ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Mr Peh Chin Hua (Jalan Besar GRC): ( In Mandarin): Sir, I rise in support of the motion on the budget for the financial year 1991 by the Minister for Finance.

This Budget Statement could be considered to be cautious and low-key, but it is a budget targeted towards our long term economic goal. The increase of 1% on CPF contribution by employers and a once-off 5% across-the-board rebate on personal income tax reflect the influence of the Gulf War and the US economic recession over us and hence the cautious tone of this statement, which is understandable.

Encouraging more Singapore companies to venture overseas by eliminating double taxation on dividends paid out of foreign income is also good for our long term economic development.

Other announcements such as lowering entertainments duty, tourism cess, tax refund for vacant homes under renovation and higher import and excise duty on tobacco and cigarettes are considered lukewarm to those non-smokers.

Mr Chin Harn Tong spoke for the workers. Mr Choo Wee Khiang spoke for the businessmen. I am going to speak for the man-in-the-street. The disappointing feature of this statement is the increase in tax on domestic water bill regardless of the number of members in the household. For example, take my small family size when I was living in a private condominium. With due consid- eration over water conservation daily, my family water consumption was only about 25 to 35 cubic metres per month. The rationale to levy a 5% tax on the amount in excess of 20 cubic metres per month is not convincing. We have to consider the fact that this 5% tax is to be levied on top of the existing 5% tax on household PUB bills which exceed $40 per month. The existing 5% tax on the excess amount is already a reminder towards the importance of conservation of water. The additional levy has resulted in some people criticising that this is contrary to our recent policy of encouraging higher birth rate and promoting extended families. I hope that the Minister for Finance will give the man-in-the-street a better explanation.

I am also concerned about the revelation that the White Paper on consumption tax together with the draft legislation will be presented to Parliament in due course. Sir, the introduction of a consumption tax should be reconsidered to prevent any wide-ranging repercussion. It should not be allowed to become a sensitive political issue. Therefore, I sincerely hope that the Ministry of Finance would defer the implementation for as long as possible so as to alleviate the worries of the lower income group. As a Chinese saying goes: Hear the creak of the stairs but see no one coming down the stairs. Let this be the case as far as consumption tax is concerned.

Following our universal education policy and the improvement in our education system, the cost of education has increased. This has been reflected in the many adjustments in the school fees in the independent schools, polytechnics, NUS, and NTI over the past few years. Many parents are beginning to feel the strain of the school fee for the children and the burden of bringing up their children is getting heavier. I would therefore like to propose that the education fees of about $3,600 per child for those in the tertiary level should be given tax exemption. I hope the Minister for Finance will consider this proposal.

Mr Speaker, Sir, I support the motion.

Mr Chay Wai Chuen (Brickworks GRC): Thank you, Mr Speaker, Sir, for letting me speak in this debate.

I wish to speak in support of the motion in the name of the Minister for Finance.

The Minister in his budget speech mentioned that in spite of the strong growth of 8.3% in 1990, there were signs of over-heating in the economy. Inflation rate was 3.4% and business cost specifically rose by 7.3%, and nominal wages by 9.4%. The Minister also mentioned that 1990 was the fourth year in a row that we have achieved growth that exceeded the growth of the indigenous labour and productivity. The productivity rate for 1990 was 1.4% lower than the figure of 4.8% in 1989, as given in the annual Economic Survey. And the share of wages in the GDP has also risen by 2% from 42% to 44%. The ordinary businessman is concerned about the rise in cost. In this year's budget, called the "Shenton Way Budget" by some, there are no goodies for the small and medium local businesses. If the prospect for export-oriented businesses and manufacturing for 1991 is expected to be lower than in 1990, as mentioned in the budget speech, should the Government not also consider some assistance to the category of small and medium sized local businesses so that the small businesses in Defu Lane and Alexandra Village can also share in the goodies given this year to Shenton Way?

Sir, we are always happy when our neighbour's economy do well, but generally this has also brought about scarcer foreign labour availability to us. On top of all this, labour cost will rise again by the raising of the CPF rate in July. I urge the Minister to watch the cost increases carefully.

The second area which I would like to cover concerned the stalled Uruguay Round and the proposed East Asian Economic Grouping suggested by Malaysia. The concern about the stalled Uruguay Round amidst the intra-regional trade concerns and practices, particularly in agriculture between Europe and the US, is shared and articulated by the Malaysian Minister for International Trade. While I feel that it is good for Singapore to build networks and linkages in outside grouping, we should not sidetrack ASEAN as an established regional grouping for such dialogue and discussion with outside parties. ASEAN has established a substantial track record and goodwill. And ASEAN has also been a springboard for dialogue and discussion with outside blocs. My concern, Sir, is that we should not dilute the focus and goodwill ASEAN attracts in international fora, particularly at this crucial stage when the Uruguay Round is about to be re-started.

Sir, the biggest trading partner, the major country we export most to, is still the US, which accounts for 20% of our domestic exports. I believe the US is also the top foreign investing country in Singapore. While we need external linkages as stabilizers, some stabilizers may require undue counter-weights. I sincerely hope that our linkages with such a proposed EAEG grouping should not affect the trade and investment relations we have with the US and the EC countries.

The third area which I would like to touch on concerns the budget surpluses generated each year and which are being transferred to the Sinking Fund. Last year, 1989/90, $3.4 billion of the surplus was transferred to the Sinking Fund. This year, 1990/91, an estimated figure of $4.1 billion from the Consolidated Revenue will be transferred. This transfer to the Sinking Fund represents the budgetary surpluses run by the Government - revenue over expenditure. At the same time, the development expenditure in the same period is $4.1 billion for 1989/90, drawn down from the Development Fund. For 1990/91, the amount is estimated to be around $4 billion. However, the income on the investments of the Development Fund which stands at about $47 billion is about $2 billion each year for the past two years. This is about 50% of the spending of the development expenditure last year. The Development Fund has been increasing from $43 billion in 1989/90 to $47 billion in 1990/91, and the total amount in the Development Fund and Sinking Fund today totals $73 billion. These figures are found in the Command Paper, pages 95-98.

I understand the argument of prudence by the Government. Running high surpluses into Consolidated Revenue and Development Fund may represent Government's prudence. But at the same time, there are many off-budget increases in taxes and charges borne by ordinary people and businesses. I sincerely hope that the Government can think of more ways to go slow on revenue increases which are always justified on the grounds of achieving some desirable policy objectives, for example, car parks, road taxes, and telephone charges, and to think of more ways of passing back the wealth to the people. One such way thought of and proposed by the Prime Minister is the Edusave Scheme. Then the people will really begin to appreciate more what the Government can do for them, and to share in the wealth created by them. In this way, the "Shenton Way Budget" may be shared by all ordinary people and businesses.

Sir, I support the motion.

Mr Chiam See Tong (Potong Pasir): Mr Speaker, Sir, thank you for allowing me to join in this debate.

This year's budget is a great disappointment to the man-in-the-street. The one-time 5% income tax rebate is really parsimonious when compared to the hefty surplus which the Government has again accumulated. If another 5% tax rebate had been given, it would have been more reasonable. A 10% income tax rebate would have been more reflective of the reward given to the people for their contribution towards making last year another successful one for Singapore.

The Government always commends itself for the success of Singapore. Actually, the people of Singapore play an equally important part. The people of Singapore are responsible and always respond to the call of the Government, whether it is in relation to wage restraint, to be economically more productive, to serve in national service, to be more productive in terms of having more babies, or whatever policy of the day, which needed their cooperation. Yet, what do the people get in return at budget time? This year, it is a miserly 5% income tax rebate, at a time when the Government can well afford it, and the average working man can barely make ends meet due to the high costs imposed on them by the Government, in particular over the last two years. Is there Asian-style gratefulness on the part of the Government given in return for the wholehearted support of the people for the various Government policies? I would say, No. The people of Singapore have to fend for themselves all the way, whether it be overcoming poverty, often through no fault of theirs, health care, education or housing. The people have to pay, often at great sacrifices, for these social services.

The Gulf War had made the latter half of 1990 and the beginning of this year a difficult time for the majority of our local shopkeepers. It is well known that the tourist arrivals during that period were low. Our local businessmen reported a drastic drop in business over the December peak holiday season. I was also told that hotel occupancy rates were low. I was informed that one five-star hotel had only 45% occupancy in January of this year. Therefore, I would say that an additional 5% income tax rebate, and also taking into account the cut in one-half percentage point of the employee's CPF contribution, would not contribute to an inflationary pressure on our economy. The extra money that would go into the hands of Singaporeans would quickly be mopped up by the higher costs imposed on the people by the Government, and not go to overheat the economy, as some people would fear. Because, in any event, the people already have less money in their hands due to the bad economic situation over the last half year or so.

Business people in Singapore say that this year's budget is a letdown. They expected the corporate tax and the personal income tax rates to be reduced. I agree with them. The income tax rate for both companies as well as individuals should have been lowered to 30% each. A lower corporate tax rate would make Singapore more competitive internationally and, in particular, a great help and boost to our struggling local businessmen, in view of the fact that they now have to pay a higher employers' CPF rate.

There is only lip-service given by the Government to help our local small and medium-sized enterprises. In reality, almost nothing effective has been done for them. It is high time the Minister reviewed this issue more seriously and come up with fiscal policies to assist our local businessmen more meaningfully. It must be remembered that they do not have ready-made international markets like the multi-national companies. If there is a new fiscal policy, it is almost certain that there shall be an increase in cost to our local businessmen. This has been the trend. It is common knowledge that the local Chambers of Commerce have been asking the Government to keep down the costs of doing business in Singapore, but they have all not been heeded. One concrete step the Government could have taken in this budget to assist local entrepreneurs is to have lowered the corporate tax rate to 30%, but the Government has refused to do so.

Now, as regards Edusave, the majority of people in Singapore do not believe in the sincerity of the Government in introducing this programme. They see it as a political gimmick to win votes at the next elections. Education must surely be the responsibility of the Government, in particular to those children in the lower-income group, regardless of whether there is an Edusave programme or not. Under the Edusave programme the Government apparently gives $100 per child per year, but at the same time it will inevitably take back that money through higher ECA fees, higher school fees and university fees. Then, one would ask: Why bother to have the Edusave Scheme at all, if it were not for a political reason?

The administrative cost of administering the Edusave programme for 500,000 school children must be substantial to the Government. Which department will take care of the Edusave programme? Will it be the CPF Board (and starting early to have each citizen have an account at the CPF Board) or the Ministry of Education? Why incur all the additional expenses to maintain this massive Edusave Scheme? Would it not be better to plough back the added administrative cost to our school children?

As regards the goods and services tax (GST), the people of Singapore await with trepidation the arrival of the implementation of the goods and services tax. When the Bill comes before Parliament, there will surely be a full debate on it. Meanwhile, I can only say that the GST is a backward step. Such a tax was widely opposed in Japan, and I am certain it will be equally unpopular in Singapore. Effectively, it will make Singapore lose its free port status when nearly all the goods will come under this tax. Cost of living in Singapore will surely rise, and Singapore will be less competitive as a tourist designation. The working people of Singapore generally will surely suffer. The SDP will oppose the GST.

I have the opportunity of going through the financial statements. On pages 198 and 199, I note that the Government spent only about $880,000 (less than a million dollars) towards grants for development of day care centres. I would say that that amount is surely not enough. There is a crying need for more day care centres, especially when there are increased births over the last two years, and many mothers need also to work to supplement the family income. The funds allocated to building of child care centres must be increased by at least two-fold.

On page 198 of the financial statement, we see that less than half a million dollars ($450,000) was spent in direct development of libraries. Why this small amount? One would think that library services are something which would rank as important as any school needs. More money should have been expended on this very important area, but it has not been done.

Then on page 199 of the financial statement, one sees that a large sum of about $340,000 is given to upgrade furniture of 30 Residents' Committees. I do not know why they need so much money to upgrade furniture. At my MP's office, we buy chairs at only between $12 and $15 each. Why do Residents' Committees need to expend thousands of dollars of public money on furniture? I think this is a sure case of over-extravagance. Residents' Committees must be told to practise economy. One Member has already commented on the sums of money spent unnecessarily by the Government.

On page 199, we note that the People's Association is given a capital grant of nearly $6 million. As far as I know, only PAP constituencies enjoy that money. At Potong Pasir, as an Opposition Member, I do not see one cent of that large sum of money paid out at public expense.

There is another item which has perplexed me. On page 117 of the financial statement, I note that the Ministry of Defence spent about $1.4 million on official celebrations. Why that large sum of money? I would like the Minister to explain under what circumstances and for what occasion or occasions such a big amount has been approved by him.

I have only picked up a few items from the financial statements to show that the Government can improve and be more prudent in spending public money. It has been shown that in areas that the Government needs to spend more money, they do not do so, and then in areas that are seemingly unimportant, large sums of money have been freely disbursed. All this goes to show that there is need for closer scrutiny on the expenditure of public funds.

Mr Leong Chee Whye (Nominated Member): Mr Speaker, Sir, I support the motion standing in the name of the Minister for Finance.

The Minister has presented a well-prepared budget that lays the foundations for tomorrow, with its emphasis on education, infrastructure development and improvements to our quality of life. I would like to offer some comments for the Minister's consideration. But before I do so, please allow me to declare my interest as a businessman and as a Cor- porate Manager because naturally business will benefit if the Minister lends us a sympathetic ear.

There have been sentiments expressed against the 1% increase in CPF contributions by employers. The effect of this increase, I feel, will be washed away in the larger annual wage adjustment and we should not allow it to divert our attention from the greater underlying issue. My colleagues, speaking ahead of me, have addressed their concern about the rising wage cost in this tight labour market. My union colleagues have also had their say. Let me join in to point out that we should in fact not discuss this as a labour-employer issue. Rather the basic question is whether our small but rapidly expanding economy can afford to maintain a restrictive manpower supply policy.

An important indicator, Sir, is the share of wages in nominal GDP that has risen from 42% in 1989 to 44% in 1990. You may say what is the significance of this. This development brings us uncomfortably close to the 48% share of the wage of GDP which burdened the economy in 1985, just before we plunged into recession. The question is whether we should read the current developments as a danger signal. There are other signs as well, Sir, that show that we have to be prudent in our labour market policies. The relative unit labour cost index which measures our competitiveness has also declined against other newly industrialised economies. These are all factors which we should take into account.

For the short term, we need to urge the Government not to bring on additional costs to wages this year and plead with unions for a moderate wage adjustment. But most important of all, we must look towards more flexible immigration policies so that we could ease the tightening labour market. A more liberal interpretation of the educational requirements for foreign workers and flexible approval for recruitment from non-traditional sources will go a long way to relieve the problem even if the quota ceilings for foreign labour are to remain. In the longer term, I urge the Government to reconsider and implement more liberal manpower policies which are necessary to maintain a non-inflationary long-term growth necessary for bringing us into the next lap.

Mr Speaker, Sir, may I now turn to a second issue. To encourage Singapore companies to invest overseas and repatriate their profits, the Minister for Finance has proposed to exempt from tax, dividends paid out of foreign income for which there is insufficient franking credit due. This proposal, Sir, will partially remove a disincentive but it is incomplete because it applies primarily to tax treaty countries. This proposal, for example, will not include income from United States, or from, say, Burma, which are non-treaty countries in so far as Singapore is concerned.

Secondly, some of our tax treaties do not allow all foreign tax payments to rank for foreign tax credit relief. In treaties where, for example, the underlying corporate tax is excluded from tax relief, part of the income from such treaty partners will still be subject to double taxation if it is to be distributed as dividend. We need, therefore, Sir, a more comprehensive solution to this problem. I request that the Minister consider a form of unilateral tax credit relief to be accorded on foreign income from all origins provided there is foreign tax paid equal to or greater than Singapore's tax structure. The foreign income net or foreign tax should be allowed as tax-exempt dividend.

Then there are countries which offer tax rates lower than Singapore's corporate rate, particularly for specific and desirable activities. If income is brought back from such countries, Singapore would now raise the effective tax on this income up to 31%, or it will impose double taxation if there is no tax treaty. We need to re-examine this treatment if we want more overseas investments.

Overseas investments involve a high level of business risk because it takes place in a culturally different environment, with political conditions that are far less familiar to Singapore investors. Except for tax haven situations, Singapore companies should be allowed to take advantage of lower tax structures elsewhere to tap and invest in their markets. Since such projects or investments do not make use of Singapore's domestic markets or our infrastructure, there is good reason for Singapore not to tax such foreign income.

It could, however, be argued that these principles are already embodied in section 13(7) of the Income Tax Act as well as in the Overseas Headquarters (OHQ) incentive relief which grants preferential tax or tax-free treatment for foreign income on a case-by-case basis. However, Sir, case-by-case approvals involve very lengthy deliberations which can go on for months and require a large amount of paperwork. This puts the smaller and medium-sized Singapore companies at a disadvantage. Furthermore, the absence of clear published criteria for section 13(7) approvals also dissuades Singapore companies from applying for such arrangements.

The irony of all this is that in any case, the Singapore company can in fact proceed to invest outside of Singapore and not be taxed by Singapore at all, provided the money is not brought back to Singapore. Thus, what this means is that given our present tax regime, whenever we call on Singapore companies to invest overseas for all practical purposes, we are telling them to keep their money outside and not bring it back home. I am sure this is a situation that we need to address.

I feel strongly, Sir, that we can broaden the provisions of section 13(7) and the OHQ reliefs by moving it away from a case-by-case treatment to something that is more generally available. If Singapore companies can be certain of a favourable tax environment at home, they will be more willing to venture abroad and, more importantly, bring their wealth back when they have earned it.

Mr Speaker, Sir, we can leave it to the ingenuity of company tax consultants and tax administrators to work out provisions which are acceptable, and which have safeguards for tax leakages. If we wish to help local businesses internationalise, we must take this large step forward to change our tax regime instead of making incremental small adjustments.

Encik Zulkifli bin Mohammed (Eunos GRC): ( In Malay): Mr Speaker, Sir, I rise in support of the motion in the name of the Minister for Finance.

Despite the tragedy of the Gulf War that had preoccupied the world over the past two months and other uncertainties, it is a welcome relief for us to be presented with a healthy report card by the Minister for Finance on the state of our economy. It reflects once again the flexibility and adaptability of our Government's financial policy, aimed at maximising opportunities for economic growth. This will enable us to safeguard the standard of living thus far enjoyed by Singaporeans. 3.25 pm

[Mr Deputy Speaker (Mr Lim Boon Heng) in the Chair]

Encik Zulkifli bin Mohammed (Eunos GRC): Mr Deputy Speaker, Sir, in the Budget Statement, what is most gladdening to the general public is the 5% rebate on personal income tax. This is consistent with our exhortation over the past several years to every Singaporean worker to work harder and smarter and to increase productivity. In this regard, I would like to know whether our workers can look forward to yearly rebates as an incentive in recognition of their efforts subject, of course, to the constraints of our economy.

Next, Sir, I would like to move on to the proposed Goods and Services Tax (GST). Whilst we await the details of the draft legislation to be announced, reaction from the public is still one of anxiety about its implications. Granted that this issue is not new and has been thoroughly debated way back in 1986, the concern is that this tax will hurt further the pockets of the ordinary citizens, in the light of a number of recent increases, such as the upward revision in public transportation rates. One may ask whether there is still a need to introduce the consumption tax as a revenue item when the Government has been enjoying a surplus budget since FY 1987 and this trend is expected to continue for FY 1991 and perhaps for many more years to come. Sir, I must admit that I am aware of its rationale, but would like to appeal to the Minister to remind his officers to be careful in selecting the range of goods and services to be taxed. I make this appeal bearing in mind that what are deemed as necessities vary from year to year in a society of rising expectations like ours.

In this connection, Sir, may I know whether the Ministry of Finance is prepared to withhold the implementation of this tax for so long as the Government enjoys a surplus budget or whether there is a time frame already set for its introduction?

Mr Deputy Speaker, Sir, I applaud the move to grant tax deduction for parents contributing to an Edusave account for their fourth child with effect from FY 1993. However, I feel further consideration should be given to extend the tax deduction beyond the fourth child since the contributors to the Edusave account will be the parents themselves.

Lastly, Sir, I would like to touch on the water conservation tax for households consuming more than 20 cubic metres of water monthly. What matters to me here, is the impact this will have on the lower income section of our population. Although the House has been informed that about 60% of households are not affected, perhaps the Minister could enlighten us on the profile of the 40% of households whose consumption exceeds 20 cubic metres monthly. Since this tax will come into effect from 1st April 1991, I would like to know what steps the PUB will be taking to counsel or educate the excessive water users. To me, the emphasis must be on an extensive public education programme, to be mounted when the tax is implemented as otherwise what will arise will be the perception that this is another attempt by the Government to deliberately impose a tax on an item of daily necessity.

Mr Deputy Speaker, once again, I support the motion.

Mr Lau Ping Sum (Yio Chu Kang): Mr Deputy Speaker, Sir, according to the Economic Survey of Singapore 1990 which was released just before the end of the Gulf War, the US economy went into recession in the fourth quarter of 1990. Moreover, it predicted gloomy prospects for the first half of this year and uncertainty thereafter. The reasons for the rather pessimistic forecast for the US economy are not hard to find.

For the last few years, continuing budget and trade deficits, inflation, declining productivity and a beleaguered banking sector have caused widespread concern. Is the US economy facing a reckoning for over-indulgence in the 1980s, ie, high consumption and low savings? Is the US living on borrowed time? Some economists such as Lester Thurow and George Lodge think so.

"Recession" has been defined as two consecutive quarters of decline in real GNP which occurred in the last quarter of 1990. However, some economists believe that the US economy is far too complex and too fast-changing to be precisely monitored. The economy cannot be described simply as going up or down. It is usually going both ways. The US Department of Commerce index of leading indicators, although elaborated and refined over the years and in spite of the use of the most advanced computers and statistical techniques, is 50 years old, much older than many of our Members here. It is also based on lagged data, the measurement of which is subject to great variability.

Even the econometric models based on fiscal and monetary policies, money supply, interest rates, capital investment, have not been able to predict the sustained growth of the US economy since 1984. A possible reason is that the transfer of capital among market economies for strategic reasons has not been catered for. Foreign companies continue to invest in US short-term notes and plant and equipment during both upturns and downturns. Investments are no longer just driven by economic cycles, but by strategic decisions such as increasing market share and increasing manufacturing flexibility globally.

Another reason is that individual US manufacturing sectors have less of animpact on the overall economy than historically. The US supply industries are tied to both domestic and foreign operations. A downturn, for example, of the automotive industry would not lead to an immediate impact on the steel or machine tools industry. Perhaps the most important reason is that US industries have in the last decade become much more flexible using "just-in-time" and related techniques to manufacture smaller lot sizes and compress development cycles. Lower inventories are maintained, approximately 60% of monthly sales compared to 80% in the 1970s. The firms can therefore respond quickly to changes in demand and a more stable economy is thus achievable.

A new statistical product developed by two professors called "Experimental Recession Index", based on real-time information from the financial markets, has shown a declining probability for the 1991 recession. Now that the Gulf War has ended, the demonstrated superiority of American weapon systems has stimulated renewed interest in its defence industries. Moreover, US exports have done somewhat better in the last two years due to the weakening of the US dollar. The outlook for the US economy is therefore more optimistic than that described in the Economic Survey.

Sir, on the details of the budget proposals for this year, I am glad to note that the Government will concentrate on manpower and infrastructural development. The Ministries of Education, National Development and Defence will account for half of the total expenditure in FY91. Quality education for all will be a highlight. The Ministry of Education's announcement of changes to the primary school system has confirmed what many Members of this House and others have repeatedly pointed out that streaming at primary 3 is premature. The slower learners have not been able to benefit fully from the existing education system. And more should be done to help them acquire skills and become useful citizens. Although it has taken the Ministry of Education 11 years to do this, it has finally acknowledged that the streaming system was flawed.

Many grassroots leaders have pointed out the apparent inequity in excluding the handicapped children from the Edusave scheme. Although the handicapped children may be given separate treatment, we should not make them feel alienated. They have perhaps an even greater need to be accepted by society in every possible way. Including them in Edusave will heighten their sense of belonging and hopefully reduce their sense of alienation. Moreover, the funds, however modest, will help them improve their skills and knowledge. The Minister for Community Development's statement that the question was being reviewed is indeed welcome news.

Sir, the decision to introduce Management Accounting systems in all Ministries is a step in the right direction. There is a need to streamline procedures and improve workflow in any organisation, particularly in a rapidly changing environment. Alvin Toffler predicts that the successful economies in the 21st century will be the fast economies, ie, those that change and adapt quickly. Past practices are not sacrosanct. To question their relevance to current conditions is absolutely necessary. I would like to ask the Minister to what extent will the private sector management consultants be involved in this exercise as they have had considerable experience in this area and can ensure earlier system implementation, standardisation and consistency among the various Ministries.

Sir, the across-the-board rebate of 5% on personal income tax is good news. Since 1990 was a successful year, a symbolic gesture of giving a small rebate is well received. As for those who pay little or no income tax and get to drive BMWs and live in style, could the Minister inform the House what progress has been made in getting them to account for their wealth? We wonder how many economically active people are in fact not paying any income tax at all?

Mr Deputy Speaker, Sir, most Singaporeans accept the fact that water is a precious resource. The additional tax is a measure to curb wastage. But for it to be more effective, it ought to be on a sliding scale, ie, the greater the usage, the higher the rate. In this regard, perhaps the PUB should publicise the "water-wasters", ie, households which persistently consume far greater amount of water than the average without good reasons.

Sir, the tax deduction for general provisions for banks is welcome as it highlights the importance of prudence. It will encourage banks to set aside a greater amount to build up adequate provisions to withstand losses and diminution in the value of assets. In this connection, some finance companies would like to know the reasons for not extending the deduction to them. Prudence in financial management is a desirable goal for all financial institutions. Is it because the finance companies operate only locally and do not have an international presence? Or is it because finance companies are allowed to grant loan facilities without collateral up to a maximum of $5,000 only? Whatever the reason, the attempt to build up reserves is commendable and ought to be encouraged.

Mr Deputy Speaker, Sir, on the question of exemption of foreign income, would the foreign income qualifying for exempt dividends be segregated from the company's other income, eg, trading income? If there is no segregation and if the other trading activities generate a trading loss, normal income tax rules dictate that the loss be offset against the foreign income before foreign tax credits. Would the Minister clarify whether the foreign income qualifying for exempt dividends could be treated separately from trading income or loss?

Finally, Sir, the 10% concessionary tax rate to be applied to income of approved trust companies for providing specified trust services to non-residents in respect of their non-Singapore dollar investment. Would this be extended to Singapore resident trust companies or is it meant for foreign trust companies which may wish to set up operations in Singapore?

Mr Loh Meng See (Kampong Glam): Mr Deputy Speaker, Sir, thank you for allowing me to join in this debate.

Sir, the issue before us is really whether we agree with the economic growth forecasted for 1991 of 3-6%. And is it to be a target that we should be working at or is it to be the expected outcome for this year? I think it is important for us to consider this issue, because if we are comfortable with this target, then the rest of the factors will follow. It is important for us not to allow further overheating in our economy. Since 1986, our economy has grown substantially and if we were unwittingly to allow further pressure to be placed on the economy with serious labour shortage, then by itself the wage cost will go up. But the problem facing the employers is really the combination of the employers' CPF rate and the foreign workers levy. If we just take the employers' CPF rate alone, there should be very little quarrel with the 1% increase. In 1986, I believe there was no foreign workers levy, but today with a very high foreign workers levy and the provision of allowing up to 40% of the workforce to be made up of foreign workers, this has compounded the problem in that the employers have incurred very substantial costs in the employment of workers. This is the problem faced by the employers - the combination of the employers' CPF contribution and the foreign workers levy.

I would agree with Mr Leong Horn Kee's point that it is important for us now to review whether we want to work towards the 40% target, 20% each for the employers and the employees. Because in terms of the real earnings of the average employee over the years, it has gone up substantially and it means that on that same rate of CPF contribution, the cost to the employers has gone up substantially.

I would agree that we should allow for a moderate economic growth for this year so that there will be minimal effect on the loss of jobs if there are some unfortunate enterprises that face difficulties with regard to down-sizing or redundancy. I think it is important because if we allow the economy to grow and suddenly there is a downturn, then there will be the danger of loss of jobs by many people.

The other problem faced by employers with regard to the increasing cost of business is the increased cost in the fringe benefits provided by the employers. Medical and health costs have gone up. It is part of the fringe benefits provided by the employers. It is not evident because you do not account for it easily, and transportation cost, ie, reimbursement for transport incurred by the employees, all these add up to the increasing cost.

We are trying to encourage the extension of employment for workers beyond 55. If the costs were to build up, the concern of employers is whether they are able to retain the services of these employees beyond 55. But the point here, Sir, is that if we agree with a moderate economic growth of 3% to 6%, the Finance Minister has his policies right.

I support the motion.

Mr Philip Tan Tee Yong (Paya Lebar): Mr Deputy Speaker, Sir, economically Singapore is very vulnerable. This is because we are small and we are dependent on other economies. Singapore needs to respond to the vast changes taking place in today's world. The situation in the Middle-East is uncertain; the United States is working towards trading arrangements with South America; United Europe in 1992; China is yet to firm up its national and international policies; Hong Kong faces 1997. Closer home, Burma, Cambodia, Laos and Vietnam are opening up. All these swift and uncertain changes can also present business opportunities. Singapore, being small and disciplined, has the advantage of reacting and responding swiftly. But forward planning is the key to our survival.

In this respect, the Minister for Finance has announced a two-pronged strategy. Our network of linkages to other economies is well spread and profitable. Many of our local businessmen have benefitted over the past 10 years. From the multi-nationals, we have gained in technology, acquired the art of modern management and organisation, international marketing skills, and the knowledge in creating new products. We have matured and some have graduated to become investors overseas, particularly in the ASEAN region.

Our long term economic stability will be more secure if we can achieve a good balance between foreign investments in Singapore and our investments in other economies. The next five years will see many business opportunities for investment. To invest overseas, companies must be of a certain size, have adequate management and financial resources. Very few local companies fall into this category; most are small. For these smaller ones, we must take a longer term perspective. EDB must continue its good work in getting multi-nationals to assist local companies upgrade their production facilities and management. Many local companies are now more productive. I am of the opinion that encouraging them to join forces for economy of scale should be the main goal. By companies coming together, wastage in manpower is minimised, some jobs can be done more productively, and with stronger financial resources, more qualified and experienced managers can be recruited. As a result, bigger contracts can be targeted, growth will be achievable, expansion overseas can be a reality. But our best bet is to concentrate on the few bigger local companies. A study should be made of their strength, identify overseas business opportunities and then to match them, provide the necessary incentives and assist them to organise a structure suitable for regional and international management and control; finally, to lead a mission to the respective countries concerned.

But how can we achieve this? I think a master plan should be drawn up. Who should undertake this task? I suggest the Enterprise Development Division of the EDB which is already doing some of it. The Government should give this Division the necessary budget and manpower. In this way, our investments overseas can be more prudent, calculated and systematic. In this way, we will be ready when the overseas business opportunities come our way. When our investments overseas materialise in substantial numbers, we would have attained a good balance to foreign investments here. Singapore will then be more stable economically.

Sir, I would like to turn to another issue. We strive hard to maintain and improve our economy. It is not uncommon for Singaporeans to work more than eight hours a day, seven days a week. The danger is that money-making can become our only pre-occupation if we do not balance up with cultural and recreational enjoyment. Such activities for relaxation are few. I suspect that the Singaporean's alternative to hanging around or watching the television is work.

The Government has started to address this problem. To make our society more vibrant, I suggest that we create a culture among companies to be part of it. These companies should also include shopkeepers, market stallholders, hawkers in the hawker centres; in short, a social obligation culture.

Over the years, most companies have benefitted from an honest and efficient Government and, not less importantly, a disciplined society. As an appreciation to the society, companies should be encouraged to contribute to arts and performances, sponsoring of sporting events and giving to the less fortunate. We should encourage the spirit of participation and the amount of contribution should be free-will. Some companies are already doing this. But with a social obligation culture, more can be encouraged to join in. I think the employees of participating companies will be more motivated when they identify themselves with certain charities, sports or performances. This is a human touch to money-making.

Sir, Singapore need not be a cultural and recreational desert. We can become a more balanced Singaporean materially and culturally.