ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Mr Chandra Das: Mr Speaker, Sir, before lunch I was touching on the question of one of the Economic Committee's recommendations regarding employee share scheme.

Sir, both Government and employers feel that the employee share schemes and share options is a good one and it is a good way to foster commitment of employees to companies. At present gains from such schemes are fully taxed. The Economic Committee in its report on page 95 stated:

'It is recommended that, for approved share option schemes and approved productivity-related employee share schemes, the gains made by employees be progressively exempt from tax based on the period the shares are held. ... The incentive should apply to all companies, including start-up companies, to encourage them to make wider use of such schemes.'

Mr Speaker, Sir, so far the Government has not reacted to this recommendation. I am wondering whether the Minister for Finance could make some comments on this employee share scheme as recommended by the Economic Committee.

Sir, the third area which I intend to touch on is the question of privatization. I think the privatization report has just been released. I think it is embargoed until today. Nevertheless, Sir, the Minister in his statement dwelt at some length on the privatization programme of the Government. The point I would like to make is that when the Government went into business in the 60s and 70s, I believe, Sir, profit was not the main motive. Although I believe it is essential for businesses to be profitable, whether they be private or government. Similarly, when it is time to divest I also believe that profit should not be the overriding criterion. Some unhappiness has been expressed in the business circles by the way Government has divested so far. Two cases in point - Government divestment of shares to UIC and National Iron and Steel Mills. I believe, Sir, there were business groups, companies that were interested in taking over Government interests in these companies. However, Government in its own wisdom decided to place its holdings in UIC in the London market and sold its holdings in National Iron and Steel Mills to DBS which, in turn, placed some of its National Iron shares, I am told, in a foreign market. By this exercise I am again told that Government received a reasonably good price. Selling National Iron shares to DBS is not privatization by any stretch of imagination. I would urge the Minister to allow interested groups in Singapore to participate and benefit from the Government's divestment programme.

I also understand, Sir, there is no single system for divestment. But Government must be seen to favour, if not treat, local businesses on priority, instead of placing their shares in open international markets. Placing of Government-owned shares in international market is an easy way out. And I would seriously urge the Minister to resist this temptation.

Sir, in conclusion, I would like to urge the Minister to give some consideration to the points I have made and I would like to support the motion standing in the name of the Minister.

Dr Toh Chin Chye (Rochore): Mr Speaker, Sir, the Budget statement for this year is less controversial than it used to be. The Minister for Finance has devoted his time less in the emphasis on government book-keeping but more on incentives to increase Singapore's population. I will only note that only a few years ago the Government offered a gratuity of $10,000 to a woman who wished to be sterilized after the second child. This time there is a 180o turnabout in policy. The tax rebate of $20,000 means that a man or his wife need not pay income tax for four years if they were to produce a third child. The maximum benefit will be reaped by those who earn a salary of about $60,000 per year or a combined husband and wife income of $125,000 per year. I feel sorry for those who had ligated themselves for $10,000. It is like missing the bull market for babies.

In 1977 the Ministry of Health produced a booklet called "Population and Trends". And it gave three projections for Singapore's population for the year 2030. The forecasts were 3.4 million, 3.1 million and 2.9 million. If couples are to adhere to the Two-is-enough policy, then zero population growth would be reached round about the year 2030. These were straightforward arithmetic guesses. Where the report went wrong was its failure to foresee how political policies affect behavioural patterns. The Abortion Bill passed in 1969 was to discourage "the irresponsible, the social delinquents from believing that all they have to do is to produce their children and the government then owes them and their children sufficient food, medicine, housing, education and jobs". Priorities in public housing were changed by not awarding more points for more children. Singapore must have lost at least 250,000 people since the disincentives were applied, if one notes that the abortion rate is about 20,000 a year.

Accouchement charges in Government hospitals are progressive. They are like demerit points. The more traffic offences you commit, you end up with an increasingly large number of demerit points. For the first child, accouchement charge in a third class ward is $100. It increases to $300 for the third child, $500 for the fourth child and $600 for the fifth child and above. For the B2 ward, the mother will have to pay for delivery of her first child $150, climbing up to $650 for more than five children. For the first class ward, the charge is $350 increasing to $550. These progressive increments in accouchement charges do not reflect a service. It does not prove that the nurse, the mid-wife or the doctor who delivers the baby is more productive or is better in delivering. These are obviously disincentives. I would suggest that if you really decide to use tax incentives to encourage larger families, then accouchement charges should be revised so that the charge is the same irrespective of the order of birth of the child. If one were to go to a private hospital to deliver a baby, the charge remains the same whether the child is the first or the third. No questions are, in fact, asked by the hospital administrator.

But then we finally will have to come to the question: what is the optimum size of Singapore's population? Should it be 3 million or 5.4 million like Hong Kong's. Bearing in mind that Hong Kong is 72% larger than Singapore in surface area, the figure of 5 million will make crowding in Singapore intolerable. At some future date our population will reach a peak. It is inevitable. When that happens, what solutions will the social engineers then prescribe?

Demography is more than an academic problem in numbers. The quality of life associated with population can go up or can go down. There are limits to growth. But what the limits are is everybody's guess.

May I turn to the Central Provident Fund? There is uncertainty about the employer's contributions to the CPF for 1988. There is greater concern that Malaysian workers who are traditional workers will now be regarded as non-traditional workers and employers will have to pay a levy. A levy of $140, assuming that the employer's CPF contribution remains at 10%, is equivalent to a wage of $1,400 per month. There are businesses in the services sector and small manufacturing companies which are finding difficulty in hiring Singapore citizens because these are jobs that Singaporeans will not want to work in. Two possibilities can arise:

(1) Raise wages to attract Singapore citizens and therefore remain in the CPF scheme.

(2) Such businesses become in due course unprofitable to operate and will eventually close down.

The Minister for Finance has assured the work permit holders who acquire permanent residence status will be placed on the CPF scheme. This is a pie in the sky. I have appealed to the Ministry of Labour on several occasions for Singapore citizens to marry traditional work permit holders but these applications have been consistently rejected in spite of the fact that the work permit holders were given to believe that they could marry after five years of work- ing in Singapore. How then does the work permit holder acquire permanent residence? Which category of work permit holders can apply and be given permanent residence and what are the conditions? These should be spelt out now. It is dishonest to make ambivalent declarations raising false hopes but leading to nowhere.

Every worker perceives what he takes back in take-home pay. If 25% of his pay is held back by his contribution to the CPF, the worker will scrutinize even more closely whether he should apply for a job as an operative in a factory or as a serviceman. Would it not be better to be self-employed as a hawker, legal or illegal, taxi-driver, legal or pirate?

In real life in the market a bargain is struck up between employer and worker and it ends up with the employer compensating the worker through a higher wage, not because of the worker's skills or ability but because he needs labour that is in short supply. At management level, the same applies. Promotions are offered as an incentive not to leave the company and not because of merit. So incompetence is rewarded. It is not surprising then that in US dollar terms, Singapore pay for production workers are 75% higher than Korea, 35% higher than Hong Kong, 61% higher than Taiwan. Should there not be a re-examination of the employee's 25% contribution to the CPF and its impact on wage cost? Housewives form a large pool of under-employed labour. They can be drawn into part-time work provided they see it worth their while in take-home pay. I wish to repeat the proposal I made in 1985, exempt part-time work from compulsory contribution to the CPF.

May I now come to the question of statutory boards and Government companies. The Minister has done the right thing to transfer the surpluses of statutory boards to the Consolidated Fund and subsequently to impose corporate tax on their operating surpluses. This should be so as some of these statutory boards were once upon a time Government departments. They were profitable departments such as the Telecommunications Department and the Post Office, and were contributing directly to the Consolidated Fund.

Listing Government companies on the Stock Exchange is not privatization. Privatization means washing its hands off business and ceasing to compete with the private sector. Listing a Government company on the Stock Exchange is certainly a clever idea of raising funds from the public to finance the operations of Government companies which otherwise would be in receipt either of subsidies or loans from the Government. But that is not privatization as most people believe it to be.

The Government already plays a regulatory role in the operations of the Stock Exchange. But should it also lend itself to fears that with so many Government counters listed, it would also play in the market? This is not a rhetoric question. In 1984, there was the affair between Keppel, a Government company, and Jardine Fleming. The Government on that occasion bailed out Keppel and applied its clout on Jardine Fleming. Unlike private companies, Government companies have access to authorities, either direct access or through the old boy network when other private companies do not. With interest rates at an all time low and excess liquidity, surplus funds are moving not into productive enterprises but into the Stock Exchange. Price earning ratios are so high that they have no relationship with the actual performance of the companies themselves. Like stock exchanges around the world, Singapore's stock market has a life of its own, seemingly independent of the actual economy. The Government has intervened in the market through releasing CPF funds for purchases of trustee stocks which include, of course, Government companies' stocks. And there can be no assurance that the Government will not intervene in the future. It has intervened by closing the Stock Exchange for three days in 1985. The temptation for future intervention is the greater as more Government companies become partially listed on the Exchange. Partial listing of Government companies on the Stock Exchange is not privatization. I would rather have them sold off altogether or keep them as private companies.

I have not had the time to study the report of the Public Sector Divestment Committee which was delivered to me late Wednesday evening. But I have read the executive summary. There can be no quarrel with the rationale for privatizing Government companies but I have reservations for privatizing statutory boards such as the PUB and Telecoms.

There are political overtones in the case of the PUB. As a listed company, the PUB will have to justify its existence through profits. Water is an essential commodity and Singapore as a captive market will have to pay a higher price for its raw water if it is seen that the PUB has gone into business. The development of Singapore has gone hand in hand with the growth of the PUB. Housing and industrial estates could not have sprung up without the PUB working as part of a total master plan. This may not be the case if the primary motive of the PUB is to exist as a company.

Telecoms contributed $37.8 million to the Consolidated Fund in 1986 and is estimated to pay the Treasury $36 million in 1987. The budget is in deficit. It is necessary that the earnings of statutory boards such as the Telecoms which are monopolies be channelled into the Consolidated Fund. The Minister for Finance has already started the process and future governments should not be deprived of this source of revenue. It will be invidious for special legislation to be passed for companies that provide essential services so that Government control over them can be maintained.

In spite of cuts in employer's contribution to the CPF, Skills Development Fund, suspension of payroll tax, reduction of property tax and PUB charges, more companies have closed down voluntarily or through forced liquidation in 1986 than in 1985. The benefits from reduced operating costs will take time to work their way into the system. The Minister for Finance is wise in maintaining a holding position in this budget in spite of an anticipated deficit of $3.7 billion for 1987. 2.53 pm

Mr Chiam See Tong: Much obliged to you, Mr Speaker. The Minister this year has described the budget as a consolida- tion budget. Others have named it the baby budget and one foreign correspondent wrote that if there were to be a headline in a tabloid paper after the budget was announced, it would have to be, "Sex in, booze and bets out".

When I read the Budget statement, the thing that struck me was that this Government had made two glaring or major policy errors. One was in regard to the wage increase first announced in 1979, allegedly to attract high technology based industries to our shores. The high-tech industries, of course, did not come in numbers as expected and the high wage policy fell flat on its face. This Government later of course had to eat humble pie and lower the CPF rate and also cut other costs.

The budget, as has been exlained by the Minister, is to consolidate cost cutting measures and make Singapore more competitive. As regards the effect of wage increase, it has been documented in pages 5 and 6 of the Budget. May I just quote:

'From 1980 to 1984, wage increases in Singapore far outstripped productivity growth, while in the NICs, wage increases were either lower or at least matched by productivity increases. Our competitive position against the other NICs weakened by as much as 50%. ... In this period, external demand for our goods and services grew by only 5% per annum, whereas that of the other NICs expanded by 11% per annum. In short, the other NICs expanded their share of the internatioal market at our expense.'

There is no better way to put it than this paragraph of the effect of wage increase, the Government-sponsored wage increase by the NWC.

Now, what lessons can we learn from this glaring mistake? Our wages increased by double those of the other NICs, Hong Kong, Taiwan, South Korea. Our competitive position was weakened by as much as 50%. I am no economist.

Mr Chandra Das: We know that!

Mr Chiam See Tong: Anybody can tell you why our goods and services grew only by 5% and the other newly industrializing countries were expanding by 11%. The answer is because our costs, our wages, were so much higher than theirs. The point is that despite the fact that this Government supposedly have qualified Ministers, economists and the rest, and highly paid, still the Government bungled.

The other major policy error was the infamous policy of curbing the number of births of each married woman to two children. Drastic measures were implemented such as persuading one of the spouses to go for sterilization after the birth of the second child, penalizing the third child in respect of enrolment in the school of the parent's choice and other disincentives which have been mentioned by the Member for Rochore. One thing which this Government always boasts of is its efficiency and the policy of keeping down birth rates was of course very efficiently carried out, so much so that alarm bells were sounded. Now, we hear that each year our birth rate is short by about 15,000 babies. What astounded me is that the Government has not come out openly to admit that it was wrong. It should be a gentleman, and come out and say, "Yes, we were wrong. We should not have curbed population growth in the first place." What has the Government got to say to the thousands of parents who have sterilized themselves? How are you going to explain? You cannot reverse the process anymore. They have done it just to comply with the Government's 2-child policy. Many mothers who have gone for ligation are still in the child-bearing age. Can they join in this new procreation programme of the Government? However they try it, it is impossible. The 2-child policy was not too long ago. Many can still remember vividly the Government posters urging parents to "Stop at Two", then "The second can wait", and later "Take your time to say Yes". Even before the memory of those Government slogans can fade from our minds, the First Deputy Prime Minister is already urging parents to "Have three, and more if you can afford it". The emphasis is, you must be able to afford it.

Singapore must be the only country which can make boast of its two contradicting policies being pursued at the same time. I believe (I stand to be corrected) that the $10,000 grant mentioned by the Member for Rochore is still payable to a mother in the lower socio-economic group who is willing to ligate herself after the birth of the second child. This policy is, of course, to keep the population down. I believe it has not been revoked. At the same time, I believe during the Chinese New Year period, the Prime Minister was urging parents to have more babies in this Rabbit Year. Does this whole thing not sound ludicrous? On the one hand, you are asking people to have more babies. On the other hand, you are giving incentives to curb the birth of the third child.

The $20,000 special tax rebate to either or both parents on the birth of the third child and an additional rebate equivalent to 15% of the wife's earned income, has been highlighted in the press. These incentives are essentially aimed at those who are educated or in the professional class, and who are earning higher incomes; certainly not for the labourers who are earning less than a $1,000 a month. This policy is aimed at giving benefits to those who already have. Socially, this is inequitable. I do not know how the PAP is going to explain to its members on the ground this inequitable policy, when it professes to believe in Socialism. I suppose that is the problem of the PAP cadre members. I think it is a well-known fact in almost every country (the exceptions are perhaps those countries with a high catholic population) that people in the lower socio-economic group usually have large families and those in the upper or educated class have smaller families. I cannot see how Singapore can be made an exception. This new Government policy of encouraging procreation, no matter what attractive incentives are given to the richer parents, will in the end end up with the same population pattern as in other countries.

What is the best thing to do? I would say the best thing to do is not to interfere. Just like what, I believe, a famous gynaecologist has said, "As far as procreation is concerned, let nature takes its course." At most, if desired, the Government could make people aware of its policy and perhaps give just a gentle nudge or an encouragement. But Government has to provide all the facilities of child-care centres, creches, day-schools, kindergartens. If you provide these facilities, then when the parents realize that there are ample means or provisions made for their children so that they can work in peace, then perhaps they will procrete. You can see that children are forthcoming.

The main aim of this Government's procreation programme is to get educated parents to have more children. But fiscal incentives, I believe, are just not enough. The conditions must be set, as I have mentioned before. In fact, I think educated parents will feel insulted if you put a carrot in front of them to encourage them to produce more children. Producing children, of course, is a very complex problem. [Laughter] I have to correct myself. The decision to have children is a very complex decision because there are so many things to think about. So a simple fiscal incentive will not do.

I come to the main point why I am bringing up two major errors committed by this Government. It has been said, and has been said, I think, more than once, that Singapore cannot afford to make even one major error. I believe that has been said before. If that happens, Singapore's economy will collapse. The PAP, as I have pointed out, has committed two major errors. One, bringing down the only resource we have, and that is, our population. The other is to bring our economy into a recession. Of course, steps have been taken to correct these two mistakes. Singapore, of course, will survive these two mistakes. Singapore will survive other mistakes, as it has survived before, for the last 150 years, and it will continue to survive. So whether the PAP governs or whether any other government which is equally efficient governs, Singapore will survive.

May I just mention or say something about wage restraint. Again, the workers are called upon to sacrifice. But on this wage restraint, I am glad to note that now they are taking on a different point of view, and that is, to have more flexibility. That is the correct move. You cannot have an across-the-board wage restraint. In fact, I believe that wages should be allowed to find its own market level. Although the workers have been asked to have wage restraint for another year, yet what do we see? Government has increased the B2 and C-class fees in the hospitals. On the one hand you say, "You are not getting any more pay," and on the other hand you say, "You have to pay more for Govern- ment services". And the University entrance fees have also been increased. I have spoken to many people and they say that the increase in fees, despite whatever the Government says about assistance, will cause hardship. I also note in the Budget that in the Government, operations costs have gone on the increase. I believe the Member for Rochore has mentioned this in respect of Government statutory charges. CPF is to be held at the same level for two years. But I believe this is not good enough. I think business people want to get some kind of a commitment as to what sort of statutory charges they have to take account of. In this respect, I would urge the Minister perhaps to give some kind of commitment.

Mr Ng Kah Ting: Mr Speaker, Sir, may I first pick two points made by my good friend, the hon. Member for Whampoa who kicked off the debate on the Government's financial policy for 1987.

With due respect, I know he is a good economist but I am a practical man. The two points he made are: (1) That we are too materialistic, and he expressed his great concern and questioned the wisdom of upgrading with regard to housing, particularly the HDB, from a 3-room to a 4-room, and from a 5-room to an Executive flat. In short, what he was trying to point out, if I am right, is that a big slice of money is being tied down to properties and this is not good for the country. While seated at his back, I prompted him with the question, "What's wrong with that?" And when he gave his answer, I thought it was not too plausible. After all, it was Government's deliberate policy to encourage home ownership, to make homes available to the people. So I see nothing wrong with this question of upgrading. Of course, I do not know whether he has forgotten the 1984 PAP election manifesto on the Vision in 1999 - that we want to enjoy the standard of living of the Swiss of 1984. So if we do not build more HDB units, particularly those demanded by our people and we slow down the building programme, what will be the future?

Dr Augustine Tan: Point of clarification, Mr Speaker, Sir.

Sir, I was not against our public housing programme. In fact, I commended it. It has done a lot of good for Singaporeans. It has brought social political stability and also increased economic efficiency. I merely asked the question: Have we now reached a plateau, a point beyond which to keep on investing more and more in upgrading our quality of housing would not be counter-productive and inefficient?

As to the question on materialism, he took it completely out of context. I was merely saying that it was materialism that caused people to have fewer families, which is a fact of life proven over and over again in more advanced societies. I do not see anything wrong with making that point.

Mr Ng Kah Ting: Mr Speaker, Sir, I am glad he has made the point that he is not against that. As a matter of fact, I am all for it. But, as I said, I am a practical man. He is a well-known economist and I think I can take it further, he is more on the theoretical side. On the other hand, Sir, I will take up the issue of materialism, as I see it. After all, he is a good friend of mine.

On this question of materialism, he has said that this had led to a sharp decline or reduction in the birth rate. I do not agree with his clarification there. The sharp reduction in the birth rate is the result of the success of the PAP Government's policies. First, equal opportunities for all on education. Secondly, as pointed out by the Member for Rochore, there is the question of abortion, ie, abortion on demand. In other words, abortion was made readily available in the Government hospitals or private hospitals and even in other private clinics. On the third point, unfortunately the hon. Member for Rochore is not here, otherwise I would have to ask him when he made mention that the PUB has got a captive market and that the cost of water is too high; in other words, the tariff charges on water are too high. Here, I am not replying on behalf of the PUB although I am a Board member but I shall come to it later. I would like instead to pose him the question as to whether or not he really understands how much it costs to get the water piped through, from raw untreated water into your homes so that when one turns on the tap, the water is potable. In fact, I would go on to say that the cost of treatment of water is quite high and the tariff charges are not commensurate with the costs.

Mr Speaker, Sir, may I now come to the Budget statement delivered by the Hon. Minister for Finance last week. The balancing act performance of the Government in seeking ways and means of reconciling the budget in terms of revenue and expenditure takes on a new dimension. The tax changes, though not numerous and complicated, do show a shift in fiscal policy, particularly for 1987. Revenue yield from an increase in duties on bets, cigarettes, tobacco and liquor is expected to total some $88.8 million. In addition, Government has now decided to transfer $1.5 billion in FY 87 from the accumulated reserves of the statutory boards to the Consolidated Fund and it also requires statutory boards to pay into the same Fund an equivalent to what they would have paid if their annual operating surpluses had been taxed at the corporate tax rate of 33%. I shall come back, Sir, to this point later.

But may I come to the question of consumption tax which has been referred to by earlier speakers. Apart from this tax, Government has also decided to introduce a longer list of individual items in preference to a comprehensive consumption tax at this point of time. The Hon. Minister has indicated that the public must be prepared for such an eventuality when we are faced with a permanent budget deficit. Therefore, Sir, he argues that there is an eventual need for a comprehensive consumption tax which must be seen in the overall context of Singapore's economic imperatives.

I fully agree with him on this point but I would like to ask that for such introduction to be made it must be done on a selective basis. This is to be viewed from two angles. First, the domestic needs of our people, and second, the importance of the tourist industry in our economic growth. The tourist industry in Singapore is definitely a plus for our economic growth and Singapore has been featured as a shopper's paradise, and this point has been made by the Member for Whampoa.

I come to the question of the domestic needs of the people, with particular reference to selectivity on consumption tax list. We have seen a steady rise in the standard of living and change in the lifestyle of our people in the last two decades or so. Our people can afford to have more in all respects. Therefore, the question of selectivity of items is pertinent to the item-by-item approach at this point of time. In short, I hope that the people kept informed and are persuaded to accept this policy as a necessity and also be prepared, as stated by the Hon. Minister, for a comprehensive consumption tax in the future. In other words, Sir, I welcome the setting up of a Consumption Tax Division under the Inland Revenue Department to look into the collection of such taxes.

Previous speakers have also touched on the question of incentives to encourage procreation. But I would like to touch on other areas concerning this new policy on procreation and how to succeed. If I may venture to suggest, one possible area is the question of time, in the sense that time should be given for hospitalization and confinement or the care and upbringing of the children in the first two or three years. These are critical years. I am glad to note that Government has taken the first step by announcing incentives to allow working mothers in the civil service to have more time-off to look after their children. And I do hope the private sector will also respond positively in the same manner. Here, I hope the Government should seriously consider whether it is necessary to set up a committee comprising the various private sectors, the Finance and Health Ministries, with the objective of making recommendations on how such a policy can get the positive response and support of the young people as well as to monitor the success of these incentives. In respect of the latter, the public also need to have the Government's assurance that this new policy is here to stay and will not be reversed in future. In short, public confidence is necessary.

Mr Speaker, Sir, mention has also been made about the policy on foreign workers and the levy scheme. I am glad the Government has decided to allow a con- trolled revolving pool of foreign workers on short term work permits to remain even beyond 1992 and the sectors involved are manufacturing, hotel, construction and domestic. But for so long as these sectors continue to rely on foreign workers as a result of a shortage of local workers, such a policy would only help alleviate the shortage for a time. As our dependence on foreign workers does bring about social problems, I would urge that there be a constant review governing the issuance of work permits. Otherwise I foresee social problems. An illustration was made by the Member for Rochore just now when he said that work permit holders are under the impression that after five years of working here they can get married. Yes, they can, but they have to apply. So there is a big difference between a right and a privilege. There is no right. This is the problem that I am addressing the Hon. Minister too.

In this respect, Sir, I would also like to ask the Minister whether he would consider asking the manufacturing, hotel and construction sectors to make every effort to recruit local workers for the necessary jobs in the various areas and to give them the necessary training during employment (or what is known as learn-as-you-earn scheme). Needless to say, Sir, the manufacturing sector is an important and integral part of our economy and so is the hotel industry in the promotion of tourism. Whereas the construction industry may have suffered somewhat in the last two to three years, surely the industry can take advantage of this slowdown to consolidate itself and to upgrade by way of introducing new forms of mechanization or new building innovations which other developed countries have already been doing for some years now. In this respect, Sir, I want to make a plea for the reduction of the levy, particularly for foreign workers in the construction industry. This may seem contradictory to my observations but I am informed that some foreign workers in this sector are more ready to accept longer hours of work since the wages are better and they come here because of this need. Hence, they work harder.

Thus, in making these suggestions, Sir, it is envisaged that our dependence on foreign workers in the sectors mentioned will be reduced somewhat. Hence, I am optimistic that Singapore can achieve its objectives if we are conscious of the undesirable social consequences of having to rely on foreign workers all the time. In short, the local skills pool in all these industries must be continuously developed and upgraded.

Now, Sir, I come to this question of surpluses of statutory boards. The Minister for Finance's decision to transfer the surpluses of statutory boards, which have been accumulated in excess of their development needs, to the Government's Consolidated Fund is indeed timely and I do support this policy. But in doing so, we must not forget the primary objectives of setting up the statutory boards and the services they provide to the nation.

Sir, I have stated earlier that I am a Board member of the Public Utilities Board and I have been there since the last five years and am still serving on the Board. What I want to point out is this. I am not speaking on behalf of the PUB, the Board, nor its members. So the views I express are the views I want to share with Members of the House and they are purely my own. Because of this appointment to the Board, I have become aware of the tremendous amounts of capital that have to be invested from year to year to provide a reliable and efficient supply of electricity, water and piped gas to the public and to continue to make improvements on these services. Whilst the surpluses may seem to be large, nevertheless the surpluses have always been insufficient to cover the capital expenditure programme and over the years the Board has had to borrow substantial sums from the World Bank, the Asian Development Bank and other financial institutions to help finance development projects. And these loans, of course, have to be repaid at market interest rates.

In this respect, Sir, I hope the Government in implementing its new policy would not merely look at the surpluses per se, but also into the extent these surpluses are required by the statutory boards to be ploughed back to finance the capital development which is necessary for the improvement of their services to the nation.

So let us take the case of the Housing and Development Board. The HDB was set up in 1960 and charged with building homes for the people and even better homes for our citizens. At that time, homes for the people was one of the main and numerous preoccupations of the PAP Government which had been voted into power in the 1959 general elections. The acute shortage of housing and the replacement of the Singapore Improvement Trust (SIT) by the Housing and Development Board saw the acceleration of housing programmes on five-year plans. So lands had to be found for the high-rise blocks, slums had to be cleared and people had to be persuaded to cooperate and make way for this major development programme. In short, to meet the challenges and to surmount the problem of public housing, Government had to expend large sums of monies in the form of subsidies, capital grants and loans to the HDB. And it is only through the Government's continued assistance that we have subsidies to the public housing projects that our citizens today have been able to own their homes. More than 80% of our people live in HDB flats today. Indeed, the success of our public housing programme is a showcase in the region, if not the world. So year in year out, hon. Members need only look at the amounts of monies voted to subsidize the HDB for its operations and grants and loans for its housing projects to be able to see for themselves that there is an obvious need for continued Government assistance.

On the other hand, other statutory boards such as the Port of Singapore Authority (PSA), Telecoms and Civil Aviation Authority of Singapore have, with less extensive government assistance, not only performed well and produced good track records but have even accumulated large operating surpluses in recent years. But, Sir, I see the success of the statutory boards as a result of the autonomy they enjoy. With operations and decision-making entrusted to the integrity of a selected few, these statutory boards were set up at considerable public expense, not to mention the MRTC.

In my view, Mr Speaker, Sir, the statutory boards are well and efficiently run and make acceptable returns. We make no apologies for this. They have come a long way since their inception and it is only right and just that they be taxed on their returns, as with other corporations. It is only right, but I would nevertheless suggest, that the Government implement this new tax policy with caution. As I have said earlier, Mr Speaker, Sir, some statutory boards need loans to help finance their capital development projects because the surpluses are not sufficient to finance their development projects, and some are only sufficient for partial financing of their projects. With this new policy it would not be unexpected of statutory boards to now maximize the use of their surplus in funding development projects.

Sir, another point I wish to make is that statutory boards cannot and should not be compared to private corporations where the directors receive substantial fees and allowances. Appointments to the statutory boards are made by the Government through the respective Hon. Ministers and each member on the Board is paid a nominal allowance. Some even forgo this allowance and serve gratis. So what I am trying to emphasize, Sir, is that the people who serve on these Boards merely take it as a privilege to be called upon to shoulder responsibility of their appointment and to make contributions to the nation. They do not expect rewards and, suffice to say, they will be satisfied, at the end of the day to see a job well done. This means that the remuneration of the Board members is negligible compared to that of the private sector.

Therefore, Sir, when I suggest caution in the light of my observations, I just want to draw the Hon. Minister's attention to this point: that if it is imperative for surpluses to be transferred to the Consolidated Fund account, would it not be better to require only those statutory boards which have surpluses for which there is no justification to retain them or such surpluses have already been channelled into areas not related to the objectives of the statutory board concerned, these surpluses are to be paid into the Consolidated Fund account. I know of one statutory board which has invested some of its funds by way of shares in a public company.

Therefore, Sir, I would urge the Hon. Minister to consider a selective recovery of statutory board surpluses, and such selection based on the extent to which each statutory board relies or does not rely on the surpluses in meeting the objectives of that Board.

Finally, Mr Speaker, Sir, I hope that by bringing up these points, the public will become aware of how the statutory boards are run. And in conclusion, I support the motion in the Hon. Minister's name.

Mr Lim Boon Heng (Kebun Baru): Mr Speaker, Sir, I was inclined to leave the subject of procreation to the other Members of the House until I heard the remarks of some of the preceding Members of this House, in particular the Member for Potong Pasir. His policy for solving the anticipated shortfall in our population is not to interfere and to let nature take its course. If we follow that policy, then where is our country heading? So I think that the Member for Potong Pasir ought to look at the problem in greater depth rather than to follow his natural inclination to leave things alone.

Mr Chiam See Tong: Can I have a point of clarification? I was quoting a local gynaecologist. It was not my opinion.

Mr Lim Boon Heng: May I ask the Member for Potong Pasir what his opinion is then?

Mr Chiam See Tong: Well, he said that nature should take its course and I agree with him. The only thing you can do is to, as I say, gently urge people on and provide the necessary facilities for the third child, like day-care centres, creches, kindergartens, and all the other care for children upbringing. I think this is very essential.

Mr Lim Boon Heng: Mr Speaker, Sir, his policy is to leave things alone but build child care centres and, hey presto, the child care centres will be filled. I think this subject, as he said, is more complex than that and requires, I think, greater thinking on his part.

Mr Chiam See Tong: You do not have to teach the people about the birds and the bees.

Mr Lim Boon Heng: I am not trying to teach the people about the birds and the bees.

Mr Speaker, Sir, I turn to the main subject on which I wish to touch on, and that is, the economic aspect, particularly with regard to the policy on wages. When the Member for Whampoa opened the debate on the Budget statement, he said that we are fortunately discussing it in a much better environment; the economy is recovering. So he said, "Thank God. Thank the Government." And I think the Member for Clementi also said, "Thank the workers of Singapore." I think that we do owe this to the people of Singapore for their understanding and support of the policy of wage restraint.

The policy that the Minister for Finance has proposed is that we should continue with the wage restraint policy for this year, and he pointed out that our wage costs are still high compared to our competitors, and he gave us a chart which shows that we are 20% higher in wage cost as compared to South Korea, Taiwan and Hong Kong. To get the overall picture, I think we should also take into account the anticipated rise in wage cost in competing countries and the strengthening of their currencies which would help us to narrow the gap. If the press reports on the 10% rise in wages in South Korea and the 5% appreciation of the currency come about, and if we do not allow our wage cost to rise or our currency to appreciate, then by following this policy we will be able to restore much of our competitive position.

But what is the objective of this wage restraint exercise? Some have said very clearly that the objective is to enable businesses to be profitable. I have no quarrel over that. But I think behind that particular objective there is a greater objective, and that is, to secure the jobs of Singapore workers. There is competition for investments and the competition is intense. I found this out for myself when I followed the First Deputy Prime Minister to four European countries last September. Everyone is looking for investments. The Dutch are looking for investments. The Germans are looking for investments. The French are looking for investments. So also the British. And what is more, they are all looking for essentially the same kind of investments that we ourselves are looking for. Therefore, the competition is all the greater and this is the result of shifts in company strategies in the past few years.

Originally, it used to be the policy of companies first to develop a product, sell the product in their home country and then to shift the production of such products outside of their home market when that home market is saturated or the product life is nearing its end. And therefore we benefitted from such shift in production. Then because of competition, there has been another shift in policy or strategy, ie, companies develop their products at home but produce them abroad because of the rise in competition, say, for countries in Europe or Japan; and the US companies have done so. And this is to take advantage of low wage costs that are available in developing countries like ours. At one time, we had a tremendous advantage. So the investments came in. But now because of the change in the situation, there is a third shift in company strategy, and that is, to design products abroad and produce those products abroad. So the question that we have to ask ourselves is: do we meet the requirements of this shift in company strategy? Do we have the skills or the creative workforce for this? And that I think is something which we have to examine critically in the context of education, not only of the next generation of workers but also the current workers who are already in the workforce.

There is also another trend that needs to be addressed, and that is, the rise in protectionism, especially in the developed countries. Politicians and union leaders in these countries under the pressure of their electorate or their members clamour for protection. Let me give an example of this. Just on Monday I officiated at the opening of an international trade union conference in one of our local hotels. At that function, one union leader from the United States proudly spoke to the gathering about his union's efforts to secure investments and jobs. He said that because of the action taken by his union and other unions in the United States, a Japanese car manufacturing company was induced to invest US$800 million in the United States. That figure of US$800 million is a considerable sum. It amounts to more than S$1.7 billion. So what they gained in one investment is what our own EDB staff are trying to achieve for one whole year. Can we compete against that kind of protectionism? At least we have to try but we must be aware of the strength of this kind of competition.

Then at the same time we must also consider two differing trends. One is wage cost and the other is technology cost. As we all know, wages rise but the cost of technology is continually falling. Just two days ago, the Straits Times gave us an example in an article, "Japan looks to the robots to boost business". Why? Because the cost of robots has declined. And in order to combat the rising cost of Japanese wages because of the Yen appreciation, they are now turning to robots. One of the factory managers was quoted as saying this:

'They are marvellous. They work in the dark. They don't need heating in the winter and airconditioning in the summer. And they can work three shifts a day.'

Mr Chandra Das: And no CPF!

Mr Lim Boon Heng: No CPF. So we would have to take account of the competition of technology that is developed by countries such as Japan. Whilst our emphasis is on attracting new investments, at the same time we must value what we have here in Singapore. In other words, we must maintain a competitive environment that would make it attractive for those who have already invested in Singapore to continue doing their business here. It is with this in mind, to keep investments already here to stay and to attract new investments, in other words, to enhance the security of jobs, that we have supported the cost-cutting measures and the wage standstill policy of last year. Fortunately because of the explanations that have been given and the practical examples of hardship caused to those who have been retrenched, workers have understood this need and they have given their support. The question is, for how long? One more year or two more years, as the Member for Clementi suggested earlier? I think we also have to ask ourselves the question: what about the aspirations of our workers? For how long can aspirations be put on hold? For this year, yes but with a lot of explanations on the part of union leaders, managements and political leaders. Next year, I think we should leave our options open.

It is not desirable to put workers' aspirations on hold for too long nor should it be Government policy to do so. I think it is not Government policy to do this. And here let me turn again to what the Member for Potong Pasir earlier said. He described it as an error of policy on the part of the Government because from 1979 to 1984 we had corrective wage policy and he attributes the recession to this high wage policy. The fact is that for several years before 1979 we had kept wages low. And because we had kept wages low, we were not getting the high technology industries that we ought to have got and which other countries obtained because they had allowed wages to float with the market. But after the corrective wage policy, I think this is how I interpret the Minister for Finance's statement when he said, "From 1980 to 1984, wage increases in Singapore far outstripped productivity growth." So it is because of the second part, after the corrective wage policy that we have run into problems with high wage cost and it is this particular problem that we are addressing. I think it is because between 1979 and 1981 the Government had recommended a corrective wage policy that had given our Singapore workers the wages which Government felt was due to them, that Government had the moral authority in 1985-86 and this year to talk about wage restraint to be exercised by workers in Singapore.

Finally, the Minister for Finance has stressed that wage increases must lag behind productivity growth. I have no objections to that principle. I think our workers will be prepared to follow this guideline if only management would pay serious attention to productivity. But at the moment management appears to be befuddled by the word and quite clearly more needs to be done to get them to put their minds to bear on this matter.

Mr Speaker, Sir, since the subject of the CPF contribution rate has been raised, I just wish to make a point and leave a greater discussion on this to take place during the Committee of Supply. When Government announced the policy of reducing the employer's CPF contribution, it was stated that it was a temporary measure. It is on that basis that the workers in Singapore accepted this reduction to their wage package. I think it is morally right that we examine the restoration of the CPF once the economy recovers. We can agree to allow the CPF rate to rise at the pace that the economy can afford. We can also discuss the long-term CPF contribution rate but in principle there must be a restoration of the CPF rate. I think, in principle, the contribution rate for workers and employers should be the same. So whatever is the final contribution rate, whether it is 35%, 40% or even 50% to meet housing, medical and retirement requirements, whatever the figure is, the principle ought to be that the contribution rate of employers and employees should be the same.

The Senior Parliamentary Secretary to the Minister for Defence (Mr Phua Bah Lee): Mr Speaker, Sir, I wish to thank the Finance Minister for the realistic budget he has allocated to the Ministry of Defence.

This budget of $2,354 million, which is about 6% of our Gross Domestic Product, is 5% higher than last year's allocation of $2,239 million. The increase is reflected in two key components: a 4.5% increase in recurrent expenditure and a 12.5% increase in development expenditure. I wish to assure the House that Mindef will stretch every dollar to its maximum as we have always done and will continue to do so.

Our focus on defence is based on the belief that our national security rests on our capability to defend ourselves. It is founded on the fact that our people, regardless of their race, creed or culture, share one common mission and one common will to make Singapore succeed. To ensure the long-term security of Singapore, Mindef must continue with its efforts to develop an operationally-ready army, navy and air force.

Daily we read, listen and are aware of the happenings around us. We see that internationally, relations among countries have taken on a turbulent and different dimension. We continually hear reports of wars between nations, battles within countries, border skirmishes, hostage crisis and terrorism. These international uproars have become more complicated and long-drawn. They have become threats to world peace.

Faced with such a fluid situation, it is prudent that we view our national security with deeper interest. Therefore, we should spend wisely to heighten the level of operational readiness of the SAF.

This expenditure will be incurred to upgrade the technology, weapons and training of our men. We will be constructing new facilities, and putting new equipment such as vehicles and aircraft into service. Consequently, there will be increases in expenditure on items like maintenance, spares and fuel. Expenditure will also be incurred to improve our system thus ensuring that our people can be effectively mobilized to meet any national crisis. Their readiness is tested during our regular mobilization exercises conducted openly or silently. These tests are necessary because we do not want to leave anything to chance.

I must, however, hasten to caution that though we are spending more on defence, we are not preparing for war. On the contrary, we are only trying to secure peace so that we can continue to build up our economy and social structure for the betterment of our people. In fact, Singapore is too small to be a threat to anyone in this region or anywhere else. Nevertheless, we would not like to be caught unprepared or ill-prepared when confronted with the eventuality of having to defend ourselves.

As Sun Tzu once said:

'... rely not on the likelihood of the enemy not coming, but on our own readiness to receive him, not on the chance of his not attacking, but rather on the fact that we have made our position unassailable'.

Mr Speaker, Sir, last year, Mindef organized a very impressive National Day Parade. It was one of the best National Day Parades the people have ever seen. There was much colour and fanfare. More important, there was active participation by the spectators which contributed substantially to the enjoyment of the occasion.

The Parade would not have been so successful without the concerted effort and support of the various civic organizations. Within the constraints of time, they were able to put up wonderful displays and imaginative performances. Mindef, by comparison, was but the co-ordinating body of these marvellous contributions.

For the coming National Day Parade, it will have to be an even better one. This is natural since the people would certainly expect improvements over last year's Parade. It would be a let down if we fail to deliver better performance this year.

For the $1.14 million allocated for this year's National Day Parade, an increase of $0.71 million over last year's, the amount will not be used exclusively by Mindef. It will be shared by the various organizations participating in the National Day Parade celebrations. It is for the administrative purpose of reflecting the total allocation for National Day Parade that the Ministry of Finance had decided to place the vote under the co-ordinating Ministry, in this case, Mindef.

Our people should be able to look forward to a better show this year as it coincides with our 20 years of National Service.

We are now going through a transitional period: the paternalistic style of government is slowly giving way to a consultative one. The former style was suitable for my generation. It was instrumental in bringing about Singapore's present prosperity and progress. But it is no longer deemed appropriate for the present generation.

The government now comprising mainly of second generation leaders has, over time, evolved the new consultative style. It has adopted a consensus approach whereby feedback from the people is actively sought in formulating national policies. Perhaps, this is as it should be since the present generation are better educated, more outspoken and want to contribute their views.

This new consultative approach is not a public relations exercise. It is genuine, bold and daring. Issues are floated around to seek public views. Inputs are then analyzed, adopted and incorporated before they are implemented. Thus with the majority support from our people, the chances of a successful implementation of public policies are assured.

Examples of how the Government solicits public views can be found in the setting up of the Feedback Unit, the walkabouts by Ministers and Members of Parliament, the Town Councils and, lately, the introduction of Government Parliamentary Committees.

The Government's objective is clear: to give the people a part to play in shaping public policies. The Government's intention is truthful and its efforts to reach out to the people are sincere.

Regrettably, however, we continue to hear criticisms of the Government and its actions. Some people remark that Government policies have been high-handed and devoid of any feeling. Such perceptions could be due to a failure to fully understand the rationale behind the policies which are for the ultimate benefit of Singapore. We accept that there must be the disgruntled few but their contrary selfish attitudes must not be allowed to undermine the well-being of our country.

Our people should realize that they and the Government share the common destiny of creating a progressive and a prospering society. If they are quick to criticize and impatient to understand, then it does not augur well for our future.

It would also be pertinent for our people to know that while the Government is making every effort to get them involved in running our country, as evidenced by the approach to formulating the National Agenda, they should be realistic enough to accept that not all feedback or inputs are practical or suitable for adoption. They would then think that they have not been heard. That, I am afraid, would be most unfortunate. However, this is the risk we have to take when adopting the consultative style of government.

In the long run - and I emphasize this - no matter how good or successful the Government is, the future of Singapore is in the hands of the people it governs.

The second generation leaders have done extremely well in governing our country. The quick turnaround of the economy resulting from effective cost-cutting and fiscal measures is an illuminating example of the kind of astute and capable leadership that they display.

There is no secret ingredient or hidden formula responsible for the success of a government. The most important mission for those chosen to lead is to develop a healthy and trustworthy relationship with the people; to create a feeling within the country that both the leaders and the people share the same fate. Unless we think like one and live together as one, the continued prosperity and growth of our country cannot be ensured.

Mr Speaker, Sir, the swift and decisive action of the Government turned the economy around. With the various cost-cutting and fiscal measures recommended by the Economic Committee, the recession was checked. In fact, the economy grew by 1.9%. For this, we have the Government and the people to thank for.

Amongst the cost-cutting measures is the directive to all Government Ministries and statutory boards to reduce manpower by 10% by the year 1990.

While we try hard to trim manpower costs, development expenditure seems to be increasing. I am wondering whether the relocation of certain whole ministries and statutory boards in new buildings or complexes could have contributed to the increase in development expenditure.

The concern is whether we really need such posh buildings with expensive furnishings to carry out the various functions of our Ministries.

Although it is arguable theoretically that a better working environment would contribute to higher productivity, the enormous sums incurred in this so-called development could be disproportionate to the added productivity. A luxurious environment can enhance the image of a Ministry but it may not necessarily improve its efficiency or effectiveness.

And if we are to accept that this is in keeping with progress and development and that new buildings and complexes housing Ministries would naturally improve their efficiency and productivity with time, the recurrent operating and maintenance costs may be unjustifiably high.

I am not suggesting that our civil servants should work in a spartan environment, devoid of modern conveniences and comfort. Far from it. The issue, however, is how to strike a correct balance between what is functional and tasteful and what is lavish and extravagant. In my view, the trend today seems to be towards the latter.

Also, I wish to point out that certain Ministries have been or are being relocated to outlying areas, far from where they were or from their original sites. Some of these Ministries have extensive dealings with the public. Would not such relocations, therefore, inconvenience the public?

Let us be concerned with the practical and important issues of the Ministries, measures to increase efficiency and productivity and steps to serve the public more professionally. For with every dollar we incur to improve the facade of a Ministry, the taxpayer may ask: is there such a need? 4.18 pm

Mr Chng Hee Kok (Radin Mas): Mr Speaker, Sir, I rise to give my full support to the Budget statement presented by the Minister for Finance.

Let me begin by complimenting him for making further improvements to the presentation of the Budget. This year's document is most readable and, if I may add, comprehensible. The additional columns showing the actual expenditure of the preceding two years are also most useful. So are the other financial statements in which the format is much closer to standard accounting practices.

I have only one negative comment and this relates to the information which appears under the "Overview" at the beginning of each Head. The quality varies considerably and this deserves more attention from the Minister or the Ministries concerned. For example, under the Ministry of Community Development, there is a sum of $140,000 to be spent by the Singapore Sports Council for their computerization efforts. That, in itself, is self-explanatory. It deserves one line of explanation. But under the Ministry of National Development, there is a capital grant to the HDB of $493 million and the only explanation given is as follows: "to cover gross loss on sale of flats and other capital-related expenditure." More elaboration on the $493 million grant is necessary. The least we can expect is an indication of the size of the grant and how this has come about.

On balance, the budget is definitely painless and mild. It may be described as pro-growth, both in promoting economic growth as well as in promoting growth of our population.

Whilst promoting economic growth, my main concern is the budget deficit which is projected at $3.75 billion. The budget for fiscal year 1986 also projected a deficit of $3.22 billion and it was welcoming that we ended with a surplus. Contrary to the point raised by the Member for Whampoa, I am in favour of such a conservative approach. Although the Government may have been conservative in its past projections, it is very unlikely that it will achieve a surplus in the next fiscal year. During a difficult period, an occasional deficit may be a workable solution to a recession. However, a chronic deficit is not something which we can take to very lightly.

Many countries, and this of course includes the world's largest nation, the United States, have been in chronic deficit for several years. As we all know, a deficit means spending beyond one's means and it results in either local or overseas borrowings. Unless there is a capacity to pay from current revenue, such borrowings must lead to high inflation. We have seen the unpleasant consequences of budget deficits. A decline in the value of the country's currency can be expected and a consequential decline in the standards of living of the population. Therefore, we must count ourselves fortunate that our total debt is relatively small - just about $18 billion and that we have more than sufficient reserves to match this debt. Moreover, external loans are negligible and have been declining for the last few years. This is the fruit of the Government's prudent fiscal policies in the past.

Related to this debt, I should like to raise a question on debt financing. Debt financing has been about $1.2 billion in the last three years. For the next fiscal year, this is projected to increase substantially to $3.7 billion or an increase of $2.19 billion in the coming year. The Minister has accounted for $1.45 billion as a "once-off" payment in backdated interest on CPF advance deposits. Leaving aside this figure, there is still an increase of $0.74 billion over fiscal year 1986. As our borrowings have remained relatively stable at less than $19 billion for the last few years, the Minister may like to elaborate on the reasons for this additional $0.74 billion. This is a substantial sum and represents about 80% increase over the previous year.

Let me now comment on some of the key components of the revenue and expenditure position. The revenue position on direct taxation has been declining over the last few years. In 1982, direct taxes, mainly from income and property taxes, accounted for 36% of total Government expenditure. This has declined progressively over the last five years and was down to about 24% in fiscal year 1986. We have been told that a further decline in direct taxes is expected as the new corporate tax rate of 33% takes effect in the next fiscal year.

Although this is a result of the Government's policy to move away from direct taxation, any shortfall of course must be made up through other means. Therefore, I applaud the Minister's move to raise money by taxing the surplus of statutory boards in 1988. By doing so, we may consider this as an indirect tax on the population as the revenue of the larger statutory boards, such as Telecoms and PUB, are derived mainly from consumers. However, steps must be taken to ensure that these statutory boards which face no competition whatsoever do not overcharge consumers just to raise more money to pay taxes. The charges to consumers will of course depend to a large extent on the board's development needs and the efficiency of the board's management. This question of development needs, what is required and of course whether the management is efficient must be continually checked.

To further improve the income tax position, last year I urged the Minister to widen the base of taxpayers. Presently, many self-employed in our population are not paying for their share of the services for which they are being provided. By bringing them into the tax net, it is equitable that they contribute their share towards the provision of services, such as health and education which they and their families are benefitting from. To bring more into the tax base, I urge the Minister to consider some form of amnesty to those who have not declared their incomes in the past. This amnesty is a practical approach and will prove to be more effective than the present cat- and-mouse game that is being played by the Income Tax Department.

The other major revenue area is interest and dividends on Government investments. This has been a constant source of revenue for the Government. However, this figure has been increasing over the last few years. In 1982, interest and dividends form about 6% or $712 million of Government expenditure. In the present fiscal year 1986, this was about 15% or $1.89 billion. For the next fiscal year, it is expected to jump to about 22%. At $4.1 billion, this is no small sum and it has been increasing all the time. In view of this increasing importance to the Government budget, the Minister should provide more information on how the returns are being realized and what are the rates of return. I am sure Members would like to know from the Minister if this level of investment income and profits is sustainable in the longer term.

With direct taxation on the decline, I share the Minister's concern and support his move to levy a consumption tax. No new tax is ever easily accepted by the population but Singaporeans must accept this as inevitable. With direct taxation, there is little or no room for personal choice. You pay a tax according to the rates imposed on you. With consumption tax, especially a selective one, there is a fairly high degree of personal choice. If you do not want to pay the tax, you do not buy the goods or you do not spend on the service.

For those who are paying income taxes and realize that their tax liabilities have been declining, a shift towards consumption tax must be the more attractive alternative. We can only count ourselves fortunate that the Minister has decided to take a cautious approach and apply this tax on a selective basis. I must urge the Minister to exercise the utmost care to ensure that the implementation of the consumption tax will result in minimum discomfort to those in the lower income group. Contrary to the argument raised by the Member for Whampoa, we should support the proposed consumption tax and move away from direct taxation. Whenever possible, direct taxes should be cut when revenue is sufficient to produce a surplus. With the mechanism of the consumption tax in place, we shall be in a better position to react and reduce corporate taxes and therefore income taxes should the situation demand.

Finally, on expenditure. Of course, it is pleasant to see that the level of recurrent expenditure has actually declined in fiscal year 1986. In terms of total Government expenditure, recurrent expenditure was about 58% in 1982. This has gone down and last year it was about 50%. Although this decline is attributed mainly to the cut in the CPF contributions and wage restraint, it is not often that we see such a phenomenon in government budgets anywhere in the world. The zero-base budgetting approach adopted by the Minister must have made some contribution to this decline. The zero-base budget method is the key towards keeping the recurring cost of Government down. With this approach, I hope that more activities will be contracted out. For the new fiscal year I am disappointed that very few such activities are identified in the budget. I hope to look forward to more contracting out of Government activities in future budgets. In view of the effectiveness of the various committees being set up by the Government, such as the Economic Committee and the Business Enterprises Committee, maybe the Minister will consider setting up a committee to review those Government activities which may be contracted out. 4.29 pm

Encik Abbas Abu Amin (Pasir Panjang): ( In Malay): Mr Speaker, Sir, I wish to join my fellow PAP MPs in congratulating the Hon. Minister for Finance for presenting a budget which has been well received by all parties except smokers, drinkers and those who frequent betting places.

The primary objective of the Government is to revive and improve further the economy of the nation as well as raise the living standards of all segments of the society.

We all know that the economic recession a year or two ago has affected both workers and employers, businessmen and entrepreneurs. The recession which has affected not only our nation but also countries with natural resources has awakened us with the realization that the affluence that we have uninterruptedly enjoyed for many years has suddenly ground to a halt.

By adopting swift and pragmatic measures and implementing strategies and tactics that have the wholehearted support of the workers, employers and businessmen, we have managed to weather the adverse economic situation and braced ourselves for the sacrifices ahead in the form of CPF reduction and wage restraint. All these have helped us towards the nation's economic recovery. The basic policy adopted was to apply cost-cutting measures, consolidating our competitiveness in the world market and taking steps to attract and convince investors to come and invest here which would at the same time create job opportunities for our people.

One of the main reasons for our progress and success is the close cooperation and understanding that exists between unions, employers and government. Not all countries can boast of this achievement.

The confidence demonstrated by workers, besides hard work and willingness to learn new skills, has also been an important factor in attracting inter- national companies to invest in our country. When the economy is on the upswing, our workers enjoy the benefits and in times of recession, they understand the situation prevailing and make the necessary sacrifices in order to help the economy recover.

In this connection, employers should constantly provide the motivation to their employees to further enhance their knowledge and skills. The budgets for the last financial year and for the current year also provided many incentives to employers in order that they could succeed and it is hoped that employers can seriously motivate their workers. It is the responsibility of employers to make commensurate contributions to the workers for the sacrifices which they had made. On the other hand, workers should take advantage of the Skills Development Fund which was set up to train and upgrade their knowledge and skills. This could be achieved by attending classes and courses on skills organized by vocational institutes like the VITB. Workers should not remain passive. They must seriously show their keenness to upgrade their capabilities. I believe that in the long term, this will further upgrade the nation's economic status consonant with the new economic programmes for the country.

We are fortunate because a good industrial relations climate prevails. It is hoped that employers will take the initiative to further foster the understanding with their employees in order that they will strive harder and be more loyal to their companies where they work. I am aware that there are companies, particularly House Unions which have already provided facilities for the welfare of their workers.

Speaking on the subject of company welfarism, we find that there are still many employers who have not as yet fully grasped the concept of company welfarism. In Japan especially, the company welfarism system does not end by providing workers with recreational facilities and generous wages. In fact, it is extended to look after the welfare of the members of the family and the education of the children of the workers. I hope the Government will look into the suggestion to encourage many more companies to implement company welfarism. It is even better if government agencies themselves can pave the way towards this end and emulated by other companies.

It is natural and easy to criticize or condemn a suggestion. But to do something for the benefit of the public at large and in the interest of the nation is not easy. Only those who shoulder responsibilities can feel the brunt of their tasks. I feel somewhat disappointed with the Member for Potong Pasir who advanced some strong arguments but the end result was that he had nothing to offer on how we could together revive our economy. Unfortunately he is not in the Chambers now, so I better get on with my speech.

Mr Speaker, Sir, one obvious matter that has been given great emphasis in the Budget by the Government is the new policy concerning procreation. Many incentives have been offered in order to encourage married couples who can afford it to have three children or more. I wish to refer to the article in the Berita Harian issue of 6 March 1987 captioned "Family Budget" and I quote:

'Certainly, the tax deduction incentive of $20,000 over a five year period and other incentives will make married couples who previously were reluctant to have three children have second thoughts on the matter. Although those who fall within this group will enjoy the incentive, yet a closer examination reveals that it is targetted at the higher income group. Statistics show that it is this particular group of people who, in the main, are unwilling to have children for reasons either that they are preoccupied with their career or that they prefer a way of life free from the encumbrances of children. The question of affordability which is the determinant factor governing the new policy of procreation must be recognized by all. Yet, the capability to raise three children or more is not measured by a high income although the couple can afford the services of a maid servant. Can the parents have the time to give their fullest attention and love to their children? The upbringing of children nowadays differs vastly from that of yesteryear. Social problems may arise if parental control is lacking. On the other hand, for parents of low income who wish to have many children, they must first consider thoroughly the cost aspect.

Be that as it may, the decision to have more children rests solely with parents. The incentive offered is just the beginning. In the long term, it is the parents who will bear the cost of upbringing their children. It is well that we must appreciate our capabilities before deciding on whether or not to enlarge the family.'

Finally, I wish to support the motion thanking the Hon. Minister for Finance for presenting the Budget for FY 1987 for a happier, healthier and a brighter future.

Mr Chew Heng Ching (Kaki Bukit): Sir, I rise in support of the motion standing in the name of the Minister for Finance.

While we may have overcome the recession, economic recovery is still patchy. Some sectors are performing better than the others. One of the priorities in this year's Budget, as the Minister has rightly put it, is to strengthen our efforts to restore the economy back to health. To do this we have no choice but to continue with wage reform, to restructure our economy and to continue to explore ways and means to improve our competitive position. Present efforts at consolidating and strengthening the Singapore economy will provide a firmer base for longer term economic growth.

Sir, I have, however, a word of caution. There is no certainty that when we have fully recovered from the recession, world economic growth will remain as favourable. Protectionism is still a potential threat. The outlook for prices of primary commodities remain uncertain. We should not therefore assume that after this year, things will be all right. Given the openness of our economy, we remain vulnerable to external developments. Whilst we hope that things will turn up better next year and the year after, we must continue to prepare for the worse. We must remain nimble, flexible and adapt quickly to changes as and when the need arises.

Sir, a budget deficit of $3.7 billion is projected for the next financial year. This compares with a small surplus of $1/2 billion in FY 86. Without wage restraint, CPF cut and prudence on the part of Government's spending in the last 12 months, a deficit of perhaps $3 billion would have emerged in FY 86.

Sir, I am concerned with the recurring budget deficits projected each year. We are fortunate so far that we always ended the year with a surplus but this cannot happen all the time or else our budgetting system is wrong. Whilst we may argue that the deficit projected for the next financial year is necessary in order to ensure economic recovery, I hope this would not be taken as a norm for future budgets. We are aware of problems faced by countries which suffer from chronic budget deficits. People in those countries are living off the income of future generations, on borrowings which will become a financial burden on future generations. In Singapore, we are all aware that we should not allow this to happen for we have no natural resources to sell to the world markets. The problem is now compounded by a declining trend in population growth and a growing number of senior citizens by the turn of the century. The implications of a structural budget deficit is indeed very serious.

Sir, we all know that the way to reduce a budget deficit is either to increase Government revenue through taxes and/or reduce operating cost of the Government. There is however a limit to which we could increase revenue through taxes. It is very dependent on the health of the economy. If we do well, we collect more revenue. If we do not, we collect less. And if we increase our taxes too high, we may lose our competitive position and hence affect the ability to attract investments and talents from abroad and ultimately affecting economic growth. It is a chicken and egg situation. Other forms of revenue, like tax on surpluses of statutory boards, the sale of State land, etc, cannot be termed as permanent sources of revenue for the Government. There is therefore a need to seriously address the question of how we should avoid the problem of a structural deficit emerging in future budgets.

Sir, ultimately, the solution lies in a smaller public sector. Excluding debt servicing, the current level of Government expenditure at 39-40% of GDP appears very high. Being a small open market economy, becoming more developed in the 1990s, there is no need for a large public sector. We should perhaps consciously target to reduce the ratio of Government's expenditure to GDP by some percentage points every year, to a level of, say, 25% or even lower within a 5 to 8-year timeframe, taking into consideration strategic needs like defence and education.

Sir, this is not an altogether unreasonable target since infrastructural development spending will taper off by the mid-l990s with the completion of the MRT, Changi Airport Phase II construction, and the construction of major expressways. I am pleased to note that the Government intends to conduct scrutinies of all Ministries' activities using what they call a zero-base approach. Where services are no longer required, they will either be privatized or closed down. In this respect, it is heartening to note that the Ministry of Finance has taken the lead to spend less in the next financial year. I hope more Ministries will follow suit in the next financial year.

Finally, Sir, I would like to make some comments regarding the expenditure of statutory boards. While some statutory boards are self-financing, many operate through a grant from the Government and yet the budgets of these statutory boards are not subject to the scrutiny of Parliament. I believe the budget proposals of these statutory boards are usually evaluated by Ministry officials in charge of those statutory boards. I am not sure, however, if these Ministry officials adopt the same level of detailed examination, the same level of scrutiny using perhaps a zero-base approach on statutory board budgets as the Ministry of Finance officials have done for Government Ministries' budget proposals. If they do not, may I recommend that they seriously look into it and implement it in the next financial year. Prudence in expenditure by Government Ministries must be extended to all statutory boards.

In addition, now that the operating surplus of statutory boards will become a source of revenue for the Government, should not the operating budgets of statutory boards be also reflected in the Government financial budget document submitted to the House for debate at this time of the year? For this will provide Members of the House with a clearer picture of expenditure and revenue of various statutory boards and to seek clarifications and queries where necessary on their budgets. Sir, I urge the Minister for Finance to consider this proposal.

4.52 pm

Dr Koh Lam Son (Telok Blangah): Mr Speaker, Sir, during the Budget debate last year, this House was filled with an atmosphere of great concern because we were plunged in a recession. Today, the mood has changed into one of quiet confidence as we now see the economy recovering. This year's budget has, to a large extent, met expectations. It has also allayed some anxiety and produced some pleasant surprises. 1987 has been aptly described by the Minister for Finance as a year for consolidation. This means another year for us to push on with the anti-recession policy announced in this House by the Minister for Finance on 7th March 1986. Those cynics who criticized the cost cutting measures as too little and too late will now have to eat their words. Looking back, the Government had in fact acted swiftly. And the recommendations of the Economic Committee must now be seen as historic in bringing about a dramatic change in the recession in less than 12 months.

1987 will be a difficult year because there are temptations in our path. There is the temptation of the Government to reduce the cost-cutting measures and to increase general taxes because it is now running a deficit budget. But the Budget statement has shown that the Government has avoided this temptation in the interest of the economy. For the workers, the temptation is to give up wage restraint, now that they realize the economy is recovering and not to accept the flexible wage system recommended by the National Wages Council. The workers can only give in to this temptation at the peril of our economy.

Sir, I note that three major issues mentioned in the budget have been touched on by other Members of Parliament who spoke before me and which have not been finally decided, the issue of the future CPF contribution rate, the consumption tax and the privatization of Government-owned companies. These are important issues which will affect our economy and the livelihood of our people and I hope the Government will in the usual manner seek feedback and consultation with the man in the street before final decisions are made.

Sir, I am concerned about the CPF issue. I think the CPF issue should be re-examined and its basic objectives redefined and re-established. The Minister for Labour mentioned in the last Parliament sitting of the danger of further liberalizing the use of CPF. The CPF should now be viewed as a limited source rather than a limitless source of funds. We now know that the high CPF contribution rate was partly responsible for the loss of our competitive edge. We should therefore avoid repeating this same mistake and should look at the CPF contribution rate in relation to the cost of providing basic needs for our people, old-age pension, housing and Medisave.

Sir, I note that the flexible wage scheme which is now implemented by some companies has not included the CPF element and I wonder whether it is the Government's intention to peg the CPF contribution rate to the flexible wage system.

Sir, I would now like to touch on the conversion from the CPF to the levy scheme for Malaysian workers. I think this is contrary to the wage restraint policy. I understand that the conversion will result in an increase in the wage cost for companies that are labour-intensive and are dependent on Malaysian workers, such as the electronic and textile industries. These are the industries that are helping us overcome the recession. It is very difficult for employers to depend less on foreign workers if our own workers refuse to do the jobs that foreign workers do. I think this is a very serious problem. I remember that at the end of last year, at the peak of our unemployment, the Minister for Labour had to issue work permits for foreign workers in certain sectors because there were no Singaporean takers. And the fact that the Minister for Finance spoke of the need to have this revolving pool of foreign workers beyond 1992 also indicates our dependence on foreign workers for some time to come.

Sir, I would now like to touch on the tax incentives for the birth of the third child. But before I do so, I think it is important for me to explain that, as an obstetrician and gynaecologist in the private sector, my practice will benefit indirectly from this new policy. So I would like to declare my pecuniary interest, although I assure this House that my discussion is based only on national considerations.

Sir, the $750 tax relief, the $20,000 special tax rebate and the 15% wife's income tax rebate are indeed very generous offers. The question is: how many more babies will this policy produce? Certainly, it will have an impact on those couples who are considering a third child but who were held back from doing so because of the disincentives of the previous system. But how many such families are there? I do not think there are many. I think the majority of couples who already have two children are people who are against having the third child. And with this group, I think it will be difficult to persuade them even with these generous fiscal incentives to induce them to have that one more child. This is quite understandable because I think there are other considerations apart from financial considerations, and these were elaborated by the Member for Whampoa.

In Singapore today our young couple face innumerable problems when they have to decide whether to have one child, two children or three children. I think the main problem is the lack of time that mothers have for their children to enable them to have a fulfilling family life. I think that is the main problem. You can either be a full-time mother or a full-time worker, but you cannot be both at the same time. To reach a compromise of the two roles, it is difficult. Our working mother is constantly harassed by the lack of time to attend to the needs of the children and to play and to spend time with them. There is no proper family life and putting children under the care of maids, relatives, baby-sitters or child-care centres are not the best options for them. And to have another child also would mean to the working mother more burden, inconvenience and having much less time for themselves. Our women are educated. They are now fully aware of the psychology of mother-child relationship. So having less time with the children is a big worry to them. It makes them feel unfulfilled as mothers or even feel guilty about not fulfilling this role to the children. So having time-off to bring children to and from school or from nursery, kindergartens, look after them when they are sick, to be with them when they are on their school vacation are all important matters for our working mother. I would therefore like to encourage that a solution should be found in the work area of the mothers. In this respect, I welcome the move by the civil service to allow more leave, part-time leave, maternity leave, and so on, for mothers to have time with their children.

Women should also be encouraged to get married early and have children early. If it is possible their career structure should be so designed that they will not miss out much in their career during their child-bearing years.

In addition to this, we must emphasize on family life, educational programmes through TV, press, schools, hospitals, registry of marriages, community centres and SDU's activities must be carried out to instill the joys and the fulfillment of family life.

Sir, I would like to suggest a few measures for the Government to consider in addition to what has been offered. First, to allow Medisave to be used for the delivery of the fourth and subsequent child. As Medisave is based on affordability, I think it is not unreasonable to make this request. To allow similar tax incentives for the birth of the second child. I am a bit unclear as to why this is not put forward because we have heard that the fertility norm, especially for those better educated mothers, is less than two. This group is, I think, more susceptible to be persuaded by this type of incentive to have the second child. I think that if we can get the majority of couples to have two children we are at least half way to the goal of meeting our 15,000 deficit of babies per year.

Female civil servants should have medical benefits extended to their children, just as the Government allow medical benefits to be extended to the children of the male counterparts.

Abortion should be discouraged and made less accessible to married women who have no children or who have less than three children and the last child is more than five years old.

Sterilization should be discouraged and the unrecorded one week leave should be removed.

Finally, Sir, on this issue of the incentive of the third child, I would like to seek clarifications on the announcements made. In the Straits Times yesterday, on further explanation by the Ministry of Finance, I quote, "all individual taxpayers resident in Singapore can take advantage of these incentives." Does that mean that the permanent residents and employment pass holders are also entitled to these incentives? If so, I would like the explanation as to why we are encouraging the procreation of non-citizens. There is also an explanation on why the Government is not allowing the tax incentive for an adopted third child. I do not really see the rationale of this, especially when the adopted child comes from outside Singapore. The third child would help to increase our population. Maybe the incentive can be allowed for an adopted child from another country.

Of course, there is the question about plural pregnancies. How does the Minister assess the birth order when the first, second or third pregnancy are twins. I think that needs a bit of sorting out.

Sir, now I would like to touch on a few points which were raised by the Member for Potong Pasir. He is not here now but I think the points that he raised were not quite correct.

First, he said that he was against the high wage increase between 1979 and 1984. Of course, with the wisdom of hindsight, we could say that that was not affordable. But at the time when the economy was achieving a high growth rate and the Government wanted to allow the ordinary workers to have a bigger share of the economic pie, I think that is not necessarily a bad move. By doing so a lot of ordinary people have benefitted. We have raised their savings, raised their standards of living, and I am sure the Member for Potong Pasir is not against that.

The other point that he raised was that we made the wrong policy by telling our families to stop at two. In fact, that policy was the correct policy at that moment in time. That was the time when we were faced with a very high birth rate. We were faced with widespread poverty, unemployment, severe problems in our basic needs, like education, health and so on. Under those circumstances, the policy to reduce the birth rate was the correct policy. And it was because of policies like that that we were able to make the progress that we have made and achieved the standard of living that we have achieved today.

The Member also referred to a famous local obstetrician and gynaecologist who he reported as saying that we should tackle the present falling birth rate problem by allowing nature to take its course. I think that would be a disastrous policy. Although I do not question his source of quote, I think he has quoted the wrong source. The gynaecologist deals with child birth, but he does not deal with population problems. The demographers deal with population problems. So he is not an expert on this particular issue.

Sir, perhaps I would now like to move to the last subject in my speech and this is on the statutory boards' surpluses. Sir, we know that there is really no need for our statutory boards to accumulate vast reserves and I have often wondered whether this contradicts its basic policy. The transfer of this $1.5 billion from the statutory boards to the Consolidated Fund should not be seen as an excuse for the statutory boards to continue to accumulate large reserves as revenues for the Government. The Minister himself has pointed out in his statement, and I quote:

'The accumulation of funds well in excess of justifiable needs is to be discouraged.'

Should the Minister not perhaps fix a maximum ceiling of the excess that the statutory boards should be allowed to keep so that we can be sure that the statutory boards will not accumulate huge reserves again. As we now know, this has caused loss of competitiveness because of higher charges implemented by the statutory boards in the past. I think statutory boards should confine their roles to provide their services efficiently and not to make profits.

5.11 pm

Dr Wang Kai Yuen (Bukit Timah): Mr Speaker, Sir, I would like to add my support to the fiscal policy of the Budget presented by the Minister and applaud, in particular, the decision of the Minister not to implement a broad based consumption tax at the present time.

I have two minor points to address. The first concerns the incentives for the third child and the second is the tax relief for CPF cash topping-up scheme.

In view of our demographic growth patterns, it is quite clear that some incentives would have to be provided. Hence I support the generous incentives to turn around the procreation pattern over the short term. Over the long term, Singaporeans must be imbued with the love of families, the love for children. My colleague, the Member for Telok Blangah, has covered the scheme quite thoroughly and I do not intend to dwell into it again.

What I would like to question is this. Why is the benefit for the third child be limited to babies born on or after 1st January 1987? If the Minister believes in cause and effect, then the benefit should only be provided to parents who make the decision to have the third child after the announcement of this policy, that is, for babies born nine months hence. When the Minister for Education announced the scrapping of the graduate mother scheme, he understood very well the baby-making process which, while it is not a very complex process, does take time and he has allowed for a period of nine months. I am quite certain the Minister for Finance is no less knowledgeable in this matter. Thus I can only conclude that the setting of this date, 1st January 1987, is based on other considerations. However, since the message urging parents to have more children actually started several years ago, perhaps as long as two years ago, setting this date is indeed unfair to those parents who have heeded the Government's urging earlier. On top of that, time and tide wait for no man or, in this particular case, no woman. Some women, because of their ages, just cannot wait until the current budget debates, if they were inclined to have a third child and took the Government's urging earlier and took the plunge. To these women, they would feel that the policy is rather unfair. After all, the expense of bringing up a child remains the same whether the child is born before or after a certain date. Since the Minister has announced a five-year tax benefit period for the third child, I would urge the Minister to consider granting the incentive for the third child on a pro-rata basis. In other words, if the third child now is about two years old, then the parents should have, maybe instead of five years, three more years to enjoy the pro-rata tax benefit.

The second point I would like to touch on is actually the tax relief for the CPF cash topping-up scheme. The budget has granted tax relief up to $6,000 per year as top-up for the CPF Minimum Sum Scheme for parents. The rationale for this policy is to encourage filial piety and I support this strongly. When the Minister for Labour proposed the original concept of the topping-up scheme, the idea was to transfer savings from one's CPF account to the parent's CPF account. Alternatively, cash can be used to top-up one's parents' CPF account. However, since the end-result is the same, for all intents and purposes, one can view the topping-up cash as additional cash contributions into one's own CPF account which is then transferred to the parents' account. For the self-employed, similar tax relief for cash contribution into his own account is also provided. In the latter case, the contribution is entirely voluntary. This policy of granting tax relief for additional cash contributions is a new one. It introduces a new concept which I would term "tax-free voluntary contribution into the CPF".

The question that begs to be asked is this: can individuals, other than the self-employed, contribute additional cash under this tax-free scheme into their own CPF accounts? At first glance, one might wonder why on earth would anyone want to do so in the first place, and then why should Government even consider such a proposal since significant tax revenue might be lost if a significant number of people go for this scheme? However, if the CPF scheme can be made more flexible to allow early withdrawal of funds under specific circumstances, such as extended period of unemployment, then I would say the proposal would start to make some sense. Early withdrawal would also remove the current rigidity of the CPF scheme to allow the individual greater latitude to manage his own money and his own life. It is also timely, I believe, to bring this matter up since recent Government announcements regarding the CPF scheme have indeed laid all the groundwork.

Let me review the basic premises of the CPF scheme briefly. In the beginning, CPF was meant to be savings for old age and, as an incentive, contributions into CPF, which are really deferred income, have been exempted from income tax. Tax exemption makes good sense since CPF money can only be withdrawn after the retirement age at 55 years. The use of CPF contribution for consumption of any kind prior to 55 years has always been denied. However, through the years, Government has allowed the use of CPF money for the purchase of homes, investment in stocks and gold and Medisave accounts have been established. The Minister for Labour has stated in Parliament that the use of CPF account for homes actually entails an element of consumption in it since interest payment is a drawdown of the CPF contributions, particularly during the years of soft property markets.

Similarly, instead of using cash which has been taxed, Medisave scheme allows tax-free money to be withdrawn for current medical expenditure. I would say that, in both the home-ownership scheme and the Medisave scheme, the concept of early withdrawal of CPF money for current consumption has been established. Thus, the notion that no early withdrawal of CPF money for consumption has been breached. More importantly, I would say that the concept of tax-exempted money for retirement has already been changed. In effect, through these two schemes, the State has subsidized CPF contributors by providing tax-free monies for consumption which, if not for the CPF scheme, would have been taxed.

This can be illustrated very clearly. For instance, if Government were to decide to reduce the employees' CPF contribution rate, the additional take-home pay would then have been taxed at the employee's current tax rate. Therefore, I would conclude that the Government has already allowed early withdrawal of CPF money for current consumption under very specific circumstances. Other than this, Government has remained very rigid regarding the use of CPF money for other uses such as to tide over an unemployment period or education for children.

During the recession that we have just experienced, there were a fair number of people who have been out of job for a significant period of time. Of this, I am sure there must have been individuals who have used up all their savings and run out of all sources of borrowing but have a sizeable amount of money in their CPF accounts. They are in a situation of having their retirement well taken care of but in the meantime they and their families are living as paupers. While the number of such cases may not be very high, the sufferings of these families going through such rough and trying periods are nonetheless very real. Withdrawal of CPF money to tide them over such things would have been most useful.

I also believe that rigidity regarding early withdrawal is unnecessary since the Government has introduced the concept of Minimum Sum earlier, and this concept is further reinforced with the various announcements in this budget. Let us see what is the Minimum Sum. The Minimum Sum, I would define it as a sum of money which the Government has deemed sufficient for retired people to live on in their retirement albeit on a mere subsistence level. Under the current policies, as long as there is this minimum sum in cash or in kind in their CPF account, the individual is at liberty to do what he wants or what he likes with the rest of the money so long as he is older than 55 years, ie, past the age of withdrawal of CPF monies.

I would say that it is quite obvious that the magic number of 55 as the retirement age is losing its significance as people today are healthier and also live longer. So really for people who are younger and who have more than the minimum sum in their CPF account, there is no strong reason why they, when in dire need, cannot make use of their CPF so long as they are utilizing money in excess of the minimum sum. Also, to allow greater flexibility in the CPF scheme is good. Through this, Government's interference in how people run their lives would be reduced and individuals would be vested with more responsibility in managing their own money. The only problem I can see is that CPF money is tax-free.

To ensure that people would manage their money judiciously, I propose that the concept of tax deferment, rather than tax exemption, for CPF contribution be examined, ie, when the employee puts his money into the CPF account, the contribution is not tax exempted, as it is now, but tax on it will be deferred till the time it is withdrawn. Of course, if the money is withdrawn after age 55, the money would continue to enjoy the benefit of tax exemption. However, if the money is withdrawn before age 55, the money would be considered as income in the year it is withdrawn and subjected to tax. In other words, it is deferred income. The tax payable would then be computed on the total income for that year. Since this money withdrawn will be taxed, I believe we can count on most people, who need to withdraw from CPF, to be very careful about using such money. Government can also stipulate the conditions under which early withdrawal is allowed. These could include hardship for being out of job for a certain period of time and beyond, or for the younger people to stop work in order to go for further studies either locally or overseas.

Let me summarize my ideas on the CPF. Firstly, additional tax free voluntary contribution for those who desire it. Secondly, a tax-deferred scheme to allow for early withdrawal of the money in excess of minimum sum under specific circumstances. Thus, the tax can be used as a regulatory mechanism to regulate early withdrawal.

Let us look at the advantage of the proposed scheme. Individuals who are unemployed for prolonged periods can count on their CPF savings to tide them over tough patches. This is very much like the drawdown of the Consolidated Fund to finance budget deficits. For those who withdraw their CPF money to take care of expenditure at a subsistence level during the period they are out of work, the resultant tax would indeed be negligible. On the other hand, if people were to splurge and use up all their money in excess of the minimum sum, that would be their very own decision. In any event, their old age would be taken care of. For individuals who plan to go for further studies to build a better life for themselves and their families, they can contribute more than the current 25% to shelter their incomes during the years they are working and to withdraw their savings at the reduced tax rate when they are studying.

The use of CPF for children's education has been urged by many fellow Members in this House. In fact, with the recent announcement of the increase in University fees and the prospect of a further increase, it is time for parents to save for their children's education. The Minister of State for Education has, in fact, called on parents to emulate the Americans in saving for their children's tertiary education. However, in the American tax system, it allows for tax relief schemes for savings for their children's education. Perhaps the additional voluntary contribution I mentioned earlier can be used for such purposes. For instance, we can establish an Education account within the CPF scheme itself where individuals can contribute into this particular account and when their children go to school in Singapore, to NUS or NTI, for instance, they can use the money for these purposes, very much along the line of the Medisave scheme, ie, using the savings in the Medisave scheme to pay for their expenses in Government hospitals and private hospitals.

These are my suggestions and I am sure, in order to make them work, they would require thorough examination of the various ramifications. However, if these suggestions were adopted, I believe that the CPF scheme would become a more flexible and a more comprehensive system of savings for retirement.

Mr Speaker: We have one minute left. Let's call it a day.

Debate to be resumed what day, Dr Hu?

The Minister for Finance (Dr Richard Hu Tsu Tau): Monday, 16th March.

Mr Speaker: So be it.