ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Mr Jeyaretnam: Mr Speaker, Sir, before I leave the question of unemployment and I cannot spend too much time on it as I have other things to bring up, I wish to refer to the suggestion made by the Member for Tampines when he spoke yesterday about the setting up of a committee to inquire into the whole problem of unemployment. I was going to do this in my speech on the Presidential Address but I did not have the time and now I certainly would like to support the call for an all-party committee to be set up to look into the whole question of the unemployment problem, as to whether the unemployed can be found alternative employment, what can be done to stop indiscriminate retrenchments by employers and, of course, the whole question of relief. I say, Mr Speaker, Sir, that it must be an all-party committee. Let us not be partisan about things any more. Let us realize that the Opposition have a place in the politics of this country.

Finally, Mr Speaker, Sir, on this, it is not as though we do not have the money to give any unemployment relief. I hope I am not going to be told that. I said that we have got enough money and to spare. So let us give help where it is due, where it is needed. It would be, in my view, a complete callous indifference to the plight of a section of our community who through no fault of their own have been brought to these dire straits, of not being able to meet their expenses of living, not to mention the education of their children. So I hope we will have some sensible and reasonable response from the Government to this problem which, I say, finds no mention whatsoever in the Budget statement. And I am very disappointed about that.

If I may move on, Mr Speaker, Sir, to some of the specific measures which have been taken for the economic recovery. May I start straightaway with the 15% cut in the CPF contributions paid by employers. I would not, of course, share the view of the Member for Rochore that it is a tax. Of course, it is part of the employee's wages and it is a 15% cut in his wages after the 1st of April this year. And to think that last year, Ministers and Members of the Government were saying, "There'll be no cut. It is part of the worker's wages. We cannot touch CPF." And now a complete somersault on the part of the Government, all because businessmen have demanded it. Well, perhaps it may be necessary to cut costs. But we have got to do something about the problem that is created as a result of this reduction of 15% in the employee's wages.

Mr Speaker, Sir, there have been glib statements in this House that the take-home pay of the worker will not be affected. That ignores abysmally the realities of the situation and the problems faced by the worker who has home instalments to discharge. Sir, I am aware of the caveat entered by the Member for Mountbatten about tables and statistics. But with your permission, I propose to circulate the tables that I have prepared and given to the Clerk. [Copies of tables circulated to Members.]

Mr Eugene Yap Giau Cheng: Mr Speaker, Sir, can the Member please clarify what I said? I did not say anything of that sort.

Mr Jeyaretnam: You said that Opposition Members must be careful about statistics. Remember, about statistics?

Mr Eugene Yap Giau Cheng: I did not say that.

Mr Jeyaretnam: Well, all right. Please sit down. I am sorry. I thought you said it.

Mr Eugene Yap Giau Cheng: I did not.

Mr Jeyaretnam: Oh I see. I am sorry. Not you. I beg your pardon. Let us carry on.

An hon. Member: Member for Clementi.

Mr Jeyaretnam: Member for Clementi, thank you. It must be that you look very much like the Member for Clementi!

Mr Speaker, Sir, these two tables relate to a worker earning $500 per month with a loan of $30,000 and to a worker earning $1,000 per month with a loan of $50,000 to the HDB. Sir, you will see that as a result of this wage cut of 15%, the worker is left considerably worse off than he was before the 1st April 1986. With a payment schedule over 20 years, he is $47 the poorer every month. This is at the final column or paragraph. If you spread it over 25 years, then he is $25 the poorer every month. And we have glib statements from the Minister for National Development saying, "Oh, we are making it very easy. We are going to extend repayments." What is lost sight of, Mr Speaker, Sir, is that if you extend the repayments over 25 years, the poor man ends up paying much more, a lot more than he would be paying if he repaid the loan in 20 years. So there you have it. A worker earning $500 per month is poorer by $47 a month if he has to repay within 20 years because he has to meet from his take-home pay the balance required on his house instalment. And if it is 25 years, he is $25 poorer a month.

If we come to the situation of an employee earning $1,000 per month with a loan of $50,000, what do we find? We find that he is poorer by $67 every month as a result of this wage cut of 15%. And that is if the loan repayment is spread over 20 years. If it is spread over 25 years, then he is poorer by $30.50 a month. And this at a time when the Government says there should be no increases in the pay, there should be wage restraint, there should be no half-month incentive for workers and a lot of other things. But the Government gaily decides to cut the worker's pay by these amounts, and I say it is the harshest cut. It is the most unkindest cut we have had from the Government after statements last year, "We will not touch CPF. It's worker's monies. It's worker's monies." All that have gone into thin air, all those pronouncements.

We, of course, in the August 1985 National Rally did suggest that we wanted a 5% cut in the employee's contribution so that he could have a bit more. And to compensate the employer, we said, "He can have another 5% as well. He can also have a 5% cut." But we said that something must be done to see that the worker is enabled to pay. How is the Government going to do this? How is it going to help the worker to meet his instalments? Or is it saying, "Well, you default. HDB will recover your property. Good luck to you."

I am saying to this Government that you are breaking faith. You are breaking faith with people who you persuaded to buy HDB apartments on the assurance that the CPF savings will see them through these payments. This is not the first time that this Government has broken faith with the workers. But this is a blatant breach of faith on the part of the Government.

There are two things that can be done, ie, for the Government to absorb the excess, either by reducing the interest that is to be paid or by making a subsidy to the workers. And we are concerned, as I said in the National Day rally, with workers earning $1,000 and below. So the Government can absorb that if it thinks this cut is necessary for the economic recovery. I was listening to the BBC about food prices being increased in Poland, and along with it there came a government assurance that the poorer section of the community would be enabled by subsidies or relief payments to afford the food stuffs for which prices had been raised. There you have a government which is sensible, which is sensitive to the responsibilities to its community. We cannot just think of economic measures. We have got to think of the social consequences.

Whilst talking about social consequences, may I say that unemployment also has social effects. We read, was it last week, about a statement that in Malaysia crime is on the increase because of the unemployment that has gone up. And we know about riots in the inner cities in the United Kingdom because of growing unemployment. Do we want all that in this place?

The other thing, of course, is for the HDB to reduce its prices for the flats. I have not got very much time, Mr Speaker, Sir, but I have been saying since 1982 that the HDB is making profits, regardless of what the Minister for National Development says. Nobody believes him. We know that the construction costs are lower than the sale prices. And we know, now that it is conceded today, that prices of building materials have dropped. So I say that the HDB should, if the Government is not going to find the money, immediately slash prices of HDB flats and reduce the amount due from people who bought them and absorb any losses, if there are any losses. But I am saying that there will be no losses.

I have suggested to the Minister twice that he should submit this question as to whether the HDB is making a profit or not to an independent body of quantity surveyors and architects. But he does not want to. Why? The answer is plain. Because they will tell him that the HDB is making a profit. And they try to hide that because of imputed cost of the land. That, in my submission, is dishonest, Mr Speaker, Sir, because we know that these lands were acquired at a pittance. And if anybody is subsidizing, it is the landowners from whom the lands were acquired. So let us not talk about HDB not being able to afford it.

Mr Speaker, Sir, if I may move on to income tax. I share the view that was expressed by the Member for Rochore that the measure is regressive. It is discriminatory against the lower paid. I see from this discussion that was called by the Straits Times that that view was also taken not by an economist but by an accountant, and he said he would like to have seen the Government increase the personal relief from $3,000 to $5,000. Of course he had in mind the relief that is given in Malaysia. But I have mentioned this. In Malaysia the relief for a husband and wife is $7,000, and it has been given. We can only afford to give them $4,000 relief ($3,000 plus $1,000 for the wife).

Mr Speaker, Sir, I am not going to give percentages but I will show you how inequitable the whole thing is by showing the amount that would be saved by various categories of people. Let us take the case of a person with a taxable income of just $3,000 (ie, $7,000 income and his reliefs are $4,000, then his taxable income is $3,000). With the variation in the rate for next year down from 4% to 3.5%, all he saves is $10 per $1,000. That is all the saving he is given. This is after you allow the full rebate of 15%. If you take the case of a person with a chargeable income of $400,000, what does he get after you apply the new rate? He gets $54 per $1,000. So it is $10 saving for every $1,000 for a man with a chargeable income of $3,000, but a man with a chargeable income of $400,000 gets a saving of $21,000, $54 per $1,000. Can he not see how inequitous the whole thing is? How unfair it is on the workers? Then if you go higher up the scale to somebody with a chargeable or taxable income of $750,000, he is given a saving of $57 per $1,000; both five times what the worker gets.

The Minister for Foreign Affairs (Mr S. Dhanabalan): How much does he pay for $1,000?

Mr Jeyaretnam: So, Mr Speaker, Sir, let us not try and pretend that our structure of tax is equitable. It is not equitable. It places a heavier burden on the lower income group. People who most need the money and who cannot afford to pay taxes. I have been asking for this year after year and the Minister says all he got to do is to repeat wht he said, and that is, the rich pay more tax in the end. But of course they have to. That is not a fair comparison. A man with a million dollars, of course, will be paying more tax.

May I move on to the consumption tax, Mr Speaker, Sir. I am racing against time, Mr Speaker, Sir. I do not want to repeat what has already been said about this. It is again wholly discriminatory against the lower income group. There are no two ways about this tax. It is no good for the First Deputy Prime Minister (I see he has just walked in) to say, "We will be selective." The point is this. How selective can you be? If you narrow it too much, then you are not going to get the tax. And the Government says it wants the tax because it is losing the revenue from the corporate tax and income tax. So it has got to find another source of revenue. So you cannot be too selective, otherwise the whole object of it is lost. So what do you do? You have got to have a broad base of goods. And who is hit? Not the man who is earning $6,000 a month. It is the man who is earning $600 a month who will not be able to buy what he needs because he says, "It is going to cost me. I have got to pay tax on this now." This is why I say this tax will depress demand further. And it is completely discriminatory.

Mr Speaker, Sir, mention has been made about its effect on tourists. Let me just say one thing about this, and that is, our population is only about 2.5 million and tourists 2 million.

An hon. Member: 3 million.

Mr Jeyaretnam: 3 million. Good. Then what are we going to do? Are we going to introduce a system of refund for the tourists who make purchases here? Otherwise we are going to lose them buying things here. This refund is, of course, made in other developed countries. Mention has been made of it. So what are we going to be left with? Half the tax sent back, after collecting it. So is it worth the candle? Setting up this administrative machinery and the cost, and then sending half back. What are we going to be left with? I ask the Government to think very carefully about this. Not just for the reasons that have been given about administrative difficulties. The Minister for Finance acknowledges it is cumbersome, unwieldy. But for the one reason which should commend itself to this Government, that it discriminates against the lower income group. He is going to tell them, "You cannot buy these goods. They are not for you. We keep all these goods for people who are earning higher salaries." That is what it will do.

Now, about the corporate tax. I was amused and I think reference has been made by the Member for Queenstown when he spoke (was it in the Presidential Address Debate) about the comments made by the then Minister for Finance in the Budget debate last year in 1985. Mr Speaker, Sir, time does not permit me to read what he had to say in the 1985 Budget debate. But there was the then Minister for Finance arguing the case for not reducing corporate tax. His answer was that there were already enough concessions given to companies. He said we should see how these concessions would work out, what effect they would have before we rushed in to produce corporate tax. It is all there. Then now it would appear that all the reasons that he gave, only 12 months ago, are no longer valid. I would like to know from the Minister whether that that is true, whether they are no longer valid. They have all completely vanished into thin air. Or was he not talking reasonably --

Mr Jek Yeun Thong (Queenstown): Mr Speaker, Sir --

Mr Jeyaretnam: I am not giving way.

Mr Jek Yeun Thong: But you are not saying what I said.

Mr Jeyaretnam: Then, Mr Speaker, Sir, finally, about the proposed trimming of the civil service. There is considerable anxiety and some Members have mentioned that in this House. I was asked about it in our rally on Saturday. I understood the Minister to say that there should be no need for any retrenchment. It will be by normal attrition, not replacing people. I would ask the Minister to make a solemn assurance in Parliament in his reply that there will be no retrenchment. Particularly we are concerned with Division 3 and Division 4 workers. We were given a table yesterday which showed that whilst the Government was reducing Division 3 and Division 4, it was increasing the manpower in Division 1 and Division 2. So may we have an assurance from the Minister for Finance that the Government will not retrench. We had the case of the 112 PWD workers who were thrown out. In spite of what the Acting Minister for Labour had said about them signing to the effect that they did not want alternative jobs, the fact remains, according to the report in the papers, that the Ministry of Labour, statutory boards, and all the Government departments, were not able to find any jobs for them, for several months. Is it for that reason that the Ministry got them to sign saying that they did not want alternative employment?

Mr Speaker, Sir, it is almost one hour. I would ask this Government now to consider the social implications, as has been said by several people. You do not just consider economic measures in their isolation. You have got to consider every measure in its effect on the community as a whole. You do not just consider one section of the community. You have got to take the whole of the community, and the workers are part of this community. They are the majority in this community. So will you please, I say to this Government, take into account the sufferings of the lower paid, the workers, in our community?

I wish to end by repeating what I said earlier, and I stand by it, that this recession is due solely to the economic mismanagement by the Government, whatever they may say. It is not any fault of the workers. 3.01 pm

Mr Chiam See Tong: Mr Speaker, Sir, may I be allowed to join in this Budget Statement debate?

Mr Speaker: Yes.

Mr Chiam See Tong: I rise not in support of the motion that is before the House.

Please let me first comment on the 53% of our workforce that is mentioned in the Budget statement as not having attained even a primary school education. The PAP has prided itself of its 20-odd years of record. But the 600,000-odd workers who have not even received or did not even manage to get this primary school education will surely go down as a black mark in the record of the PAP. The Government has promised to bring us to a Swiss standard type of living in 1999. With this kind of a workforce, how are we going to reach that standard? The Swiss have got almost 99% literacy in their workforce. So this one ingredient is already absent in our society. How can this Government hope to reach a Swiss standard of living? It has, first, to solve this very basic problem. 600,000 workers is a big number. It is more than the present enrolment of our schools. So it is a national problem, and the way the Government is going about it is just by small measures - BEST classes conducted by a political party. I think it is a shame to politicize education. This should be left to the Ministry of Education. It has already been mentioned that we have funds in the Skills Development Fund. What is it there for? To develop skills? How can we go about developing skills when our workers do not even know how to read and write or recognize numbers? Maybe they can be trained to a certain extent but surely not to the extent you would like, ie, to bring the economy of the country to a high standard. So I would urge the Government to treat this problem seriously and treat it as a national problem. There is enough fund and it should be more serious about this whole problem.

The Government has accepted most of the recommendations of the Economic Committee. Basically, the recommendations are to cut costs and make Singapore a more competitive place to do business. Will these measures in fact bring us out of this severe recession? I would say that it would be difficult because the Economic Committee has not addressed itself to the root problem. I say the crux of the matter is the PAP Government itself. The main problem is that its credibility, as was mentioned yesterday by the Member for Serangoon Gardens, is in question. The trouble is that businessmen now no longer have faith and confidence in the Government. It has practised its policy of pragmatism too far. It makes too many sudden changes. One day it adopts one policy and then reverses it on another day. All the measures so far are either temporary or on a two-year basis. The short-term measures will not do. The Government must make a commitment that it will do away with the paternalistic type of economy, support the private enterprise and not interfere in the free market forces.

The Minister's assurance that taxes which have been temporarily suspended will not be reimposed for as long as it takes the economy to regain its vigour is not good enough. The Government must give some form of commitment, as I have often said. It must commit itself, I would say at this juncture, to a period of, say, five years, that it will not alter its fiscal policy. This only then will give confidence to investors. In fact, that was done in India under the regime of Rajiv Gandhi's government. One of its policies in its economic reforms ensures a continuity of fiscal policies for five years. As a result, India is now enjoying a stock market boom. It is time we implemented that policy. If we did that, we have more chances of attracting investors to put their money in Singapore. In Hong Kong, they say one business lifetime is about five years. Therefore, not changing our fiscal policy for five years is reasonable. There is no better way to build confidence than by having an element of predictability in the Government.

Fresh in our memory is the CPF issue. When times were good the Government kept increasing it till the CPF rate reached an absurd high of 50% of the workers' salary. Of course, businessmen protested. The business community just could not carry such a high wage burden. The excessive savings had a recessionary effect on the economy. At the same time, the construction industry was overheated, pushing it to a sharp over-supply situation, and yet the Government refused to lower the CPF rate until now.

At this point perhaps I would like to quote the Acting Minister for Trade and Industry. It is a pity that he is not here. The report appeared in the Straits Times on 1st September 1985:

'Brig-Gen. Lee said Mr Chiam's proposal to cut the rate of CPF contribution would reduce the standard of living for the workers. So don't 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.'

Mr Speaker, Sir, for the record, I do not come to Parliament to talk in an airy-fairy fashion. I say what I believe in. But does the Acting Minister say what he believes in? Apparently not. About five months later, he made an about-turn and agreed on a 15% point cut in the CPF rate. He said; "I think this is a reasonable cut." Obviously he did not know what he was talking about at that time in the first instance. But anyway he was promoted to be a Minister.

Mr Jeyaretnam: Acting Minister.

Mr Chiam See Tong: Acting Minister. I can quote other Ministers who have spoken in such contradictory way but I shall leave it for another day. So much for the credibility of our Ministers.

Why only a 15% point cut in the employer's contribution and no cut in the employee's? The reason given by the same Acting Minister was that internal demand for consumption comprised only one-third and the balance two-thirds was external demand. Examples given by him were demand for surplus hotel rooms, the excess capacity of oil refinery and shipbuilding facilities. Therefore, the additional take-home pay of the workers will not stimulate the economy. I do not agree with that. Although our local demand may be small compared to the external one but you must remember the number of local companies is large, about two-thirds or 80%. It is true they comprise a small percentage of local demand but their numbers are large. Every bit of injection of funds in the local market will be a stimulus to get us out of the recession. Be that as it may, the real reason why the employee's CPF cut is not implemented is because the Government needs the money. The Prime Minister has said in the last general election, "We do not need your money." If that was the case, why not cut the employee's CPF and return the money to them? After all, the Government does not need people's money but the Government just cannot do it. According to the Economic Report at page 7, the net CPF contributions currently amount to $2 billion per year. The Straits Times reported that a 15% point cut in the employer's contribution would amount to $1.5 billion. After the 15% point employer's CPF cut is implemented, the CPF Board would have a net balance of $0.5 billion a year. If the Government accepted the Member for Rochore's recommendation to cut a 5% point in employee's CPF -I believe you recommended that?

Dr Toh Chin Chye (Rochore): Yes.

Mr Chiam See Tong: Which would amount to $0.5 billion, the CPF Board would have then paid out all its collections. There would then be no money for the Government to use.

Now you see why the Government cannot afford to cut the employee's CPF rate. The figures were recorded in the Economic Report. If the Government ever cuts the employee's CPF rate by more than 5% point, then there would be a net outflow of funds from the CPF Board to its members.

The other matter which I questioned the credibility of the Government is in its new accounting system of the HDB. The main purpose of adopting the new accounting system was for the HDB to reflect the cost of construction, including land cost, of one unit of flat. The new accounting system is now in operation, but we still do not know what it actually costs the HDB to build one unit of flat because we do not know at what price the Government paid for the land when it compulsorily acquired it. The Government compulsorily acquires land at 1973 prices and sells it to the HDB at an inflated price. But this price is still below the so-called market value. The Government then unashamedly claims that it has given a subsidy to the HDB. The so-called subsidy is the difference between the market value, the so-called market value, and the price which the Government sells the land to the HDB, which is still well above the acquisition price.

Now, we can all see very clearly for ourselves that the Government is surely not playing the role of Robin Hood. It takes land from the rich, or not-so-rich land owners, cheaply at 1973 values and sells to the HDB at a much higher price, and pockets the profit. But, of course, it loans out to the HDB huge sums of money so that it can pay for the land. And, of course, on the HDB side, its accounts will show a deficit because it has to pay high interest, or vast amounts of money in terms of interest, back to the Government.

Yesterday the Member for Rochore pointed out to this House the sum of $8.8 billion which was loaned by the Government to the HDB.

Mr Dhanabalan: The HDB will take care of itself.

Mr Chiam See Tong: I do not like to repeat, but this is what he has said. If you do not believe, you can check it out in the Budget. It must noted that out of that sum, about $5.89 billion, $6 billion will be repaid to the Government, being the price of land sold by the Government to the HDB. So the bulk of the loan is used by the HDB to purchase land from the Government.

Mr Jeyaretnam: Just book entries.

Mr Chiam See Tong: So only about $2 or $3 billion is, in fact, used for construction.

Many Members have discussed the issue of consumption tax. I am not in favour of it. It will hurt the workers more than the other groups. The workers are already asked to forgo 15% point cut from their employer's CPF, and they have also been asked to tighten their belts. The 25% rebate in personal income tax will benefit the rich more, in absolute terms. Should the consumption tax be introduced, the workers will bear the full brunt of it, as they are broader based. On this issue, again the credibility of the Government is in question. On the one hand, it gives out 25% rebate of personal income tax and, on the other hand, it takes back by way of consumption tax. This consumption tax, as has been said in this House, will be inflationary. A consumer item will be more costly if it attracts consumption tax at every stage whenever it is sold, say, from the wholesaler to the retailer and then to the customer. At each stage, the tax will be slapped on, adding more cost to that item.

The steps taken by the Government at the moment is nothing new. It is just back-pedalling. I have already mentioned this before. We are just reversing gear and starting all over again. But, of course, this time it will be more difficult. As has been reported in the papers, other countries like Ireland, even Bavaria in Germany, Oregon, Hong Kong, and even those not mentioned in the newspaper report, like Mexico which I know of, are trying to attract investors. So we will have a more difficult time. Once you drive people out, it is not going to be easy to get them back.

I notice that the EDB is asking for a higher budget than the $20-odd million that is allocated to it. Damage has also been done because Singapore has been made out to be a place that welcomes only high technology. But the First Deputy Prime Minister has since changed that policy - high tech, low tech, any tech will do, he says. So it looks like we are in a real desperate straits. In the past, pioneer companies, at the end of their pioneer status, will have to pay the full corporate tax. Now, a scheme has been worked out for them to pay only something like 10% tax after their pioneer status has expired. So the Government is bending over its back to make sure that pioneer status companies which are already here will remain here. So the Minister for Finance is not exaggerating when he says that we have a severe recession.

If the Government really wants business to grow, then it must establish an environment where business can grow. It must have a more open society where entrepreneurs dare to be bold, dare to venture. The Senior Minister has pointed out in the Sunday Times of 16th March that Information Technology was the way out of the economic gloom. Can an information or professional service industry bloom in Singapore under our present stifling atmosphere? If Singapore wants to breed its own professional expertise and dispense with the crutch of using foreign expertise all the time, then the paramount requirement is that we must, first of all, establish a truly democratic society. Thank you. 3.24 pm

Dr Arthur Beng Kian Lam (Fengshan): Mr Speaker, Sir, I rise in support of the motion moved by the Minister for Finance.

Sir, the Budget this year is presented to deal with a severe recession. The Government has also announced its acceptance of the Economic Committee Report. Who are the people serving on this Economic Committee and its Sub-committees? They are, by and large, Singaporeans with a few expatriates who are working in Singapore. Is this, in the words of the Member for Anson, "placing too much reliance on foreign advice"? I do not think so.

Mr Jeyaretnam: It is concurrence.

Dr Arthur Beng: The Finance Minister has explained that while we have little control over external factors, we do have considerable control over internal factors. The Government has acted firmly and decisively over the last year to restore our international competitiveness and confidence in Singapore's economy. The Government has placed national interest and survival above petty politics. Some of the measures announced are politically unpopular and controversial. This definitely is not the action of a government that has decided to, in the words of the Member for Anson, "let the situation get worse" or, in his own words, "Who cares?".

The Member for Anson has also mentioned about tax rates in Malaysia and in Singapore. Mr Speaker, Sir, can I just put to the House the figures so that everyone can see who pays more - the Malaysian earning the first $10,000 or the Singaporean earning the first $10,000? In Malaysia, the tax on the first $10,000 amounts to $925. In Singapore, it will amount to $875.25 less 15% rebate for the first $10,000, less 25% across-the-board rebate. There I rest my case.

Mr Speaker, Sir, I would like to focus on three aspects of the Budget presentation - the CPF, property glut and the hotel industry.

The CPF: The Economic Committee has explicitly explained our position with regard to national savings. The Member for Potong Pasir is more worried that the Government has no money to repay. My concern is the long term role of the CPF and its relationship to national savings. The rate of CPF savings was gradually increased over the years. Now, to alter this becomes difficult as over the years the CPF usage has been liberalized to include withdrawal for home ownership, property investments, and investments in securities and gold. Now with the economic downturn and the urgent need to reduce the employer's CPF contribution, many are caught in a difficult position of being unable to meet their mortgage payments. It is reassuring that Government has taken steps to help all those with this problem. To minimize the recurrence of such problems, may I humbly suggest that the CPF returns to its original aim of being a savings fund for old age. Home ownership is provision for old age. The experience of persons working as seniors overseas is that those who do not own a home are those mostly badly off, as they will be squeezed out of their rented homes with annual rental increments.

Medisave is also provision for old age, as statistics have shown that medical expenditure increases with age. If we set aside 20% for home ownership, 6% for Medisave and 4% for old age per se, this will bring the CPF rate to 30% (15% by employer and 15% by employee). This CPF rate should be fixed and not altered except under very exceptional circumstances. My suggestion is that all contributions in excess of this 30% should be put into a separate account called the National Savings Account. The rate of contribution to this account would be pegged to the economic performance from year to year, thus providing for flexibility. It is only funds from this account that should be allowed for investments and other uses, for example investments in residential property, commercial property, investments in gold and securities, and even children's education.

Through this clear separation of accounts, our citizens will have an assured savings on retirement through the CPF account. Each citizen will also know that the utilization of the National Savings Account must be very carefully considered as the contribution rate will be variable, depending on the state of the economy. Further flexibility can be superimposed on this scheme, for example, the sliding scale CPF scheme as suggested by the First Deputy Prime Minister.

The property glut. Mr Speaker, Sir, many Members have spoken on this. The report of the Property Market Consultative Committee summarizes the problem in this way:

'The problem before us is thus of national significance. It should be worrying not merely to owners of unsold or unoccupied space but also direct to the rest of the population. Any non-utilization or under-utilization of available space is a cost to the country. As a corollary, any measures taken to alleviate the problem is for the national good, transcending narrower sectional or parochial interest.'

The real estate is one sector where we can still attract investors, both local and foreign. However, some of our regulations need to be changed to attract investment. For the local investors, if we allow for interest on mortgage to be tax deductible, this will help. Many affluent Singaporeans and companies are finding it more profitable to buy properties overseas. It all boils down again to the question of international competitiveness. This would also help those who are genuine home owners and not property investors or speculators. The Government should consider this proposal for owner-occupied properties in the first instance. These persons would benefit immensely if interest on mortgage is tax deductible. The benefit would be immediately felt. The majority of Singaporeans will benefit from this.

Turning to foreigners. At the present time, a foreigner willing to invest $1 million through the EDB will be given permanent residence. The Ministry of Finance should consider extending this scheme to include investment in real estate. Those who invest $1 million in real estate should be given a restricted form of permanent residence. This will allow them to stay in Singapore, thus creating investment and stimulating the domestic economy. As the rule stands today, a foreigner can buy property but he may not be allowed to stay and work long term. What then is the incentive to invest?

I have proposed a restricted form of permanent residence because I agree with our basic premise that foreigners should not be allowed to burden our social and welfare amenities. The restricted PRs should be allowed to live and work in Singapore with their families but they will have to pay for the consumption of social and welfare amenities. For example, in schooling and health care, these restricted PRs will pay foreigner's rate. The easing of immigration rules for these foreigners to work and stay in Singapore will attract many to invest in our property market. In essence, I am calling for a new category of restricted permanent residence to be created for those who believe Singapore is a good place to live in and are willing to invest in real estate. The PMCC has also called for a relaxation of immigration controls in this area. This problem, Mr Speaker, Sir, is a real problem.

Permit me, Sir, to cite two cases which will exemplify his problem. Case 1. An elderly couple from a neighbouring country bought an apartment for $700,000 in late 1985. They applied to the Immigration Department for an extension of stay for three months. They were turned down.

Case 2. In 1982, a foreigner, internationally acclaimed as a model of success in his own field, wanted to expand his business in Singapore. He had purchased a piece of commercial property worth $2.4 million. As he has to travel widely, he applied for an employment pass for one of his trusted lieutenants to look after the Singapore operations. This was turned down by the Immigration authorities. Is it not common practice that having made a big financial commitment that one would like to entrust this only to a trusted lieutenant? All the other employees would have been Singaporeans. The final result, after appeals failed, was that they were so frustrated and disappointed, they folded up and left Singapore.

Before I close this topic, Sir, I would like to put the issue in the correct perspective. In the property boom days, the developers and bankers were making immense profits. Today, while asking for Government assistance, they must also be willing to lower profits and even to plough back some of their immense profits back to the market by lowering property prices.

Mr Jeyaretnam: Ask the HDB.

Dr Arthur Beng Kian Lam: The so-called cheap property is still not affordable by many professionals and upper middle-income earners. Perhaps the industry should also look into this aspect more seriously so that more Singaporeans can realize their hope of owning their own shop or office or private residential property.

Mr Speaker, Sir, I now turn to the hotel industry. Much has been said and I would just like to focus on two points. Firstly, the hotel industry merits the support of Government because it fits perfectly into our economic restructuring. Our hoteliers are already very active in China. The Government should give every support to our hoteliers so that not only will they survive this recession but more importantly, in future, Singapore hoteliers will be exporting their expertise throughout the world.

Today, our local hotel management is still in its infancy. Many of our hotels are managed by international chains. In 1983, this cost us $20 million. With Government help, it is estimated that, in approximately six years, Singapore can be a net exporter of hotel management services. Before this can be achieved, a pool of talent must be built up.

And this brings me to the second point, namely, that of the spectre of unemployment should hotels fail. Mr Speaker, Sir, the hotel industry employs directly approximately 20,000 workers. Most of them are Singaporeans. Many are in their middle years and they have skills only useful to the hotel industry. Many of them with low education have risen up the ranks through inhouse education and hard work. These people deserve our admiration. Many of them, if retrenched, will have difficulty in finding satisfactory alternative employment. 3.38 pm

Mr Abdullah Tarmugi (Siglap): Mr Speaker, Sir, the Budget statement is our strategy for FY 86 as well as for our economic future. I would have expected Members to give their opinions, their views, to better that statement. But instead we find in this House people who still stick to the age-old argument that the root of all the problems is the PAP Government.

Sir, this seems to grossly overlook the development, the progress, that we have so far achieved in the last 25 years. We talk of specious arguments, we talk of cliches. Now, guess who are the main culprits?

The Member for Potong Pasir also mentioned that 53% of our workers have only primary education or lower.

Mr Chiam See Tong: It is true.

Mr Abdullah Tarmugi: Yes, it is true. This is a fact. But then does he realize that this is a problem which we have accepted, which we have recognized, way back in the 1970s when we introduced education streaming? This is the very problem we recognized and wanted to redress way back in the 70s. The majority of the of workers who have only primary education or lower are, in fact, older workers who had either dropped out of school or who had no chance of furthering their education during the colonial days.

Mr Speaker, Sir, the Budget statement has been given several descriptions since yesterday. It has been called pragmatic, realistic, comprehensive, generous. If I could add another adjective, I would like to call it a sobering one. Sobering in the sense that it indicates starkly just how fragile our economy is; small as we are without any natural resources and always open to the whims of the international economy.

The statement may not have revealed anything new, being already pre-empted by the Report of the Economic Committee and the First Deputy Prime Minister's statement earlier in this House. But I suggest let us not underestimate its importance on the impact that it will have on our economic future. The cuts in taxes and increases in incentives are unprecedented, so is the confirmation of the possible use of consumption taxes as compensatory revenue in the economy.

Many Members have spoken about the latter, about their undesirable effects, consequences and burden, especially on the lower-income sections of the community. Even the Minister for Finance in his statement conceded the truth of some of these claims. Even so, I can see the logic for their introduction in our lives. But notwithstanding this, I too share the view of the Member for Chong Boon when he said yesterday that this method of taxation should be our last resort and best deferred until our economy is in better health.

Sir, it has been intimated that consumption taxes have existed in some form in our society, except that they affect relatively few items that we consume. If this form of tax is to play any significant part at all, it must therefore, logically again, cover a wide enough array of items consumed by the people. I would therefore urge extreme care and sensitivity in implementing the collection of consumption taxes. And I will hold the Minister for Finance to his promise that the Government "will make every effort to ensure that the less desirable effects are mitigated."

Sir, my principle concern, just as it is the concern of many other Members, is the burden that these taxes would have on the lower-income sections of our community. This we must work hard to avoid as the consequences would go well into the long run. In deciding the items to be subjected to these taxes, therefore, I would like to urge the Government to spare as many as possible those items which we, in the context of our present-day living have deemed as necessities or staples in life. And this, I grant, is not easy as the exercise of distinguishing between needs and wants, especially in a period of rising expectations, could be a very complicated one indeed.

Then there is the oft-mentioned undesirable effects of such taxes on the tourist industry, one that has already been identified as the growth industry for Singapore. To be candid, Sir, we have very little to offer the tourists when compared to other destinations even within this region. So when our goods become more expensive because of the added taxes, we will have still less to offer. So even if we grant that the introduction of consumption taxes is necessary and inevitable, it is incumbent upon us to take these factors into serious account. To be sure, it will be a massive and delicate task. But I see no other way especially since we have ample examples and lessons from other countries which we must learn.

Lastly, Sir, before I leave the subject, I would like to support the call made yesterday by the Member for Serangoon Gardens that if and when the time comes for the introduction of such taxes, our people must be sufficiently informed and adequate explanations offered even without being asked.

Let me now come to what must be among the key words in our economic strategy to survive and prosper from now on. And these are "flexibility" and "adaptability". In this regard I note the commitment of the Minister to weed out bureaucratic red tape so as not to bog down our economic development with rigidities in the system. Sir, just as we urge the people to be flexible, to be adaptable, we too must practise what we preach. If rules and regulations stifle and if our civil service pay more attention to the letter rather than the intent of such rules, we will only be making things difficult for the private sector to assume the role that we wish it to take and we cannot expect the kind of vibrancy, entrepreneurship, innovation and creativity to issue forth from our citizens and businessmen. In this connection too, Sir, I appeal for more coordination between Ministries and even among departments in the same Ministry.

Sir, nothing is more galling to a citizen or to an entrepreneur in his relationship with officialdom than to be faced with differing, sometimes even conflicting, requirements on the same issue from different departments or Ministries. Just yesterday the Senior Parliamentary Secretary of Defence and Member for Tampines, related the predicament of those hoping for a new bus terminal in his constituency and having to face no less than three bodies, each with its own priorities and each with its own concerns. Sir, such occurrences not only increase the ire of our people unnecessarily, but they also tend to be unproductive and waste much time. I must concede though that our civil service has gone a long way in being more responsive and nimble to the needs of our community. In my relationship with Government departments, I have come across officers who show a lot of empathy, who show a lot of sensitivity and the ability to see beyond the written rules and regulations. I certainly hope that officers like these will not remain exceptions because, given our state of things and in the context of where we want to go, this kind of officers must indeed be the rule.

Sir, I would like to conclude by saying that I support the motion in the name of the Minister for Finance.

3.46 pm

Mr Speaker: I am getting the Minister for Finance to reply at 4.45 pm.

The Parliamentary Secretary to the Minister for Education (Mr Tang Guan Seng): ( In Mandarin): Mr Speaker, Sir, I support the Minister for Finance's financial policy. If we want to fully understand the financial policy for this year, we must consider the statement made by the First Deputy Prime Minister when we were debating on the President's Address and the contents of the Report of the Economic Committee together. After hearing the two Opposition Members' speeches here, I feel very disappointed because it seems that they have either forgotten about the statements or reports that had been issued before or they could not understand them. In the present budget statement, what is the most welcome to the general public is the 25% income tax rebate. However, what should have attracted most people's attention is that for the first time we have a deficit budget. This has great significance. Other than this, the present financial policy has another significant aspect, that is to say it has the spirit of flexibility and adaptability. An example of this is the assessment of hotel property tax which is different from that of before. In the past, irrespective of whether individual hotel business was good or bad, the assessment was based on industry-wide indices. Now it is based on the individual business performance of a particular hotel. This shows that our taxation policy is tending towards a flexible one. This flexibility is not just shown here. The First Deputy Prime Minister had manifested it earlier. He said that we want to attract industries to our country, whether high-tech or low-tech. What we want to attract is any industry that can bring jobs for our people and bring about new investments. Therefore, as long as this objective is achievable, all such industries are good industries.

The other point is the policy of the Government has all along been tending towards encouraging manufacturing industries. Now, the Economic Report has pointed out that the service industry is also very important.

Now that we have reduced production cost, for instance, the reduction of CPF contribution by the employer has been reduced by 15% points and a two-year curb on wages. The prerequisite for this is that during this two-year period, if we do not have any competitors resorting to similar measures, then we may do well. But if countries like Hong Kong, Taiwan and South Korea also do the same, reducing their production costs and company tax, then we will have to take further measures to counteract. All this shows that we are dealing with the problems of economic recession with flexibility and resourcefulness.

Another example of our spirit of flexibility and adaptability is that in the next five years the Government is to reduce the number of employees in the public sector by 10%. This causes some concern. One question is whether this will cause our unemployment problem to be the more serious. I think we should look at the policy positively from two angles. One is that the policy of the Government is not to compete with the private sector for talent. Since ours is a small country, there are not many talents. The Government is the largest employer. If it wants to recruit the most capable people, then the same number of talents will not be available to the private sector. So it is a policy of not competiting for talents. On the other hand, with the reduction of staffing of public officers, certain businesses or affairs will be handed over to the private sector, which will result in more business opportunities for the private sector. Now is different from before. In earlier times of nation building, many tasks had to be done. So the Government had tried to do many things. That is also how the Government has achieved what we have today. Now the situation is different so the Government is delegating many things that the Government can release to the private sector. I think this will be good for the whole economy and for the development of the whole country as well.

This flexibility and adaptability in dealing with matters, I feel, should be based on certain fixed principles or foundations. First, the policy must meet the long-term interest of our country as a whole. In the long run the policy must be able to bring about good results. Second, it must be conducive to the tackling of our most immediate tasks, ie. to revive our economy and to create employment opportunities. This is the basis to our flexibility and adaptability in dealing with matters.

How are we going to achieve this aim? I feel that other than the Government having this spirit of flexibility, our public sector, namely, our civil servants, should also have this kind of spirit. Moreover, the people should also fully understand the spirit of the policies. Here is an example. Under the present circumstances the expectation of the living standard of course will have to be lowered. In the past, we had high expectations. That was correct, because at that time our economy was good. Now that the economy is on the downturn, we must make suitable adjustments. Given these pre-conditions I feel that we will be able to succeed.

After hearing what the Opposition Members have said, I would like to give my views. First, this flexibility spirit of the Government in dealing with matters has been interpreted by them as changing the rules and orders too soon. I think this is not right and is detrimental to our economic effort. If they could interpret this as changing the rules or policies too soon, on the other hand they could also interpret it the other way if the Government does not show flexibility in its policies and measures. They would then say that the Government is too rigid in keeping to the rules and regulations too hard and not changeable or flexible in meeting changed situation. To discuss matters of state in this kind of double twisting way is unhealthy. Just now, I had been expecting them to give better ideas as to how to improve our economy quickly. But from what the Member for Anson has said, the outstanding point was that he had made it to be a political matter, by adding political elements to our economic endeavour. He said that now we are leaning more towards those who are rich and discriminating against the lower income group. This kind of talk is very harmful. At a time when we are calling all the people to strive together and assert all our efforts to revive our economy, to make such utterance is really uncalled for. What we are concerned most now and regard as top priority is to create more jobs and to achieve economic revival. Yet, he is putting a spoke in the wheel.

How do we achieve these aims? Be it Ministers or Economic Committee, the message is we must first try to lower our production costs and improve our international competitiveness. I hope the Member for Anson would have come here earlier. [Mr Jeyaretnam had just resumed his seat.] At an earlier sitting, we were pinpointing at the Member for Potong Pasir on whether there should be any relief given to the unemployed. This touches only one aspect of the question. More importantly, the problem is how to create more employment opportunities and attract more foreign investments here. In this way, those unemployed will be able to get employment. This is the most important task to tackle.

Mr Jeyaretnam: What do you do in the meantime?

Mr Tang Guan Seng: ( In Mandarin): If the Member had been here at the earlier sitting, or had read the newspaper report, then he would have known my answer. But it is a pity that he was not here last time and did not read the report. I do not want to waste my time here with you repeating what I have already said. Now, the more important task now is how to strengthen the Government's relationship with the people. I feel that whenever there are changes, the people find it difficult to adapt. This is only natural. The people generally find it difficult to adapt to new situations. Therefore we must give them adequate time to enable them to understand the true nature of our policy and the situation and not allow those with ulterior motives to confuse the people and fish in troubled waters, I am referring particularly to the Opposition Members. Therefore, before any change is to take place or any policy is to be implemented - there will be more of such happenings - there is the need for ample explanation to be given. If we do so, I believe we will then be able to overcome our present difficulties and problems.

Mr Heng Chiang Meng (Jalan Kayu): Mr Speaker, Sir, I rise in support of the motion in the name of the Minister for Finance.

I welcome the move towards the reduction of manpower in the public sector and the scrutiny of whether particular activities in the public sector are necessary. It will surely lead to lesser involvement of the public sector in the economy and hence, hopefully, lesser expenditure. With the lesser need for manpower and expenditure and a greater part of our infrastructure completed, the need for Government revenue in the coming years hopefully should be reduced. This will surely be translated into lesser taxes. Consumption taxes may then not be necessary. Another desirable effect, Sir, is of course that more manpower will then be available to the private sector. If the private sector is meant to be the engine of growth, it will need all the manpower it can get.

Mr Speaker, Sir, I congratulate the Minister for a simpler presentation of this year's Budget. However, disclosure of material information still leaves much to be desired. In this respect, I would like to recast some of the figures in another light. May I ask the Clerk of Parliament to distribute some figures. Before proceeding, Sir, may I reiterate that stimulation of the economy through Government expenditure is the increased spending by the Government in 1986 compared to 1985. In other words, it means that the 1985 economic performance was achieved with Government spending in 1985 taken into account. Hence, to increase the impact of Government spending on the economy in 1986, it must be based on the additional expenditure or the increase over 1985 that the Government should be prepared to spend. It is therefore the increase, not the absolute expenditure that matters.

Appendix 1 simply shows a rearrangement of Table 3 from page 9 of the Budget presentation. Presented this way, Sir, without the transfers to and fro from the various funds, it shows a total intended expenditure increase of $5.95 billion. Put it simply, the intended increase of this amount is about 16% of 1986 estimated GDP of $37.3 billion. It does seem an extraordinary stimulation. However, the Minister has given clues that it will not be so by referring to the increased loans and the grants-in-aid to HDB because of the change in HDB's accounting methods.

For a more accurate impact, I would like to refer to Appendix 2. I try to adjust what I would call the larger intra-public sector transfers, ie, transfers between some of the statutory boards and the Government. I have taken the public debt servicing and the HDB items because these are the most obvious and also incidentally the largest increased expenditure items. The Government expects to spend $1.01 billion more in public debt servicing. In the budget it is treated just like another expenditure, such as expenditure on manpower or other operating expenditure. However, I would like to ask whether this large increase in interest payment will ever leave the public sector. The answer, Sir, is a qualified no because the bulk of the interest payment will go to the CPF.

To find out why, we must look at Appendix 3. It shows the amount of advance deposits CPF has with MAS. At the end of December 1985, the amount was estimated to be $12.1 billion. What are these advance deposits? Basically, it is the amount that CPF has put aside for purchasing Government bonds. As there are not enough Government bonds available, it has put the money in MAS so that the funds can be used to purchase new issues of Government bonds. Hence, the bulk of the intended domestic borrowings by the Government in 1986 would be taken out by CPF whose funds are already with the Government. The issue of the bonds by the Government and the purchase of these bonds by CPF will be like transferring funds from the left pocket to the right pocket. The interest payment will go to CPF where it will again be put as advance deposits with MAS. This increased expenditure of $0.1 billion is therefore more like an intra-public sector transfer.

The increased expenditure by the increased grant-in-aid of half a billion dollars to HDB and the increased loans to HDB for land purchases could also be of the same nature. This is because, as what the Minister has said, these increases are for the purpose of purchasing land from the Government at market value. This expenditure, therefore, cannot be considered as expenditure like salaries or payments for services. The private sector does not benefit from this increased expenditure. Table 2 does show an increase in expenditure of $1.81 billion instead of $5.95 billion.

Sir, increasing Government expenditure at this time as a means to stimulate the economy is not wrong. However, there is a difference between the stimulative effect of an increase of $5.95 billion and an increase of $1.81 billion. More importantly, Sir, is the disclosure, or rather the lack of disclosure, in the Budget. The Companies Act requires companies to prepare their annual reports on a group basis, ie, consolidation with its subsidiaries. May I ask why cannot the Government follow the spirit of its own laws. Why cannot it also present its budget on a group basis, ie, consolidation with its statutory bodies and subsidiary companies? If the full group consolidation is too difficult, perhaps it can consider the inclusion of the major statutory boards and companies. A budget with large intra-public sector transfers eliminated would certainly present a truer picture. The impact on the economy could also be better assessed.

Mr Speaker, Sir, I would now like to touch on only one area identified as having potential for growth. This area is financial services. Yet the measures taken, or rather the lack of measures, differ from those operating in the market. Permit me, Sir, to make some comments on fund management. The Government wants Singapore to be a fund management centre. Over the years, including this year, it has given a number of tax concessions to achieve this goal. Yet it has consistently ignore the most important issue of all, ie, the distinction between trading profits and capital gains. I do not wish to go into technical details of this issue. However, putting it simply, fund managers in Singapore would have to contend with a lot of difficulties.

Sir, the management of funds and securities need nimble minds and quick responses. The managers are already operating in a world of extreme uncertainty. They certainly do not need the uncertainty created by the regulations of our Inland Revenue Department. I do not normally like to make predictions but on this issue, Sir, I would predict that Singapore would never become a fund management centre until this issue is resolved to the satisfaction of the market. There are too many cities - Hong Kong, Sydney, Melbourne, Auckland, Tokyo and more - which also want to be fund management centres. These are not cities in underdeveloped countries with poor infrastructure. These cities too have the telecommunications facilities, the legal expertise, the computer link-ups and the people to be successful financial centres. The advances in telecommunications and information technology have made it unnecessary for international fund managers to be in Singapore. If the terms of their coming here are not right, the fund managers will never come here.

On another point, Sir, I would like to touch on is the tax concessions given to non-residents but not to residents. This has certainly created a most unusual situation in the Singapore financial market. While banks compete for deposits from abroad, our residents are very busy depositing their own funds abroad. The reason is very simple. It is because interest earned in Singapore is taxed while the interest earned abroad, as long as it is not remitted back to Singapore, is not taxed. Hence, the result is that our residents have substantial deposits outside the country. The latest tax incentive for investment in local stocks and shares by non-residents will only exacerbate the situation. Again, Sir, I urge the Minister to provide some solution to this problem so that our own funds, that means the funds of our citizens and residents, can come back to Singapore to enlarge the base for financial activities.

Sir, many have called, and this includes the Opposition Members of Parliament, for a reduction in the employee's CPF contri- bution. It will, so they say, stimulate local demand. In the best tradition of supply-side economics, the Minister has apparently agreed that more money in the hands of our people will indeed stimulate local demand. He has thus given us a tax rebate for this year. It is, in fact, one step further than what has been asked for because returning the savings back to the people may only induce them to save the savings. I therefore support this move as I think this move will be more stimulative than the return of a portion of the employee's CPF funds.

Now, however, they say it is unfair. It benefits the rich and penalizes the poor. The Straits Times even had an article in its 6th March 1986 edition. But, Sir, does it really benefit the rich and penalize the poor? Here, again, begging your pardon, Sir, I would like to distribute another set of Tables. Perhaps while the Tables are being distributed, I would like to say that the first Table is the one that the Straits Times has published in its article. Sir, it can be reasonably inferred from the Table that those earning above $158,000 per annum gain from the combined impact of the 15% CPF cut and the 25% tax rebate. You can also infer that those earning below $158,000 per annum lost. The calculations in this Table are based on the assumption that the annual salary is divided equally into 12 monthly portions. I do not think that this is a true reflection of salary structures in the market. Most salary structures in Singapore have bonuses. Normally the higher the salary level, the greater is the bonus element. In Appendix 5, I have used the assumption that the annual salary of $158,000 is now divided into 13 months, ie, there is a bonus of one month's salary. By using this assumption, there is a loss of $1,973 instead of breaking even. In Appendix 6, I have restructured the top annual salary into what I consider a more realistic assumption. The monthly salary is $10,000 and the bonus element is $120,000. Sir, as you can see, the loss is now very much larger. I do not, Sir, bring up these tables to prove or disprove which assumptions are right or which tables are wrong. However, I do want to show how lopsided assumptions can lead to wrong conclusions.

Sir, I would like to conclude here but, before I do so, may I provide some food for thought from an article by Peter Drucker. According to Mr Drucker, the German economic performance during the past few years was every bit as impressive as that of the Japanese. He went to list certain statistics as examples to support his point. But I think the part that interests us most is the following and I would like to quote from this part:

'Still the West German achievement is significant enough to demand more than it usually gets.' What explains it? He gave a number of reasons and went on to say:

'But then there is also government policy. The West German government practises unalloyed supply-side economics, albeit with great moderation. Income taxes are being cut by US$8 billion. The government is now contemplating even bigger cuts. Several government-owned enterprises have actually been privatized. Scores of regulations have been abolished or relaxed. Capital markets have been deregulated to give small and medium-sized firms access to the equity market. But the real "secret" of the West Germans is business policy. Managements, with government and public opinion supporting them, have made maintenance of their firms' competitive positions in the world market their first priority and the overriding goal in their planning.' Sir, this article was also reprinted in yesterday's Straits Times. When I read this article very much earlier, I thought I was reading part of the Economic Committee's peport. It sounded so similar. Sir, we are just starting on our new economic journey, based on the recommendations of the Economic Committee. The Germans have shown the world their success based on the same philosophy. This year's Budget reflects the same philosophy too. That is why, Sir, I support the motion. 4.16 pm

Dr Augustine H.H. Tan (Whampoa): Mr Speaker, Sir, as we debate this Budget, I think we should keep in mind two major objectives, firstly, to overcome the recession, and secondly, to set the direction for long term economic growth.

The Minister for Finance has drawn attention to the fact that this year's Budget will have a deficit of at least $3.2 billion. Sir, if you compare it with past years' Budgets and look at the budgets of statutory bodies as well, you will see that this will most likely reduce the overall surpluses to zero or even an overall deficit. Hon. Members might want to take a look at Table 5.1 on page 34 of the Economic Survey, which gives a good overview of the consolidated budgets of seven major statutory boards and the Government proper. You will see that this presentation and this table nets out the intra-board loans and that the CPF loans are out of the picture altogether. And you can see from this Table, as compared with the thick Budget book,that the CPF money has never been needed by Government or statutory boards. And the latest Monthly Digest of Statistics, which is February 1986, Table 11.20, shows us the fund position of the CPF. There was a net $2.6 billion retention by the Fund. Amount owing to members was $26.8 billion. But the Fund is operated in such a way that its monies are held in terms of Government bonds and Government in turn reinvests these bonds mostly abroad. And if we compare official reserves of $27 billion at the end of last year, you will see that we are in a very comfortable position; this figure excludes other Government assets.

There is another Table in the Budget book which shows the assets and liabilities of the Government itself. On page 59, you will see that both assets and liabilities constitute $43 billion. You will find all kinds of funds in there - Revolving Fund, Contingencies Fund, Development Contingencies Fund, Development Fund, Singapore Municipal Provident Fund, Sinking Fund, Skills Development Fund.

I want to draw particular attention to the Sinking Fund which has nearly $15.6 billion worth inside. Now if you study this asset position very carefully, you can see that Government has been extremely prudent in its financing. And because we have had surpluses from year to year in the past, we are now able to drawdown some of these surpluses to help overcome the recession, unlike other countries where government perennially goes into deficit and has to borrow money or else to print money resulting in inflation or a huge foreign debt.

Another indicator that our finances are in good order is the fact that our foreign debt is negligible. We borrow only to establish credit rating. Not many countries in the world can boast of such a comfortable position.

Then, Sir, many comments have been made about the surpluses of our statutory boards. First of all, they are less than what people imagine. The table I drew attention to, Table 5.1 on page 34 of the Economic Survey, shows that for 1984 the surpluses of statutory boards were only $354 million and, for last year, about $900 million. How did these surpluses come about? I think, in the main, it is due to the efficiency of our statutory boards. Some have complained that it is due to high rates; to the extent that the surpluses allow, Government has been lowering the rates that statutory boards have been charging. But there is a limit beyond which we cannot go. And it will not do if governments have to subsidize statutory boards, as in other countries. This can be an endless process, whether it be subsidy to PUB, or Telecoms, or any of the other bodies. We should take care that in comments made in this House we do not discourage the very excellent civil servants and those who work in the statutory boards. They have been very efficient, very productive, and who have enabled the public sector as a whole to produce surpluses from year to year. And, Sir, we do not need to be ashamed of past surpluses because in years of rapid economic growth, these surpluses help to dampen down inflation, prevent the economy from overheating. But now, of course, in a recession, these surpluses ought to be reduced so that we can get out of the recession more quickly.

As to the corporate and income tax reductions, we are grateful for what has been done. The Finance Minister and his officials understandably are very conservative, very watchful over our revenue position. I think they are afraid that there may not be enough money in the till to pay for all the expenditure. I wish they have been a bit bolder and to reduce the corporate tax rate to 30%, and better still to 25%. I would appeal to the Minister to monitor the situation, and that if in six months' time there is no appreciable progress, maybe he should do so.

As to the consumption tax, I have argued that this is not something we should worry about at the moment because we do not need the revenue for the next two or three years. And that even for the longer term, I would like to propose another strategy, instead of raising consumption tax. The question I would like to pose to this House, Sir, is this. Is our public sector, as a whole, too large? In 1985, both the Government plus the seven statutory boards constituted nearly 53% of our GDP, if you took their total expenditure. This does not include the CPF. The question is: is this size of the public sector unhealthy? On the other hand, there are many people demanding more Government services. The two Members of the Opposition have been full of suggestions about what else Government ought to do. We are to bear in mind that the more services we want from Government, the more taxes will be required. There is no other way except to borrow money from abroad, or to print money, which is what typically other governments do. And we have the sad tale recently of the President of the Philippines running away with bags of money. How wonderful to be in that position that you can print money and take as much of it as you want, and pay for 3,000 pairs of shoes, etc, etc. What a sad thing for a poor economy when the Head of that government could run away with billions of dollars. I calculated that almost half our reserves were taken away by him and his cronies over a 20-year period.

And here in Singapore we grumble about the salaries that we pay our Ministers. I think when the full figures are out, this will look like peanuts, a mere pittance, compared to the money of corruption which has been taken away by many government ministers in neighbouring countries. And there are new scandals which are boiling at the moment. Hon. Members and the public can read for themselves. If we want less taxes, if we want lower rates from PUB, from the statutory boards, from Government, then we have got to reduce government services.

I would like to propose, Sir, that in Health that the suggestion that was being mooted by the Minister of State for Health, that eventually most of the Government hospitals should be privatized and that Government should merely concern itself with providing very basic health services, to prevent epidemic, to give enough services to the poor. At the same time, we shall be able to export these services by building up excellent hospitals in Singapore. We could do the same with Education. And I believe we have a comparative advantage in education. Why can we not allow private primary schools, private secondary schools, private colleges, and even a university, provided quality control is there? That would first take some burden away from the public sector and at the same time give quality to parents who want to pay for quality and give us export earnings.

Mr Jeyaretnam: These are public schools.

Dr Augustine Tan: If these two services could be reduced in this fashion without cost in terms of quality to the country, then all of us can pay lower taxes and lower rates. But, Sir, the trouble is that the Government took on too much responsibility in the past. It has been accused of being paternalistic. But you cannot be a father unless there are willing children. If we do not want the Government to be a father to this nation, to be paternalistic, then we should stop behaving like children to this father, and asking father all the time for this goody and that goody, and blaming father for this and blaming father for that. Let us have a healthier relationship than that of parent and children.

Why should the Government be responsible for the CPF? It is the people's money. If they want housing, why can they not pay for it? If they want to provide for old age, why can they not be responsible for it? If they want to pay for health, why can they not be responsible for it? One way out for the Government is to appoint a board for the CPF that is widely representative of functional groups of responsible citizens, who will then decide for themselves what they want to do with these funds. And these citizens can then report to the public that these funds are extremely well managed and that whatever they decide is whatever they will get and benefit in the end. Why should the Government be responsible for setting bus fares? I know some years ago it was necessary to intervene, to send a team of officials to help the bus company revamp its operations because it was very inefficienct. But now it is on its feet. Why should the Minister answer for the bus companies in Singapore in this Chamber and take the rap? Why is it necessary? Why can we not have a body to control buses and their operations, to oversee their operations, again widely represented? And the same for taxi fares. I feel sorry for the Minister for Communications. He means so well. But he gets cursed by taxi drivers. He gets cursed by the public. And he has done his homework so very carefully. Why do we not set up a public board, widely representative, to look after taxi fares? That would take away all blame from the Government in future.

I would suggest the same thing for MRT. That is another thing that is going to land the Government in trouble in future. Every time fares have to be adjusted, it is going to be a painful political decision. But it is so unnecessary. The public must realize that if they want good services, they have to pay for those services.

Having said this, we must bear in mind a number of principles for these bodies, whether it be buses, taxis, CPF or whatever. Firstly, that it is not right for the Government, the public sector, to subsidize these services. Secondly, they should be efficient, providing good services. Thirdly, they need to provide a fair return to shareholders. And I think the boards have to keep these objectives in mind.

Related to this is a personal question of mine. Why do we need to provide such comfortable services to the public, such as airconditioned taxis? If they want to pay less, why can they not ride a rickety old taxi without airconditioning? Why do we need to buy new buses with all kinds of safety features that were reported today in the Straits Times? Why give them such safe buses if they are willing to pay for unsafe buses, if they want cheaper bus fares?

Next, Sir, we come to a very important question. Who should pay taxes? First of all, let us recognize the minimum that any government has to do. It has to maintain law and order, that means paying for policemen, for judges and such like. It has to defend the country against aggression, that means paying for defence. It has to maintain minimum health standards. It has to maintain minimum educational standards. So these are basic services that it has to provide. But the principle must be that all who benefit from these services should at least pay something. The Opposition Members and others would say, "Why don't we tax the rich and the talented?" Yes, we can do that very easily. We can vote in a socialistic government, a workers' government or whatever government that will say, "Yes, we will tax the rich 80 cents to the dollar, 90 cents to the dollar, and the talented as well." Do you know what is going to happen? All the rich people, all the talented, are going to migrate from Singapore. All your professionals, like lawyers who are any good, will migrate from Singapore. And who are going to be left in Singapore?

An hon. Member: Bad lawyers!

Dr Augustine Tan: Yes, the bad lawyers, the worthless professionals.

Mr Jeyaretnam: Are you migrating?

Dr Augustine Tan: And the workers. And it is the workers' concern we ought to be worried about. It is the workers whose welfare we ought to be worried about. So if we tax the rich so heavily that they leave the country, the talented, the managers, the entrepreneurs, they leave the country, who is going to produce the jobs for our workers? Who is going to provide the wages, the income, for our workers? We can tax the firms. Oh, yes, the multinationals, any firm in Singapore. Why 40%? Why reduce to 33%? Why not tax them 90% or 100% of their profits? We could do that. But, you know, what is going to happen. They are going to go to some other countries that offer them lower taxes. So are we fooling ourselves?

People grumble about the tax rebates. Tables are produced. Figures are computed. What do they all add up to? It is very simple. Those who pay more, get more back as a proportion, and it is the same proportional rebate, 25%. That could not be fairer. How can you say to a man, who pays $40,000 in taxes and now gets a quarter of it back, that it is unfair for him to get back $10,000 in tax rebates? Or if somebody else who pays $1,000 tax gets $250 back in rebates, you say that is unfair, that you should be given more than the rich man. Let us be fair. Let us not play games with the lives of Singaporeans. Let us not play games with the finances of this nation. Let us look at what makes this economy tick.

Mr Jeyaretnam: People like you!

Dr Augustine Tan: We do not have natural resources. We have some liabilities from that corner! Being without natural resources means, Sir, that we have to take other people's natural resources, add value to those resources and earn our wages and salaries and profits from that value added. It is a simple fact of economic life. We have no oil to give away. We have no lands to farm with. If we wanted to grow more chickens, we cannot do it.

Mr Jeyaretnam: How do you grow chickens?

Dr Augustine Tan: The best way to look at Singapore is to think of Singapore Airlines, flying high above those chickens. Singapore Airlines has to buy Boeing 747 aircraft. It is the same aircraft that other airlines fly. It is the same technology. We provide the pilots, the engineers, the mechanics, the stewards and the stewardesses. The same aircraft can get you from point A to point B, as other airlines do. What makes the difference? Better service at less cost. Otherwise we end up with a bankrupt airline. And many airlines in the Western countries have gone bankrupt. That is the principle enunciated in the Economic Committee's Report, that if we want to be a developed country, we have got to provide better service at less cost. Be more competitive and yet expect less wages than workers in the Western countries. That is the simple fact of life. We cannot run away from that. And don't you listen to those lawyers? They make money out of your misery. In a boom time, their income goes up, conveyancing charges go up. In a recession, they take litigation cases.

There was a case too in my meet-the-people session, Sir. I helped a taxi driver. He came to me. He had his licence cancelled. And I appealed to the Minister for Communications. It was turned down for good reason because the man had so many violations. This man was not satisfied. He went to see one MP who operates a law practice. This MP wrote for him a letter and got the same kind of reply and charged him $200.

An hon. Member: Who?

Dr Augustine Tan: It is one of those two sitting over there.

Mr Jeyaretnam: You had better name who this is.

Dr Augustine Tan: In due course. See how people make money out of other people's misery?

Mr S. Chandra Das (Chong Boon): $200 for a letter!

Dr Augustine Tan: How should we help the unemployed? The first priority must be to safeguard jobs, to prevent firms from going down under. And our workers have got to realize this, that the Government is not taking sides, that by cutting 15% CPF, it is not wanting to hurt workers. It is wanting to help the workers. I know my colleagues on the opposite side went through much soul searching before they changed what they had accepted as policy for a long time. Yes, it was not a decision lightly taken.

Secondly, we need to create new jobs and that means overseas promotions, whether to bring in the tourists or to bring in new investments. And our Ministers are going out to other countries to do so very shortly.

Then we need to create new markets. Our managers must prove their worth. I was talking with a Japanese diplomatic official recently. He said that in Japan, if a firm is in trouble, the manager goes out and shows the example by working harder than everybody else. He takes responsibility for the success or failure of the firm. So too must our managers. I think our managers have had it too easy for too long. With high economic growth, anybody could succeed. In times of recession, it is those managers who have got it in them, they are the ones who are going to pull through. And I am sure there are many Singaporeans who have it in them.

Our manufacturers' attitude must change. We must think of the long term. We must think of quality. We must think of searching for new markets. We must think of new products and new processes. We must be innovative. We must be creative.

As for the unemployed, the first lesson they must keep in view is this. Every able-bodied person must work, even if it means accepting work inferior to what they desire, even if it means accepting lower wages temporarily. But they must work. Their families can and should help them. Their churches can and should help them. Community organizations should help them. The Skills Development Fund and the NTUC can help with retraining. The Government can help to find jobs and Government can help to reclassify job requirements. If we want to move to a developed stage, we must have more graduates working in jobs currently held by people who are non-graduates.

Sir, Government can help to restructure our industries, particularly construction and the retail sector. I want to say something about the retail sector because many people, many shopkeepers, have been staunch community leaders who have been pillars of stability for Singapore over the last 25 years. I think we should give them the information about the excess capacity in the entire retail sector. We should help them to restructure, to get into new businesses. Perhaps the HDB can help to mothball some of the shophouses, and maybe shopowners can be persuaded to mothball some of the shophouses as well. We may even need to demolish some HDB shophouses. More importantly, we need to increase tourism. So let us give them a helping hand.

Finally, Sir, we can improve the input/output linkages of our economy if the Clerk could pass that Table to Members. [Copies of table circulated to Members.]We can do this in the following ways. We can urge people to buy Singapore goods and services. We can urge the Government to give preferential purchases from local industries. We can urge Government to use local expertise. We can urge foreign contractors to buy local goods and services, to buy through local dealers. We can give more contracts to local contractors. We can safely increase the preferential margin for local contractors beyond 5%, to something closer to 14%. In the past the major share of contracts above $20 million have gone to foreign contractors. And many of them do not pay any taxes. The Government ought to look at this very carefully. So we make sure that we create more business for one another and make a bigger domestic economy.

Sir, I support the motion.

Mr Jeyaretnam: Hallelujah! 4.46 pm

The Minister for Finance (Dr Hu Tsu Tau): Mr Speaker, Sir, I would like to begin by thanking the Members in this House who have spoken over the last two days, particularly those who have supported the motion and even those who have criticized it, provided their opinions are held honestly.

Time will probably not permit me to answer all the individual queries in detail and I intend to carry over some of these into the Committee of Supply. However, there are several main concerns which run through Members' speeches over the last two days, which I will address directly, before moving on to some specific issues.

But before doing that I would like to say something about the economy in general, to lay the background to the rationale for this year's Budget. In my Budget statement I said that we often forget where we started from and we seem to over-react when we encounter difficulties. I fear that if we continue to do this, we are going to be considered "cry babies" by the inter- national community. So let us look at our record.

Since separation in 1965, over this 25-year period to 1985, our average GDP growth in real terms was 9.2%. Indeed we have now, as I said, entered into a major recession. We have had a negative growth last year and the growth this year is likely to be zero. Let us postulate that things got really bad and we have to suffer two years of zero growth, this year and next. Taking the period from 1965 to 1987, our average growth rate would still be 8.4% per annum, a record which I think most countries will be extremely proud of. So what are we crying about? The moment we encounter a setback, we seem to be running in circles, accusing the Government of the most dastardly things. I think most countries would be happy to be in our circumstance. What have we achieved over the last 25 years? If you look around, you will see most of it lying around you. We have built up an extremely modern infrastructure - housing for our people, roads, harbours, and these are not to be denigrated. So I would strongly recommend to Members that we should look at things in perspective, and not worry too much about the short-term and look at our prospects in the long term.

Why have we encountered this recession? Certain Members have suggested that the only solution is for the Government to get down on its knees and pray to the population and the workers to beg forgiveness and all would be solved. I think that is too laughable to contemplate.

Mr Jeyaretnam: It is the beginning of your sincerity.

Dr Hu Tsu Tau: Many ignore completely the factual circumstances which surround us. We are caught up in a sea change in the world industrial scene. Many have accused the Government of having entered into unwise investments, all of which have gone sour nowadays, including shipyards, oil refineries, offshore oil, etc. Why did we do this? If we had not done this, we would not be in the position we are today. It is like saying, for the industrial countries, that railroads in the United States should never have been built because they are no longer being used now. Or the steam engine should never have been invented because it has been superseded by nuclear power stations. This is a simplistic approach used by some economists or pseudo-economists.

What we have really seen is a basic change in the industrial world where the old industrial processes are now so common place that anyone with funds can buy the technology. As a result you have a proliferation of capacity in just about every main industry in the world, including oil refineries, petrochemicals, shipyards, what have you, leading to an implosion, if you like, or a recession, and low prices, in just about every sector of these heavy industrial commodities. The same thing has taken place in the agricultural sector and we now see major recessionary developments in these areas too. And we have been caught up with it. Our problems arise because of a confluence of these events impacting on us because of our very large dependence on external exports. The Acting Minister for Trade and Industry has already mentioned this morning that our exports account for 1r times our GDP and, if we include imports, our total trade accounts for three times our GDP. We import approximately two-thirds of everything we consume. I think these facts are often either forgotten or ignored. It does illustrate that if we need to introduce measures to stimulate a recovery in our economy, the first sector we must tackle is the export industries and not through domestic stimulation, although the latter is significant.

We are a small country, fortunately, with a small population, completely without resources. We need to maintain maximum flexibility to survive in this changing world when conventional industries are being phased out, and we have to move to areas of high technology - in information technology, microchip technology. The transition is going to be painful because people will lose their jobs in between and this is, in fact, unavoidable in the circumstances. Fortunately, we have adequate resources to tide us through, provided we are prepared to make the changes. We should be looking forward to the longer term solution of our problems, not address ourselves solely to the short and medium term, because what we are facing in the longer term is not just competition from the NICs, like South Korea and Taiwan, but more importantly competition from countries like China and India, with their infinite manpower resources. This means that we must train our people to be flexible and adaptable to keep one technological jump ahead of these people who are pressing from the back.

I think this provides the background to our basic problems and it is the underlying philosophy in which the Economic Committee has addressed our problems and forms the basis in which this year's Budget was constructed. I will talk more about the rationale later when I sum up. I will give the underlying rationale as to why we have decided to place priority in supporting the business community rather than the individual because, as the Member for Whampoa has said, without people creating the jobs, there will be no jobs.

I will now move on to addressing the several areas of concern which Members have mentioned over the last two days and these are in four broad categories.

First, there has been great concern expressed over the proposed cuts in Government manpower by 10% by 1990. Some Members have expressed reservations about this manpower review and reduction programme. The Member for Chong Boon has commented that the staff reduction targets are inconsistent with some of the recommendations of the Economic Committee and that tertiary and technical education institutions should increase their annual intakes and the education system upgraded. Other Members have expressed concern that the exercise will result in retrenchments, aggravate the unemployment situation and result in a deterioration in the standards of public services. I would like to assure the House that I fully understand and appreciate the concern expressed by Members.

The manpower review and reduction programme should not be viewed narrowly as a cost and numbers-cutting exercise. Economizing on public sector manpower usage is necessary not only to reduce the overall tax burden but also to ensure that the productive sectors of our economy, including industries, have adequate skilled manpower for the future. The need for additional labour for industry and other parts of the private sector may not be so pressing now because of the recession, but will become much more apparent when economic growth resumes. With declining birth rates, the net annual addition to the labour force will be progressively smaller. It is therefore important that as much of our manpower pool should be channelled to meet the private sector's demands and needs and that our reliance in the longer term on foreign labour should be reduced. The public sector should therefore have to economize on manpower.

I should like to stress four points. First, the 10% staff reduction target applies only to existing functions and services. Manpower requirements for new or expanded programmes and services, including expansion of the tertiary and technical education, will be considered separately. There is therefore no contradiction with the Economic Committee's call to upgrade our educational standards. Secondly, it should be possible to achieve the target without retrenchments and without any deterioration in the quality of service. The current annual attrition rate in the public sector is about 6%, and this would mean that 10% reduction can be achieved within five years provided recruitment to fill vacancies is reduced to about half the current level.

Staff whose jobs are considered redundant following detailed manpower scrutinies will be offered alternative jobs. Where necessary, retraining programmes will be conducted to fit staff to available jobs. There need be no fears that the exercise will add to the unemployment problem. There should also be no deterioration in public services despite reduced manning levels. A 10% reduction over five years while maintaining current services is more or less equivalent to a 2% annual gain in productivity. This is a modest target readily achievable through improvements in work procedures, streamlining of organization structures and greater investment in computers and other labour saving devices.

Thirdly, I have advised Permanent Secretaries and Chief Executive Officers of statutory boards to approach this exercise with some degree of flexibility. The overall target remains a 10% reduction over five years. Some organizations might achieve savings exceeding the target, others might fall below the target. The timescale of the implementation for individual departments might also have to be varied depending on actual circumstances. The working group on public sector manpower will coordinate and closely monitor the implementation of the staff review and reduction exercise, and I am sure that there will be no adverse consequences.

Finally, the success of this exercise will depend on teamwork. There must be close consultation and cooperation among all involved, top management staff, public sector unions and the general public.

The next subject which was of great concern to Members of this House is the issue of consumption tax. In my Budget statement, I chose my words very carefully and I will repeat them. I said the time may come when it will be necessary to impose consumption taxes as a compensatory tax because of possible future needs to reduce direct taxes. Why is this so? Why have we reduced direct taxes in this Budget? The reasons have been given and set out quite clearly by the Economic Committee and I shall only outline them briefly.

We are price-takers in this world in the majority of our exports, both goods and services. Therefore, we have to remain competitive with those countries which export to the same markets as we do and, as I mentioned earlier, and with other countries potentially lurking in the background. Therefore, the rationale for ensuring that our exports are competitive is to reduce their pre-tax costs to the lowest possible extent. This means reducing manpower costs where this is possible, urging wage restraint, cutting statutory board levies and charges, and taxes which affect pre-tax operating costs, so that companies will at least have a chance to either break even or make a profit. Without that, no one is going to buy our services or goods. Even our domestic sector relies on the foreign exchange earned from export sales to finance the purchases of goods which we do not produce locally.

I will give you an example of a restaurant or a hawker stall, which is a very common activity here. The bulk of the food and the energy we consume is imported. Without export services to pay for these goods, the hawker or the restaurant will be unable to buy the raw material with which to cook his char kway teow or whatever to sell to you and me, so that this service will disappear. So even our domestic services depend on our exports to earn the necessary foreign exchange to keep them going. Hence our great emphasis on ensuring that our export services are competitive.

After the companies have been helped to at least break even or make money, then they must be taxed at a rate which will make them competitive in the return on investment with other countries who are also recipients of foreign investment; these are well-known, so I need not name them. We also have to ensure that our corporate taxes are competitive with countries with whom we are competing. The Economic Committee has recommended lowering the corporate tax to 30% in the initial stages and later to 25% and 20%. I believe the Member for Whampoa also recommends this. We on the Government side were much more conservative. We believe that at this time a 33% rate is sufficiently competitive, provided we ensure that our pre-tax costs are low. Although, in nominal terms, 33% corporate tax seems higher than taxes in Taiwan or South Korea, in fact, in the hands of the dividend holder or the ultimate recipient of profits from a company, our taxes are effectively not higher because we tax on an imputed basis. In Taiwan and in some countries in Europe, they operate a two-tier tax system where tax is paid on his investment in the company in the form of corporate tax and he also has to pay tax in the form of personal tax when he receives the dividend. So taking into account all these factors, we have decided that for the moment 33% is adequate. However, Government has said that we will review our tax position periodically and we will ensure that our taxes remain competitive.

The measures we have taken to cut costs and reduce taxes are not something over which we have a monopoly. Other countries may do the same and if in doing so they render our position uncompetitive, we will have to match in order to maintain our exports, and it is in this connection that the Government has raised the possibility of introducing consumption taxes. It is against the future contingency that, in order to remain competitive in the export markets, we may have to reduce the levies of the statutory boards or direct Government taxes to ensure that foreign and domestic investors will have a decent return on capital in order to create jobs for our people. When direct taxes have to be lowered as a result of competitive pressures, the loss of revenue may have to be offset by the levying of consumption taxes. There may not be an immediate need to do so as other factors need be taken into account and two of these factors have been mentioned by Members. On the expenditure side, we have recourse to the cutting of recurrent costs, which we plan to do. In the future, we will require less expenditure on development as much of our infrastructure is already in place. In the longer term I am hopeful that our development requirements will level off and start to decline. With increased economic activity, it may be possible to reduce direct taxes without necessarily introducing consumption taxes. I think you must accept that as a Government we are pragmatic enough not to do something and then stab ourselves on the back.

However, to get the idea of a compensatory form of tax accepted by the people if it should prove necessary, it has been decided that we would announce it now because the mechanism for collection could be cumbersome but with the aid of electronic systems nowadays it need not be quite so laborious. But the process of implementation will be time-consuming as we must examine all options and certainly look at all safeguards. I have in the Budget statement said that the needs of the lower income group will be looked after by ensuring that essential commodities will not bear this tax wherever possible. But the idea and the need for it, I think, should be firmly implanted in the minds of our citizens. We are not doing this because we want to make more profits - I will come back to the question of Government profits later - but simply because it is necessary in order to survive. It is not something we want to introduce just to allow ourselves to be lambasted by Members of the Opposition.

At this point perhaps I should digress a little to talk about profits and whether Government should or should not make profits. When I started to speak I decided to cut short my speech because the Member for Whampoa appears to have pirated most of it. However, it seems to be lasting longer than I thought. I find it incredible that grown people can believe that in a Government like we have in Singapore that Government should not make profits. Profits is a surplus of income over expenditure, no more, no less. If Government did not make profits it would have to tax because it provides services and incurs expenditure which have to be paid for. It ought to make a profit in order to pay for these services. If it does not make profits in this form, then it will have to tax. In the Singapore economy where we do not have access to oil wealth which can be turned on with a tap, every dollar we transfer to a citizen comes from a fellow citizen. We do not have a magic wand, short of printing money, which I think everyone will consider undesirable, or borrowing for that matter. Therefore, everything we ask for has to be paid for and it has to come from someone else.

The Member for Whampoa has already said that we could tax the rich but with our liberal emigration policy I think the numbers that would be left behind would be quite small. One should really understand what one is talking about when one accuses the Government of making needless profits. Our statutory boards, as the Member for Whampoa has said, are very efficient. Their purpose in life is not to make profits unnecessarily but to provide the best possible services and to generate surpluses sufficient to finance their con- tinuing long-term development requirements. This means a profit because if they did not generate surpluses enough to finance their development requirements, I would have to tax you. Would you prefer that? This can be easily arranged! Sir, I would like to say this. We should look at the matter in perspective. We should not go round accusing statutory boards of being pirates or what have you.

The next item which is connected with this is the belief that statutory boards' surpluses somehow are very large and can be used to finance Government deficits over the long term. I have a long paper on this subject but I think I will skip it but merely say that this is not true. A lot of the reported surpluses include long-term assets, ownership of shares in companies, subsidiaries which cannot be liquidated. We should be looking only at the liquid assets and if you exclude the reserves of organizations like the MAS which form part of the Government reserves and of the CPF, then the amount which is surplus to requirements other than for long term development would be probably no more than $2 billion. It is Government's intention to use part of this to finance our deficit. On a continuing basis I would hope that statutory boards will not incur surpluses above their long-term development requirements. If they should be lucky enough to be able to afford to generate more surpluses because they are selling services to external parties (like the Port of Singapore Authority or the Telecoms) they should return some of this to local consumers. That would be the policy I would advocate for the operation of statutory boards.

Finally, concern has been expressed as to why we have not allowed the employee's portion of CPF to be cut in order to return money to the people to help pay for their needs and as a stimulus to the domestic economy. We have decided not to do this because we do not think the time is yet appropriate. The severity of job losses and unemployment has not reached the stage where such a step is necessary. It is there for it to be tapped. I think the Prime Minister in earlier speeches has said that in the face of a really severe sustained recession these funds will be available, and indeed they will. But we do not think the moment is right. As far as the stimulus to the domestic economy is concerned, we think the better way is to provide a rebate on taxes because this is earned income belonging to the taxpayer and he ought to receive it, if we wish to stimulate the economy. Hopefully, those with larger earned income will return some of these rebates to the economy through investment and through job creation.

I was going to make some disparaging remarks about the Opposition but I think I will avoid that. But I would say this. The Member for Anson has said all sorts of nasty things about the Budget but I will pick up one. He has said that it has done nothing for the unemployed, for the worker, and that the Government therefore has got no feeling, no heart. I would ask him to cast his mind back to 1979 at the time where after sustained periods of economic growth, the Government felt it had to return some of these GDP increases back to the worker through enhanced wage increases. Therefore, it embarked on a high wage policy for about two or three years, although in fact the momentum of the wage increases carried through for four or five years, leading in fact to it to be blamed now for introducing a high wage policy which was designed to give the money back to the workers.

Mr Chiam See Tong: To push for high tech.

Dr Hu Tsu Tau: Precisely, what is wrong with that? You want us to stay in low tech, is it? I am sorry, Speaker. It is not you.

No, it was precisely for this reason because the Government recognized we could not sustain ourselves, keep ourselves in the position of employing a lot of people, we needed to upgrade, to push wages up to allow, firstly, our workers to enjoy the benefits of their labours. And they have had five years of this which has gone into CPF because simultaneously, Government also increased the CPF retention rate. None of this has been kept by Government. It is in fact in the coffers of our workers. Now it is treated as though it is a disease.

Mr Jeyaretnam: Not in 1979. We are talking about 1986.

Dr Hu Tsu Tau: We have accumulated over several years money earned by our workers. And now it is treated as something which is completely wrong. I think it is very, very short-sighted thinking - that Government was wrong to have allowed this money to be accumulated by letting wages rise. It is not possible for any Government to make an absolute judgment on the level of wages which is suitable for a country at any particular time. It has to test the upper limits and indeed it did so. But, unfortunately, the transition of our economy from one of conventional old industries to new ones was not fast enough to support the increased wage levels, leading us now to a situation where we have to back track for a couple of years. And I see absolutely nothing wrong with that. If we had not done this we would have been accused of withholding wage increases, despite high GDP growths, which is I think far worse.

Sir, what I am suggesting is that this policy was absolutely correct at the time it was introduced but we could not forcast closely enough the developments in external markets. But that is by the nature of things in this real world. That is in answer to one of those so-called criticisms.

Mr Jeyaretnam: You have not.

Dr Hu Tsu Tau: Well, I might consider giving you a seminar to discuss the details. My apologies, Sir.

I am running out of time. So I will sum up the purpose of the 1986 Budget before going on to discuss some individual issues raised by Members. To sum up, I would say that the 1986 Budget was essentially designed to allow us to create jobs for the future. Our main objective is to lower business pre-tax costs by cutting all levies and taxes to tolerable levels. Corporate taxes were also reduced in order to improve the returns on investment for investors. Personal taxes were lowered to stimulate private investment and consumption. And Government recurrent costs are going to be curbed whilst development expenditure is going to be increased in areas where we need them and where they would give us productive returns in the future.

I will touch now on a few of the other issues raised by Members. I may not be able to cover many and I will not take them in the order in which they are raised. I think the Member for Henderson asked whether it is Government's intention to restructure the tax system and hoped that there would be tax incentives to encourage children to look after parents. For the present, there is no intention to do this because Government believes that filial piety should be a responsibility for all and should not carry a price tag. Therefore, I do not think we should give an additional tax rebate as an incentive for children to look after their parents. I would hope that my own children would do so without tax incentive.

I had not wanted to do this because I have a great deal of respect for the senior Member for Rochore. However, I feel I cannot let him off the hook. As a scientist of some renown, he should know that statistics can be twisted to prove almost anything. And indeed he has done so. I think it is grossly unfair of him to make it appear as if Government's proposed tax changes are regressive in the way he expresses it, because statistically it is inevitable. One might even argue that a person who does not pay tax now should have best grounds for griping because he gets no benefit whatsoever. So it is an absurd notion and the proper way to look at it would be as suggested by the Member for Clementi who has expressed his views quite clearly.

We have tried to structure the tax changes so that there is fair and equal treatment. I would like to mention a few statistics to show you how the burden of tax is distributed. We have at the moment about 1,180,000 assessable employed people in Singapore. Only 730,000 persons actually pay tax, so that at the present time 450,000 or 38% of employed persons in Singapore pay no taxes whatsoever. 77% of the total personal taxes paid in Singapore last year were by taxpayers earning $25,000 or more in assessable income per year. This accounts for 12% of the taxpayer population. So you can see that a relatively small component of our tax paying population already pays a very high percentage of total taxes. I do not think we can afford to increase this unduly without forcing emigration.

The Member for Rochore again was critical of the STPB's investment in Raffles City. I would like to clarify that it was not done for investment purposes because its interest was very small, about 1r%. Its intention was to encourage and stimulate tourism because Raffles City Complex will be one of the largest hotel complexes and convention centres in this Region. And STPB wanted to show its earnestness by taking a token amount of equity. It was not for investment purposes at all.

Again the Member for Rochore - he seems to be popular - has said that the proposed R&D scheme might not work. I would like to assure him that this is unlikely to happen because it will be administered by the EDB and not by CIR, on a case-by-case basis. And I think the EDB will ensure that the funds would be spent correctly.

The Member for Chong Boon has said that we should allow foreign stockbroking companies to take equity in local firms. This subject is currently under review by the Stock Exchange of Singapore and the MAS. And there is a possibility that foreign companies will be allowed up to 49% equity in local stockbroking firms. Exceptions might even be considered for this limit to be raised as we cannot insulate ourselves from developments in the external world and rapid changes in this area are taking place in London, New York and Japan.

The Member for Buona Vista asked whether estate duty should be abolished. We do not think it is necessary at this time because the remaining death duty is not onerous. It is, in fact, the only form of wealth tax we still have in Singapore. And the exemptions are quite generous.

Mr Jeyaretnam: Should be increased.

Dr Hu Tsu Tau: The Member for Radin Mas was concerned about the slow pace in which revisions of annual values of property were implemented. This is a technical hitch which we recognized. Also statistics figures do not always tell the true picture. The index of owner-occupied accommodation used by the Department of Statistics is based on imputed or notional market rentals. Therefore the Chief Statistician has to use annual values extracted from the valuation lists. It is recognized that this creates problems and we will examine what can be done.

The Member for Jalan Kayu had the advantage on me because he used to work for the MAS. So he could quote figures which I could not challenge. However, I accept the criticism that Government's present accounts are somewhat confusing. I was initially confused too. But it is no fault of the Government because these are standard accounting procedures used by governments all round the world, including the United States. Of course, this does not mean that they are good but they are conventional. Government accounts are on what is called a cash basis and it is extremely difficult to consolidate these with the accounts of the statutory boards who often account on an accrual and on a calendar year basis, while Government's are on a fiscal year basis. One is trying to look at two sets of figures where one is on an accrual, calendar year basis, whereas Government accounts are on a cash and fiscal year basis. It is almost impossible. But we will do our best to make future presentations of the Budget more comprehensible to the likes of you and me.

I agree that the financial incentives for the financial service sector are probably inadequate at the moment. I have said in the Budget statement that we will review this and try to introduce measures which are likely to attract more companies to develop this area as expeditiously as possible.

I do not think I want to spend any more time going into the details and I will leave other questions to be dealt with in the Committee of Supply next week.

Question put, "That Parliament approves the financial policy of the Government for the financial year 1st April, 1986 to 31st March, 1987."

Mr Jeyaretnam: I call for a division, Sir.

Mr Speaker: We will record you as having said Nay. All right? We put it down that you have objected.

Mr Jeyaretnam: But we have not got every one saying "Aye."

Mr Chiam See Tong: Nay.

Mr Speaker: Two Nays.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 1986 to 31st March, 1987.