ANNUAL BUDGET STATEMENT

12.03 pm

Order read for Resumption of Debate on Question [4th March, 1987],

"That Parliament approves the financial policy of the Government for the financial year 1st April, 1987 to 31st March, 1988.". - [Minister for Finance].

Question again proposed.

Dr Augustine H.H. Tan (Whampoa): Mr Speaker, Sir, on behalf of the Government Parliamentary Committee on Finance, Trade and Industry, may I first of all congratulate the Minister for Finance for a Budget that is designed to enable Singapore to weather the difficult conditions ahead as well as to meet our long-term objectives.

The Budget bears the traditional hallmark of prudence. In fact, one can argue, as I shall do, that it is more prudent than necessary. But we can be thankful, Sir, that the economic climate and mood in Singapore today is distinctly different from that of one year ago. For that we thank God and the Government. My Committee and I have had the benefit of briefings by the Ministers and officials of Finance, Trade and Industry. We have also met our Resource Panel comprising nine eminent businessmen and industrialists. My colleagues will be touching on other areas but I intend to focus on a few myself. And unless you hear to the contrary from my colleagues, you can take it that they are in full agreement with me.

I intend, Sir, to be provocative in my comments on the Budget in the hope of stimulating deeper thought and analyses of the economic problems facing Singapore today. The Minister for Finance rightly reiterated our need to remain internationally competitive. Hon. Members can see the signs for themselves that the international economy is much less benign and will be much less benign in the coming decade. Perhaps it might be useful to look at what is ailing the industrial countries which are and have been providing the main engine of growth for the global economy. Most of the industrial countries are plagued by a number of problems.

Firstly, they are suffering from populations which are ageing rapidly. This will mean increasing burdens of old age pensions, security, hospitalization needs, homes for the aged. They also face ageing and inflexible industrial structures which are proving to be unable to cope with rapidly changing technology and with the challenges of cheaper and better imports. There is also a shift away from manufacturing towards services, with a corresponding decline in productivity and difficulty in sustaining the high wages to which they have become accustomed. Many of these countries are also plagued by inadequate savings. A typical American housewife has a dozen credit cards and a typical American family is in debt many times over. So are their corporations. So are their governments. Moreover, because of the demands for government attention and government services they have built up overly large and inefficient public sectors. As a result, their public sectors are burdened with chronic deficits.

Then there are certain other shifts at work internationally. Firstly, there is the shift of economic gravity away from the Atlantic towards the Pacific. The technological lead of the US is being increasingly challenged by Japan. And more significantly, the United States has shifted from a net creditor country to a net debtor country in the last two years. All these factors and shifts are proving to be rather traumatic because the countries concerned cannot make the adjustments easily and rapidly enough.

What are some of the implications that might spill over in terms of our economy? Firstly, we are in an age of greater exchange rate volatility with all the repercussions in terms of international trade and finance. The attempts to finance budget deficit by governments of developed countries usually revolve around two things: (1) printing more money which leads to inflation; and (2) borrowing from other countries which leads to increasing trade deficits. If we examine what is happening to the United States in its economic relations with Japan and other countries in the world, we will see that the basic problem of the US is inadequate savings to finance a huge government deficit which is growing all the time. Under the Carter Administration, the government attempted to finance the deficit by printing money. So the American dollar dropped in value and all countries in the world experienced a bout of severe inflation. When Ronald Reagan took over as President and together with Volcker and the Federal Reserve, money supply was tightened. So America was, in effect, forced to borrow from Japan and other countries. Paradoxically, this led to the rise in the value of the US dollar and a rising trade deficit, which is causing them problems. In September 1985, the US decided to bring down the value of the US dollar in the hope of reducing its huge trade deficit. It did so primarily by printing more money. And that is why stock markets are booming all over the world and the money will spill over into real estate and very shortly into gold, and when gold prices begin to rise, inflation is around the corner. All these spell increasing trade protectionism because there is no way a country can borrow money from abroad without incurring a trade deficit. You cannot have your cake and eat it too at the same time.

So we see the pathetic responses of the advanced countries, both the superpowers and the not-so-superpowers. You see them being reduced to very petty reaction vis-a-vis very small countries like Singapore. We have seen the US taking action over our tropical fish. One can name many other examples where minute attention is given to small items of trade and quotas are set for these items of trade. This is certainly a far cry from the 50s, from the 60s and from the 70s. In addition, there are the growing debt problems of developing countries and these threaten to blow up the international monetary system unless preventive measures are taken in time.

It is against this kind of international backdrop that we must design our economic policies if we are going to survive, even more if we are going to prosper in the years ahead. We must develop flexibility. If certain markets become closed to us, we must search for newer markets. If certain goods become uncompetitive, we must shift into other goods and services too.

The Government is trying to implement wage reform. My Committee and I consider this one of the most important measures that Singapore needs to take, if we are going to make the adjustments that are necessary for our survival. The wage reform will enable companies to adjust their cost of production, without the trauma of unemployment. We give full support to the efforts but at the same time we would urge that full attention be paid to the problems that may arise on the part of workers that may be victimized by employers in the process, and I am sure my colleagues in the NTUC are looking after that.

There is a need for greater productivity. You know, after a while the productivity campaign becomes just like any other campaign. But we need to re-emphasize, we need to reiterate the need for it, especially when the labour force is declining in the years ahead. And we need to search for and encourage new engines of growth and I shall have more to say very shortly on this.

Let me now, Sir, turn to the question of economic recovery. I shall call it the "incomplete recovery", and I have a number of questions for the Minister. We grew at 1.9% last year. My question to him is: why only 1.9%, compared to South Korea, 12.2%; Hong Kong, 10.8%; Taiwan, 6.5%; and even Thailand had 4.3%? The Minister gave two explanations: (1) the decline in construction activities in Singapore; and (2) the slowdown in regional economies caused by low commodity prices which impact upon our tourism, impact upon our financial and business services. It is true that the construction sector continues to pose a problem for us. Last year, it still accounted for 8.5% of the gross domestic product. When it accounts for such a big percentage of the gross domestic product and when expenditure on construction and works declined by 22.2%, you can see that the impact on GDP growth was appreciable. Yes, there was a slowdown in the regional economies. But we were not nimble enough to seek markets for our services and our goods elsewhere.

I come now to what I think is another factor which the Minister overlooked, and that is the public sector surplus of $1.4 billion last year. In the previous year, the public sector surplus was $1.6 billion. I am talking about the consolidated accounts of the Government plus the seven major statutory boards as reported in the Economic Survey. Why did we allow such a huge surplus to develop last year? Did the Minister not realize that having a budgetary surplus in a time of recession exacerbates the recession and prevents the economy from recovering? Furthermore, does he not realize that such a surplus also tends to make the Singapore dollar too strong and thereby affects the competitiveness of our exports? I shall have more to say during the Committee of Supply.

If you look at the figures, Sir, you will see that Government consumption fell by 11% in nominal terms and 5% in real terms, because of the CPF cuts and wage restraint. But public capital formation also fell by 0.6% in nominal terms, although in real terms it grew marginally by 0.8%. What I believe we are seeing, Sir, and I again will come back to this point later, is that the public sector is not able to adjust to new economic realities sufficiently fast.

Let me now turn to the distortions caused by the over-building which occurred between 1979 and 1984. These distortions are still causing trouble to our economy. Last year, construction and works still accounted for 54% of total gross domestic fixed capital formation. In 1970, construction and works accounted for only 41%. Even as late as 1980, 42%, but it rose to 63% in 1984. So quite clearly we have allowed construction activities to dominate the economy, at least so far as the investment side is concerned. It should not surprise us therefore that there are traumatic effects when the private sector construction, for example, declined by 47% last year. And what about public sector construction? We are projecting a continuing drop in HDB construction. In the Budget presented to us the other day, there will be a 2% drop in development expenditure for 1987. And furthermore, if one looks at the figures more carefully, the direct development expenditures by Ministries and organs of State are ostensibly increasing but much of it is because of the proposed purchase of land from URA and JTC. Can the public sector cope with declining construction activities? Can the public sector, not only in terms of its own expenditure but in terms of incentives for private sector expenditure, redirect much of that expenditure on construction into more productive channels? Therein lies the challenge.

I come now to another very important question. The Minister in his Budget statement stated that he thought our corporate and income tax rates are competitive with the newly industrializing countries. Are they really so? Is there not room for corporate and income tax cuts? And do we really need a consumption tax? We can review the comparative tax rates of the NICs in Asia. Hong Kong, 18%. Very recently, when their budget was presented, the government there reduced the tax rate from 18 1/2 % to 18%. Why did they do this? Why did they bother even with the 1/2 %? They were trying to make a point that as far as possible, the Hong Kong government would reduce taxes in order to stimulate the private economy. Taiwan, 25%; South Korea, 30%, but we remain at 33%. It is true that Hong Kong can afford 18% because it has no defence expenditure. But why can we not be like Taiwan, 25%? And if one looks at the overall public sector surplus last year, was there not room for further tax cuts last year, not to speak of this year? The question is: will we develop a public sector surplus again?

There was a forum conducted by the Straits Times, reported yesterday, and one of the participants raised the question of fiscal marksmanship or rather poor fiscal marksmanship on the part of our budget planners. If one were to examine our figures in past years, Sir, we will see that we always over-estimate expenditures and we under-estimate revenues. Last year, for example, we projected an expenditure of $19.3 billion but we actually spent $16.3 billion, -16%. We projected revenues of $8.6 billion. We actually collected $10.1 billion, +17%.

Why then do we need a consumption tax? I recognize we already have some forms of consumption tax. But in the light of budgetary surpluses and in the light of the fact that we are in the process of scaling down public sector construction for housing and also that the need for infrastructure construction facilities is going to be declining, relatively speaking, in the years ahead, should we not think in terms of scaling down the public sector through a tax cut on income and corporate taxes?

Another question I have for the Minister, and we can explore this again in the year ahead. The question is: has the public sector in Singapore grown too large for the economy to be efficient? In 1986, using the figures from the Economic Survey, we can see that the Government itself plus the seven major statutory boards accounted for 46% of the GDP and this is not counting the Government-owned companies, related companies and so on, and some of the statutory boards which have been excluded from the figures. Have we grown too large for our own good? I recognize that in the early stage of development, it is necessary for Government to build the infrastructure for economic development to provide the services that are called for for the economy to grow, the training, the education. But once we have provided the basic needs and once we have reached a plateau in terms of housing requirements and infrastructural requirements, should we not actively think of scaling down the public sector? And if we are thinking of a consumption tax, let us be very careful what form it takes. We have been given no information thus far. We should protect the image we have as a shopping centre for tourists where goods are much cheaper than elsewhere.

Sir, I come now to another question, and that is of the CPF rates and our national savings. The Minister was reassuring that the CPF rate will be kept where it is for the time being and that even if it is raised in future years that the Government would take care that our competitiveness will not be eroded. Sir, I believe that we need a very careful study of this very important subject. Last year, in spite of the heavy cut in the employer's contribution to CPF, our overall national savings still stood at 41% compared with 42% in the year before. But what is more interesting to me was that for the first time in many years our gross national savings exceeded gross national investment. In Table A 1.1, page 87, of the Survey, last year there was a net outflow of savings of minus $1 billion. In other words, we have reached a stage whereby we are not even able to absorb our own national savings domestically. Hitherto, in the earlier years, we have been relying on foreign savings in addition to our own.

A more important question related to savings is this. What is the optimal mix between the public component of savings and the private component of savings? Are we not generating too much savings controlled by the public sector? As I look at the CPF accounts and as I look at the behaviour of Singaporeans in their investments, I find that we are all crazy about housing. You have a 5-room flat, you want to upgrade to an Executive or HUDC flat. You have an HUDC flat, you want to upgrade to private property, from terrace to semi-detached and to bungalows. If you have one house, you want to have another house.

Mr Ng Kah Ting: What's wrong with that?

Dr Augustine Tan: Yes, my colleague from Punggol is prodding me from behind, and saying, "What's wrong with that?" I can tell you that plenty of things are wrong with that.

Mr Ng Kah Ting: How did you move up?

Dr Augustine Tan: What is wrong with it? What is wrong with it is that we are diverting precious national resources away from productive activities into housing. We need a certain minimum standard of comfort and we can thank the Government for having achieved this through the public housing programme. But are we not overdoing it? Should we not call a halt sometimes? Should we not change the incentive schemes or the schemes by which the CPF can be used so liberally? One can buy a house quite easily nowadays using CPF funds. Is this desirable?

If you look at the case of Japan, Sir, you see that Japan has consistently been putting much more of their money, much more of their capital into economic activities, into productive activities. They have sacrificed on housing. In fact, the housing conditions are most appalling compared with most other countries in the world. I am not arguing that we should be like Japan. But we are certainly very luxurious and certainly have a lot of room for our people to stay in. And the perversity is, the bigger the flat, the bigger the house, the fewer the people, something which the Minister is trying to correct.

At the end of 1986, the total amount of CPF belonging to members outstanding was $29 billion. But the total deposits of non-bank customers of commercial banks was $30.6 billion. In other words, the amount of savings controlled by CPF compared to that by the commercial banks was about equal. Is this desirable in the interest of economic efficiency and productivity? And if we add the outstanding deposits of the Post Office Savings Bank, in January of this year it totalled $10.6 billion, a very substantial amount indeed. Sir, if we want to have the private sector serve as the engine of growth, we need to release more savings to private users. We need to have more innovative measures so that the private sector can take off. I view with some alarm that last year the investment commitments in manufacturing by local firms and entrepreneurs dropped to 17.6%, amounting to a paltry $253 million. Why is our local private sector not dynamic? Why is it not responding? Should we not have a strategy, a fundamental rethink, about tax rates, about national savings, about the composition of national savings, and have fewer regulations?

I come now to the levy scheme for foreign workers. The Minister is proposing that there be a $140 levy per month on Malaysian workers other than construction workers and maids, but he is also reducing the levy from $200 per month for non-traditional workers other than construction to $140. What is the impact of this? First, I believe it will raise the cost to employers of Malaysian workers. Secondly, it will induce a shift from Malaysian workers to non-traditional sources of supply because the non-traditional sources command lower wages. My question to the Minister is, did somebody make a miscalculation? In the days when the employer's contribution to the CPF was 25%, a levy of $140 was appropriate. But we are now at a stage where the employer's contribution is only 10%. So 10% of a wage of $500 is only $50, or on $400 it is only $40. I know that there will be some adjustments in terms of the wage actually paid to such workers. But I think we need to get the employers together to find out what some of these adverse effects might be because we do not want to abort our economic recovery at this stage.

I come now to the procreative parts of the Budget - our declining population. Was it due merely to our birth control efforts? We had the "Stop at Two" slogan. It nearly became "Stop at Two Wives" but for the hue and cry over polygamy. Hurray for the women who spoke up, but few were the men. But for a time anyway, the Prime Minister's popularity among the men rose. Let me, Sir, refer to the case of Europe. This is taken from the Economist, 6th September 1986. In an article entitled "Europe. Where did all the people go? Long time ahead." Let me quote:

'Europe is old, not just in its bricks and mortar but in its human joints as well. Its population is older than any other continent's. And though the world's population is growing fast, the population of many European countries is stagnating and in some cases even shrinking.'

'Declining population growth is not peculiar to Europe's western part; Eastern Europe faces a similar problem, despite the efforts of its communist governments to boost birth rates. For many reasons, Europeans are not attending to fertility rites as eagerly as they did in the past. The reasons include city life, economic pressures, changing ways, the pill and women's freedom to choose and to work.

For a European country's population to be maintained in the long run, demographers now reckon that every 100 of its women have to bear 210 children: an average of 2.1 each. In none of the large countries of Western Europe except Spain is that score reached.'

Sir, we now have a whole array of incentives and programmes in Singapore from procreative subsidies to Medisave to organ transplants. Truly, the Government looks after us from conjugal bed to death bed, till death do us part. But the question is, will the incentives work? There are two missing factors in the Minister's equation. First, is the Almighty willing to bless the nation with intelligent children when so many babies are aborted every year? There are certain problems in life that transcend earthly solutions. At such times, repentance and prayer might be helpful.

Another important ingredient that is missing is, I believe, the family ethos that we have here in Singapore, as indeed in all industrial countries and industrializing countries. I mentioned the European case and the same problems are plaguing us: city life, economic pressures, changing ways, the pill, and women's lib. There is a confusion of male and female roles in modern societies. Women do not like to be mothers and wives and home-makers. Women do not even breast feed their babies. Fear of losing their figures as a result, but they prefer disfigurement through breast cancer. There is materialism. When there is concern for a better house, a second car, holidays abroad, which women would like to stay at home and bear more babies? The incentives offered are material incentives. But let us note that it was materialism that led to a reduction in births. Can materialism now work to increase birth rates? Can you imagine five or six years hence when one of these babies procreated this year asks his mother: Did you conceive me out of love or for $20,000? You really needed help from Dr Richard Hu? You mean, Dr Richard Hu actually had to bribe you to have me? We have a problem on our hands, Sir. Unless we can reinforce the ethos about the family, about the role of woman as mother and wife, we need to bring back some of the more traditional values if we are going to succeed in reversing the decline in our population. Sir, I mean to be serious. We are faced with a serious problem because a declining population means increasing burdens on our economy in the years ahead. But how to do it is something that goes beyond material incentives. 12.39 pm

Mr Bernard Chen (Clementi): Mr Speaker, Sir, I think it is with some relief that we can sit in this House this morning to debate on the Finance Minister's Budget statement with the knowledge that Singapore is on the road to recovery compared to the rather gloomy conditions that prevailed this House last year.

I share the view of the Member for Whampoa that we are not yet out of the woods. In fact, our economy only recovered to the level that we achieved in 1984. We have quite a long way to go yet. The speed with which our economy recovered, I think, must be attributed to the swift action by the Economic Committee which was formed in September 1985 and its programme of action which was implemented very speedily in the past year. The most important aspect of this programme was that it was able to restore business and investment confidence, of which most of us Singaporeans were lacking in the dark days of 1985, together with the cost-cutting measures, real ones, which resulted in a revival of most sectors of the economy. As a result, we were able to crawl back, as it were, from the depth of recession in 1985.

I would like to make some comments on the sectors that did not do well rather than those that have recovered. The first is construction. In 1980, the construction sector constituted some 6.8% of the entire economy. With the stepping up of construction, especially HDB programmes, office and hotels, the sector jumped to account for almost 12.8% in 1984. But with the slump in the last two years, the sector now accounts for only 8.5%. And with the gloomy prospects of the construction activities in the next few years, it is quite likely that, as a share of GDP, the construction sector will go back to the level that we achieved in 1980, if not lower. While one positive aspect of this is that we have now the cheapest hotel rates in the world and office space, rentals are comparable to any part of the region. This will encourage our tourism and business. The problem is, as our construction activities slow down, we are going to see a shrinkage of the sector leading to a surplus in the construction capacity, and of more importance, the support services which have been geared to a very high level in the last few years to support the feverish pace of construction. There is likely to be a redundancy of manpower, especially at the skill level, such as architects, civil engineers and so on. It may not be too early to consider how best we can tackle this problem, as some of this manpower may well have to be diverted to other uses, to other sectors. The expertise we have built up in the construction sector may have to be diverted elsewhere, for example, to carry out projects overseas so that we will not end up in a few years' time with an unemployment problem in the construction sector. Fiscal incentives, if necessary, could be considered to encourage our professionals in the construction sector to go abroad.

The other sector which merits some discussion is our financial and business services. In 1980 it constituted 17.8% of GDP. In 1986 25%. It is now the largest sector, surpassing even manufacturing and transport and communications. In the last five years this sector has experienced double-digit growths until last year when it was reduced to zero. It is understandable that because of the depression in the region the growth of our financial and business sector was stymied. A question may well be asked as to whether it is possible that the incentives that have been introduced so far to propel the growth of our financial and business sector are not as attractive as those offered by our competitive financial centre development, particularly in Australia, Hong Kong or Japan. I think it is important that we have to revitalize the growth of this sector for the simple reason that the infrastructure that has been built up to support the services, the manpower training that has been carried out by our institutions of higher learning to provide this pool of manpower will need the expanded sector to accommodate them. We have to ensure that our finance and business services sector will have less dependence on regional developments and instead look forward to more international markets.

One of the major thrusts of the Finance Minister's policy statement was that we should retain or, if not, improve our competitiveness abroad. It is therefore encouraging to notice that in the past year alone we have achieved a 15% improvement in this competitiveness through a combination of wage restraint, lowering of costs and an easing of the exchange rate. My question to the Minister is, how much of this improvement is actually due to exchange rate. Because if it is only the exchange rate that has been primarily instrumental in reversing this competitiveness, very much more effort will have to be exercised domestically to achieve the kind of productivity that we need because exchange rates can be manipulated and indeed are by many of our competitors in the region. We need to tackle the fundamentals of which we have overall control.

It looks as though the gap between us and our nearest competitors is still great and I therefore support fully the wage restraint policy that the Government has initiated last year. I think it is imperative that we have got to go for at least one, if not two more years. The cost-cutting measures should also continue, and here may I put in a word of caution: that the Government refrain from taking some of these goodies back because it is tempting that at the first sign of recovery the incentives that appear to be no longer necessary will be withdrawn. The cost-saving measures are particularly evident in the public sector.

Last year, when the Finance Minister delivered the statement, he forecast a deficit of $3.2 billion in the public sector. In the event, we have an actual surplus of $3 billion representing a turnaround of almost $6 billion. While I understand that part of this reversal was due to the non-floating of development loans and therefore the interest element that need not be paid, the significant point is that the Government has been able to lower operating expenditures while development expenditure actually went up. This has been done through control of staff strength, aided by further automation and computerization. I think there are very few governments in the world loaded with a huge bureaucracy which have been able to achieve the kind of cost-cutting that has been achieved in Singapore. For this I think the civil service must be congratulated.

Extending this to the overall environment in Singapore, our recovery would not have been so smooth or marked if not for the response from all Singaporeans, whether they are in the public sector or whether they are workers who were prepared to stand behind the Government in its drive to recover the competitive edge. We have been able to do this without demonstrations, without strikes, without protests. Again, this is an achievement that most other countries would not be able to emulate. The forbearance of our workers, our people and the realization of the kind of difficulties that we have been in, in the past two years is an asset that we need to treasure. Hopefully, as we get set for the next few years to get ourselves out of the woods, the same kind of support by our people will be able to pull us through. If the policies and the measures recommended are allowed to work their way through, I am quite confident that we should be able to register the expected growth as forecast in the coming years. But the final lesson that we have to learn is that, whatever happens, we only have ourselves to depend on and despite adversities that have faced us so far we have been able to overcome them and I hope that with the same determination we will carry through to the future.

On this note, Sir, I would like to support the financial policy as enunciated by the Minister for Finance. 12.51 pm

Mr S. Chandra Das (Chong Boon): Mr Speaker, Sir, first of all, I would like to congratulate the Minister for Finance for the Budget statement.

Sir, this year's Budget statement has been given various labels, starting from Procreative Budget, Growth Budget, Baby Budget and even a Vatican Budget. However, Sir, I would like to remember this year's Budget as one that helped to consolidate the recovery that was set in motion with last year's Budget statement.

Sir, as stated, there are no surprises. It has addressed both short-term problems as well as taken into account longer-term issues, in particular, Singapore's position vis-a-vis the world economy.

Mr Speaker, Sir, for this debate, I would like to confine myself to three areas. First is the question of local business. The second issue which I would like to dwell upon is why some of the recommendations of the Economic Committee have not been implemented. And the third question which I would like to raise with the Minister concerns privatization.

Mr Speaker, Sir, the Minister, in his statement, stated and I quote:

'Local businesses occupy an important role in our economy. We must build a solid base of thriving and resilient local businesses.'

And he went on to add:

'Local businesses can be assured that the Government will give them every possible help to upgrade and modernise their operations to cope with the changing business environment. But Government help will not be enough. Our businessmen must have the will to adapt and adjust to changes, so that they can play their rightful role in the modern economy of Singapore.'

Mr Speaker, Sir, over the years, the Government has repeatedly stated its objective to help local business, particularly smaller business. I do not think that there has been any lack of trying on the part of the Government. The Economic Development Board, the Trade Development Board, Singapore Institute of Standards and Industrial Research, National Productivity Board, Export Credit Insurance of Singapore and Monetary Authority of Singapore, all have schemes to help and assist local business. I would like to take this opportunity to brief this House on the various schemes that are in place today.

Under the Economic Development Board, the following schemes are in place. Firstly, you have the Small Industries Finance Scheme (SIFS). Then there is the Capital Assistance Scheme. There is a scheme for Venture Capital. There is another scheme which is known as "Initiatives in New Technologies (INTEC)". Another scheme is the Product Development Assistance Scheme (PDAS). There is the scheme for Robot Leasing. There is another scheme for Small Industries Technical Assistance Scheme and a newly-introduced scheme, Business Development Scheme. There are eight schemes under the Economic Development Board.

Under the Trade Development Board, there are the Market Development Assistance Scheme and the Double Taxation Deduction Scheme for participation in trade fairs, overseas offices and international trading offices and so on.

Sir, under SISIR, we have a scheme for short term advisory services. Under the National Productivity Board, there is a scheme for developing consultancy programme. And finally, under the Monetary Authority of Singapore, we have the Export Bills Discounting Scheme.

Sir, from the above, one can see there is no dearth of schemes and the Government's commitment to help local business. The number of schemes are good but I am afraid local business is suffering from some indigestion and they are unable to take full advantage of all the schemes because of lack of knowledge or lack of necessary management expertise. In fact, Sir, it is very common even for medium-sized foreign companies to take better advantage of tese schemes than our own local companies.

Mr Speaker, Sir, looking at all these schemes, one can make the following observations. Firstly, there is duplication in the incentive schemes. There are market-orientated schemes under the EDB which operates the business development scheme and the Trade Development Board which operates double tax deduction scheme. Consultancy-oriented schemes are offered by the Economic Development Board, SISIR and the National Productivity Board.

Secondly, Sir, the criteria for qualification to apply for these schemes are not clear. For example, productive assets of $8 million. Should it be net book value or should it be the original cost? Thirdly, Sir, incentive schemes should be integrated and coordinated. For example, once when a financial assistance scheme is given for equipment acquisition, then other schemes should fall in place, ie, scheme for management training and scheme for proper marketing.

Sir, in view of the multiplicity of schemes and the various bodies administering it, I would like to suggest that it may be useful for the Small Enterprise Bureau (SEB) to become a sort of liaison office so that it can screen and coordinate all applications for assistance.

Secondly, Sir, I also strongly suggest to the Minister that all these schemes should be combined into large comprehensive schemes by basic objectives, such as financial assistance for (a) acquisition of plant and equipment; (b) consultancy and business development; and (c) marketing schemes. This would, in my opinion, avoid duplication of schemes offered by the various agencies in Singapore today.

Sir, I next turn to the question of the Economic Committee's recommendations. Many of the major recommendations of the Economic Committee have been implemented in part or in full since the Report was published in February 1986. However, it is my opinion that there has been no response to a number of recommendations made. Specifically, I refer to two recommendations and would like to know whether these are being considered by the Ministry of Finance or whether they have been flatly rejected.

Sir, first, I refer to third country trading. The Economic Committee recommended that profits arising from third country transactions should be taxed at the reduced rate of 10%. It was felt that our present tax regime discouraged third country trading from being based in Singapore. If we reduce the tax on income derived effectively to 10%, we believe that we can be more competitive with Hong Kong. Further, the Committee felt that if such remittances were taxed at the current rate, not only the money but also the expertise and the activities will be parked away from Singapore. In his statement to the House, the Minister had accepted the Economic Committee's recommendation of 10% income tax on income on export of services and I would like to know why this cannot be extended to income from third country trading.

The second recommendation of the Economic Committee which I would like to refer to ---

Mr Speaker: It is one o'clock now. I suspend this Sitting and will take the Chair again at 2.30 this afternoon.

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