ANNUAL BUDGET STATEMENT

Order read for Resumption of Debate on Question [1st March, 1991],

"That Parliament approves the financial policy of the Government for the financial year 1st April, 1991 to 31st March, 1992.". -[Minister for Finance].

Question again proposed.

Mr Chew Heng Ching (Eunos GRC): Mr Speaker, Sir, after several years of sustained economic growth, the US economy has gone into a recession, reportedly a mild one. The UK economy is in the midst of a rather severe recession. The growth of two other powerful economies, Germany and Japan, have slowed down. The OECD economy as a whole is projected to show a growth of less than 2% this year. The economies of our neighbours, particularly Malaysia and Indonesia, however, remain buoyant. But they are likely to be affected by the recession and the anticipated fall in commodity and oil prices later this year. The impasse in the GATT's talk remains a concern. Much economic uncertainties still prevail after the end of the Gulf War.

Sir, under this world economic scenario, the outlook for the Singapore economy remains uncertain, albeit much slower economic growth. The outlook would have been worse if the Gulf War had protracted. Fortunately, it was shortlived.

In the light of these uncertain economic prospects and the general economic slowdown, the Budget, as presented by the Finance Minister, is a sensible one. It is conservative, it is prudent. It is a Budget aimed at fine-tuning the economy to help those sectors affected by the recession. It is also a Budget with a little pump-priming to the economy.

Sir, to me, the various incentives announced in the Budget reveal two structural transformations taking place in our economy. Both structural changes show that we are on course in our plan to become a developed economy by the turn of the century. The first structural change shows that we are becoming a more services-oriented rather than a manufacturing-oriented economy. The services sector forms something like 55% of our GDP in 1990 compared to 42% in 1980. The share of the manufacturing sector has, however, remained constant at 29% during the same period. This move to becoming a services economy is inevitable given the scarcity of labour and land resources and our strong Singapore dollar. It is also generally in line with the development of most OECD economies where the services sector forms a sizeable proportion of their economic pie. Indeed the formation of the Growth Triangle will further accelerate this transition to a services economy.

Sir, the second structural change in our economy is the foreign component of our national income and that is the gap between our GNP and GDP. The gap based on current market prices has increased from about $0.2 billion in 1988 to about $1.2 billion in 1990, which is a six-fold increase over a period of three years. This shows that our efforts in recent years to encourage Singapore companies to invest abroad have been successful. However, this foreign income component as a percentage of our total GNP is still small at 1.9%. The Government and the private sector must collectively step up their efforts to get more companies to invest abroad. The introduction of tax exempt dividends paid out of foreign income is a good move. However, this move alone is not enough. A major obstacle to companies investing abroad is that they will be taxed twice, once on the profits generated and, secondly, when they try to remit their profits back to Singapore. May I therefore urge the Government to speed up the Double Taxation Avoidance negotiation process with many more countries. This will further spur Singapore companies to invest abroad.

Sir, in recent years, a trend has emerged in our economy which is a cause for concern. Real wages increased faster than productivity growth. In 1990, real wages increased by 6.4% compared to 3.4% for productivity growth. This trend is indeed unhealthy. We have to watch it carefully. We must avoid what happened in the early 1980s when wage increases were so high compared to productivity growth that we lost our international competitiveness and landed ourselves in a recession.

Wage increases are inevitable as they reflect the tight labour market situation. The Government too, as the largest employer of manpower in Singapore, faces the same constraint resulting in wages in the public sector having increased markedly in recent years. And wage increases in the public sector do influence wage increases in the private sector. There have been instances in the past when the private sector tried to match the wage increases in the public sector. I would therefore like to urge the Government to ensure that, in the light of uncertain economic prospects ahead, wage increases this year be as moderate as possible. If the Government takes the lead by moderating wage increases this year, I am sure the private sector will follow.

Sir, whilst I say the budget is generally conservative, there is one aspect of it which is a bold one, and that is the decision to increase employers' CPF contribution by1% in July this year. No doubt, the increase will add on to the high wage costs. This would put further burden on companies, particularly the SMEs which are already facing high wage and rental increases given the scarcity of our labour and land resources. Since economic trends are uncertain until perhaps the middle of this year, may I suggest that the Government consider deferring its decision to increase employers' CPF contribution by 1% till after the second quarter of this year; and if prospects are less encouraging then, increase the employers' CPF contribution by only 1/2% to bring it to 17% instead of 17 1/2%.

Sir, I applaud the Finance Minister for the various incentives announced in his budget to try to revitalise certain sectors of our economy. A reduction of 1/2% CPF contribution from the employees, though small, will help boost domestic demand. So is a reduction in entertainment duty and tourism cess. This will help the retail and the restaurant sectors tide over their current difficulties. Higher Government development expenditure, which is 22% higher than the previous financial year, aimed at improving our infrastructure will help pump-prime the economy.

Sir, the Finance Minister's budget objective to ensure a balanced budget by raising enough revenue to finance expenditure and keeping the public sector lean and trim is a prudent one. Indeed we are among the few Governments in the world that enjoy a small budget surplus every year. It reflects prudent financial management on the part of the Government. Government's total expenditure as a percentage of GDP is currently estimated at 23%. The Minister stated in his Budget Statement that this is below the long-term objective target of 25%. Sir, I would like to ask the Minister what determines the long-term rate of 25%. Why do we set the size of the public sector at 25% of GDP? To me, this percentage share should drop as we continue to privatise the public sector. There is no need for a large public sector as our economy matures. Infrastructural development will eventually taper off. Furthermore, as our economic pie expands, more and more of our national income will be generated overseas as more Singapore companies expand abroad. And there is no need for an equivalent large public sector to try to support this foreign income. May I therefore suggest that the Minister consider lowering the long-term target of Government expenditure to 20% (and maybe even 15%) of GDP.

Sir, I support the programme to set up Management Accounting Systems in all Ministries. This will allow the Government to track costs, identify poor performance, inefficiencies and wastage in the civil service. This exercise though useful must be closely monitored. I would like to caution Ministries against using this exercise as an excuse to increase rates and fees to justify their costs. Alternatively, Ministries could be so cost conscious that they reduce the level of services to the public. If this happens, perhaps the Service Quality Improvement Unit to be set up under the Prime Minister's Office should look into this matter.

In conclusion, Sir, I believe this is the most difficult budget ever drawn up by the Finance Minister. It was prepared in the midst of the Gulf War and conflicting reports regarding the US recession and world economic trends. There are just too many variables, too many unknowns, and too many uncertainties. Because of these, I believe the budget as presented before us cannot be bolder. Any prudent Finance Minister will have adopted a similarly conservative approach.

Sir, I support the motion.

Mr Lim Boon Heng (Kebun Baru): Mr Speaker, Sir, the Minister for Finance has painted a very cautious picture of the economic prospects for the year. And as Mr Chew Heng Ching said he must have had a difficult time since the budget was prepared in the shadow of the Gulf crisis. The land offensive by the allied forces ended only two days before the Budget Statement.

The Minister, however, did point out that we should "be prepared for quick changes in the economic environment". Now, with the Gulf War over, there are prospects of a mini-boom which will benefit Singapore. Still, the Minister had urged that for 1991, "wage increases should be moderate in the face of the general slowdown and uncertain economic prospects". In saying this, he would have in mind the complaints of businessmen that the cost of doing business in Singapore has risen.

As I listened to Mr Chew Heng Ching recounting the increase in wage cost before the recession of 1985/86, I think for someone who just reads or listens to the speech by itself he will come to the conclusion that it was the high wage cost that led to the recession. I think the record should be set straight. It is not wage cost that was the cause of the recession. It was a convergence of three factors - recession in the world economy, recession in the regional economies, and a sharp slowdown in the construction activities in Singapore. Domestically, we had the HDB scaling down its programme from as high as 65,000 units of flats constructed in a year to about 20,000 and this must surely have its effects on the economy of Singapore. But recession is caused by uncompetitiveness. So we should look at the issue on a wider context of total business cost.

According to the Economic Survey of Singapore 1990, the unit business cost index, which takes into account labour and other costs, rose by 7.3% last year. If we compare this with the index as it stood at its lowest in 1987, then there has been a significant cumulative increase in cost. But if we take the decade as a whole, the cost of doing business here has risen only slightly and this must be quite remarkable for any economy.

As is always the case, businessmen would complain about labour costs. Indeed, they have criticised the 1% rise in the employers' contribution to CPF. Such criticism is not justified. I would remind employers that in 1986, workers took the brunt of the recession through a 15 percentage point cut in the employers' contribution to CPF. The 1% restoration this year means that up to now, after several years of good economic growth, only half the cut has been restored. It would be unwise of employers to harp on this 1% restoration. The workers ask: why is it that when a cut is made, it is done in one go, but when it comes to restoration, it is so gradual? I have this word of advice to employers: continuing criticism of the 1% restoration will only develop workers' distrust of employers. So, please stop it. Do not forget that not the full 15 percentage points will be restored. Only 10 percentage points will be restored. So this is a major concession of five percentage points.

Government constantly monitors our wage cost competitiveness with other NIEs. The index shows that last year, our wage cost competitiveness was about the 1983 level. Surely this is not bad. A major part of the rise in the index was due to the appreciation of the Singapore dollar vis-a-vis the US dollar and the currencies of the NIEs. The appreciation against the US dollar was 8.6%.

Now, employers will point out that last year, average monthly earnings rose by 9.4% as reflected by what Mr Chew has said. Since the consumer price index rose by 3.4%, this means that the real wage increase was 6%, exceeding the productivity growth of 3.4%. And employers will say that this trend will erode our competitiveness.

But last year's wage increase reflects two things: companies did well, and there was a persistent labour shortage. So in this kind of situation, the balance of advantage when it comes to negotiations lies with the unions and the workers. And unions could have pressed home the advantage to get high built-in wage increases. They did not. Instead, they acted responsibly and agreed to contain the built-in wage increase within productivity gains. The NTUC's survey of wage settlements for 1990 shows that the built-in wage increases averaged 6.7%. Accounting for inflation of 3.4%, the real built-in wage increase was only 3.3%, just a shade below the productivity growth of 3.4%. The built-in wage increase has lagged behind productivity.

How does one explain the 9.4% rise in monthly earnings then? The 9.4% rise in monthly earnings included bonus payments and higher overtime. Bonus payments vary with the profitability of the companies, and overtime depends on how much business and how much work companies have. So this shows how flexible our wage system now is.

Really, I think that employers ought to be showing their appreciation for the responsible action taken by our unions and workers.

Another indicator which employers would point out is the rising wage share in nominal GDP. But, again, this GDP share is about the 1982 level. There is also no magic number which will indicate when a danger point is reached. The wage share in nominal GDP varies with the mix of the economy. The wage share in nominal GDP of developed countries is higher than ours. As an economy moves more and more into services, the wage share in nominal GDP can be expected to rise. For example, the wage share of value added in manufacturing hovered between 28% and 32% in the past 10 years, except during the recession when the wage share rose to 38%. On the other hand, the wage share in value added in the restaurant and hotel industry is as high as 60%, and during the recession it rose to about 70%. The wage share in the retail trade is typically about 45%, but went up to 60% during the recession.

There have been significant changes in our economy. In the last 10 years, manufacturing accounted for about 28-29% of GDP. Commerce has stabilised at about 17%, dropping from 22%. Transport and Communications share has risen from 12% to 14%. Financial and business services have risen sharply from about 20% in 1980 to the current 32-33%. So this shows that the economic mix has changed quite significantly. The usefulness of the wage share in nominal GDP as an indicator of wage cost competitiveness is therefore limited.

The Ministry of Trade and Industry has, in the Economic Survey of Singapore 1990, included an essay on "Profitability Indicators" which stresses more on the bottom line, the margin of profits and the trend of profits. These are better indicators of our competitiveness as a place for doing business. What the essay shows is that we are doing all right at the moment, though there is a down trend.

One thing must be clear. Our objective as a Government must be to improve the standard of living of our people. In this decade, we aim to come of age as a developed nation. This means wage levels of a developed nation, not of an NIE or of a developing nation. So the economic policy must encourage two things:

First, develop the education and skills level of our people; Second, upgrade business to higher value added activities. This year's budget has these two objectives. I therefore support the financial policy of the Government. Employers and workers should work together to achieve these two objectives.

Now, what can we expect of wage increase this year? Wage negotiations will commence mid-year. Much will depend on how the economy performs between now and then. If the post-war mini-boom takes off, wage increases should be comparable to last year's. The labour shortage persists. In this situation, last year's principle that built-in wage increases should lag behind productivity growth would be a sound principle.

Mr Chin Harn Tong (Aljunied GRC): Mr Speaker, Sir, this year's budget is a painless budget, which is not a surprise. For several years past, we had painless budgets, some more, some less. This year's budget is also a hard-nosed businessman's budget, which is also not a surprise. Our Government has never made a secret of its commitment to making Singapore an economic success.

Sir, the budgetary proposals for a more resilient economy include further tax incentives to boost the financial sector and also to encourage our local companies to go abroad and to do business. Other proposals will result in more funds being channelled towards education and investments in infrastructure, which means better schools and the upgrading of old HDB flats.

To top it all, the Minister for Finance has not forgotten to tie up his budgetary package with a principle our Government holds sacred, that is, a balanced budget with more reserves for a rainy day. Despite the widespread expectation of an economic slow-down which can only have been worsened by the destructive and violent Gulf War that ended recently, the fiscal year 1991 obviously does not qualify as a rainy year. Although this year's surplus is the lowest since 1987, our Government evidently believes there may be a much more rainy year ahead, so that we should save while we can.

This year's budget would, therefore, seem to have been designed to take care of Singapore's best interests. That was my first impression when the Minister for Finance presented his budget in Parliament. At the same time, there was a little thought nagging at the back of my head, whether something has been overlooked in the budget. The next day I read in the newspaper, ie, the Straits Times dated 2nd March 1991, the headline, "Shenton Way Budget" and the thought clicked in my head. It is an apt description of the budget as the banks and other business corporations that line both sides of Shenton Way stand to benefit from the budget. At the same time, we all know without fully appreciating that the Trade Union House is part of the Shenton Way set-up. Perhaps the Trade Union House is dwarfed by the towering blocks of offices around it. In the same way, I am afraid, the budget may be perceived to have overlooked the contributions of workers to the economic success of Singapore. Perhaps, the modest wage packets of workers are dwarfed into insignificance by the profits and reserves of the banks and other corporations along Shenton Way.

Whether or not this year's budget is business-oriented, it is perceived by workers as such, and there seems to be a basis for it. For example, the budget provides for an increase in the employers' CPF contribution by 1% to 17.5% and the CPF contribution by employees to be reduced by 1/2% to 22.5% from 1st July 1991. This is to be welcomed as the workers' take-home pay will be increased accordingly so that they can have the means to enjoy a high quality of life. On the other hand, the CPF contribution by employers will be increased by only 1% to 17.5%, which is still 2.5% points short of the targeted 20% CPF contribution by employers. This is an increase of only 7.5% percentage points over five years from the 10% contribution rate in 1986. This means that the restoration of employer's rate of CPF contribution has been relatively slow when compared to the sudden huge slash from 25% to 10% in 1986 to help in the economy's recovery from the 1985 recession. We can only hope that there is no recurrence of another economic downturn of the same degree of seriousness, otherwise the workers will likely find their employers' CPF contribution reduced overnight from 17.5% to 10% and will have to wait for another five years to have it restored.

Sir, I do not think I am being too far-fetched in what I have said about the relative speeds of cutting and restoring CPF rates. Some businessmen have commented in the press about this one percentage point increase as being another increase in business cost. It is an attitude that is apparently shared by the Finance Ministry. In the words of the Finance Minister, "CPF increases are part of wages" and businessmen are expected to "conduct their collective bargaining accordingly". In other words, the increase of one percentage point is a wagecost and, therefore, an item of business cost. However, CPF increases and CPF reductions seem to obey different rules in collective bargaining. When employers' CPF contribution was cut in 1986 from 25% to 10% in order to help employers tide over a difficult period, employers strongly argued that the CPF was a statutory business saving and not a saving in wage-cost.

Of course, it is understandable for employers not to want the CPF cut to be shown in their accounts as an increase in operational profits. In other words, employers did not want to pay out as bigger bonuses from increased profits that they had saved from the CPF cut in 1986. This has now given rise to a peculiar situation. Employers are being urged to use any CPF increase against unions in wage negotiations. But employers were never likewise advised to concede a CPF cut to unions in wage negotiations. Sir, for unions, it seems to be a situation of "Heads you win, tails I lose". I do not think there is a need for the Ministry of Finance to molly-coddle employers to this extent. They can look after their own interest very well.

It is the workers who need a helping hand from the Finance Ministry. In that sense, the 5% personal income tax rebate as a reward to individuals for contributing to Singapore's success last year is much to be welcomed. However, it is the highly-paid professionals, managers and executives who will enjoy the rebate the most. To benefit the ordinary workers who form the bulk of our labour force and population, the Government should consider a tax revision of a more permanent nature, such as raising the personal income tax allowances to be more in line with the present day cost of living.

Further, the increase in personal tax allowances resulting in lower tax payments can be seen by the people as a form of wealth distribution and appreciated accordingly.

On the same basis, I hope the Government will give very careful consideration to the effect of an imposition of the proposed consumption tax on the vast majority of Singaporeans in the lower income group. Unlike the direct personal income tax, consumption tax and other forms of indirect taxes hit the poor harder than the rich because they are levied in proportion to the amount of goods and services used and not in proportion to the level of income of the users. Of course, the plausible argument is that it is only fair people are taxed according to their level of consumption. But we must remember that, while many workers have their earnings regulated by the National Wages Council, the entrepreneurs, the professionals, the managers and the executives have their profits, dividends and earnings regulated only by the free-play of market forces. These people, unlike the workers, can pass on the full burden of the consumption tax to other consumers, most of whom will ultimately be the workers and their families.

Sir, I hope our economic performance will greatly improve by next year's budget so as to enable the Minister for Finance to make full use of the potential of the budget for helping the workers of Singapore.

In the meantime, I support the Budget for fiscal year 1991.

Mr Choo Wee Khiang (Marine Parade GRC): ( In Mandarin): Sir, this budget has been praised by many as one which is hard to come by. It reflects the consistent style of our Government and is, at the same time, a caring one. Basically, there are not many changes from the previous year's budget. I could see that the response from the public is also not very enthusiastic. Of course, the working class will be happy because they will enjoy a 5% rebate. But the businessmen would feel that this budget is too conservative and too prudent. Basically, businessmen hope that the corporate tax could be reduced and that the employers' CPF contribution should not be changed. Because the United States is in the midst of an economic recession, the Gulf War has just concluded and its actual impact on the world economy is still uncertain. At the same time, as the Minister for Finance has said, last year we had more than 3% inflation and also our business community feels that the total cost of doing business here is going up because of higher wages, utilities, communication and freight charges. They fear that this may result in a loss in our international competitiveness, thus resulting in poorer economy and business performance.

As for the businessmen's view of the budget, I am only partially in agreement with them because I do agree that we have to maintain our competitiveness. But we must also look after the people in our country. Of course, we want to look after the welfare of our employees, but the company must be profitable before the employees could enjoy the fruits of their success. Many are feeling the effect of a tight labour market. We are looking for labourers, just as many other countries are doing so. Some feel that the labour shortage could be temporarily relieved by importing some foreign workers. In the interim period, I feel that the Government should give more consideration to various aspects so as to reduce the burden on our people. I sympathise with our local businessmen. I am a businessman. So I hope the Government would pay more attention to the feelings of our businessmen so that Singapore would retain its competitiveness. The progress of the NIEs and the developing industrial countries in this region should be closely monitored as their progress has got a very significant effect on our economy. From another perspective, we can see that the 1990 budget had its effect. We had surplus and our economy had good growth. So there is no need for us to change our financial policy. However, I hope that the Government would pay more attention to our increasing inflation rate. Korea and Taiwan are two very good examples.

In this year's budget there are no further incentives for our young couples to have more children. Of course, having children is a family affair. It is a decision between the husband and the wife. However, for our young couples to have more children, particularly the professionals to have three, four or five children, then the wife may have to give up her job in order to look after the children. In this way, the income of the family would be reduced and the husband will have to bear the burden to pay for all the expenses in the family. This is indeed a very heavy burden. I suggest that the Government consider extending the tax deduction for the third and fourth children to the husband, because this tax relief is an encouragement for the couples to have more children. I think it should be extended to the husband as well. In order to have better effect, we should provide better child care services, such as creches, nursery classes, and a better education system. The Minister for Education has announced a new education system to delay streaming until Primary Four and also for vocational classes to be improved. This policy has been well received by the parents. I hope that with better facilities, Singapore will be a better place to live in. Under the circumstances, our young women will consider having more children and then later on to go back to work when there are sufficient facilities for their children to be looked after.

Another point I would like to raise is the tax relief for handicapped dependants. I feel that this is still not enough. We all know that looking after children is a labour-intensive job. We have to spend a lot of time and energy. More so, if we have to look after our handicapped dependants. A deduction of $3,500 is definitely not enough. The Government should provide better tax incentives and also more facilities to look after these handicapped people. Of course, we do not want to have a radical welfare state, but we must have a society where one could feel that it is caring and loving.

On our home-ownership scheme, our result has been remarkable. It is something that we are proud of. However, there are still some young couples in Singapore who are having problems with housing. Why? This is because their combined income has exceeded the ceiling for the purchase of a HDB flat and, at the same time, they find that they could not afford to buy private property. Somebody has suggested to me that the Government should give tax deduction on the interest they have to pay for their housing loans. By so doing, we would encourage more people to buy their own property and, at the same time, it would also help to prevent young people from thinking of migrating to other countries.

I would also urge the Government to consider raising the ceiling for self-employed people who wish to make voluntary contribution to CPF, up to the contribution rate for employees, because the self-employed people also wish to have some savings that they could use in old age.

Finally, I hope that the Minister for Finance would, while encouraging our businessmen to venture overseas, also consider giving tax incentive to employees who are posted overseas on long-term basis. Singapore is their home. They have to look after their children and maintain their families. However, because of their work, they have to be away from home. I hope that the Hon. Minister for Finance would consider giving them some tax concessions.

Mr Speaker, Sir, I support the Budget.

Dr Arthur Beng Kian Lam (Fengshan): Mr Speaker, Sir, the Minister for Finance has been candid and transparent in his Budget Statement and in his analysis of the problems facing the economy. Put in a nutshell, the problem is one of rising business costs. This problem is being discussed by businessmen, entrepreneurs and investors in forums ranging from the coffeeshops to the boardrooms. The Minister has confirmed that in 1990, business costs rose by 7.3%. Even more significant, the Minister has warned that this has brought business costs back to the level of 1982 - the pre-1985 recession scenario. Again, as in the scenario of 1985, the main factors (and here I refer to the local factors or indigenous factors) contributing to the rising costs of business are:

(i) increase in labour cost;

(ii) increase in rentals; and

(iii) increase in cost of services, such as transport and utilities.

Labour costs

The labour costs have increased tremendously. Nominal wage rose by 9.4%, translated to a real wage increase of 6.4%. The wage share in GDP rose from 42% in 1989 to 44% in 1990. Although this is below the previous peak of 48%, this is indeed cause for concern as the trend seems to be for it to rise further. One only needs to look at the advertisements for employees in the newspapers to confirm the complaints of businesses that they are short of labour across the board - from factory operator level to clerical staff and executives. The Minister has warned that we should "watch it carefully", that is, this trend of increase in labour costs.

Other Costs

Rentals have also risen sharply. In the Central Business District, rental increases of 200-300% are not uncommon. Many small businesses, especially those in retail, have been very badly affected. The greatest cause for concern is that many of them are our own citizens.

Singapore's infrastructural cost has also increased with the increase in labour and fuel costs. The services highlighted by the Minister are transport and utilities. These services also affect all our workers.

Faced with this scenario, the business community is asking: "What is the solution?" The scenario is so similar to the 1985 recession that to many, it is tempting to prescribe the same treatment. However, before we over-react, perhaps the Government should take the lead in providing pro-active action or advice. It is only the Government that has the resources to mount an exercise akin to that of the Economic Committee set up in 1985 to analyze the problems and propose solutions. A global perspective of the problem and its solutions is best put forward by the Government with the private sector actively participating. As Mr Lim Boon Heng has said, there should be a tripartite approach involving Government, employers and labour.

I must reiterate that the private sector is very anxious (I am sure that the Government is too) for a solution. One not uncommon statement that reflects this anxiety is this: "In a recession, there is no business. In good times we are bogged down by insufficient labour, high labour costs and high rentals. When is it ever a 'good time'?" This statement is of course cynical, but reflective of the mood. The private sector is comforted that the Minister for Finance is acutely aware of the problem of rising business costs, but nowhere in the Budget Statement is it clearly stated what steps the Government is willing to take to rectify the problem. We all accept that external factors are beyond our control. However, as the 1985 Economic Committee had shown, there are some factors within our control - more specifically, within Government's control. Taking a wait-and-see attitude is only increasing the anxiety level. Statements like: "The Government cannot cocoon businesses from the resource constraints that we face as an economy" are not absolute truths, and give little comfort. The recession of 1985 has shown that active and timely Government intervention (Government acting as the catalyst) is important in the resolution of the problem.

Mr Speaker, Sir, paragraph 33 of the Budget Statement [col. 247] puts this Government's approach to the problem more accurately than the previous statement that I quoted. The Minister reiterates, in paragraph 33, this Government's belief in a free market mechanism, whilst acknowledging that "the market mechanism is not a panacea", and that it will "take some time to work out proper schemes to harness market forces constructively, and design mechanisms which are as distortion free as possible".

The labour problem and our policy towards foreign workers deserve high priority for re-examination. The reason for the increase in foreign worker levy has been explained ad infinitum. However, the formula has not worked to resolve the problem in a wider perspective in that labour cost is a problem today again, as in 1985. The levy may have helped to contain the narrower objective of controlling the number of foreign workers in Singapore. To compound the problem, there are still sectors, eg, in construction, where labour shortage is still acute. I will elaborate on this problem further in the debate under the Ministry of Labour. We need to re-examine our whole philosophy regarding guest-workers.

Sir, the question of high rentals also needs to be re-examined. Much as tenants today do not relish high rental increase of 200-300%, likewise, landlords and investors do not relish the "below-cost" rentals of 1985 and 1986. To make for a smoother economic cycle, perhaps we should indeed take the advice of the Minister to take this opportunity "to work out proper schemes to harness market forces constructively". Yes, we have taken years to do away with the archaic "rent control" laws. Can we put in place a more rational system by persuasion or, as a last resort, by legislation? This Government can be very successfully persuasive if it wants to, so we may not have to resort to legislation. As the property market is now around its peak, perhaps all can be persuaded to accept a ceiling figure for fluctuation when it comes to renewal of rental. I am sure that the experts (property consultants and economists with a wider perspective) can propose a range, if not a fixed figure. Thus, both landlord and tenant can live together, and comfortably. Perhaps there are models overseas that we can follow. In this area of property management, Government is a key player, as a major landlord, and thus can do much to influence private sector's attitude.

In conclusion, Mr Speaker, Sir, I wish to say that the recession of 1985 is still fresh in our minds. The painful sacrifices that all had to make is a stark reminder of the importance of the Government, private sector and labour working together. If the scenario and problems facing us now are vastly different from that in 1985, I would be more comforted. Alas, they are similar - high cost of business due to increase in labour costs, increased costs of services and rentals. We should now press on, with the advice of the Minister, "to work out proper schemes to harness market forces constructively, and design mechanisms which are as distortion free as possible". This is our best insurance for a prosperous future.

Mr Speaker, Sir, I support the motion.

Dr Wong Kwei Cheong (Cairnhill): Mr Speaker, Sir, I support the Budget Statement announced by the Finance Minister. It is an excellent Budget and will benefit almost everyone. I would like to comment on the following:

(1) CPF Increases

As announced by the Finance Minister, with effect from 1st July 1991, the employers' CPF contribution rate will be increased by 1 percentage point to 17 1/2 per cent. The employees' rate will be reduced by half a percentage point, from 23% to 22 1/2%. The total CPF contribution rate will therefore increase by half a percentage point, to 40%. This CPF rate increase of 1/2 percentage point is small compared to the 9.4% increase in average monthly earnings over last year. However, this 1/2% increase is large compared to the 1990 overall labour productivity increase of 3.4%, as reported in the Economic Survey of Singapore 1990. In 1989, the average monthly earnings increased by 9.8% compared to a productivity increase of 4.8%. 1990 was the second successive year of wage increases exceeding productivity increases since the 1985 recession. As shown so clearly by Chart 4.6 of the 1990 Economic Survey of Singapore, one of the main causes of the 1985 recession was the fact that annual wage increases exceeded productivity increases for several years prior to 1985. I am afraid, Mr Speaker, Sir, we are now repeating the same mistake. If our wage increases continue to exceed productivity increases for a few more years, Singapore's competitiveness vis-a-vis the other Newly Industrialised Economies (NIEs) will be completely eroded. Singapore will be hit by another recession.

It is not too late to reverse this trend, Mr Speaker, Sir. Singapore's competitiveness and Singapore's future depend very much on our ability to keep our productivity increases above our wage increases as shown so clearly by our economic performance of 1986, 1987 and 1988.

This is impossible to achieve if we continue to maintain a total CPF contribution rate of 40%. This is simply too high. Mr Speaker, Sir, may I request the Finance Minister to seriously consider reducing the total CPF contribution rate in his next Budget statement before he is forced to do so by another recession.

(2) Entertainments Duty and Tourism Cess

The proposal to reduce the duty on entertainments from 10% of the payment for admission to 5% will be strongly welcomed by the travel industry. Tourist arrivals have slowed down as a result of the Gulf War, and occupancy rates of many hotels have been reduced to as low as 50%. With this reduction in entertainments duty, more shows can be organised, leading to a more vibrant, cultural and entertainment scene in Singapore. We can expect to see more big-time entertainers, better quality international sports competitions such as wrestling, boxing and golf, and improved cinemas. This will definitely benefit Singaporeans as well as helping to increase tourist arrivals. Hotel managers will cheer.

What is more important for the travel industry is the reduction of the tourism cess from 4% to 3%. According to Table 8.3 of the Economic Survey of Singapore 1990, the tourism cess for 1990 was estimated to be about $89 million, an increase of 60.4% over that collected in 1989. This is a hefty increase and has partly led to the increase in the cost of having a holiday in Singapore.

The Finance Minister has stated that the tourism cess reduction will only be implemented for a year from 1st April 1991. May I suggest that in order to keep our tourism industry on a competitive basis, the tourism cess should be kept at 3% for a few more years.

(3) Local Entrepreneurship

Once again, the Finance Minister has ignored the plight of local entrepreneurs in their struggle for survival in Singapore's foreign dominated and very competitive business environment. The tax incentives for companies announced this year will benefit mainly the bigger and more established companies, many of which are Government owned, directly or indirectly. How many local companies, for example, can benefit from the tax exemption on dividends paid out of foreign income? Generous tax incentives were also given to banks, trust companies, securities companies and shipping companies. May I suggest that the Government seriously consider granting some tax incentives for the promotion and development of local entrepreneurship in Singapore.

The 1990 Economic Survey of Singapore seems to indicate that local enterprises are performing well, stating that local enterprises account for 94% of establishments, 71% of total employment and 59% of total value added in the manufacturing, commerce and services sectors. Unfortunately, the Government choose to define local enterprises as companies with more than 30% local equity.

Using the more conventional definition of local enterprises as companies with more than 50% local equity, the picture is not so rosy. In fact, Lawrence B. Krause, Koh Ai Tee and Lee (Tsao) Yuan in their book "The Singapore Economy Reconsidered" have shown that foreign enterprises, which is defined as enterprises with more than 50% foreign equity, dominate the Singapore economy. In the manufacturing sector, for example, over the years 1975 to 1984, foreign manufacturing enterprises comprised only 23.1% of establishments, but generated 84.2% of direct exports, 72.9% of output, 65.1% of value added, 67.2% of capital expenditure and 54.6% of employment. Similarly, in the commerce and services sectors, foreigners played important roles.

We should not begrudge the economic contributions made by foreigners, especially MNCs, that have invested so heavily in Singapore. But is it not time that the Government paid more attention to the problems faced by local entrepreneurs? For example, all companies in Singapore face an acute labour shortage problem. I am not asking the Government to consider giving double tax relief for the foreign workers' levy paid by local companies. What I am requesting is that the Government should consider more leniently applications by local companies for foreign workers.

Of course, some tax incentives would be useful. For a start, I hope the Finance Minister will review the proposal made last year by Mr Chandra Das, MP for Cheng San GRC, that the earnings of local companies of less than a quarter million dollars be taxed at a lower rate. Finally, Mr Speaker, Sir, I still hope that the Government will seriously consider setting up a separate agency to look after the interests of our local entrepreneurs. The EDB has done a good job in the economic development of Singapore, but their primary concern is with the MNCs. A separate statutory board will go a long way in dealing with the problems faced by our local entrepreneurs. I hope that the Government will review this issue.

Mr Speaker, Sir, I support the motion.

Mr Leong Horn Kee (Thomson): Mr Speaker, Sir, the budget proposed for the new financial year shows that our economy has been functioning at an even keel. The Minister for Finance has not proposed any dramatic changes, tax incentives or tax deterrents to alter the state of the economy. In fact, one could see that the Minister's main focus of attention was external. He stressed on the need to build external linkages and international networking. So, most of his new tax incentives are favoured towards expanding international activities of the business sectors, such as,

(1) the tax exemption on dividends paid out of foreign income;

(2) the Approved International Shipping Enterprise (AIS) scheme;

(3) the tax deduction for General Provisions made by banks;

(4) the tax incentive for services provided by trust companies; and

(5) the tax incentive for underwriting and managing international securities issues. In comparison to these five tax incentives, on the home front, little is given out except for the tax relief for handicapped spouse and the property tax refund for vacant residential buildings undergoing building works.

Sir, while the Minister's attention is directed at stimulating international businesses for Singapore, I feel that he should keep an eye on the domestic scene as well. As he has said in his Budget speech "there were signs that strong demand had led to overheating in the economy." Therefore, there is no need to sound the alarm bell yet. But there are obvious demand-pull and cost push factors that will cause the economy to overheat. Some of these factors are, as have been mentioned by other Members of Parliament, the tight labour market, a strong Singapore dollar, and also the higher cost of doing businesses such as higher wages, rentals, telephone and utilities bills.

The result is that we saw a higher inflation rate last year. The official figure quoted from the Consumer Price Index is 3.4%. As this index only measures the prices of basic services and commodities, the real inflation rate for the average Singaporean (who has been labelled as a middle income earner or a middle class person), his inflation index in fact could be higher, between 5% and 7%.

Since the Gulf War is over, it is expected that the US and other western economies will become buoyant arising from the extensive re-building of Kuwait and Iraq. Singapore will enjoy the spillover effects of this overall fast recovery of these Western countries. The projected 3% to 6% growth for 1991 may become once again underestimated. I would urge the Minister and his economic planners to keep a close watch on the state of our domestic economy. And particularly, to avoid the over-use of the price mechanism and market forces justification to increase the rates and fees controlled by the Government.

Sir, I wish to comment specifically on three issues:

(1) The comprehensive goods and services tax or commonly known as the consumption tax;

(2) The shifting of long-term CPF rates; and

(3) Some suggestions on the Edusave Scheme.

Comprehensive Goods and Services Tax

The proposed consumption tax is generally unpopular. It is natural that any new tax scheme will meet with strong resistance. Each person is fearful of being taxed more. A similar experience was encountered with the Poll Tax in UK and the consumption tax bill in Japan.

In Singapore, the consumption tax and the proposed charging of telephone bills by time-usage are not warmly welcomed. The people are concerned that they would see the opening of the Pandora's box. Even though assurances are given that the tax scheme and the time usage charge for telephone bills will be equitable, there is naturally much worry that the new systems, once in place, will facilitate the imposition of higher charges by the Government as time goes on.

Sir, as there will be a White Paper on this subject, we shall leave the debate till then.

CPF Contribution Rates

Many Members have spoken on this subject. It is a stated Government policy that the long-term target is 20% contributions each from both employers and employees. From 1st July this year, the CPF rate will be 17 1/2% for employers and 22 1/2% for employees. I would like to suggest a review of the target level of 20% each from both sides. I suppose the objective of equal contributions from both sides is to be equitable. As the shift of contribution weighs towards the employers and away from the employees, there will be the benefit of higher take-home pay for the employees. However, we must be mindful that as the employers pay higher CPF rates, their cost burden is increased. As our companies' competitiveness gets eroded due to higher labour cost, the viability of these businesses will be adversely affected. The previous rate by the employers was 25%, which was obviously untenable, as it was part of the reason that contributed to the recession in 1985. I am not sure, Sir, whether the 20% that is targeted for the long term will also be tenable for the employers. What I am suggesting is that perhaps the Government should do a very detailed study on whether such rates are equitable to both the employees and the employers and whether they will have any overall beneficial or adverse impact on the economy.

Ultimately, the adverse impact will also affect the employees. The slowdown of business can lead to lower year-end bonuses. In drastic cases, retrenchments may result. As an employee myself, I would naturally like to enjoy higher take-home pay. However, taking into account the global considerations that local companies must maintain their cost competitiveness, I would like to suggest that the Government make a review of the target contribution levels for both employers as well as employees, and also to take a very cautious approach to future adjustments in CPF contribution rates.

Edusave Scheme

I must state that I fully support the Edusave Scheme. It is bold and a very creative stroke of genius. The objective of the Scheme is to demonstrate the Government's commitment to invest in our people and to provide equal opportunities for each new generation. As I said earlier, the scheme is bold and creative, but I do have one major lament on it. I strongly feel that the shortcoming is that the contribution is being made by the Government only and no counterpart commitment or contribution is expected from the people themselves. It is structured too much of a handout, a give-away.

We, as parents, recognise that investing in our children's education is paramount. Therefore, the Government should allow the parents to demonstrate a commitment on their part as well. I would like to make the following suggestions:

First, to raise the eligibility age from 16 to 18 years old. I feel that the additional two years of 17 and 18 years old of a child's education is in fact the most critical stage. Moreover, the costs as well as the benefits of extra-curricular activities and enrichment programmes will be higher at this stage.

Second, as a demonstration of their commitment, and to enable more funds that can be utilised for the child's educational enhancement programmes, parents should be permitted to make a counterpart contribution, up to the amount made by the Government. This counterpart contribution should be voluntary as not all parents have the means to make such payment.

Third, as a gesture of encouragement, the counterpart contribution from parents can either be in cash or from their CPF ordinary account. If the contribution is in cash, I would like to suggest that it be tax deductible. The Minister has already proposed that the parents' contribution for the fourth child be tax deductible. If it is from the CPF account, it can only be drawn from the portion of the CPF account which is allowable for investments. This way, Sir, there will be no additional demand for higher CPF contribution. The parents can either decide whether to invest in stocks and shares, or put their CPF money in their children's education.

On this note, may I conclude by hoping that with the ensuing peace after the Gulf crisis, the world will enjoy rapid economic recovery and Singapore will see continued better times ahead.

Mr Lew Syn Pau (Tanglin): Mr Speaker, Sir, as a Member of the Feedback Unit Panel, I was privileged to chair the last Feedback Unit dialogue session on the budget last week. The session was attended by representatives of the chambers of commerce, trade associations, companies and the NTUC. I would like to take this opportunity to share with this House the main points of the feedback received, followed by my own personal views. Let me say from the outset that I do not necessarily agree with all the feedback received.

Feedback Unit Dialogue Session

Finance Industry

The finance industry was generally happy with the budget and welcomed the incentives offered by the Government and is looking forward to the Government releasing more information on these incentives soon. Finance companies, however, would like to know whether they can be included for the tax deduction on general provisions as they are also required to maintain adequate reserves to cushion themselves against unforeseen losses in their loans.

Manufacturing and Construction Industry

Manufacturing companies, on the other hand, were disappointed with the budget. They felt that the budget did not address the two current problems faced by the industry, namely, high business costs and shortage of labour. They were unhappy with the 1% increase in employers' CPF contribution rate and the introduction of the water conservation tax. They feared that as a result of these increases, the manufacturing industry would soon lose its competitiveness. They wonder whether the Government has any long-term plan or strategy for the industry. And if it does, the Government should make clear its strategy for the industry.

Manufacturing companies expect a slower growth this year. As the recession in the US started last year, they expect that they will be hit by the recession in the second half of this year. They were hoping that the Government would introduce some measures to help them tide over this difficult period. At the same time, due to the strong Singapore dollar, their business cost has gone up even before the new tax increases.

The manufacturing industry supports the Government's call to relocate operations to the neighbouring countries where labour cost is cheaper. However, they find that there is little incentive from the Government for them to do so. In fact, companies which have relocated part of their operations overseas face problems with the training of their workers. Companies which need to train the workers of their overseas plants or branches are presently required to pay the foreign workers levy for these workers when they send them here for training. At the same time, these workers also count towards the 40% quota on the total number of foreign workers for the company. They request that these foreign workers on training be exempted from the foreign workers levy and be excluded from the 40% quota. The Ministry of Labour could introduce regulations to prevent possible abuse by companies.

Both the manufacturing and construction industries were also unhappy with the Government's policy of controlling the influx of foreign workers through both the foreign workers levy and the foreign-to-local-worker ratio of 40%. They felt that since the Government has already fixed the ceiling of foreign workers to determine the supply, there is no further necessity for the high foreign workers levy which only serves to raise the cost of doing business here.

Corporate and Property Tax.

The business representatives were also disappointed that there was no reduction of the corporate tax rate. They disagreed with the Finance Minister's statement that our corporate tax rate is among the lowest in the world. They quoted corporate taxes being lower in Hong Kong and Taiwan. The long-term tax rate recommended by the Economic Committee is 25%. Based on the present tax rate of 31%, it appeared to them that we are still very far off from the long-term target rate of 25%. They had also expected property tax, which is presently higher than Hong Kong, Malaysia and Thailand, to be reduced further so that investments in property would become more attractive, especially in view of revaluations of property carried out by the Government.

Overseas Earnings.

The business representatives also felt that an across-the-board tax exemption could be given for overseas earnings repatriated to Singapore rather than on a case-by-case basis. In so doing, more funds would be remitted to Singapore for development purposes. At the same time, tax breaks could have been given for expenditure incurred by Singaporeans working overseas, eg, such as expenditure on housing rental. This type of incentives would encourage more Singaporeans to work abroad.

I would now like to give my own views of this year's budget which I consider a cautious and conservative one. There has been a great expectation that the corporate tax rate would be reduced this year in view of the economic slowdown, because the Economic Committee had recommended a long-term corporate tax rate of 25%. It is not clear whether the Government has accepted that as the long-term tax rate to attain. I would like to suggest that the Government states publicly the long-term tax rates, both corporate and personal, that it is striving to achieve, and also the time frame for achieving it. This will help companies, and even individuals, in their long-term planning.

As for personal income taxes, most of the lower income earners were disappointed that the tax reliefs for the taxpayer and the family members have not been raised. With rising cost of living, especially in keeping children at school, lower income earners are shouldering relatively heavier tax burdens than before if these reliefs are not adjusted.

Presently, the relief for the first, second and third child is $1,500 each, and for the fourth and fifth child born before 1st August 1973, it is $300. For the fourth child born on or after 1st January 1988, the relief is $1,500, but there is nothing for the fourth or subsequent child born between 1st August 1973 and 31st December 1987. I find this regulation inconsistent with our present population policy. I feel that the Government should simplify this tax relief to $1,500 for every dependent child under 16 years of age, or if over 16, still in school, college or university. Why do we keep penalising those parents who, on hindsight, have done a great service to the country with four or more children?

Similarly, for contributions by parents to the fourth child's Edusave scheme, there seems to be no compelling reason why we should not allow tax relief for contributions for the fifth and subsequent child too. The amount involved is minimal, but the gesture would clarify the Government's population and education policies.

There is also a case for the personal tax rates to be lower for Singaporeans than permanent residents or foreigners. The differential need not be too wide, say, 1-2% in favour of Singapore citizens. This is necessary, in my view, to convince non-citizens that there are advantages of being Singapore citizens. Right now, many permanent residents who have lived in Singapore for a long time are reluctant to take up Singapore citizenship as they feel that the obligations outweigh the perceived benefits. While the benefits are almost identical, they prefer to remain as permanent residents so that they can enjoy the best of both worlds, ie, their host country as well as their home country. This problem should be addressed so that Singaporeans will feel more appreciated and proud to be Singaporeans.

I am pleased to note that a White Paper on the Goods and Services Tax (GST) will be released soon. I urge the Government to take the opportunity to do a comprehensive review of all income taxes when the GST is studied and the machinery put in place later.

With these comments, Mr Speaker, Sir, I support the Government's financial policy for the year 1st April 1991 to 31st March 1992.

Dr S. Vasoo (Tiong Bahru GRC): Thank you, Mr Speaker, for allowing me to join in the debate.

Sir, I would like to support the budget statement. I would also like to commend the Minister for Finance for a painless budget which seeks to strengthen Singapore as a financial centre. One may ask why is the budget painless. It is painless because many of the increases were done outside the budget period. There is nothing more to increase and therefore I would think that it is painless in nature.

Sir, the increase has been very insignificant for the ordinary wage earner. You may ask what is in store for the ordinary wage earner. I think there is nothing much in store, except for the 5% tax rebate which has been offered. This is not enough to even buy two plates of nasi goreng.

Sir, the Minister would have relieved many people if he had announced an increase in personal relief, an area which has not been reviewed for a long time. The question of personal relief is a recurring theme in many people's discussion in each budget. I am sure if the Minister goes round the constituencies, he probably would have an earful on the need to review personal relief itself. This has not been done for the last 20 years or so. People are looking forward to a change in personal relief much more than the small tax rebate given over the last two years.

Sir, the cost of living has risen as a result of increased cost in the purchase of some main public services, such as transport, health, education and housing. Our inflation is on the rise and this is around 3.4% this year, and I hope that inflation will be under control. If we have a runaway inflation, real wage earnings are likely to be eroded. All these increases have effects on the working class and they are concerned about the affordability of public services. Sir, Government has to moderate the increase of charges for public services by taking the following measures:

Firstly, allocating more grants to meet the operating cost of basic public services. Sir, I am not saying that we should move to the welfare model. I am not advocating that. I am suggesting that in view of the surpluses that we have accumulated and with our overall objective to spend money on more human resource development, the area of health education and housing deserves a deployment of more resources.

Secondly, ensuring better coordination of increase of charges amongst different Government departments so that it would not give undue burden to consumers. If you look at runaway increases by different Government departments, all coming together at one time, they have caused tremendous pressure and burden on the ordinary wage earners.

Thirdly, making Government departments to justify the need for increases. Unless there is specific justification for Government departments to increase their costs, the Minister for Finance should perhaps relent on this. Otherwise there is a need to review and relook at the requirement for increases by different departments.

Fourthly, ensuring that those who are poor and cannot afford are provided the services. In relation to education, I note there is much worry that the cost of education in Singapore is increasing. Many families with primary and secondary school children are concerned about the increase in educational expenses. These expenses are likely to be higher in the near future. In view that we are encouraging human resource develop- ment, it would be relevant for Government to grant tax deduction for expenses up to $200 per year per child on educational enrichment programmes organised by the primary and secondary schools. Sir, we have provided Edusave. I see no reason why we are not allowing parents to have deduction in their spending in this area. The costs in terms of supplementary fees and other related fees for primary and secondary schools are likely to increase. Hence, there is justification to look into more details to allow for tax deduction.

Sir, the Government encourages families to look after their aged parents by providing tax relief. This is indeed a good policy and we should continue to review such a policy to see how we can enable families to look after and support their aged sick parents. However, the tax relief provided for families looking after their aged sick parents is the same as those caring for aged parents. Sir, it is financially more burdensome for families taking care of aged sick parents and it would therefore be more appropriate to consider a higher tax relief for this group. It is suggested that the amount of relief for each dependent aged sick parent be increased from $2,500 to $3,500.

Sir, we have already introduced some form of consumption tax. The water conservation tax is a case in point. The time-based telephone charges to be introduced by Telecom will be coming next. Sir, the budget provision for these areas will have to be reviewed. Sir, the subject of consumption tax must be carefully examined before it is implemented as this is a radical departure from our present taxation system. We have a big base of small taxpayers and, as such, consumption tax may have to be carefully examined before we introduce it because such an introduction may have ramifications for the lower taxpayers.

Finally, Sir, may I urge the Minister to carefully follow up on Government departments which are making surplus in revenue to see if there is justification for increasing their charges in future. In this way, Sir, it will help ensure that our basic social services, namely, education, housing and health are more affordable for the people.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 2.50 pm

Sitting accordingly suspended at 2.17 pm until 2.50 pm. Sitting resumed at 2.50 pm