ANNUAL BUDGET STATEMENT

Order read for Resumption of Debate on Question [28th February 1992],

"That Parliament approves the financial policy of the Government for the financial year 1st April, 1992 to 31st March, 1993." - [Minister for Finance].

Question again proposed. 12.40 pm

Mr Koo Tsai Kee (Tanjong Pagar GRC): Sir, I rise in support of the motion moved by the Minister for Finance.

You will recall, Sir, that yesterday I was talking about the

1992 Budget statement being a pro-Singapore budget. I said that the Budget looks to the future in the cautious perspective of the past and as our economy slows down to a more sustainable 4-6% growth, we should rally behind the Minister even more. But some people are unhappy. Many are looking for softer options. More tax cuts is the usual cry. I personally believe that tax cuts should never be used as a counter cyclical measure unless the structure of public spending has changed, ie, there will not be likely tax rise in the future. There are others who clamour that the reserves are growing too fast. One Member said that we should allocate less of our surplus to the reserves. But the most irresponsible are those who want to rob our reserves and spend them now on the various consumptions. I will speak more about that later, Sir.

Sir, I also hear that some Singaporeans are saying that we should not talk about the reserves and that too much talking is bad, and people are not listening anyway. I think that is something which is good, like protecting the reserves must be said again and again. If we have said it not enough times, I think all of us should be committed to trying to sell the idea even more.

Why is it that some people are asking us to use our reserves at this point when there is really no need to do so? I ask them: has our economic ship run aground? Are we in real trouble? Because the simple fact is that we do not have so much reserves. Our reserves, statistically at about US$15,600, we do have the highest reserve per capita in the world. But this fact is very misleading. It has misled some into thinking that we are sitting on a mountain of gold. In fact, we are not. In reality, those reserves can buy us no more than one year's supply of imports. To be precise, it is about nine months of retail imports. And after nine months, what do we do? I think we will have to starve. Because we do not have the collaterals to borrow money. We have no agricultural land, no livestock and no mineral resources. So no banker will lend us money from their own pockets.

Clearly, we do not have the qualifications to beg and we are not sitting on a mountain of gold. Perhaps we have a few trinkets for the pawnshop which will buy us a few months of livelihood. Over the last few decades, prudent financial policies, like spending what we can afford, like allowing the market to prevail whenever possible, have allowed Singapore to achieve the twin goals of strong economic growth coupled with equitable income distribution. And we are a very equal society because we are all equally rich. In some countries, they are equally poor.

Along with this economic progress, we have also debunked the commonly accepted modern economic theory these days that full employment can only be achieved at the expense of high inflation and vice-versa. In short, Singapore is an economist's utopia. Since the early 80s, economists at the OECD have used the "economic diamond" to measure a country's overall performance. Sir, I have asked the Clerk to circulate copies of the diamond. Members can see clearly that it is the jewel in the OECD's crown. It is big, and big is beautiful. Singapore's diamond is bigger than the Japanese diamond and the diamond measures the four indices that all governments aim for - strong growth, low inflation, low unemployment and a "sound" balance of payments position.

Yesterday, in this House, Mr Chiam said that South Korea did better than us. In what respect? One set of statistics does not tell a story, but a group of them might. The OECD has decided that these four indices - strong growth, low inflation, low unemployment and a "sound" balance of payments - together reflect a country's strength and you can see that Singapore is doing very well. But people are saying that the diamond is too big now and let us cut it and share it around. I say it is nonsense. We know that the price of diamond is not proportional to its weight. The price of diamond is exponential to its weight. If you have got a 10-carat diamond it is worth more than 10 1-carat diamonds. So why split it? Keep it.

One MP said yesterday that growth is slowing down, but we should aim for higher growth. It is not sustainable. You look at Japan's growth. You look at the "G" index. They are about 4% now, whereas ours was 8.5%. I think eventually, in the long term, the north end of the diamond will come down lower and hopefully the right end will shoot to the right end side. I think we can present the diamond this way - slower growth but a better overall balance of payments position, like Japan's. I take the diamond and pass it down as an heirloom to future generations. And also there is one more reason why she keeps the diamond, figuratively speaking, to finance our own old age. I think many of us will be around by the year 2030, and if present democratic trends continue, there will only be 2.2 working adults to support each elderly person. Compare this to the relatively generous ratio of eight working persons to one retiree now.

Sir, to maintain the same standard of living in the year 2030, we have two alternatives. One, we can tax the working population then heavily. Unfortunately, even with the highest productivity, which we do not have, it is difficult to see how one young adult can support 2.2 retirees for a high standard of living. So also morally, do we want to condemn future generations of Singaporeans yet unborn to bear this very heavy tax burden?

The second solution is more amenable, more workable, and more humanitarian. From now to the year 2030, we should put aside some money every year to build up a bigger reserve, more than the nine months of retail imports that we now have. And the interest from that reserves can then be used to lessen the tax burden of our adults in the year 2030.

Sir, the signs are quite clear now. Over the years, the contribution of income and profit taxes to total revenue have become smaller. So Singaporeans are paying less. Yet miraculously our standard of living has gone up. How do we do that? The short answer is that our non-tax revenue has been getting a healthy injection of earnings from our reserves, which is another reason why we must not rob our reserves now.

One MP said yesterday that we should allocate a smaller surplus to our reserves which is in fact what is being done now. The size of the budget surplus as a proportion of the GDP is shrinking, from 11.7% in 1989 to 7.8% in 1991, and 4.5% this year. In fact, this budget year 4.5% of the surplus will go to the reserves. So you see it is already shrinking by the natural order of things. My worry is, will it shrink even smaller?

Sir, my GPC Chairman and my various GPC colleagues have elaborated on the various merits of the tax changes and the reservations of the people and the business community.

I want to return to two more fundamental questions on taxation. First, why pay taxes? Because at every budget, people will clamour for tax cuts, very few for tax increases. The simple answer why taxes are raised is that they are raised primarily to pay for public spending. So, first, we agree there is public spending, we need taxes.

Second, why do people dislike paying taxes? This is philosophical, because most people doubt that they are getting their money's worth. That is not hard to fathom. After all, it was Edmund Burke, the 18th century British MP, whom I quoted in the President's Address, who said, "To tax and to please, no more than to love and be wise, is not given to man".

So rationally, if we think logically, if we pay and we get our money's worth, we should be happy. And if we get more than our money's worth, we should be delirious.

Yesterday in this House, Mr Ling made a song and dance about the Government not doing enough, not helping the poor enough. I say a government, such as the PAP that has done as much to help the poor, need never be apologetic about its policies.

Let us look at the statistics. About 60% of Singaporeans pay only 6% of our total tax collection. So the poor are not paying a lot. In fact, most of them are paying very little, many are not paying at all. Let us look at the above average income taxpayers (those earning $24,000 a year) with two children. That group pays less than $500, after all the reliefs and deductions. Now compare this to the bundle of benefits the taxpayer's family gets: subsidised hospitalisation, subsidised education, subsidised housing in HDB flats (and that is life-long, and the Government is putting in more under the refurbishment programme). These benefits run to thousands of dollars a year.

Mr Ling said that we are not doing enough for education, we must help them more. I say, it is rubbish.

Let me put the Government subsidy into perspective for the middle income taxpayer with one child in a primary school and one child in a secondary school. The total cost to the Government of educating his children is about $5,000 minus his school fees. So, just focusing on education alone, this non-typical taxpayer (non-typical because the average taxpayer pays less than $500) is getting a return on investment of something like 1,000% -- where can he get this anywhere in the world?

Talking about refurbishment programmes, my constituents in Tiong Bahru are very happy about the scheme but they are rather impatient, and they want me to ask the Government when they are getting it. They are happy because they know that they will inherit a more valuable asset. They will also inherit a more salubrious environment. They are also happy about this year's Budget, because it is a compassionate budget. In my constituency, more than 80% of the people live in rental and 3-room flats. The Government has committed to paying their December's service and conservancy charges. They are happy. Because they know that when the Government is rich, they are not forgotten, they also get richer.

What about the remaining 40% of Singaporeans and companies who are paying something like the bulk of the taxes, over 90%? Shouldn't they be unhappy? I say, no. Quite the contrary, they should also be happy. Why? Because while it is true that in terms of subsidies they do not get as much as the majority of Singaporeans, they are getting their returns in kind.

What kind? What are these? For the individuals, an excellent environment for professional fulfilment and a quality of life matched by few nations on this planet. For the companies, a first class infrastructure and support system to make even more money. Not forgetting that Hong Kong's budget has just been announced. They raised 1% of the corporate tax. For both citizens and companies, Singapore offers one of the lowest income and corporate tax rates in the world. Perhaps here I would like to ask the Minister to clarify for this House how is it that with a higher personal and corporate tax rate, we are still competitive vis-a-vis Hong Kong -- the country that we compare over and over again.

Sir, in six months' time the White Paper on the proposed broad-based consumption tax will be tabled in Parliament. I would like to say from the outset that I support the consumption tax.

The evolution of taxes began with wealth tax. They found it not so good, then it moved on to using income as a basis for taxation. And then in the later stages, most countries use indirect taxes, consumption taxes as a supplementary form of taxation. Modern taxation in most countries is now a hybrid of all these three -- wealth, income, direct and indirect taxes.

Members of this House have also spoken very eloquently, fiercely, passionately on the consumption tax at considerable length from 1986, when the idea was first mooted, to 1991. I do not want to tread on old ground. The Hansard is overflowing with ideas, comments, criticisms. But while I support the implementation of the consumption tax in the near term as a supplementary tax source, I would urge the Government to look at the merits of the expenditure tax in the long run.

Most people wrongly confuse consumption tax as the same as an expenditure tax. But the Minister knows what I am talking about. The nomenclature of the expenditure tax is unfortunate, but its usage has stuck, so changing it might even add to the confusion.

An expenditure tax, in short, is not a consumption tax. An expenditure tax is a tax on expenditure, not income. It operates like a consumption tax, but acts like an income tax. It can be progressive, regressive, it can give reliefs, it can give rebates, as the Minister wishes it to be.

In this House, only two Members have spoken out on it. One, Mr Heng Chiang Meng tried in 1986 and then in 1991 to convince the Minister on its merits but without success. Two, DPM Lee Hsien Loong himself made an oblique reference to it when he urged Members of this House in 1986 to read three articles about the expenditure tax in The Economist.

Sir, why am I trying to peddle the virtues of the expenditure tax when more eloquent speakers like Mr Heng Chiang Meng before me have found it wanting? Because I think that a good idea is worth selling, worth telling and worth convincing. Like the reserves, you must say it over and over and over again. Because I think that a good idea can never be stale and it is always fresh when different people say it and, hopefully, in the next Budget, somebody else will take over the baton from me as I have taken over from Mr Heng Chiang Meng.

There is another reason why I think expenditure tax should be said again. Since we are standing at the taxation crossroads, we should look at the evolutionary process of tax systems overseas, how most of them have now mired themselves into a tax sphagetti and how we can avoid stepping into the same shoe in the next century. Sir, the expenditure tax I am proposing is not for next year or the year after. It is for the future, five to ten years from now.

Sir, in order to focus our thoughts on this issue, I will move an amendment in the Committee of Supply to map out the reasons for and against the expenditure tax and why we should go where others have feared to tread.

Dr Vasoo yesterday said that we should have some schemes to encourage savings. Expenditure tax will encourage savings. He talked about exempting interest from deposits. They have tried in America under the Individual Retiree's Account (IRA). In the United Kingdom, they are trying to put up the Tax for Retiree's Deposit (TRD). In the same period that these schemes were put in place, that is, not to tax interest on savings, personal savings plunge. So I think his scheme will not work.

It was George Bernard Shaw who said, "People dream dreams and ask why." "I dream dreams," Shaw said, "and ask why not?"

In taxation reforms we should all share a dose of Shaw's dreams and ask ourselves, "Expenditure tax, why not?"

Sir, I support the motion moved by the Minister for Finance.

Mr Ho Peng Kee (Sembawang GRC): Mr Speaker, Sir, yesterday the Member for Bukit Gombak made several points in this House. The Minister for National Development has effectively debunked his main point - the upgrading of older HDB estates. There are other points deserving of rejoinders. However, in view of the time factor, I will confine myself to only one point. In doing this, it is not my intention at all to put the hon. Member down. It is just that I feel Singaporeans deserve the benefit of another viewpoint.

Sir, this relates to his call for more subsidies. In my assessment, the Government is not against subsidies as such. It is a question of: for what, how much, and why? What is anathema to the Government is the development of a subsidy mentality, one that undermines the will to work, and worse still, provoke a slide down the slippery slope into a crutch situation. In appropriate areas, subsidies have indeed been given, and heavy ones too. Education, health, basic housing -- three vital areas of people investment as opposed to areas of consumption. I hope Singaporeans will know and appreciate this. Mr Ling himself agrees to this approach.

It is important to dispel the myth that when the Government espouses free market policies, it is out to make money from the people. This is not only untrue, but it is damaging. It hinders Government-people bonding and should be demolished. To do that, we have to see why the myth exists.

I think there are three possible causes. First, Government's use of the quota system and price mechanism in regulating goods such as cars; secondly, the imposition of heavy fines as a form of punishment; and thirdly, accumulation of large surpluses by statutory boards.

Sir, please do not get me wrong. I am not advocating that we abolish all three approaches. I think better packaging and marketing of these three phenomena is called for. Of late, we have heard much of the need to market and package policies well. Let us apply that not only to policies but also to approaches which we are talking about here -- the need to limit and distribute certain goods, the need to deter criminal conduct, and why the fine may be more appropriate than other forms of punishment, and the need to remain efficient and competitive as statutory boards begin to privatise. Help the people to see beyond dollars and cents. Accumulation of money is not an end in itself but a means to an end, the advancement of a social cause. Therefore, even if there is a need to package and market substantive policies well, there is also a need to package and market basic philosophies or methodologies well. In this regard, I welcome the announcement that the Ministry of the Environment intends to introduce the community service order as a form of punishment. It will be a welcome addition to the arsenal available to our judges and shows that the Government does not want just to fine people. But please explain the aims and rationale for its implementation well.

Another point is the much publicised announcement of massive profits by our statutory boards. While it is good to be profitable and totally justifiable to feel proud of a good bounty, Sir, I feel we should be sensitive in doing these things. Surely it is not the case that the CEOs are out to outdo each other in order to please their political masters. But some people may feel this way. Also, please take pains to assure people that the profits are not derived simply at their expense. To me, therefore, Sir, subsidy in itself is not a dirty word, creation of a crutch mentality is.

Mr Ling How Doong has asked why not subsidise education more. This is exactly the mentality that the Government should watch out for, one that shouts from the heart, "give me more or meet my needs". There is a need to pause a while, and use the mind; a lot is already given, how much more is more, can more be given without jeopardising other areas?

Mr Speaker, Sir, permit me now to touch on three points arising from the Budget Statement - foreign maid levy, reservist tax relief, which I would deal with at some length, and a brief comment on the service charge and conservancy charge (SC & CC) rebate.

Foreign maid levy. Much unhappiness has been caused by the latest increase in the foreign maid levy. The Minister for Finance says, in his Budget Statement, that in certain areas, and these include foreign domestic maid, significant market imperfections and non-economic considerations require market forces to be tempered by Government intervention. He goes on to say, and I quote:

"... although the markets in these cases are not perfect, the most efficient solutions are still found by harnessing market forces to the greatest possible extent."

Sir, I wonder if the most efficient solution has been found in the case of foreign domestic maids.

The Statement says that for road transport, the use of market forces ensures that COEs go to those who value them most. While this is true, the other point left unsaid is that COEs go to those who not only value them most, but are also able to afford them. I hope the same situation will not happen in the case of foreign maids. It is possible that not everyone who needs or values a foreign maid, because of special circumstances, will be able to afford one, if the consideration is essentially financial. The present approach is essentially a fiscal one - the imposition of a fixed sum levy across the board. Despite a series of increases from $120 in 1984 to currently $300, the number of maids has continued to rise. The Minister for Labour's position, and rightly so, is that if not for these levy increases, the number would be even larger. No one can dispute that. All aggrieved Singaporeans have also been reminded, and again rightly so, that these levies should not be viewed in isolation but together with other measures to alleviate the hardship of working mothers, both financial and non-financial types. However, looking and thinking ahead, the question to ask is whether the Government will continue to take this fiscal approach without more.

As I mentioned earlier, it is exactly such an approach that generates loose talk on the ground that the Government is making money out of the people. I am sorry that I missed the Minister for Labour's remarks in this House yesterday. In any case, I think this matter requires and deserves deeper and more comprehensive study than currently undertaken. Why do I say this? This is a matter that is sui generis. It has special features and stands on its own. It concerns many households in Singapore and impacts on the quality of life enjoyed by such households.

As the Next Lap seeks to enhance the quality of life of all Singaporeans, it is legitimate for some Singaporeans to ask why the Government is placing an obstacle to their quest for a better quality of life by making it difficult for them to have a live-in domestic help. What are the special features of the maid issue that require further consideration? Firstly, the needs of employers are very different. For example, some have young children, others have aged or ill parents; some mothers work, others may not, and even if they work, their level of contributions to the economy may differ.

Secondly, whether a family succeeds in employing a maid may have knock-on effects on family lifestyle decisions, with implications at both personal and national levels, such as quality and quantity of leisure time; whether or not granny or grandfather lives in; whether or not baby is fostered out or put into day care, the effect on baby in those situations and the travelling required in those situations.

Thirdly, a large number of maids may cause social problems, at family and national levels. At the family level, in the upbringing of Singaporean children who may imbibe foreign values, or who may be over-pampered. At the national level, the presence of a large number of such foreigners living in Singapore, and the impact of adjustment, should the availability of such maids cease.

Mr Speaker, Sir, this is a complex matter. I am not saying the current approach is not right, or may not be right, but my plea is that perhaps a more comprehensive study should be undertaken. And in this study, I think these points should be considered. Firstly, the alternatives to employing a foreign domestic maid, what are these alternatives, are they viable? For example, for children who are infants, or toddlers, is it as viable an alternative to put them in day care centres as opposed to older children, when the body's health immunity system may not be as developed as in older children, and living in close proximity with other children on a daily basis may not be such a good solution. Or what is the effect of having children fostered out in terms of their upbringing?

Secondly, perhaps we should also do a study on the social consequences of having a large number of maids in Singapore, in terms of their presence in Singapore and in terms of when they leave Singapore. Is it a mitigating factor, for example, that these maids live in with their employers and are not living in clusters of their own? In fact, in some families, the maids become a part of the family whilst they are here, and if the parents are careful and make sure that the children do not imbibe values from these maids, when they leave, there are no deleterious long-term consequences.

Thirdly, perhaps some measures can be taken to see how foreign maids can better adjust to our lifestyle whilst they are here. I am not saying, go all the way and make them feel so at home, but maybe treating them as elements that are helpful to our economy. Steps can be taken to see how they can better adjust to working here. And finally, maybe Singapore employers can be encouraged or educated as to how they can become better employers. Not everyone, in terms of employing a foreign maid, knows what is best to be done in all circumstances. There are cases of errant employers being punished but that is when they come to light; for one case that is disclosed, there may be other cases that are not disclosed.

Once upon a time, Sir, we debated on the wisdom of having MNCs in Singapore in large numbers. We also questioned whether tourists should be allowed in Singapore in large numbers. Here is a situation where we are also now wondering whether maids should be allowed in Singapore in large numbers. My plea is simply this: maybe a comprehensive study should be undertaken so that Singaporeans are convinced that this is indeed the right approach.

Next, just a brief point on reservists. As a reservist, I join fellow reservists in welcoming this relief. It is something that will act as a motivation. Of course, it will not fully compensate for the anxieties, for the sense of uncertainty, discomfort and disruption to family life that reservist training brings about. I just want to ask the Minister for Defence one point on this scheme. It is clear that reservists who are currently performing reserve duties and who have completed their reservist liability are eligible. The criteria for eligibility, however, also include those who have completed National Service (NS) but who have been exempted from reserve duty. My question is: should these people enjoy this tax relief, ie, people who have finished NS but do not do reserve duties because they are exempted? The answer would depend on the basis for granting this relief. Is it for completing National Service, or is it for one's contribution to reserve service? If my understanding is correct and it is for the latter, for one's contribution to reservist duty, then the answer should be "no", these people should not enjoy this tax relief. I hope the Minister can clarify this point.

Finally, Sir, just a brief word on the SC & CC charges. I want to join my fellow MPs in welcoming this move. I hope the beneficiaries will pause for a moment to appreciate the sentiments behind it. It has not been done before. It need not be done now, but the Government has paused a while, and made it possible for them to also enjoy a bit of the booty.

Sir, on this note, I support the motion in the name of the Minister for Finance.

Mr Lew Syn Pau (Tanglin): Mr Speaker, Sir, the Government has always been conservative in its fiscal policy. They have built up budget surpluses every year to add to our reserves. And this has proven to be a sound financial policy. Our strong reserves have kept the Singapore dollar up, inflation low, which, in turn, enhances the purchasing power of our workers.

This year's Budget is no exception. It is a cautious one in view of economic uncertainties, both in the world and at home. It is estimated that there will be a budget surplus of $1 billion which will be set aside for the Edusave scheme. I am pleased to note that we do not need to draw upon reserves that were accumulated in the past to start schemes like Edusave and Medifund. Future contributions to these two funds will also come out from future budget surpluses. I support this policy.

At this juncture, I would like to respond to Mr Ling How Doong's call yesterday to give more and more subsidies to education. The Government is already spending 4% to 5% of GDP on education. This is very close to the norm of the industrialised countries. This amount is enough for the schools to provide every student with a good education at minimal cost. We should remember that a dollar more for education is a dollar less for health care or other deserving public expenditure, such as housing or the building of roads. The expenditure on education and health care may be noble and desirable, but we must continue to do so in a manner that is sustainable in the long run. Hence, I would be the first to object if anyone advocates that we should dip into our past reserves to provide more and more subsidies for education.

Next, let me comment on some of the revenue and tax changes proposed. First of all, the CPF contribution rates. The Finance Minister has announced that with effect from 1st July this year, the employer's CPF contribution rate will be increased from 17 1/2% to 18%, up 1/2%. The employee's CPF contribution rate will be reduced from 22 1/2% to 22%, down 1/2%. I must confess that the unions and workers view this adjustment with some disappointment. Many still remember the 15% cut in the employer's CPF contribution in one fell swoop back in 1986 when the economy shrank by only 1.6% in 1985. They also agreed not to demand for 15% restoration when the economy improved later, but only asked for 10%. However, they had not foreseen that the restoration would take so long, even though the economy had performed well since 1987, with GDP growth rates of 8.8% in 1987, 11% in 1988, 9.2% in 1989, 8.3% in 1990 and last year, it was 6.7%. These are very good growth rates, considering that Japan was only averaging 4.5% at the time when their GDP was around this level.

Our forecast for the medium term growth rate is 5% to 7%. Taken in that perspective, I would like to urge the Government to restore the remaining 2% of the employer's CPF contribution as soon as possible, and not wait until 1996 to do so. Our relative unit labour cost in manufacturing against the other NIEs is still competitive, at around the 1982-83 levels. The sooner the employers accept the 20% CPF share of contribution as the norm, the sooner they accept that wages must go up every year in response to market forces, the sooner they will upgrade and innovate their production processes, the sooner we will be able to improve the industrial relations climate between workers and employers in Singapore. The Government should continue to help businesses in their transition without compromising the principle of free market competition.

Next, I would like to touch upon corporate income tax. Companies welcome the reduction of one percentage point in the corporate income tax rate to 30% with effect from Year of Assessment 1993. This reduction will help to offset some of the operating cost increases, including the increase in CPF contribution. But more importantly, I think it will help to attract more foreign investments to Singapore, which in turn will provide more job opportunities for our people.

Next, the individual income tax. Although there are no changes to the individual's tax schedule, we welcome the one-off rebate of 5% across the board for personal income tax for Year of Assessment 1992. Last year, at the same debate, I had argued for personal tax rates to be lower for Singaporeans than permanent residents or foreigners. The differential need not be too wide, but at the same time, significant enough to convince non-citizens that there are privileges in being Singapore citizens. I am pleased to note that this year's budget has taken a step in this direction. Citizen householders staying in rental and owner occupied 1-, 2- and 3-room HDB flats who pay little or no income tax will have the service and conservancy charges paid for by the Government on their behalf to the Town Councils for the month of December 1992. This is a very generous gesture by the Government. In fact, it is a hand-out which is not characteristic of this Government. It is a one-off payment which I hope will not be taken for granted.

The other benefit for Singapore citizens goes to those who have done national service and reservist training. This means that almost every household in Singapore would have one person enjoying this benefit. It comes in the form of a tax relief of either $500 for non-active reservists or $1,000 for active reservists. As an active reservist myself, I must confess it came as a surprise, although a pleasant one. As a tax relief, the actual benefit a reservist gets varies with his civilian income, and not directly with his contributions to the SAF. However, I understand that it is administratively more convenient in the form of a fixed quantum tax relief. As reservists, we appreciate the tax break given to us. The amount may not be large but it is significant relative to the personal tax and earned income reliefs. But what reservists really appreciate, which go beyond dollars and cents, are the recognition and status which the Government is according to reservists who have given time and sweat to the defence of the country.

The Government is planning to table a White Paper on a comprehensive goods and services tax in Parliament in the second half of this year. Most workers and lower-income Singaporeans view this with some anxiety, and rightly so because consumption taxes everywhere tend to be regressive. I hope the Government will take the opportunity to do a comprehensive review of all income taxes together with the introduction of the consumption tax so that our lower income group's purchasing power can be maintained.

The Finance Minister has also announced that with effect from 1st June this year, the Government will restrict the eligibility of duty-free privilege for liquors only to travellers who spend not less than 48 hours away from Singapore before their arrival. This restriction, however, has been perceived by the lower income to impact them unfairly as they are the ones who do not have the financial resources to travel too far away and for too long. Perhaps the Minister would like to comment on this perception among the workers.

With these comments, Mr Speaker, Sir, I support the Government's financial policy for the year 1st April this year to March next year. 1.20 pm

Encik Othman bin Haron Eusofe (Marine Parade GRC): Mr Speaker, Sir, I support the motion to approve the financial policy of the Government for the financial year 1st April 1992 to 31st March 1993.

Sir, the outlook for 1992 is now less rosy than the earlier forecast in November 1991. The Ministry of Trade and Industry's forecast for 1992's growth is now 4-6% and the main reason for this is the softening of our markets overseas. I gather from reports of the business sector's response to the Budget Statement that they feel that the Budget is conservative. They call for more measures to stimulate the economy and particularly to tackle increasing business costs.

Sir, while measures like a bigger cut in corporate tax and other reductions in taxes and levies will help to stimulate the economy, I think it is equally important to ensure that measures which are proposed will not overheat the economy. This will bring us problems like inflation which can adversely affect workers' earnings and savings. Sir, I support an approach for a slower but steady and sustainable growth. A steady growth will enable us to maintain stability and to achieve a constant improvement in our standard of living. We do not want sharp changes in our economic growth which can bring severe financial hardship to workers in the event the economy gets into a downturn.

Sir, the more effective way for our businessmen to cut down their costs of doing business and to be competitive is to make a greater effort to train their workers and to motivate them to improve their productivity and work performance. If they show that they recognise their employees' contribution and reward them well, I am sure that they will be able to motivate them to improve their work quality and productivity. And this in the long term is the most effective way to reduce costs and to remain competitive.

Mr Speaker, Sir, the three main strategies needed to achieve our medium term growth target outlined by the Minister in the Budget Statement need our total support and commitment. Our domestic market is small and we need to export our goods and services to the world markets. To do so, we need to stay fit, trim and competitive. While we continue to strive to seek better opportunities in the established markets in the West, we must do our best to develop new opportunities in Asia and ASEAN. The creation of the ASEAN Free Trade Area brings about a wonderful opportunity for our businessmen. I am sure that we can make a significant contribution to help ASEAN become an important market, one which will be able to attract more good and high quality investments.

Sir, our push for upgrading and restructuring should be a relentless one. Upgrading and restructuring bring about changes which are never easy. Experience has shown that if we want to progress, we must be flexible and be ready to accept changes to ensure that we are relevant to the world markets. Our businesses and their management and workers must work together to improve their skills and quickly expand the use of new technology.

Mr Speaker, Sir, I do not have to stress that with our limited resources, it is crucial for us to ensure that our resources are efficiently and optimally utilised. There are many examples in the world like the former Soviet Union, now Commonwealth of Independent States, which do not rely on the free market system to allocate resources and their policies have brought about hardship for the people. The example which the Minister has given in his speech on the Indian experience is very relevant to us. Our approach based on the market system tempered by Government intervention in some sectors has helped our people to enjoy a good quality of life. Sir, in areas like health care and education, a certain amount of Government intervention and subsidy is justified to ensure that the costs of health care and education are affordable to our people.

Mr Speaker, Sir, let me now turn to some specific areas in the Budget. I would like to touch first on the increase of the employers' CPF contribution by half a per cent, from 17 1/2% to 18%. My colleague, Mr Lew Syn Pau, has already touched on this issue and I also would like to say that workers are generally disappointed with this slow pace of restoration of the CPF cut. In fact, if we go by the Minister's statement, it will take another four years, up to 1996, before we can expect the restoration to 20% which is below the 1985 rate. Our workers ask only what is fair and equitable for their hard work and contribution. In the present context, we may have to settle for a slower restoration. However, I would like to urge the Minister, since it is stated that the outlook for growth in the second half is likely to be stronger than the first half, to consider whether another adjustment can be made to raise employers' CPF contribution in the later part of this year should a stronger growth be realised.

Mr Speaker, Sir, labour-management understanding and cooperation is an important pillar of our industrial peace and stability. We cannot afford to lose workers' confidence and trust in their employers and in the Government. With this mutual trust and confidence, we can persuade our workers to make sacrifices during difficult periods. However, we must not take our workers for granted. Instead, Government and employers must demonstrate clearly their concern about workers' well-being and security.

Sir, let me now touch on the question of productivity growth and wages. The Budget Statement stated that with labour productivity growing by 1.5% in 1991, this is the third year in a row that real wage increases have exceeded productivity gains. Mr Speaker, Sir, our long-term productivity growth target is 3-4%. The Economic Survey states that Singapore's productivity growth in the last five years averaged 3.8% which is at the higher end of our long-term target of 3-4%. Therefore, if we measure productivity improvement over a longer period, workers' performance has matched the long-term productivity target. We need therefore to examine more carefully before we can conclude that workers' wage increases have not been supported by productivity improvements. We should also examine wage increases earned by workers and by executives. I would like to also point out that unlike the situation before the recession in the mid-80s, we now have a flexible wage system in place.

Sir, in a period of economic uncertainty, we can accept that wage increases on the whole should be moderate to enhance our competitive position. However, I would like to emphasise that companies that are doing well and showing good performance and profits should not take advantage of this to deny their workers a fair and equitable increase this year. Businesses doing well should continue to pay good and equitable wage increases to their workers.

Sir, in the public sector, annual bonus payments are guided by the overall national economic performance. In the absence of a better measure, we have to adopt this annual growth rate to work out these payments in the public sector. I would like to draw the Minister's attention to his statement of the great success of the zero-growth manpower policy in the public sector, which was achieved without compromising standards and quality of service. Sir, I believe that the success of this policy is due to a large measure to the contribution made by the public sector employees. Although there has been no manpower increase, and in fact in certain areas there has been a reduction in manpower, the civil servants have continued to perform effectively and efficiently and provided a high quality of service. I think this should be taken into account when the Ministry of Finance works out this year's bonus payment.

Sir, the daily-rated employees' union leaders in the various Ministries in the civil service have always pointed out that the number of daily-rated employees in the Ministries has been greatly reduced because of retirement as well as no new recruitment. Hence, their workload has increased. However, they have been able to cope with the increase in workload because of their hard work and improvement in productivity. Currently, the DREs and also employees in Division 4 receive low wages, especially if we take into account their heavier workload and contribution. I would like to urge the Ministry of Finance to examine the workload and contribution put in by the employees in the lower divisions of the civil service and to see how their terms of employment including wages can be enhanced.

Finally, Sir, I would like to commend the Minister for Finance for the decision to give a rebate of service and conservancy charges to citizen householders in the 1-, 2- and 3-room flats in the month of December 1992. This shows clearly that the Government is prepared to share our prosperity with each and everyone of our citizens. However, it is important for our people to understand that such payments are only possible if our economy continues to grow and that we are able to generate healthy surpluses in our budget. We can only enjoy good economic growth if we continue to work hard and make every attempt to improve productivity. As mentioned by many of my colleagues, this requires our workers to upgrade their skills and learn new skills which are relevant to the economy. As our people work together in this direction, we will be able to meet the challenges before us confidently and look forward to enjoying more economic growth and success in the future.

On this note, I support the motion.

Mr Chew Heng Ching (Eunos GRC): Mr Speaker, Sir, it must be clear to all by now that what is certain about our short term economic outlook is its uncertainty. Certainly there will be surprises this year, some good, some bad. Some optimists have predicted an improvement in the economy in the fourth quarter this year, but some pessimists think next year could be worse.

We are seeing conflicting signals about an economic recovery in the US. The UK remains in recession. Germany and Japan are expecting a slowdown in their economic growth this year. These leading world economies' continued downspin will sooner or later have a dampening effect on us because our economy is neither insulated nor isolated from the rest of the world.

Sir, this year 1992 is also election year in the US and in the UK. Naturally, no efforts will be spared to make the economies appear buoyant and that they are heading for a recovery. But what happens after the election is anybody's guess.

Last year, we managed to weather through the uncertainties, helped to some measure by the strong economic performance of neighbouring countries. The Singapore economy grew by 6.7% last year. Would we continue to have the same blessings this year? Already, official forecast by the Ministry of Trade and Industry is for a lower growth of 4-6% this year.

Sir, while other Ministers for Finance are grappling with how best to please the populace in an economic slowdown, I am glad that our Minister has chosen, undauntedly and wisely, to present a Budget that is pragmatic, prudent and appropriate in today's circumstances. It may be described as "unexciting and conservative" but Singaporeans will understand that no responsible Government should give away bags and bags of goodies in the face of so much economic uncertainties.

While the economic growth last year was commendable in the light of international economic developments, I am perturbed by a worrisome trend. Inflation remained within 2-3%, unemployment stayed below 2%, and wages grew by 7.6%, but productivity fell to its lowest growth since 1982, growing by only 1.5%. This marks the third year in a row where real wage growth has exceeded productivity gains. Sir, the signs reminiscent of the much dreaded 1985 economic recession loom large. We cannot take chances. This trend merits closer attention by the Government as well as employers and the unionists. We should study what has led the economy to slide so dangerously close to a productivity cesspool. Could it be due to excess capacity aggravated by squeezed profits and rising wages? On their part, and to help the Government, I suggest employers and unionists together study the trend closely and help to take or suggest immediate actions to reverse the productivity decline.

Sir, Singaporeans themselves will also have a part to play to help bolster the economy. Other than continuing to work hard, they will also have to be realistic in their expectations. But what are realistic expectations? For those who have worked some years now, they understand that wages should never outstrip productivity. Consequently, many have tried to upgrade themselves, acquire new skills and subject themselves to further training so that their level of productivity gain continues to match wage increases. My concern is, will our young graduates and new job seekers subscribe to the same philosophy of matching their productivity with their wage expectations? I urge all Singaporean workers to recognise that a robust economy pays better than one that has slowed down, and hence they must be prepared to accept lower pay increases this year. Perhaps the National Wages Council should reiterate this point and go back to setting quantitative guidelines for wage increases this year. It is something which they have abandoned last year.

Sir, businessmen are generally concerned about the high cost of doing business, particularly the strong Singapore dollar. While a strong Singapore dollar has kept our inflation low, enhanced our status as a financial centre, and benefitted Singaporeans, especially those who travelled abroad, we must ensure that a strong Singapore dollar do s not make us less competitive vis-a-vis our competitors. Sir, I am not against a strong Singapore dollar, as given the fundamental strength of our economy and political stability, the Singapore dollar is likely to continue to appreciate in the long term. But in times of uncertainty and in times of economic slowdown, we should try to keep the Singapore dollar at the level which will give Singapore companies the competitive edge. I hope the MAS takes heed of this. In the longer term, Singapore companies should find out from their Japanese counterparts how they survived in the 1980s when the Yen appreciated against major currencies.

Sir, besides the strong Singapore dollar, the business community is also concerned that any further increase in Government rates and fees this year will add on to the cost of doing business. In view of the economic uncertainty ahead, may I suggest that the Government defer all increases in rates and fees in the next 12 months.

Sir, the Minister has reiterated the need to enhance our linkages with the world economy. The move to encourage Singapore companies to venture abroad was stepped up in the 1980s. Indeed, many fiscal incentives were introduced in the past to encourage Singapore companies to go abroad. Many of these companies which have successfully ventured abroad are the bigger local and Government linked companies (GLCs). Sir, I believe what is needed now is to try to open doors for our small and medium enterprises (SMEs) to establish linkages with the world.

The Government linked companies have in the past performed a pioneering role and ventured into businesses and industries that the private sector would not want to venture into, because of many reasons, such as large capital outlays, high risks and long gestation periods. Government linked companies have done well and played a key role in this aspect of Singapore's economic development.

Sir, I think these Government linked companies could again play a leading role in our efforts to globalise Singapore companies, particularly the SMEs. Many of these SMEs hesitate to go abroad due to lack of financial and manpower resources, high risks, as well as lack of business opportunities. In bidding for overseas projects and establishing foreign subsidiaries and joint ventures, the Government linked companies could assist the local SMEs to establish or set up overseas plants and investments. What I am saying here, Sir, is that there is a need for a public-private sector partnership to be established to achieve our economic strategy of establishing global linkages with the world. In this regard, may I suggest that the Ministry of Trade and Industry look into how best these two sectors could collaborate to help accelerate the internationalisation of our local enterprises.

Sir, having set up investments abroad, the SMEs need to find able Singaporeans who are prepared to go overseas to work and look after their investments. Are Singaporeans prepared to make the sacrifice to leave their cushy jobs in Singapore for a place that is foreign to them? Perhaps the Government should look into introducing schemes whereby Singaporeans will be encouraged to accept overseas postings; schemes such as housing priority, income tax exemptions, suitable educational system for their children, and so on. And employers too must play their part. They must not only reassure the employee that he will not be bypassed in any promotions, but indeed make overseas posting as a necessary condition for promotion. Only then will the belief that the dispensable are posted out be dispelled altogether. However, I wish to caution that no amount of schemes or fiscal incentives can work if Singaporeans treasure their quality of life here and avoid overseas postings. I therefore urge Singaporeans to consider seriously overseas postings if the need arises.

Sir, I now move on to the call for subsidy. It has been eloquently asked: since we have accumulated large reserves, should we not return it to the people? I think the answer is yes, and that the Government is doing exactly that. The Government will be paying conservancy charges for 1-, 2- and 3-room flat dwellers in December this year, and the implementation of the Edusave and Medifund are some of the schemes the Government has thought of to plough back the reserves to the people. There will be more when the needs are established. Sir, in my view, the guiding principle of such subsidy is that it must be applied in a manner so as not to lull our hardworking Singaporeans to become complacent and slothful. The subsidy given must also be capable of being withdrawn without difficulty and pain to the public when changed circumstances call for its withdrawal. And lest it be wrongly assumed that a precedent has indeed been set to use our reserves for subsidies, Singaporeans must again be told by this House that the subsidies are taken from current operating surplus. I urge the Minister to continue with this guiding principle of using current operating surplus to finance any schemes to improve subsidies to the people, and not tap the accumulated reserves of $55 billion which should rightly be set aside for rainy days.

Sir, it is heartening to note that the Government will continue to keep the public sector lean and trim. Government expenditure as a percentage of GDP will be less than 20%, and that is commendable. I hope the Government will continue to keep expenditure low as long as the long term benefit is lower taxes for the people and for businesses. Indeed the proportion of Government expenditure as a percentage of GDP should gradually decline as we privatise some of the Government agencies and statutory boards. The implementation of a Management Accounting System will serve as further checks on the use of resources in the public sector. My committee and I of the Estimates Committee will look into this system in greater detail to see how further improvements could be made.

Sir, I have one comment regarding the use of manpower resources in the public sector. I have noted from a chart on page 19 of the Budget document which shows the strength of the civil service -- the budgeted strength versus the actual strength. One will note from this chart that the budgeted strengths of the civil service and statutory boards in the last three financial years were about 105,000, 100,000 and 99,000 respectively. But the actual strengths were 97,000, 89,000 and 88,000. There is always this gap between the budgeted and actual strength. What this chart shows is that we are on the average about 10% under-strength in the delivery of our public services. Indeed, the 10% under-strength goes beyond the last three years. My question to the Minister is: Does this mean that the standard of our public service has suffered all these years because the public sector is understaffed? If not, and if the contrary is true that indeed the level of services has remained as good as before, then my question to the Minister is, why the need to retain so many unfilled, vacant posts all these years? Shouldn't the zero-base manpower exercise conducted in recent years have deleted these posts? This will, if it is done, make our public sector services even more efficient and keep Government expenditure even lower or direct financial resources to more productive use in the public sector.

On that note, Sir, I support the motion moved by the Minister for Finance.

Mr Chng Hee Kok (Tampines GRC): Mr Speaker, Sir, thank you for letting me join in the debate.

Sir, I rise to support the motion standing in the name of the Minister for Finance.

The headline in the newspaper said, "Socialist China Mustn't Totally Reject Capitalism". This headline will be nothing unusual if it is made by some economic journal. But it is not an economic journal. This headline was the headline of the China Daily - the English counterpart of the People's Daily of the People's Republic of China. Learning from the experience of the now defunct Soviet Union, China's leaders are fully aware that the capitalist road -- once a very feared description -- is the only way forward for China. In freeing the economy, one of the very first prescriptions of the Chinese leadership was the removal of subsidies to state enterprises. Subsidies cause distortion, lead to inefficiency and prices of manufactured goods that bear no resemblance whatsoever to the cost of production. The Chinese leaders are going one step further - in trying to remove subsidies in social programmes. For example, rental of state housing at $1.00 per month is something which will lead inevitably to an inordinate demand for state subsidised housing.

My next example is India. Let me quote one paragraph from The Economist on 7th March 1992. The opening paragraph of a leader says:

"In all the world there is no more striking a case of opportunity squandered than India. For decades a breathtakingly inept approach to economic policy - one that contrived to make even less sense than communist central planning - separated the country from the world economy, held back growth and defeated progress on almost any measure you choose. An economy whose potential in the 1950s stood comparison with that of the East Asian tigers, on a much larger scale, today remained mired in poverty."

Sir, we started with India on about the same basis after independence. Today, our per capita GDP is no less than 40 times the size of India. No wonder we have many Indians who like to come to Singapore to look for ways out of their economic misery. I think India has no choice, and Prime Minister Narashimha Rao, at high political cost and opposition, has to bring about economic reform. Amongst many free market moves, the Indian budget last month sought to remove a string of subsidies which were sacred cows. The string of subsidies included cutting the subsidy on fertilizers -- a very sensitive issue to farmers. Also, contrary to socialist principles, the wealth tax in India was removed. The maximum income tax rate was brought down from 50% to 40%.

Sir, my third example is the United States of America. The world recently witnessed the spectacle of a US President, with chief executives of some of the world's largest auto makers in tow, going to Japan to ask for trade concessions. Such a development was once inconceivable. Who could have thought it possible that 46 years after General MacArthur rode triumphantly into Japan to dictate terms to a vanquished Japanese nation, the supreme leader of the same nation would have to go to Japan today as supplicant to bargain for more favourable trade terms? Sir, it is Pearl Harbour all over again! In a different form.

Last Friday, 6th March, the headline in the Straits Times sums up all that is wrong with the US economy. The headline reads "US House rejects President's Budget." President Bush is from the Republican party. Congress is controlled by the Democrats. In rejecting the President's budget, congressmen were merely re-prioritising expenditure to where they can win most votes. The US budget deficit last year was US$400 billion, more than $2,000 for every man, woman and child. For the next fiscal year the budget deficit is projected at US$330 billion. The Straits Times reported, and I quote one particular sentence which says here, "Both the budgets of the President and the Democrats, neither budget address the swelling national debt." In the US, Medicare, social security and other social programmes are sacred cows. Profligate spending and high government subsidies are bringing ruination to the most powerful nation in the world.

The three examples I have quoted -- India, China and the US -- show the insidious effect of government subsidies if mindlessly applied. Moves by India and China to remove subsidies at very high political cost and China's strongman Deng Xiaoping is no easy pushover. Surely the very fact that they are asked to do so or forced to do so must mean that the survival of the state is at stake. As for the US, the failure to address the deficit and public spending on social programmes points to a decline in a once economically strong country.

Sir, all over the world, we see many former economically strong countries have been wounded, hurt by something more drastic than bombing by hostile alien forces. What we are seeing is economic harakiri, a suicidal beaching of whales among some of the once rich developed countries.

There is no doubt that mindless spending and government subsidies are bringing ruination to once powerful nations. Yet, leaders of these countries are shying away from unpopular measures to curb such spending. Today, all countries with high subsidies and deficit spending are in trouble. Countries with generous welfare benefits, countries that have maintained high social welfare handouts without a matching return in revenue, are experiencing economic hardship, high unemployment, and a universal drop in the people's standard of living.

And because the subsidy mentality has taken such deep roots in these countries, political leaders are paralysed. The politicians only look forward to the next election and dare not take the political risk of voting to cut off or reduce such spending and put their countries back on an even keel. It is said that a small increase in petrol taxes in the United States could overnight help to wipe out the country's recurrent budget deficit. But has any American leader in the US dared to suggest that? No, the American's love affair with the car is also another sacred institution.

This is why, Sir, Singapore should never succumb to the temptations of subsidising spending or digging into our coffers to finance the whole array of social services. Free market forces, and less subsidy -- not the US way -- is the only way for Singapore to go. Unlike powerful and large countries like the US, Singapore does not have the clout to finance profligate spending, or to support budgetary deficits.

How does the US do it? Despite its huge and persistent budget deficits, the US can keep on borrowing from the rest of the world. Banks and countries are still buying US bonds. The world has to prop up the US economy. No one can afford to let the US economy go down. Today, the United States is the most indebted country in the world.

But the same cannot be true of Singapore, and probably never will, given the facts of life. Despite consistently very high credit rating for some years now, I think no banker will lend Singapore any money, once its economy runs aground for extended period of time. At the first whiff of trouble, creditors will foreclose. All it takes is a few years of deficits and drawdown of our reserves, and there will be no more lending to Singapore but foreclosure. Foreclosure will take the form of high unemployment, hyper-inflation and all the woes that come with economies that have gone wrong.

Sir, last Sunday, Straits Times columnist, Sumiko Tan suggested that, and I quote:

"The government has more than made its point about the dangers of mindless handouts. But by doing so, it has also given itself a bad press - inadvertently."

I have high regard for Sumiko Tan and the contents of her article headlined "Reserves and Subsidies - Time to let the matter rest". However, I believe this headline and her conclusion have somewhat marred the excellence of her arguments. Seeing what is happening to the rest of the world, and the national income level that Singapore has achieved today, the question we must surely ask is: are we ready to restructure and remove further subsidies and cross-subsidies which may make our economy less rigid and of course remove distortions wherever possible? My view is that now is the time to go further into this somewhat painful and divisive subject.

The Member for Bukit Gombak, the Opposition Member, yesterday asked how much reserves must we accumulate? My regard for him would have been notched up several rungs if Mr Ling How Doong had asked: how much subsidies should we have in our system? My regard for him would have improved if he had asked that question.

Sir, today I want to make out a case for a deliberate move by Government to free the Singapore economy further. We should, instead of allowing contemplation of any new Government subsidies, direct our minds now at reducing where possible - and without causing drastic short-term hardships to the people - those subsidies which are no longer necessary, or are not in our people's long-term interest.

After 27 years of independence, Singapore and Singaporeans, I believe, are ready to be weaned away from subsidies. It is also not a question of choice. It is better, while we are still able to, to prepare and focus our people on the need to earn what we get, and pay for the services we demand. History and current world developments prove the merit of a free market. Our people and our nation will be the better for it. We should allow free market forces to reign in as many areas as possible except in the most basic social services. Up to now, Singapore has focused on three major areas, housing, education and health. I think in these three areas, high Government subsidies have enabled us to arrive where we are today. Subsidies on education and health can be argued for continued support. But can we say the same thing about housing?

Today, with more than 80% of our population already housed in HDB flats, we should examine and ask if flats of larger room types should continue to be subsidised to the present extent. This subsidy is real, Sir, if you make a comparison of the prices of the flats built by private developers on URA land and that of a comparable HDB maisonette or executive apartment. The difference is as much as 50% to 60% and this difference comes mainly from the land cost. A developer has to include the land cost fully into his project and into each unit or flat or apartment he sells. We should continue to subsidise first time home owners only, and this may be done either through the pricing system, or the tax breaks during budget time. Should these flats still be restricted to people earning below a certain level of income? When we have a situation where large profits can be made by selling existing HDB flats, should the HDB continue to operate as it is today, and offer executive flats at prices way below comparable private apartments? Will this not lead to a constant desire to upgrade to larger and bigger flats? Why should Singaporeans who pay high taxes - and therefore are subsidising such services as public housing, that is for those who pay less taxes - be prevented from buying HDB flats? By setting an income limit, those who are earning more and paying more taxes are not entitled to buy HDB flats. Instead of maintaining this state of affairs, with a mature economy, and the end of our housing problem, should the Government not re-examine the role of the HDB and its housing policy? I believe, Sir, now is the time for such a review.

For greater efficiency in our economy, the long-term direction should be a freeing of the market and a start should be made now to let the market find its own level in housing. Prices may rise in some areas, and go down in others. But ultimately, it will mean greater efficiency, and better value for the people. And greater and more general well-being at the macro level will also condition our people to compete better among themselves and in the world. Which is why I am in support of the scheme to sell HDB shops. This is a step in the right direction, although I must say that the scheme is rather unfair at this point in time. I have submitted an amendment under this topic and I shall bring it up when we discuss the sale of HDB shops.

Sir, there is a market value to every shop and HDB should not be involved in setting the rental charges. By working on some uniform structure, certain efficient businesses benefit, others which are less efficient, less productive, will cry foul because the tenants need the subsidies to survive and to continue their business. Once the shops are sold, the owners are able to resell their shop and their business, lease out their premises to others and, in some cases, some of the shopowners would be better off seeking alternative employment and, at the same time, collect rent for the shops.

Sir, a second area which requires some review is the public transport system. We have a Public Transport Council that has done tremendous good in stabilising public transport costs, and in helping a good public transportation system take shape. However, in the process, it has also led, for instance, to some rigidity by preventing operators from charging higher or economic rates on certain routes. If these routes are unprofitable, operators will not be willing to maintain these services. If certain bus operators wish to charge higher rates for a run from, say, the MRT station to a housing estate, this should be done. If they can generate some profits from there, and if residents are happy paying a higher rate, we should allow for that. If it is popular, the rates will be reasonable and kept low. If the rates are too high, of course, there will be no demand and the operators may not run the service. I understand also that taxi operators also have difficulty in setting different rates, like setting premium rates for special or personalised services. Sir, instead of fixing a rate for all taxi drivers, if they are prepared to offer a personalised or different service, we should allow the taxi drivers to do so.

We have, since independence, seen a plethora of bus service companies reduced to one giant Singapore Bus Service (SBS). More recently, new bus companies have been allowed to start and Trans-Island Bus Service (TIBS) is one good example of what can be achieved by good healthy competition.

Sir, although we are not prepared to return to the bad old days of mushrooming public transport companies, if we allow these companies to charge what the market can bear, and what makes it profitable for them to operate, I believe we can expect more public transport operators to enter the market and this cannot do any harm to our public transportation system except to improve it.

Rigid regulations have been given as one example why people from Hong Kong do not like to come to Singapore. Used to a free for all system in Hong Kong, with minimum and usually absent government, Hong Kong has managed to make tremendous progress despite a high distortion in the income spread. But such a laissez faire state of affairs, as shown in Hong Kong, has been vindicated over time.

But because we have an efficient and honest Government, the process of freeing the market can be more orderly. Privatisation in many areas of Government services, such as Telecom and the Public Utilities Board (PUB), is a step in the right direction. Where possible, Government should also allow for other companies to enter those areas formerly monopolised by such Government agencies. If we free our market, and the Government reduces its role, personal income tax can and must, in fact, be reduced over time. In this way, people will be allowed to pay only for what they use. In the end, the whole population benefits.

The Government should review, step by step, the different services with a view to scaling down its subsidy or involvement. Why should Singapore adopt such a move? It is, I submit, the only way forward to a real market economy, greater efficiency for Singapore, and most important, for the long-term well-being of the country.

Continuation of a policy of subsidy, even at present levels, will result in perpetuation of a subsidy mentality, a give-me-more attitude and dependency among our people. Sir, I remember when I was a boy, the PUB first installed meters in the housing estates. Up till then when we achieved independence, water bills were charged on a flat rate basis. At that time, the move was very popular because people felt that they should not be paying a fixed rate of water as their neighbour when they might be using less than their neighbour. So the move for fixing water meters was popular. People felt that they were paying for what they used. But contrast this with the recent move of Telecom's time-based charges. We had a fixed rate. We have moved to the time-based system, and people should pay for what they use. We have created a tremendous problem. So over a period of time, the people are used to subsidies, the mentality is so entrenched, that it is very difficult to move people, as seen all over the world.

It is like the buffet syndrome that we complain so much about. Because Singaporeans feel they have paid for it, or deserve more, they may insist on loading their buffet plates with as many Government subsidised benefits as they can, whether they need them or not. In our desire to build a more egalitarian society, we could also risk fostering a society that insists on more Government props.

Now is an opportune time for Singapore to review the whole concept of less, and not more, government. While balancing political exigencies, we should take bold steps in preparing our people for an even better and more self-reliant future. Sir, while I am in support of the free market principle, enunciated by the Minister for Finance in his Budget Statement, I must take exception to his philosophy of maintaining or moderating economic growth. We are moderating our growth by imposing Government charges and restricting our foreign workers.

Sir, our problem happily is that of managing growth in Singapore, unlike many countries which are trying to get their economies to kick-start or to grow. While it may be necessary to prevent overheating of our economy during a boom, should we give it a freer rein than at present? Should we not allow our economy to catch the wind and grow as quickly as it can? Instead of controlling growth at a manageable 4% to 5%, is it not better or worth debating that we should have less restraint and allow the economy to grow at even 8% when times are good, and allow us to build up our reserves? My view is that holding a rein on growth is a very dangerous concept. Holding the reins in moderating growth is only something which I believe the bureaucrats believe in. No businessman says you can moderate growth because you sell whatever you can, whenever you can.

In the 1985 recession, Sir, we recovered within one year and we did that by cutting our cost, and the main cost item we had scaled back was the Central Provident Fund. I think this time round, we may not be able to do the same. Back in 1985, the US economy, the Japanese economy and Europe were still in a state of growth. Today, the US is in recession, with recovery in doubt; Japan is slowing down and the powerhouse of Europe, Germany, because of the reunification, is in to negative growth. Sir, this time round, just mere cost cutting will not work. If world demand drops in the major economies, how will cost cutting help us plug into the system? If there is no demand, even lower cost will not help.

While there may be a need to dampen galloping growth during a world economic boom, can we be sure that in a world slowdown - as is happening now - we can still manage 4% to 5% growth rate? With the present drop in world demand, it will be very difficult for our economy to pick up. With all these signs, I feel that the latest Government curb on the number of foreign workers is ill-timed.

With all signs of a slowdown already evident, and if growth is still uncertain, it is difficult to understand why the Government is still trying to restrain growth by continuing to take a hard line stand in this area. For example, by insisting on implementing the foreign to local worker ratio at 2 to 1, we may be forcing the shipbuilding and ship-repairing industry to shrink at a time when the slowdown will itself force the industry to contract. The shipyard and shipbuilding industry is a cyclical business and we must catch the wind whenever it blows strongly. Why not then let these shipyards hire from abroad more freely now if there is still demand in that industry? The world slowdown, when it finally hits our yards, will on its own take care of the problem of too many foreign workers. These guest workers are also not permanently domiciled here and need not be. In a recession, these people can be easily repatriated. Therefore, if growth is not so certain, the Government should be more careful in putting on the brakes.

In conclusion, I wish to thank the Finance Minister on his painless budget. The 5% one-time personal tax rebate, which is running into the third year, is most welcomed. Such reliefs are better than direct unearned handouts, as this is on income that is earned. Our people can better understand such measures. In other words, if you pay taxes you get a rebate. And that, Sir, is my case today. Any largesse we wish to give to our people should be in the form of tax breaks and not direct subsidies on consumption of services.

The Parliamentary Secretary to the Minister for Foreign Affairs (Encik Yatiman Yusof): Mr Speaker, Sir, thank you for allowing me to join my colleagues in this budget debate.

Sir, the Singapore economy grew by 6.7% in 1991, 1.6% lower than in 1990. The annual growth rate for 1992 is estimated to be even lower. It is therefore not surprising to see the budget interpreted by Members as cautious, balanced and some describe it as a budget for continuity. Some critics, of course, are quick to point out and blame the Government for what they perceive as a failure to create a higher growth. The hon. Member for Potong Pasir even rhetorically asked: if South Korea is able to achieve 8.6% growth, why not Singapore?

Mr Speaker, Sir, I am not an economist. But even as a layman, I can understand why the South Koreans are doing better than us, though I shall qualify, in some respects. My colleague from Tanjong Pagar GRC has completely demolished the argument that growth per se is the only and final indicator for success. I do not wish to go through his very complex yet convincing argument to show that what we have today is a lot better than what the South Koreans are having today.

Sir, Singapore's economy is plugged to the developed countries. They form the wider external environment with tremendous influence over our economic future. The world economy grew by an estimated 0.9% last year, compared to 2.2% in 1990, with many industrial countries such as the UK, the US, Canada and Australia suffering from a recession while countries like Japan and Germany experienced slower growth. Some of us may ask: if Singapore is affected by the growth of these countries, so is South Korea. As I said earlier, Mr Speaker, it is not so simple and this brings us to the second reason. There is a basic difference between our economy - its structure and its powerhouse, hence its sensitivity to the changing world economic environment - to those of the South Koreans. In this respect, even Taiwan and Hong Kong are different. Each has its own strength given under certain circumstances.

The South Koreans have their own giants, well-known as the chaebols in Ssangyong, Samsung, Hyundai, Daewoo and many others who are able to shift their operations away from the high cost home base and hence retain their competitiveness. Singapore does not have such big corporations both in size and number, equal to that of the South Koreans, and our relocated industries are mainly small and medium enterprises. Yet, we have our own strength. We have a better standard of living. We live under a better physical environment, less polluted than the city of Seoul and many others. We have a lower cost of living compared to the South Koreans. These together are more meaningful than sheer annual growth of another country.

Sir, the main problem for Singapore is that, to the businessmen, the bottom line remains that the cost of doing business in Singapore is relatively higher, both for the manufacturing as well as the service related industries. With our labour market still tight with an unemployment rate at 1.9%, our productivity growth remained low at 1.5% in June 1991, our dollar appreciated faster than other NIE currencies, we have to look into the question of rapid erosion of our competitiveness seriously. Unless we act quickly and decisively, we will face a situation similar to that which haunted us about a decade ago.

Sir, the lower economic growth also has its sobering effect on us. It lowers our expectations. It forces Singaporeans to review whether they have been fair and practical in their demands. And more important, Singaporeans have two options. First, accept the low growth cycle and make necessary adjustments and review our expectations; and second, reassess our position, identify new areas of growth and new strengths, formulate new strategies to overcome our space and manpower constraints and move ahead.

Sir, I do not see Singaporeans settling for the first option. The Western industrial powers coped with these changes by drawing immigrants from poorer countries and at the same time automating themselves to remain competitive. We have tried this to some extent when we faced difficulties in the early 80s. We shelved, for a while, our plan to upgrade and restructure our industries and relaxed a bit the policy pertaining to our foreign workers. Now, as a result, we have something like 200,000 foreign workers, excluding about 60,000 maids in Singapore with all its social and political ramifications.

I am sure that the Government is doing everything possible to strike a balance between our economic needs and our social objectives. However, the reality is that we cannot continue fuelling our economic growth by using cheap foreign workers. The reasons are many. Firstly, they will not remain cheap forever. Our experience with the Malaysian workers is a clear indication of how the cost could increase fairly rapidly. Secondly, socially, we are beginning to feel the negative effects. MPs are quite familiar with the number of applications for contract marriages between work permit holders and the locals. Thirdly, an over dependence on foreign workers will cause us to be held at ransom by them in case of a major economic downturn. Fourthly, they provide the easy way out, but not necessarily the best solution to our problem. Fifthly, it delays the process of upgrading and restructuring of our industries. Finally, in the areas where industries are of strategic importance to us, the sudden withdrawal of its foreign workers which form the majority of the workforce, for whatever reason, can cause paralysis to us.

Sir, the most compelling reason to control and ultimately to reduce our dependency on foreign labour is our desire to improve our indigenous per capita income. We fought so hard when some countries tried to graduate us. Our argument was that our indigenous per capita income is much lower because of lower indigenous GNP.

Sir, with so many of our MNCs bringing in their own managers and top supervisors and technicians, we will be placing ourselves in great peril if positions at the middle and bottom of the pyramid as well are occupied by foreigners. Nothing will be left for us.

To my mind, the more acceptable solution to the unit cost constraint can be found through (a) improving our productivity; and (b) exporting our capital to other countries with labour surpluses. If the Japanese solution to similar high labour cost problem had produced a tide of manufacturing jobs in Singapore, Hong Kong, Taiwan and South Korea, there is no reason that we should not do it. We may not be able to act as a "big dynamo", a term the Senior Minister used for Japan and its role in the industrialisation of the NIEs. Few, albeit smaller dynamos, can collectively produce bright economic horizon for the region and elsewhere and at the same time provide additional "sails" to catch the wind, so to speak, for our nation's economic growth. In this respect, we may not have big corporations equal to those of the South Koreans, but we do have medium and small enterprises. It is here that we can pin our hope.

While the creation of the Growth Triangle in this region and the presence of free market climate in China, Vietnam and elsewhere provides us with a new opportunity and new challenges to our local entrepreneurs, there are also opportunities open to us for joint ventureship with our traditional trading partners from the developed world, namely, Germany, the USA, the UK, Canada, Australia and many others. In fact, through our participation in joint ventureship with firms from developed countries, we are able to enter into high value-added activities and benefit from the more active transfer of technology. Perhaps more incentives in the form of reduction of corporate tax or even direct participation from Government-linked corporations, as proposed by the Member for Eunos GRC, could be given to local companies to move in this direction.

In the field of productivity, I wish to congratulate the National Productivity Board for its untiring and creative efforts in improving our productivity. However, we are facing a tight labour market and a new generation of workers who were born and brought up under less trying circumstances and are thus different in their attitude towards work and life. Herein lies the great challenge to our productivity improvement.

Sir, Singapore's economy is in good state. We enjoy full employment. We have low inflation. Our per capita national saving is still one of the highest in the world. We are opening ourselves to new opportunities. We may face short-term difficulties but we can still strive for a better future.

On that note, I support the motion standing in the name of the Minister for Finance.

The Minister for Labour (Dr Lee Boon Yang): Mr Speaker, Sir, thank you for allowing me to join in the debate.

My Ministry announced on 18th February a $50 increase in the foreign maid levy and changes in the foreign worker policy for the construction and marine sectors. Several Members of this House yesterday have questioned the need to increase the foreign maid levy. Some have asked whether Government can make foreign maids affordable to the lower-income women so that they can continue to work and have children. Mr Chiam claimed that the increase in foreign worker levy has led to higher business costs. A moment ago, my colleague, Mr Yatiman Yusof, has stoutly defended the need for a strict and firm foreign worker policy. Sir, let me now take a few moments to reiterate why we need to control the foreign worker population before I address the "how".

The Government's foreign worker policy is to allow a limited pool of foreign workers in Singapore. This is to complement as well as to act as a buffer for the local workforce. This will allow the economy to grow beyond the natural growth of our population and our own productivity growth. It will also allow us to reduce the foreign workforce in times of economic slowdown, such as during 1985 and 1986.

Sir, now that we have more than 200,000 foreign workers, including more than 65,000 foreign maids in Singapore, we cannot allow the pool of foreign workers to continue to grow unchecked and unregulated. The future of our economic survival and prosperity does not lie in trying to achieve more growth on the back of an increasing number of imported unskilled workers. What will ensure competitiveness and success are our efforts to upgrade the level of technology of our industries and to move our workforce to a higher level of skills. Without a rigorous foreign worker policy, the pace of upgrading and skills development will certainly slow down and we will be the worse for it.

It is only natural, Sir, for employers to turn to low-cost foreign workers to meet their immediate needs because it is more costly and more difficult initially to invest in new machinery or to automate production processes. But this is necessary if we want to enhance the productivity of Singaporean workers. We need more skills training and upgrading, not more unskilled foreign workers. The policy to reduce our dependence on foreign workers will undoubtedly inconvenience and unsettle some companies, particularly those which are already over-dependent on foreign workers. Such companies, however, must search for alternatives, be it to retrain their workers, upgrade their operations or even to move part of their labour intensive operations to where labour is readily available, such as in the Growth Triangle. Indeed, some have already made the move quite successfully. Sir, a recent SMA survey showed that two out of five manufacturers have either moved or intended to relocate part of their business to neighbouring countries. Sir, this is part of economic rationalisation and restructuring. It may be at times a painful process, but it will in the long run ensure that the Singapore economy remains competitive against other NIEs.

Moreover, Sir, if we do not control and regulate the influx of foreign workers, the lower wages of the foreign workers will certainly drive down and depress the wages of our own Singaporean workers. The earning power and standard of living of ordinary Singaporeans will then be adversely affected. The interests of Singaporeans must always come first. Mr Chiam has said that the increase in foreign workers levy led to an increase in business cost. But, Sir, we have not increased the foreign workers levy with the exception of the levy for the unskilled workers in the construction industry. The increase of $50 for the unskilled construction workers was necessary to slow down the intake of unskilled workers in this sector. The higher levy only applies to unskilled foreign workers. Contractors who employ skilled foreign workers continue to pay the low levy of $250 per month.

Sir, let me now address the concerns expressed by Members over the increase in the foreign maid levy. Much of these concerns centre around employers of maids who are working mothers. Many have said that the increase in levy contradicts the Government's policy to encourage women to work and to have children. Underlying this is the premise that foreign maids are the only solution for such working mothers. Sir, if we were to accept this argument, then we must be prepared to allow in much larger numbers of foreign maids than we have here in Singapore today. Currently, there are about 260,000 married women in the workforce. If we do not revise the foreign maid levy regularly, more and more of these women can afford to employ maids and will want to do so. Since maids come from very low-wage countries and are prepared to work for as little as $150 per month, the foreign maid population could rapidly grow to unmanageable scale.

Sir, this is the likely result if we were to adopt the approach of making foreign maids affordable to even lower income working women. What we must avoid, Sir, is to bring in large numbers of unskilled domestic servants so as to release equally unskilled Singaporean women into the workforce. To do so would be to further slow down our efforts to upgrade the economy and to move to a higher technology level and greater value-added output.

Sir, we are not yet able to ascertain the extent of the problems from having such a large number of foreigners residing and working in Singapore. But Government should take a conservative approach. We should not wait till there is an overwhelming number of foreign maids in Singapore before we decide to revise the foreign maid levy. By then, it may be too late and there will be too many maids around.

As I said earlier, Sir, there are 260,000 married working women actively contributing to the economy. According to the 1990 census and my Ministry's estimate, less than half of the working mothers with children below the age of 6 years (actually 6 years and below) are employing foreign maids.

Sir, this confirms that, contrary to the popular impression, more than half of the working women have been able to cope with young children and career. It also indicates that employing foreign domestic servants is not the only solution.

Sir, other countries, such as Japan, the UK and the USA, are countries where there is no ready supply of low cost foreign maids available, yet the female labour force participation rates for these countries are about the same or even higher than in Singapore. We should perhaps learn from the experiences of these countries and see how they cope.

Foreign maids cannot and should not be the only viable option available to women who have to work and look after a family. The other alternatives are getting part-time local help, help from other family members and making use of childcare facilities. In many developed countries, where maids are not readily available, some working women even revert to part-time employment or stop work temporarily after child birth and return to the workforce only after the child is old enough to be placed in a childcare centre. This should certainly be worth considering, especially for working mothers who find the total costs of employing a foreign maid to be such that it leaves behind very little real income or net gain for them from their own salaries.

If maids are so readily available at low cost, the tradition of having older family members and close relatives helping to look after young children will be eroded or even lost. Furthermore, alternatives to foreign maids such as childcare facilities will not develop fully or at the pace that is desirable to meet the demand.

The Government has therefore taken measures to moderate the growing demand for foreign maids so as to minimise their long-term socio-economic cost. When demand continues to grow, as shown by the more than 20% increase last year, the levy has to be revised to moderate the trend.

Sir, I would now want to address the question on how we should control the demand for foreign maids. Is the foreign maid levy the best option? Some disagree as they feel that it favours those who can afford. We operate a free market economy. Like all other resources, we should, as far as possible, leave the allocation of foreign maids to market forces by using a neutral pricing mechanism, such as the levy.

Others point out that the impact of a levy increase is likely to be short-term. This is true, but it does not mean that the levy is ineffective over a longer period of time or in the longer term. What it means is that our economy is healthy and it is a matter of time before wages of Singaporeans will rise and overcome the increase in levy. Obviously, if we had not increased the foreign maid levy regularly over the years since 1989, we would have many more foreign maids than the 65,000 who are in Singapore today.

My Ministry has over the years received about 20 suggestions on how we should regulate the demand for maids. These include allocation based on the needs of the households. However, we have to bear in mind that different people have different needs. Do Singaporeans want a system such that even if they can afford to pay for a particular service, the State tells them that they cannot have it because they do not fall within a particular category of families, or that their needs are less important, or that they have not chalked up sufficient points? My Ministry regularly receives appeals from people trying to explain why their particular need should be considered and approval for maids granted above others. Sir, there is no way for us to decide the merits of all of such cases. Is the need to look after a child stronger than that of an aged parent? Should the Government tell a highly-skilled woman with one child that her need for a maid is less than that of a lower-skilled women with two or three children? This would not seem to be fair or acceptable to the woman with one child. Sir, I hope Members will ponder over these questions in judging the merits of the levy system.

There have also been requests to impose a higher levy on the second maid, or even to ban employers from having more than one maid. As I explained yesterday, less than 3% of the foreign maid employers have more than one maid. This means that even if we stop people from employing a second maid, we will not solve the problem of the maid population growing at the rate of 20% a year. The demand from the one-maid employer was the principal cause of the increase, not the small number of people who need a second maid.

Sir, there are of course the "don't tax me, tax the other employer" type of suggestions. One wrote in to suggest that instead of regular increases for all foreign maid employers, new employers should be the ones to pay a higher levy. Current employers, those who already have maids, should be exempted from the new levy. This seems to be fair to the current employers, and I am sure they will support it, but is it really fair to all other employers? Is there a difference in the social and economic costs between a new maid and an old maid? Yet another suggestion goes this way: let us have incremental adjustments of the levy instead of sharp increases. Sir, this is in fact what we are doing periodically by adjusting the foreign maid levy to dampen demand when that demand goes up exceptionally high.

I will not tax Members by going through all the 20 suggestions. The great variety and number of suggestions show that any one measure which we adopt cannot please all who are affected by it. Hence, we should always rely on neutral measures like the levy and allow Singaporeans to make their own rational choices.

Sir, we have also received useful suggestions on how alternatives to foreign maids, such as childcare facilities and flexible working hours, could help to solve the problem. I have no doubt that the Ministry of Community Development will do its best to speed up the development of more childcare centres. I understand that in the last five years, the number of childcare places has gone up from 6,000 to 19,000. That is quite a high rate of growth for childcare services. On the flexible working hours, the Government has taken the lead by offering part-time employment opportunities for married women in the civil service. Even though the response has not been overwhelming, such schemes are viable options which working mothers ought to consider. My Ministry has also been encouraging private companies to offer part-time employment. In August 1990, we issued a set of guidelines for part-time employment to safeguard the interests of part-time workers while providing employers with flexibility to offer more part-time employment opportunities.

Sir, we must see this rising demand for foreign maids for what it really is. It is a problem arising out of our success and prosperity. Because of our strong economy, a strong Singapore dollar, coupled with the relatively low wages and lack of employment opportunities in neighbouring countries, we are facing a sharp rise in the influx of foreign maids. Problems of success must also be managed, just like problems of stagnation, unemployment and falling standards of living. If we fail to manage this problem of success, it could seriously affect our long-term competitiveness and social development. If we manage it well, we can be assured of continued economic progress and cohesive social development.

In conclusion, Sir, my Ministry favours taking a cautious approach to the inflow of foreign maids into Singapore. We do not intend to stop Singaporeans from enjoying the benefits of having the services of foreign maids. However, we will revise the maid levy from time to time to ensure that the maid population does not grow beyond manageable numbers.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 10 minutes past Three o'clock.

Sitting accordingly suspended at 2.47 pm until 3.10 pm. Sitting resumed at 3.10 pm