiwan and the South Korean and Hong Kong's graphs are right down below. I believe our wages are twice that of Hong Kong and South Korea; 20% to 25% more than Taiwan. These foreign companies go to a country because of, only one word, "profit." Where they can make profit, they will be there. If they cannot make profit in Singapore, they are not coming. It is as simple as that. I think the Senior Minister has stated that before.

I am glad that we have this debate in this House today to deal with the problems of the economy because at the Budget statement debate, the Member for Anson, myself and the Member for Rochore had already pointed out that there were troubles, problems. And, of course, we were told off, that we were just pessimists, and I remember the Minister of State for Defence and Trade and Industry even said that the economy of Singapore was not as bad as it was made out to be. I believe he said that.

Some hon. Members: It is true.

Mr Chiam See Tong: He was right! It was worse. Even at the Budget statement, there was no hint that we were going to have this big plunge - "downturn" is perhaps too soft a word. Within six months we almost came into a standstill, not the 6% or 7% growth that was predicted. But now we are talking of zero growth, and even a minus growth.

Now, I commend the workers of Singapore for they are the ones who are really making the sacrifices. They have unselfishly taken a wage freeze. I believe, generally, the workers will suffer about 3.5% or 5% less in wages if they had been given the National Wages Council's recommendation, perhaps for the next two or, maybe, three years, depending on whether there is going to be an upturn in the economy. Our workers are disciplined and hardworking. They are, in fact, the ones who are the backbone of Singapore's rapid economic growth in the last two decades. And, again, they have risen to the occasion. They accept no pay increment. I say that they are really the ones who are serving the nation at this moment. The Government will have to rely on our workers to put the economy back on its feet.

Now, what measures have the Government taken so far? I think it is very insignificant. Of course the establishment of the Small Enterprises Development Bureau (SEDB) is a good thing. I support it. I am all for it. I would like to make a few observations with regard to the SEDB. It has set aside $100 million for the SEDB to disburse or give loans to our local businessmen under the Small Industries Finance Scheme, I believe. I would like to know whether this $100 million is new or old money. I believe, in 1978, the late Minister, Mr Hon Sui Sen, had also had such a scheme to help small businesses, and there was also a sum of $100 million set aside. So maybe the Minister for Trade and Industry or the Minister for Finance could tell us whether this $100 million is the same money with a new clothing on it. If it is not, then it is the money that was already there. I think we should know about that.

I note that the interest rate chargeable is 7.5%. But recently I read of a local bank which is only charging the prime rate of 6.5%. So why this high rate? I believe good customers of the bank can get a loan at the prime rate. So it is lower than the one given by the Government.

This SEDB is now under the Economic Development Board. We know what the Economic Development Board was set up for. Its primary aim is to attract or bring in foreign capital, and I believe it has done very successfully. Its very nature is perhaps not suitable to cater for a body whose function is; to help local entrepreneurs. I believe the officers in the EDB are more used to dealing in large sums of money, $100-$200 million or even more. Now with this SEDB, the Economic Development Board is asked to cater for the needs of local businessmen with comparatively small sums of money. It is just like asking a merchant bank, which is used to dealing with syndicated loans of $400-$500 million, to deal with a gentleman who wants to borrow $50,000. It is a bit out of place. So perhaps may I suggest that the SEDB be taken away from the EDB but still under the Ministry of Trade and Industry, and set it up in a separate organization. It should specialize just in catering for the needs of small local businessmen. Perhaps in the line of JETRO in Japan, this SEDB could hopefully grow up in time to cater for the all-round needs of local businessmen. That is one suggestion.

We have got a recession now and the Government has overtly taken steps to say that they are going to help the small local businesses. As I have said, the First Deputy Prime Minister threw out a life line to all these small businessmen who are in deep waters. These small business concerns, as pointed out, are important to Singapore and the majority of them, I believe the figure is 99 out of 100 with 100 workers or less, comprise these small enterprises and they are the mainstay of our economy. So in times of recession, the Government is willing to help them.

What about the time when the economy comes out of the recession? Is the Government still going to help them? I think the Government should, because they are here to stay. It is disturbing to hear though that Government would welcome foreign companies which are more efficient, and that those small companies which cannot make the grade should pack up and go. So what is it now? I think the Government should give an assurance to our small local enterprises that they would not be pushed aside and give way to foreign companies which appear to be more efficient. I think the local indigenous component in the economy is just as important. I do not think that we will be misconceived by the foreign companies or multinationals should the Government implement a permanent policy to help local businessmen and industrialists. I do not think it will make them nervous at all. Therefore, I think it is important now that the Government at this time should come out categorically and commit itself to say that: (1) small enterprises have a place in our economy; (2) it is committed to assist our small local enterprises on a long term, not just when there is a recession.

Recently, I read in the papers that the Furniture Manufacturers' Association had approached the Government for some assistance in regard to an exhibition. I know we are against protectionism. We believe in open market competition. I am also all for it. I believe this is good for Singapore. But in times of difficulties, I think the Government should do something to help our small businessmen to market their goods in whatever way they can. Perhaps we should revive this "Buy Singapore-made Goods." We are not telling the foreigners that we are going to have tariffs, quotas, protectionist policies. No, it is not that. I think they will understand that we are undergoing difficulties. There is no harm in telling the local manufacturers, "We will try and promote your goods locally." Maybe hotels and Government projects could take in local furniture in preference to foreign furniture. I think the Government should try and look into this.

What are the measures the Government has taken for our local businessmen? I think the local businessmen want practical, real, substantial measures. One concrete measure Government can take is perhaps to ask the JTC not to be too harsh on their tenants in the flatted factories. Many of these local industrialists are, in fact, struggling just to stay alive. I think they should be given more leeway in terms of rentals. If they cannot pay their rents for six months, do not press them too hard and bring them to court. Maybe they should be given more time, perhaps even up to a year, Maybe their business will pick up and they will be able to pay the rentals, but not in one lump sum, perhaps in instalments. I think this is one concrete measure which the Government can take for local industrialists. This is a substantial type of assistance that local industrialists are asking for.

There is a rebate of 15% for rentals on JTC commercial and industrial properties. But now word has gone around that the JTC is going to implement the car park coupons in its flatted factory compounds. This would only increase the costs for tenants. Think of the inconvenience to the tenants of these factories, having to run up and down to tear coupons and put coupons in their vehicles. And if they fail to do it, they will get a fine, and at the end of the month, they will find that their fines may perhaps even be more than the 15% rebate. It is just like taking from Peter to pay Paul. Since times are difficult, the JTC should defer this policy of implementing parking coupons in its carparks at flatted factories.

The wage freeze for workers and not a pay cut is a commendable step. Is the Government really tackling this high wage policy? The Prime Minister says that we have to wait for two years for the Hong Kong economy to pick up so that their wage levels may rise to the Singapore level. But is there any assurance of that, with the fierce competition from South Korea and Taiwan? Hong Kong wages may not even move that far up or even may remain stagnant. They have to keep alive. They have to keep their costs down. So we just cannot expect this to happen.

I believe, Mr Speaker, Sir, you have made a ruling that we can talk on the reduction of CPF because, as an employer, I am also going to recommend that the CPF be cut.

Mr Speaker: Carry on. I will not take note, as I said.

Mr Chiam See Tong: Much obliged.

The big factor in the wage cost is the CPF. Why wait for two years when we can reduce it by 10%, 5% either way as the Member for Anson has suggested? I think the workers will understand that. If it is not on a permanent basis, at least for the time being, as the local Chambers of Commerce have asked for - a temporary measure. And this will bring the wage level down. We do not have to wait for two years. I think with 40%, the workers will have enough money even to buy a flat. I am all for savings. I am all for the nest egg policy and with 40% there will be enough savings, there will be enough money to buy a flat. So why the extra money? We all know, of course, that the money is tied up with Singapore's development. But in these difficult times, I think the best remedy is to bring the wage cost down by reducing CPF. It is better to have jobs with a CPF cut than no jobs at all. And hopefully when the economy picks up, it would not be a problem for the Government to top it up to 50%.

CPF is an emotional subject and much has been discussed about it. There is wisdom, in fact, to have a slightly reduced rate of CPF contributions than to keep the rate going up and up to be in line with the price of public houses. An economist in the University, I believe, has said that we should not increase the CPF too high. My Party has also mentioned that there is a danger because in time when there is an ageing of the population, the payments in will be less than the withdrawals. And there will be problems for the Government to pay out money to the contributors. We are not the only people who are saying this now. There is a famous or well-known broking firm in London called Philips and Drew. They have, in their publication, said that the Government may not be able to finance the repayment of CPF in 25 years. We are not saying it. It is the economists in London who are saying it now. They have to advise their investors all over the world. So they made a study of various places so that they could advise their investors, and this is their study of Singapore. It is no good just for the Government to come out and refute, "Oh, they are wrong." I think it is the duty of the Government now to come out with concrete facts and figures of their own, to show that, in fact, "Yes, the Government in 25 years' time can still pay up the CPF to all contributors." There will then be credibility to the investment prospects of Singapore. Otherwise there will be a doubt lingering in the minds of investors. I think this is important for the SDP. Whether you prove us wrong or right, it does not matter. But I think it is important to prove economists in London wrong. I think the Government should get on to this very quickly.

It has already been said there is a $10,000 ceiling on the Medisave when a man retires. The Member for Ayer Rajah in his Feedback has said, "Why not only leave $2,000?" But I think $2,000 may be a bit low. I think the Government may not agree to that. All right, if $2,000 is not agreeable, then stick to the Government's figure of $10,000. Why have at just 6%? Why shouldn't that extra money, which a person has, be released and when he needs it badly, as in this case, to finance his housing? I think the Government should look into this in these difficult times when more and more people who own houses will be retrenched.

The Prime Minister has mentioned about the Petrochemical Complex at Pulau Ayer Merbau - $1 billion investment on Singapore's part and $1 billion on Japanese part. This is as far as we all can see, it is a barrel without a bottom. It looks like we have to put in money as long as this Petrochemical Complex is there. Oil producers, like Saudi Arabia, Canada and perhaps other oil producers, will soon be building their own petro-chemical complex plants. They get their raw materials free. And not only free, their starting point is gas, which they can use it right away as a raw material, whereas our Petrochemical Complex have to buy our raw materials. And unfortunately because of the nature of this plant, the raw materials that we are buying is naphtha. Naphtha has again to be processed to break down into gas to manufacture the end products. So there are two sets of costs. First, we have to buy it, and secondly we have to break it down. So how can you compete with people who get their raw materials free? I do not have to be an economist to tell you that. So perhaps one way out for businessmen is to cut losses, unless, of course, the Government wants the taxpayers to support this big project which will never even see perhaps a break even point. Every year there will be a loss recorded.

I would like to support the Member for Leng Kee in calling for a cut in corporate tax, petrol tax, but I am surprised that, as an economist, he asked, on the motion that is going to be discussed on the paycut of Members here, "how can it help to bring our economy back on its feet?" If you read the motion, it says, "to set as an example". I do not think any thinking person here would imagine that the saving of $6.2 million by way of a pay-cut - I believe the total budget for Parliament is $6.2 million - will bring our economy back on its feet. I think it is completely irrelevant. What we are saying is "setting an example to our workers". They are undergoing sacrifices. They are willing not to accept their National Wages Council recommendation which may be 3%, 5%, every year. They are forgoing that amount. So we as the leaders of the nation, what are we doing? Do you not think that we should set an example? Productivity does not mean just capital alone. There is also the human factor, the workers are just as important. You cannot call for productivity by just singing a few songs over TV and radio. I think there must be a national effort, a sense of togetherness. The best way of having togetherness is to sacrifice together. 4.05 pm

The Minister of State for Defence and Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, I ought to respond to some of the points raised by the Member for Potong Pasir. Listening to his speech, I had the very uncomfortable feeling that he had, in fact, taken heed of the advice of Dr Lee Boon Yang to listen to the Prime Minister's National Day lecture, except that somehow he had got it wrong. But chunks were recognizable. Let me point out some of the observations which he made and also a few more of my own in the process.

First, wages. The Member for Potong Pasir very accurately pointed out that our wage levels are set by the levels in Hong Kong, in Taiwan, in South Korea. This is precisely the comparison which is relevant and germane and, unfortunately, very uncomfortable for the Member for Anson, who had not long ago told us to forget about South Korea and Taiwan and the other countries. But that is precisely our problem. Our wages are twice that of Hong Kong's. Our workers are not twice as productive as the workers of Hong Kong. How do we then justify our wages? How can we be competitive? The Member for Potong Pasir did not suggest any solution, except to cut CPF. May I suggest that our dilemma is profound. Either we can cut wages and become poor, compete for poverty, to see who will be poorer and therefore more competitive, or we can raise productivity and compete in quality, to see whose worker works better, works harder, produces more, functions better as a team. The Government's solution is to raise productivity, and to raise it together. The Opposition's solution is to point at the problem and suggest nonsense words which will wish it away. I do not believe for a moment that the Member for Potong Pasir is wishing that we should become poorer than the workers in Hong Kong. If he says so, then I stand corrected. But so far as I have been able to determine, he is not suggesting that. So what does he suggest? We maintain this position and we get better, or is he suggesting that we fall back and get poorer? I think we should remember, when we talk about costs, that the other side of costs is standard of living. So do not talk about cutting costs in an airy-fairy fashion without realizing that you are at the same time talking about cutting the standard of living of the people.

Secondly, the Small Enterprises Development Bureau, the SEDB. Yes, it is our intention to help small industries. Yes, it is our intention to look after them. The presentation confused so many ideas that perhaps I should explain what the money is and what the interest rates are. First of all, Small Industries Finance Scheme. That is not $100 million. The Small Industries Finance Scheme is a scheme to lend money to small companies in Singapore who want factories, who want machinery, who want to upgrade themselves, and to lend it at a concession rate. We are not lending $100 million. We have already lent $400 million so far, and the amount is going up. We do not lend at an interest of 7.5%. Yes, prime is 6.5%. We lend at 7.75%. If I were the Member for Potong Pasir, I would have said, 7.75%. But he got his facts wrong. 7.75% is above prime. Prime is now 6.5% in certain banks. But the prime lending rate does not mean that anybody who wishes to can go to the bank and borrow at that rate. If the Member for Potong Pasir showed up at OCBC and asked for a loan at 6.5%, would he get that? When you borrow, you borrow at prime plus 1%, prime plus 2%. That is the rate at which loans are made, depending on the quality of the risk. If you are a good customer, you get a lower rate. If you are a risky customer, you get a higher rate. 7.75% is 1 1/4% above prime. That means about an average customer. Prime has recently dropped. We will look at it. In due course, if necessary, and if the risks are justifiable, SIFS loan interest rates will be brought down. But to suggest that because at 7 3/4%, where prime is 6 1/2%, there is a 1 1/4% margin which is being raked off, is typical of the analysis of interest rates which we have become used to from this Member.

Thirdly, the $100 million which we are talking about is new money. It is money not for the Small Industries Finance Scheme, which has no limit. It is money for a Venture Capital Fund, to be put into new companies, new opportunities, risky operations, start-up enterprises where nobody is sure whether it is going to take off, but if it does take off it will be a real winner. We want to buy in at the basement. $100 million of new money, new opportunities, new technology, new jobs. That is the extra which we are talking about.

Fourthly, JETRO. The Member for Potong Pasir, perhaps after the fashion of the Member for Anson, bandies his words around in an uncomprehending fashion - Customs Union, and now JETRO. He suggests that perhaps we should have a separate statutory board to look after small companies, like JETRO. What is JETRO? [Interruption.]

Mr Chiam See Tong: You have not explained the facts.

BG Lee Hsien Loong: Yes. But what is JETRO? What does it stand for?

Mr Chiam See Tong: J-E-T-R-0.

BG Lee Hsien Loong: Does it look after small industries? Perhaps he would like to clarify his point and explain the precise analogy between Jetro and a Small Industries Bureau. I offer him the floor.

Mr Chiam See Tong: One day perhaps.

The Senior Minister, Prime Minister's Office (Mr S. Rajaratnam): Why not be honest and say you do not know.

Mr Chiam See Tong: The thrust of my argument is that the Government should set up a -

Some hon. Members: Jetro.

Mr Chiam See Tong: - an organization which hopefully in time will help to export, to get goods sold abroad, or any assistance that could be given to local industries in terms of finance, in terms of markets. What has the Government done at the moment to help promote our local industries, to the effect of helping our local industries.

BG Lee Hsien Loong: Mr Speaker, Sir, I believe the Member for Potong Pasir in his confused fashion refers to the Trade Development Board, which we have one. Jetro, for the enlightenment of the unenlightened, means the Japan External Trade Relations Organization. It is not the Japan Small Industries Organization. It is not the Japan Family Business Organization, but the External Trade Relations Organization. In other words, how do you export, how do you trade, how do you find new markets and new niches. This is precisely what the Trade Development Board does. That does not help me solve our small business problems. Our small business problem is to help them to upgrade so that they can survive.

The Member also asked whether there is a chance for small businesses to survive in the long-term: is the Government only talking about short-term palliatives? Or has the Government actually the intention to preserve them for the long-term? The Government cannot preserve agencies, enterprises, companies forever. It does not have the gift of immortality, alas! We can help small businesses to upgrade to survive. We can help them learn new ways to do business, learn new management, new technologies, new ways in which they can become competitive. Yes, we can preserve them. Yes, we can stuff them and put them in the zoo. Will this generate employment opportunities, remunerating jobs, places where Singaporeans can work, can grow, can learn new skills, can earn new rewards? Or will we merely be preserving museum pieces - good to look at, but do not touch, or they will fall to bits?

Our challenge is to find the way to upgrade our small businesses, where there is enterprise, there is experience, there is capability to do business, and bring them into a totally new and different environment, where they must do business in a different way, where they must do new business, where they must find new markets, and no longer operate as they did, in rent controlled small shops, where families work till 9.00 at night, and did small scale business. If we cannot help our companies to change, then the companies will not survive. If we can help them to change, then they will be transmuted, and it will be like a phoenix rising from the ashes - a new generation of successful entrepreneurs in Singapore. That is what we want to do. If the Member has ideas on how it can be done, we will be happy to hear them.

The next point which was raised by the Member for Potong Pasir, again after the fashion of the Member for Anson, was to stimulate local domestic demand. In other words, he suggested that if we only could spend a bit more money locally, buy things which are made in Singapore, then we would have an economic recovery. It sounds good. But what he must understand is that the reason we survive, and the reason we are able to make a living in this world, is not so much because we sell things to ourselves. It is because we sell things to the rest of the world. We make computers to sell to America.

Mr Jeyaretnam: You say domestic demand has no part to play, is it?

BG Lee Hsien Loong: We make pharmaceuticals to sell to all of the world. Local domestic demand is important, but it cannot make up for the loss of our external market, which is where our competitiveness matters. If we lose our external markets, if we cannot sell our computers in America, if we cannot sell our petrochemicals overseas, I do not see Singaporeans buying petrochemicals by the tens of thousands of tons, or computers by the tens of thousands of units, to make up for this. We need to earn our keep in the rest of the world, We import all our food. Who is going to pay for that?

Mr Chiam See Tong: We are.

BG Lee Hsien Loong: We are. What are you going to pay for it with? Reserves or surpluses? This is your opportunity to be the first ever to suggest that we touch the reserves.

Mr Chiam See Tong: Are you not going to support small industries and help them market their goods?

BG Lee Hsien Loong: We will support small industries and help them market their goods wherever such markets can be found, especially overseas.

Mr Chiam See Tong: Right. That is what I said.

BG Lee Hsien Loong: That is not what you said. You suggested that Singaporeans buy Singapore goods. To suggest that you can actually make up for international lack of demand by having Singaporeans buy up things made in Singapore is like a person riding a sailing ship. After many years, skilfully catching the wind, the wind has fallen. There is no wind. The sail is limp. The ship does not move. And your suggestion is: let us stand on deck and blow. I am not against buying Singapore goods. I suggest we also row, but we better make sure that we are in a position to catch the wind when next it comes,

Mr Chiam See Tong: You must not be prejudiced against Singapore goods.

BG Lee Hsien Loong: The question is not whether we are prejudiced against Singapore goods, but what we wish to do. I what way do you wish to solve this problem? Do you wish to solve this problem by cutting off the rest of the world?

Mr Jeyaretnam: Why don't you ask the economists about this? Ask the Member for Leng Kee.

BG Lee Hsien Loong: The Member for Leng Kee offered me this advice on the last occasion I consulted him in March.

Mr Jeyaretnam: You got it wrong, didn't you?

BG Lee Hsien Loong: The absurdity is beyond comprehension. It is the same logic which leads us to talk about customs union. What is a customs union? That means you find partners, you set up a wall around all of the partners, and you trade within the walls. If your partners -

An hon. Member: This is not what he says.

BG Lee Hsien Loong: In this case, I think we have to forgive not only the words but also the person.

If you are going to set up a customs union, then you are going to set up a wall against the rest of the world within which you will trade. What is the wall? That means if you are going to import anything from the rest of the world, you must have a tariff, a tax. If you eat an apple in Malaysia, there is a tax. Why is there a tax? Because there are domestic growers, domestic producers who have to be protected. We have no domestic growers of apples or bananas.

Mr Jeyaretnam: They don't grow apples in Malaysia.

BG Lee Hsien Loong: They do not grow apples in Malaysia. That is why they have a problem. Do we want to do that? You buy a VCR, you pay a tax. You buy a shirt, you pay a tax. How does this help us with the rest of the world, with our trading partners, Japan, the United States, Europe? Are you suggesting that we should go for a customs union, or does the Member wish perhaps to modify his proposal?

Mr Chiam See Tong: Are you against it?

BG Lee Hsien Loong: I am against the customs union. Are you for it? I understand from the Member for Potong Pasir that he wishes that we impose import duties on clothes, on watches, on consumer goods, on food. That is what the customs union is.

May I proceed to the next point of the Government's repayment of CPF? The question is: Will we have a problem in 25 years' time giving back the CPF money to depositors? Are we certain we can pay back? I would say that we are not certain. We cannot be certain because we do not know which future government may be tempted to raid the reserves and give the money away.

Mr Rajaratnam: There are two already there!

BG Lee Hsien Loong: Well, we see the future before us. The proposal to have a 4% interest rate on HDB loans without a corresponding drop in CPF interest paid on the deposits is the first step to raiding the reserves. As was very clearly pointed out by the Member for Telok Blangah, either you pay it out of your receipts or you pay it out of your surpluses, out of your reserves. The Government has no other magic source, magic well, out of which money can appear.

Mr Jeyaretnam: What is wrong with using a bit of that? Tell us.

BG Lee Hsien Loong: Mr Speaker, Sir, not more than an hour ago, the Member for Anson explained to us that he has no intention to touch the reserves.

Mr Jeyaretnam: Can you tell me what is wrong with that? Tell us.

BG Lee Hsien Loong: What is wrong with it is that there is no need to touch them now.

Mr Chiam See Tong: You are using it for MRT.

BG Lee Hsien Loong: We are not using the reserves for the MRT.

Mr Chiam See Tong: I will look up the report.

BG Lee Hsien Loong: Please do. The Government has not been using the reserves. It has been building them up year after year and, so far as we are able to ensure, it will continue to build them up year after year, while we can control it and while we are in charge.

Lastly, petrochemicals. The danger, Mr Speaker, Sir, is in looking at today and believing tomorrow will be the same, and the next 10 years will be the same. In 1978 and 1979, when we first decided on the petrochemical project, nobody could foresee that there would be a petroleum glut in the world within six years. It has come to pass. Today, the situation has changed. PCS finds difficulty selling its output at prices which make it break even. The Opposition Members conclude that for the rest of the lifetime of the investment, which may be 20, 30 years, this will remain and therefore the project should be scrapped. Mr Speaker, Sir, we do not know what will happen in the world in five years, not even in two years.

Mr Chiam See Tong: That is a good ambition.

BG Lee Hsien Loong: That is already a good ambition. Can you be certain that for the next 20 years there will be an oil glut? Can you be certain that for the next five years, there will be an oil glut? Nobody can be certain. We have an investment. It is a good one. It is an efficient one. We will find ways in which to turn it around.

Mr Chiam See Tong: How?

BG Lee Hsien Loong: We will find ways, and it shall be turned around. But to suggest that we should scrap it now and that is the end of that, we wash our hands - that, Mr Speaker, Sir, I think exemplifies the approach of his entire speech.

Mr Speaker, Sir, the purpose of the debate today has been to discuss on a serious level our problems, our approaches to solving them, the solutions we wish to find, and the consensus which we wish to build. It is not to talk frivolous inanities, about subjects which make no sense whatsoever. I think that is where the level of the debate should remain.

The Minister for Finance and Minister for Health (Dr Hu Tsu Tau): Mr Speaker, Sir, can I just have a couple of minutes to correct an impression which the Member for Potong Pasir may have left with the public about the state of Singapore's fiscal affairs? This is in reference to the report by Phillip and Drew, the stockbroking house. I would like to state categorically that the analysis and conclusions are incorrect and they are based essentially on an erroneous interpretation of our fiscal publications.

Without going into details, I would just like to mention that the report itself overstates Government expenditure because it forgets that we have had since 1968 accelerated contributions to the sinking funds. That is one. And also it understates Government revenue by totally excluding income from Development Fund, on grounds that the Development Fund is, in fact, borrowing entirely from CPF, which is not true. Over the last 10 years, Government has in fact continuously accumulated surpluses from its Current Account which is transferred to the Development Fund account and whose revenue therefore should properly be treated as part of revenue. If these adjustments are made plus a number of others, I think the picture which emerges will be totally different. I repeat again: we have no problem meeting current and future CPF fund repayments despite the caveat mentioned by the previous speaker. 4.28 pm

The First Deputy Prime Minister and Minister for Defence (Mr Goh Chok Tong): Mr Speaker, Sir, I want to paint in broad terms the strategy which we intend to take to swing the economy around, and also later to announce a few tax concessions.

How do we swing the economy around? To do this, we have to do two things: (1) to regain our international competitiveness, and (2) to remove any rigidity in the economy. For the economic system to be supple, we have to enhance flexibility in the system. For us to regain our international competitiveness, we have to cut costs, costs which have built up over the years and which could now be reduced. This, in essence, is the strategy which we intend to implement over the next few months.

Our level of competitiveness is determined by Taiwan, Hong Kong and South Korea, and other countries outside Singapore. They determine whether we can sell our goods in Europe and in the United States. This is because we compete against them for the same kinds of investments and in the same markets. To succeed over them, our workers must be more productive for the same level of wages. From 1982 to 1984, we have allowed our wages to run ahead of wage levels in these countries. We can solve this in two ways - cut wages, bring them down to the level of productivity in Singapore, or up productivity to catch up with the present wage level. We prefer the second method - restrain wages, up productivity. That way, we do not have to bring down the standard of living of our workers. That is why we are against an across-the-board cut in wages. If we cut wages across the board, we are in fact reducing purchasing power. We are taking away purchasing power from the economy.

The number of tourists coming from Asean countries to Singapore has already gone down. A few thousand foreign workers have gone home. And there is no need for us, at this stage, to think of any wage cut for our workers. Neither should we go for a wage freeze. There is no need for us to put wages in the ice box. Companies perform differently. There are companies which are doing well, and there are others which do not. If we go for a wage freeze across the board, we are in fact punishing companies and workers that have done well. These workers have contributed to the performance of the company, and they should be paid in accordance with the company's performance and ability to pay. Also, if we go for a wage freeze, we are in fact using a very rigid instrument to control wages. After the recession is over, and the ice has thawed, I think there will be a rebound. Wages will shoot up again, as workers scramble for more wages and employers scramble for more workers.

What we should go in for is wage restraint. In other words, moderate wage increases over the next two or, perhaps, three years. Companies that have done well should continue to pay their workers in accordance with their ability to do so, and those that have not done well but require a pause in wage increases to overcome the current downturn, should be helped by the workers. Wage restraint means prudent increases tied to performance and productivity.

Several Members have suggested that we should cut the rate of CPF as a means to reduce wage cost. I think the debate has been well conducted in this House, I will just state my position. CPF is part of a worker's wage. If we reduce CPF, we are in fact going for a wage cut. And as I have explained, we are not contemplating a wage cut for the economy. There was a suggestion that we should perhaps reduce the CPF rate of contribution by 10% and give 5% back to the workers and we can solve our problem. I do not think that is in the interest of workers. If we reduce CPF contribution by 10% and give back 5% to the workers, we are in fact giving back only a portion of what now belongs to the workers. The employers pocket the other 5%. If you earn $100, and we reduce CPF by 10% and give back 5% to the worker, we are in fact giving $5 back to the worker and letting the employer pocket $5. I do not think that is in the interest of the workers. Workers have committed themselves to the purchase of HDB flats. They have instalments to pay. There is no need for us at this stage to reduce workers' earnings, whether they are taken home or kept in the CPF.

We want to cut costs and, I repeat, we do not want to cut workers' wages or savings unless it is absolutely necessary. And the situation has not arisen for us to do that. We do not have to raid workers' piggybanks to resolve our current downturn. There are other ways to cut costs. We can, however, give workers more latitude in the use of the CPF savings. We have already allowed them to buy a second property. If they have surplus savings and they have already bought a flat, we can allow them to buy shares - good shares, like SIA shares or bank shares. We allow them to do so, so long as they own a flat, They do not even have to pay up all their instalments for the flat. So long as their monthly contributions to the CPF are sufficient for them to meet their monthly HDB instalments, we can allow the surplus in their CPF accounts for investment in good shares and properties. This way, we allow savings of the workers to be channelled back for productive use in the economy. We also allow them to exercise their own decisions on how to invest their savings. We will implement this plan very quickly.

To come back to productivity. Our workers can be paid more only if they are more productive. This is a statement of truth. There is no other way we can pay our workers more unless they are more productive. Here, we have been emphasizing workers' productivity. The Member for Kebun Baru brought up a very good point. We should in fact emphasize management productivity. We shall ask the National Productivity Board to spend more time and energy on managements to see how they can improve their own productivity. The basic point is this: if our managements are not good enough, they will not be able to offer their workers higher wages and compete with wage levels in other countries. We, therefore, must over the next few months get local managements to upgrade, to modernize, to improve their management skills. NPB and the Small Enterprises Development Bureau will grapple with this aspect of the problem seriously and very quickly. But local managements themselves must also make the effort. Do not leave everything to the Government. We will help you, we will make the effort, but ultimately managements themselves must make the effort.

To overcome the recession, we must have the ability to adjust to changing weather conditions very quickly. It is not sufficient just to cut absolute costs of doing business. No strategy is right all the time. We must look at the market, study changes in circumstances and adapt to new situations. There is nothing more flexible than the market mechanism. So wherever we can, we want to ease up on rules and regulations so that we can move nearer the market. The market mechanism is the final arbiter of economic situations. It is a very flexible system.

I have spoken on giving Singaporeans more leeway to invest their savings in the CPF. We should also look at other areas like National Wages Council. The National Wages Council sets guidelines for wages in the past. I think wages for workers should be custom-tailored. It is better in the next few years for us to move away from a single wage guideline, or even a range of wage recommendations for managements and workers. Let managements and workers negotiate on what the wages should be for their industries, for their sectors, and for their companies. The National Wages Council should go into hibernation for two or three years and allow wage levels to be negotiated between employers and employees.

As for small businesses, there must be a willingness to accept changes in a country. They cannot do the same thing as they had done in the past. Let us take one example -small businesses which have succeeded in operating a prosperous business because of rent-controlled premises. These rent-controlled premises will become fewer and fewer over the years. The sooner these family-type or small businesses can adjust to new premises and new market rentals, the better they can survive the future. Do not cling on to rent-controlled premises. They will become fewer and fewer. Make good use of the next few years to think of ways to adjust to future environment wherein they must operate and compete with others.

For the workers, they must be willing to learn new skills. Old workers in sunset industries may have difficulties in learning new skills but we cannot stop the world from advancing. There is no way for them to stick on to old sunset industries because the world will pass them by. They just have to learn new skills, and we will help them to do so through the companies and through the unions, wherever possible.

Let me give an example of the problem for a company which cannot adjust to the new situation. Take British Rail, for example. They have too many guards but the company is unable to retire them or to make the surplus guards redundant. What is the result? The result is a wage overload for British Rail and, of course, losses for the company. On the other hand, our Singapore Bus Services have adjusted to the new situation by retraining surplus conductors, and turning them into drivers. Now both the company and the workers who have become drivers are able to prosper.

There is another area where we have got to adjust if we are to meet new challenges successfully. That is, we have got to get our workers to work the third shift. New investment commitments which we want will be high valued. They will have expensive equipment and machineries. Equipment and machineries are actually labour embodied in them. It is a different form of labour. If we do not work the third shift and leave the equipment and machineries idle for eight hours, we are in fact carrying idle labour for eight hours every day and paying for them. There is no way where desirable investments will come to Singapore in the future if we require them to carry surplus labour in the form of idle time for expensive equipment and machineries for eight hours every day. These are desirable investments. We want to attract them to Singapore and one way for us to do so is to be prepared to work the third shift. In other words, maximize usage of plants and machineries which these companies bring into Singapore.

I have taken some time to spell out my thinking on the strategy to get us out of the recession for one simple reason. We want to reach a consensus with the employers and employees. The Government, the employers and employees must be clear in their minds what they want to do over the next one or two years, on how to get the economy out of the slump. If we cannot reach a consensus on our strategy, then we are going to pull in different directions. If we pull in different directions, we will pull the economy apart. So I thought I should spend some time spelling out our thinking to get the economy on the upswing again before I touch on the measures to reduce costs.

I want to announce a few tax changes to cut costs. These changes are necessary because of changing circumstances. Some taxes have been introduced in the past to meet certain social objectives. For example, tax on PUB bills to encourage conservation, and high petrol tax to discourage car ownership. These are taxes imposed for social objectives. In good times, the country can carry the increased taxes. The burden can be shouldered. But when times are bad, the burden becomes very heavy indeed. So we have to be practical, adjust to the new situation, shed the unnecessary burden.

First, petrol duty. In March this year, we raised the ad valorem duty on petrol from 50% to 60% as an additional measure to discourage car ownership, and to discourage excessive car growth. Since then, as you all know, the economy has slowed down much more than we expected. And this downturn in business conditions has brought about slower car ownership growth. We can see that fewer and fewer people are driving around unnecessarily. For so long as this is the case, there is no need for the higher tax on petrol.

Some hon. Members: Hear, hear!

Mr Goh Chok Tong: The Government is, therefore, reducing the ad valorem tax back to 50%. [Applause]. But due to the difference in the exchange rates, the expump price of petrol will be slightly higher than it was before March 1985. There will be a difference in the pump price but this is due purely to differences in exchange rates. The lower price of petrol will, we believe, help businessmen and motorists to reduce transport costs. In the long run, however, the problem of road congestion because of too many cars and too few roads remains with us. The overall policy of the Government which is to tackle this problem firmly therefore cannot be altered. Should car growth and usage increase significantly, the Government may have to return to the higher level of petrol duty.

While looking at petrol duty, the Minister for Finance has also decided to abolish the duty presently imposed on fuel oil. This will help the bunker trade.

In the 1985 Budget statement, it was announced that the diesel tax of $6,600 on taxis would be imposed from 1st October 1985. The aim, as you all know, was to remove a long-standing subsidy for taxis. Private diesel cars pay a diesel tax. Public buses also pay a diesel tax. It is an ano- maly not to impose a diesel tax on taxis. Taxis should, therefore, pay the same tax as private vehicles for use of public roads. This principle remains valid today despite the recession. However, since the recession has affected the earnings of taxi drivers in the last few months and there have been requests that the Government either reduce the amount of diesel tax or scrap it altogether, we shall do something to the diesel tax.

Mr Jeyaretnam: Now.

Mr Goh Chok Tong: The Government has decided to reduce the diesel tax to one-sixth of the original amount, ie, taxi drivers are required to pay only a token sum of $1,100. I would like to stress that the ultimate objective is still to impose a full diesel tax but this will be done only when economic conditions allow it.

On 26th July, the Government announced a 30% property tax rebate for owner-occupied industrial and commercial properties for three half-year periods beginning from 1st July 1985. The Government has decided to extend the 30% rebate to owners of let-out industrial and commercial properties as well. The rationale is that these properties can also be considered as factors of production. As far as possible, industrial and commercial properties should be treated similarly, provided part or all tax concession is passed through to the tenants. We expect that in practice tenants will enjoy at least half of the rebate.

The 30% rebate will also be extended to HDB, JTC and URA. In turn, they will pass on the rebate to tenants in the form of lower charges.

Owners of vacant land or land under development will also enjoy a similar rebate. The rebate will help to ease the cash flow for developers and give them more time to complete their developments.

These tax concessions are spelt out in greater detail in a Statement by the Ministry of Finance. May I ask the Clerk of Parliament now to circulate to Members a copy of this statement. (Cols. 487 - 488) [Copies of statement circulated to Members.] statement - STATEMENT BY THE MINISTRY OF FINANCE (Cols. 487 - 488)

These tax cuts mean a total revenue loss of $400 million, The tax concessions which I have just announced will result in a revenue reduction for Government of $400 million. Together with the 26th July package, the Government is injecting a total of $850 million into the economy. The Government will do whatever it can to pull the economy out of the present slump. But let me caution here - we cannot go on cutting taxes. We have got to be prudent in cuffing taxes because we must never end up having a deficit budget. That is why I prefer not to decide today on a proposal to reduce either in whole or in part the 10% tax on PUB bills. I prefer to take some time to look into this matter to see whether we can justify a reduction here because, I emphasize, we must not run into a deficit for the budget. We have always managed the economy on budget surpluses and we must continue to do so. It may take two or three years for us to get out of the present slump. I think we can swing the economy around provided we work together soberly and responsibly.

Thank you, Sir. [Applause].

Mr Jeyaretnam: May I seek a clarification only, Mr Speaker, Sir.

Mr Speaker: Why? On what point?

Mr Jeyaretnam: It is on this diesel tax. Is it the proposal then that they should pay an additional $1,100? I understand that at present what they are paying is $1,100 and you were proposing an additional $6,600. Now you have reduced $6,600 to $1,100. So there will be an additional $1,100. Thank you.

Mr Speaker: 'I think a break is indicated. I suspend this Sitting and will take the Chair again at 5.30 pm. Order.

Sitting accordingly suspended at 5.OO pm until 5.30 pm. Sitting resumed at 5.30 pm.

[Mr Speaker in the Chair]

Debate resumed.

Dr Ow Chin Hock: Mr Speaker, Sir, what else can I say after all these announcements? It remains for me to thank all my PAP colleagues for their support of the motion. And I will ignore all the petty remarks made by the Member for Potong Pasir about me. I am grateful to the Firs Deputy Prime Minister for his reply, particularly the tax concessions he has just announced. I believe all Members, including the Member for Anson, will support these latest measures taken by the Government.

Question put, and agreed to.

Resolved,

That this House, noting with concern the present problems with the economy, commends the Trade Unions and the workers for their responsible attitude towards wages; and supports the measures so far taken by the Government and urges the Government to take all further steps necessary for the Nation to adept to the changing environment, including steps to strengthen the role of local businesses in the economy.