EXEMPTED BUSINESS

Resolved,

That the proceedings on the item under discussion be exempted at this day's sitting from the provisions of Standing Order No. 1. - [Mr Wong Kan Seng].

3.46 pm

Mr Low Thia Khiang (Hougang): ( In Mandarin): Mr Speaker, Sir, Singapore is a small country, both in land area and in population. The domestic market is limited. With the emphasis on economic restructuring in Eastern Europe, and the formation of economic groups in Europe and America, there is undoubtedly a threat to Singapore's export-oriented economy. At the same time, with the gradual opening-up of the ASEAN economies, there is a marked increase in market and investment opportunities. For Singapore's economy to go international is a necessity.

As far as the economy of Singapore is concerned, all along, the resources are over-concentrated in the hands of the Government. All the Government companies and Government-linked companies are expanded in a large scale. Apart from having a fixed share of the domestic market to secure their positions, they are also developing externally. Some Government institutions which were originally meant to be serving the people monopolized the market and received substantive financial assistance from the Government to develop themselves into large enterprises. Some even expanded further to venture into the overseas markets. The infrastructure for the economy to go international has already been put in place. However, what worries me is that these Government companies and Government-linked companies have, all along, been given special privileges, and monopolized a major share of the domestic market. Basically, their management staff are technocrats and technical people. When these companies go international, are they able to compete agilely and effectively in the ever-changing scenes of the international market? The Government has concentrated its resources in these companies. The investments on these companies include the savings of the country and the people. These companies have also netted in a large pool of talents. In the event that these companies do not make profits as expected, would it not undermine our national economy?

According to the 1986 Report of the Economic Committee and the Small and Medium Enterprises (SME) Master Plan, Government has promised to pay special attention to the development of the local private small and medium enterprises, so that more private entrepreneurs would have the opportunity to establish themselves locally, and then expand their business to compete in the international market. I believe if these indigenous industrialists can successfully find these places in the international market, they will be able to provide an economic buffer zone for our economy. Although the Economic Development Board (EDB) has been helping the SMEs in some ways to improve their competitiveness, in order to compete internationally, I believe there are still many enterprises and small businesses which are still struggling for survival.

The Minister for Finance said that Singaporeans had accepted the fact that rapid changes were part of the process of economic growth and suggested that we should continue to restructure our economy. Mr Speaker, Sir, economic development and the changes and restructuring of the economy should complement each other. The industrial and commercial enterprises owned by Singaporeans should enhance their competitiveness so that they can venture into the international markets. By right, the purpose of economic reform such as automation and mechanization is to lower the cost, thereby increasing competitiveness. Since 1986 when the Government started to emphasize the reform of SMEs, have these enterprises succeeded in lowering their cost of operation? Are the local SMEs making better profits? Have those large enterprises which have implemented automation lowered their operational cost and increased their competitiveness?

Over the years, the Government has compelled the industrial and commercial enterprises to increase their competitiveness by increasing their cost of operation, for example, foreign workers levy, and the various service charges. On top of that, the largest property owners in Singapore - HDB and the URA - have also adjusted their rentals. The cost of doing business here keeps on escalating over the years. Many hon. Members have been talking about the problems of escalating cost of doing business here. I shall not dwell on this point.

Under such circumstances, the local SMEs are given no chance to catch a breath. I think it is difficult for them even to survive, not to mention stable development. If the Government continues to hasten its pace of increasing the cost of doing business here to force the local companies to restructure, then it may result in some companies, in the process of corporatisation, computerisation, automation, and owing to cash-flow problems, unstable market conditions and slow economic growth, ending up being closed down. As a result, they suffer severe losses, and even the economic foundation of the nation is affected. Under the high-cost policy, the small businesses will find it extremely difficult to survive. For those who have to depend on these businesses to make a living they will be hit very badly. Although the Finance Minister gave the assurance that there will be ample employment opportunities, the solution to the problems faced by these people in earning a living is not as simple as that.

Mr Speaker, Sir, will the salaried workers benefit by the Government's policy of increasing the operational cost to compel the enterprises to expand their scope of business, and to go for corporatisation? First of all, before they can be fully corporatised, the businessmen would surely pass the burden of the increased cost to the consumers. The consumers will be the first to suffer. What is worse is that full corporatisation may bring a situation of large enterprises dominating the market. Prices of consumer goods may go even higher. Assuming all the provision shops form themselves into a conglomerate, perhaps to be taken over by the NTUC Fairprice Co-operative, and assuming all the food centres are to be operated by some conglomerates, then once they are fully developed, like the Singapore Bus Service, prices of consumer goods will no longer be subjected to the market forces, or to be determined by the demand-supply mechanism of the free market system. Then, they will not hesitate to adjust the prices as and when they so wish, and what can the consumers say about it?

Mr Chng has already spoken about the SBS, and I do not intend to spend time on it. Furthermore, the Minister for Trade and Industry has indicated that the wage increase of Singapore workers has exceeded productivity growth for many successive years. It looks as if the era of huge wage increases is going to be a thing of the past. Yet, cost of living is going up and never coming down. How are we going to improve the standard of living of our people?

Mr Speaker, Sir, in his speech, the Finance Minister expressed his worry that members of the family may fight over their shares in the pie, and forget that they should be working harder to make the pie larger instead. I think all Singaporeans know that the only resource we have in Singapore is our human resource. We also know that for our living, we have to use our hands, legs and mind together, and every trick in the book. However, Singaporeans are also aware that it would not do "if you want the horse to run well and you would not allow it to eat the grass". Nobody is advocating that we do not need to work hard to enjoy a good life, and no one is against "Majullah Singapore". We need to work hard, and we want the economy to continue growing. However, we also need to discuss what will the people get after they have worked hard. While our coffer is rich, when we are having budget surplus every year, has the burden of our people been lightened? Are those people who are struggling for survival getting any better?

In this year's Budget, when our economic growth is not as good as before, there is no incentive given to further help our local enterprises to develop, to lighten their burden, and to cope with the setback brought about by market instability. This is very disappointing, just like the way the share market responded to this Budget. Very disappointing indeed!

However, it is interesting to note that, for the first time in history, the Government has announced that it will set aside a certain amount from the budget surplus to set up an Edusave Fund, and to continue allocating a certain amount from future surpluses to enrich this Fund which will look after the interest of the people. In the last General Elections, Prime Minister Goh Chok Tong promised that he would withdraw from the reserves to establish this Fund. I am aware of the importance of the reserves to our nation. It cannot be used indiscriminately. But at the General Elections, the Prime Minister said that he was going to make use of the reserves. Yet now, the Minister for Finance said that only when there is a budget surplus would he allocate some money to set up the Edusave fund. No surplus, no fund! Now, what is happening?

Mr Speaker, Sir, in this year's Budget, the Government promises to pay the conservancy fees for the month of December on behalf of the owners of the 1-room, 2-room and 3-room HDB flats. This is also an unprecedented move. Although this represents the Government's new direction in the "Next Lap", the Government should continue to work harder in lightening the burden of the people.

Mr Choo Wee Khiang (Jalan Besar GRC): ( In Mandarin): Mr Speaker, Sir, first of all, I would like to say that I support the motion standing in the name of the Finance Minister.

In the speech by the Finance Minister, Dr Richard Hu, when he presented this year's Budget, the one point that strikes me most, or shall I say the one point that has got the greatest impact on me is that this year's Budget will, for the first time ever, be subjected to approval by the Elected President. To me, the reserves which have been built up by our people and the country through all the hard work over the years will henceforth be given another safeguard. This will further ensure that our national reserves will be put to optimal use, and prevent the reserves from being abused. For example, the Opposition Members from the Singapore Democratic Party (SDP), Mr Chiam, Mr Ling and perhaps even Mr Cheo, have suggested for more and more subsidies: more subsidy for education, for housing and, in the end, perhaps for the sake of getting more votes, they may even ask for subsidy for everything - telephone, transport and what have you. Then, inevitably our reserves will have to be raided. Fortunately, we have the establishment of the Elected President. The Elected President will decide whether they should be allowed to use the reserves.

During the past two days, many Members in the House have discussed the question of reserves. My view is that so long as our economy is growing, we must increase our reserves because if the country has surpluses, strong reserves, then in the long run it will contribute to our prosperity and stability. Just imagine, if we do not have such huge reserves we would not be able to enjoy such prosperity, progress and stability as we do today.

The war in Kuwait. By now, people have come to understand the kind of damage and liability war can bring about. If there were no huge reserves, then how was the country going to fight the war? How was the country going to re-build itself after the war? It would be impossible! There is this saying: "We are not afraid of cases, but we are afraid of `just in case'". Another saying goes: "When you have to use your money you'll know that it is insufficient." I hope Members of the Opposition and, for that matter, all the people in Singapore would continue to support our Government's financial policy of striving to make more surpluses and to increase our reserves.

Yesterday, the Members of the Opposition, Mr Ling and Mr Chiam, said that we should increase our subsidies and move towards a system which provides for more social welfare. Mr Speaker, Sir, I would like to take this opportunity to express my views on this.

I feel that in the process of pursuing our target of becoming a modern society, the most important thing to do is not in moving towards social welfarism but more towards achieving social justice. What is social justice? By this, I mean that a society in which everybody has equal opportunity to compete in a fair and square manner. Behind this competition, we have equal opportunity for education, which is a very important criterion. So given the equal opportunity to be educated, everybody will have to work hard according to his own ability to make money. Of course, there are bound to be some people who are, unfortunately, unable to keep pace with the progress of the society. In this regard, I think the Government should do something to help them maintain a basic level of income and a minimum standard of living. However, I must stress once again that we should not be reduced to a welfare state, like the United Kingdom.

Mr Speaker, Sir, helping the less fortunate, the poor people, the aged and the helpless is something which the Government should take the lead, with associations and civic organisations being encouraged to participate in its actual implementation. The existing organisations such as MENDAKI for the Malay compatriots, SINDA for the Indians and the proposed CDAC (Chinese Development Assistance Council) for the Chinese will be able to take on this role. I would urge all Singaporeans to give these organisations greater support in order to ensure that the basic standard of living of the people of Singapore will not be threatened.

Mr Speaker, Sir, in a good society and a good economic system, the most important thing is to stimulate and encourage the people to maximize their potential in economic development in order to create more wealth. If wealth and knowledge are concentrated on a small group of people, then so long as they are acquired in a proper and legitimate manner through their outstanding talents and efforts, then there is nothing wrong in it, and we should not try to suppress it. Therefore, in the process of creating wealth, so long as we can ensure that every citizen can have a basic standard of living, that they will be free from cold and hunger, then that will be good enough. Beyond this protected standard, then we should allow freedom for everybody to seek his own wealth, and create more wealth within the legitimate limits.

In my view, we must first of all establish the need for a basic standard of living for the people. The Government must take up this responsibility to ensure that such basic standard of living is maintained. Over the past few years in Europe, because of excessive implementation of a welfare state policy, many countries are suffering grave consequences, such as much too heavy financial burden. Many people do not want to work. They rather stay at home and enjoy public assistance, resulting in extremely low productivity. The Opposition Members should ask themselves: in the circumstances, should we or should we not implement a welfare state policy?

Mr Speaker, Sir, let me talk about subsidies, rebate of HDB service and conservancy charges and tax relief for the reservists. I think it is a very good gesture on the part of the Government to pay the December 1992 conservancy charges for those who live in the 1-room, 2-room and 3-room HDB flats, and to grant a tax relief to the reservists. This can be said to be a good deed. Many Singapore citizens rejoice over this announcement. However, there are some people who criticize the Government and complain that it is inadequate. Some said in dialect (Teochew): "A 5-cent coin is bigger than the wheel of a bullock cart". They simply do not bother about this good gesture on the part of the Government. Apart from that, those who live in 4-room flats and above grumble and complain: "Why are we not included in this benefit?" So it is quite clear that it is difficult for the Government to govern. When you give, you are wrong. When you do not give, you are also wrong. I feel that henceforth the Government should consider very carefully before they decide to hand out any goodies.

Mr Speaker, Sir, let me now deal with the issue that Mr Low Thia Khiang mentioned a while ago about the cost of doing business in Singapore. When he talked about the cost of doing business, I began to wonder whether he was a member of the Workers' Party because a member of the Workers' Party would normally talk about the interest of the workers, not that of the businessmen. Since he mentioned about cost of doing business, let me express my views on it.

He mentioned that Singapore is a small country. However, he must also agree that Singapore has a small population. When a thing is scarce it becomes precious. If any cost is related to land and people, then in the long run, the value will appreciate. This is inevitable! So think about it. If the workers in Singapore are not supported and assisted by our National Trades Union Congress (NTUC), it is most unlikely that they will have the kind of good life that they are enjoying today. Their wages, as compared to 20 years ago, have been increased many times over. Their standard of living has improved. Twenty or thirty years ago, could the Singapore workers afford to subscribe to the telephone service at home? Did they have television at home? No, not possible. Very few indeed! I came from a poor family. Thirty years ago, we did not have television at home. I had to go to my neighbour's house to watch television programmes. Today, my younger brother is a labourer, but he has television at home. Has the standard of living been improved? However, this is a very personal matter. We have to talk about the standard of living of the average workers. Generally, the standard of living has definitely gone up.

From another perspective, how does the Singapore Government protect the interests of the workers? We control the influx of foreign workers through the foreign worker levy. So this is one measure that we use to control the increase in the number of foreign workers coming into Singapore. But if we look at it from another angle, this is one way to protect and ensure the wages of Singapore workers are not dragged down. That is right, is it not? Now, we say that Singapore is a small economy. If Singapore does not have foreign workers but only local workers, then what would happen to our industrial and commercial sector? Perhaps Mr Low could enlighten us on this topic at the next sitting of Parliament.

Unfortunately, we have a small population. To expand our economy, we have to depend on foreign workers. But personally, I feel that the import of foreign workers must be controlled. The number of foreign workers cannot be increased without limit. Furthermore, we must be selective. For this reason, I agree with what was said by the Minister for Labour on this matter.

I will give you another example. In our Jalan Besar GRC, we have a place which is quite famous. Not the place that you may have in mind, but the "Little India". One Sunday night, I went to attend a dinner function. I drove to Little India. There was complete darkness, not because there was no light, but because there were too many Indians around there. [Interruption]. No, I am not trying to play on communal lines. Sorry, we have Indian compatriots in this House. But I can tell you, the moment you open your eyes, you can see straightaway that they are not Singaporean Indians. Because their behaviour and expression are different from the Singapore --

Mr Chiam See Tong: Point of order, Sir.

Mr Speaker: Yes, Mr Chiam. What is it?

Mr Chiam See Tong: Sir, I think the hon. Member --

Mr Speaker: Are you raising a point of order?

Mr Chiam See Tong: I am raising a point of order.

Mr Speaker: What is your point of order?

Mr Chiam See Tong: I think it is not proper for him to make fun of other races.

Mr Speaker: Mr Chiam, that is not a point of order.

Mr Chiam See Tong: He should not make fun of other races.

Mr Speaker: That is not a point of order, Mr Chiam. You may continue, Mr Choo.

Mr Choo Wee Khiang: ( In Mandarin): Mr Chiam has once again misunderstood me. Last year, he misunderstood me. The year before, he also misunderstood me. He does not have enough sense of humour.

What I have said is that they are non-Singaporean Indians. The Member should listen to me. I am saying that what I saw were non-Singaporean Indians, and not Indian compatriots of Singapore. Under those circumstances, when you drive past that area, their reaction and behaviour clearly tell you they are not Singaporean Indians. If the Member has a chance, please take a drive to our Little India and see things for himself. Then, he will surely feel the same way that I did - that if we have too many foreign labourers in Singapore, will it not have a certain amount of effect on the social security and stability of Singapore? The answer is in the positive! If the foreign workers cause a rebellion in Singapore, ie, different foreign workers with different skin colours start a rebellion, then I believe it may most likely cause some unrest among the various races of the local people in Singapore. Perhaps Mr Chiam may hold a different view. But, we must always think of the worst scenario situation that may happen, when we plan our future.

Mr Chiam See Tong: Point of order.

Mr Choo Wee Khiang: ( In Mandarin): Please let me finish before you talk.

Mr Speaker, Sir, on the question of land, population and cost of doing business here in Singapore, I truly agree with Dr Ow Chin Hock's view that we must allow the free market system to allocate our limited resources. But for the sake of public interest, Government intervention is still very important.

Mr Speaker, Sir, I feel that the Government should spare no effort to ensure that we have higher productivity and that wage cost is in direct proportion to labour productivity. At the same time, we must also give our enterprises, particularly the small and medium-sized enterprises, more assistance, especially in business management, consultancy, etc. I think this positive assistance will, in the long run, help our entrepreneurs who have the potential, to become more competitive and to grow even faster.

Mr Speaker, Sir, just now, Mr Low said that Government companies and Government-linked companies are having a monopoly in the market in Singapore, much to the detriment of our Singapore enterprises. Is it a fact? Take a look at Singapore Airlines (SIA). How much profit and benefit have SIA brought to Singapore and what kind of good reputation has SIA built up for Singapore! Yes, it is a monopoly. However, if there were no support and assistance by the Government in the early stages, SIA would not be what it is today. At the same time, SIA also wants to get the best employees. Surely, if you want to perform well in the international market, in the business arena of the world, you must have a team of able and efficient people at the helm to steer the company through. Otherwise, it would not even survive. So I feel that Mr Low has too deep a bias against our Government companies and Government-linked companies.

Of course, I am not saying that it is a perfect system. In the event of there being any shortcoming, I believe the Minister for Trade and Industry and other Government officials will remedy the situation. In any event, Mr Speaker, Sir, judging from the situation at the last General Election and the way we debated in this House, I hope that we would not fall into the trap of democracy. Philippines used to be the second richest country in Asia. The process in which they fought for democracy, and the consequences of their having fallen into the democracy trap, clearly demonstrated the fact that democracy and democracy alone cannot solve the imminent and real problems for the Philippines. If our Opposition Members keep on saying that they are looking after the interest of the people or trying to please the public with claptrap political arguments, then this is the democracy trap. If our democracy is not supported by national consensus and the rule of law, then we would not be enjoying our present prosperity and progress and the vision of many good years ahead.

Mr Peh Chin Hua (Jalan Besar GRC): ( In Mandarin): Mr Speaker, Sir, I support this year's Budget Statement. This can be said to be a budget which is not saltish, not bitter, but slightly sweet. It is also one which is circumspect and far-sighted. From the speeches in this House, yesterday and today, particularly from the Opposition MPs, we can safely conclude that there is no serious complaint or criticism on this Budget. What they talked about are mostly on the use of reserves and heavy subsidies.

I have just a few observations to make. In this year's Budget, the Government provides heavy subsidies on public housing. On the development of public housing and estate management alone, some $1.11 billion has been allocated, taking up approximately 55% of the total expenditure of the Ministry of National Development. I feel that the Government should consider building smaller 4-room and 5-room HDB flats. This will help to avoid over-subsidy by the Government and also prevent the selling prices of HDB flats from escalating, resulting in many young Singaporeans complaining about the selling prices of new HDB flats being too high. They are under the misconception that the Government is intentionally lifting the selling prices on HDB flats without realising that the Government is actually subsidising heavily.

Therefore, in order to meet the demand of these people, one possible alternative is to build some executive flats of smaller floor areas of, say, 800 sq ft for a 4-room flat or 1,000 sq ft for a 5-room flat. This will not only alleviate the purchasers' financial burden but also cut down the Government's expenditure from excessive subsidies. The savings from the subsidies could then be re-channelled to education and health care, thus benefitting more people at large. As for the larger and more luxurious apartments, they can be left to the private developers to build. There is no need for the Government to subsidize the building of this category of flats.

Moreover, I notice that younger Singaporeans are very anxious to purchase a flat, the moment they get married. This has created a situation of demand exceeding supply for HDB flats. In a family, each sibling will own his own HDB flat the moment he or she gets married, which in a way has indirectly disintegrated the system of a traditional large family. This is something which the Ministry of National Development should take note of.

Another special feature of this year's Budget Statement is that the Government will pay the December 1992 service and conservancy charges for residents of 1-room, 2-room and 3-room HDB flats. This is equivalent to the income tax rebate granted to those who pay income tax. It is the Government's gesture of rewarding not only the high income earners but also having the interest of the lower income group at heart. A $1,000 tax relief for all active reservists and $500 for all who have done National Service but are not in the active service is yet another form of appreciation for the service rendered by all those who have served National Service. These tax reliefs are good measures.

Therefore, I understand and appreciate the Government's good gesture. However, behind these tax reliefs are some causes for concern. Because, soon after the Government's announcement of the Edusave scheme where funds will be allocated to primary and secondary school students, the Government is expending another sum of money to pay the December conservancy charges for the lower income group in the 1-room, 2-room, and 3-room HDB flats, and allowing tax reliefs for reservists, in this year's Budget. This has created a worrying reaction among the people.

The general reaction is that the handout is too little. To quote what Mr Chiam said yesterday, this is "peanut". There are also some who misconstrue the good gesture as the Government's attempt to please the people because of the coming by-election. What worries me is that some Singaporeans, for example, the Member for Hougang, Mr Low Thia Khiang, have misunderstood the Government's intention for introducing such measures, and they think that the Government is gradually turning towards welfarism to subsidise the people. That is why he said this was an unprecedented move on the part of the Government to please the people. They may even mislead the other people into thinking that under the open and consultative style, the Government is beginning to go for softer policies. More seriously, some may even harbour the misunderstanding that the Government is acceding to the people's request to make use of the reserves to subsidize the people.

I believe we should let the people understand and appreciate the Government's motive and sincerity. I hope that hereafter, whenever the Government is making any move to help the people, it would be more prudent and careful to prevent our people from cultivating the attitude of shou zhu dai tu (standing by a stump waiting for more hares to come and dash themselves against it), which means "trusting to chance and windfalls". If this is the case, it will be disastrous. Therefore, hereafter, when the Government implements such measures, it should exercise more prudence so that the people of Singapore will not receive the wrong signal. Otherwise, it may be detrimental to the long-term economic benefit of Singapore, and it is not in line with the Finance Minister's emphasis on thrift and frugality in his Budget Statement to save for the predicted slowing down in economic growth in the years to come.

There is another point which I would like to raise here. It is a pity that both Mr Chiam See Tong and Mr Ling How Doong are not here. There are altogether 239 amendments to this year's budget allocations for the various Ministries and Government departments to be moved in the Committee of Supply. Yet, much to my surprise, none of the three Members of Parliament from the Singapore Democratic Party has given notice to query any of the Ministries or Organs of State in the next seven days' debate on their expenditure. I do not know what is their objective and motive for not taking part in the debate. Is it because they are leaving the country for holiday in the next seven days, or is there any other reason? To me, if the Opposition Members want to check on the Government, they should be taking part in debates and raising queries in Parliament on the various Ministries and Government Departments. Yet, they have not made any "cut" to any of the expenditure heads. I just find it most surprising and difficult to understand.

Just now, the Member for Hougang touched on two points - reserves and big corporations. My Parliamentary colleague, Mr Choo Wee Khiang has already rebutted Mr Low Thia Khiang's allegation of Government establishments monopolising the market. In fact, the Government establishments are competing with the foreign enterprises and not with the local enterprises. Let us be very clear about this point. Furthermore, it is not the existence of these large establishments that brings inflation to us. In fact, it is when we start to make use of our national reserves that inflation will follow. To allocate some funds for subsidies only when we have surpluses is the right thing to do. If we subsidise heavily, what will be the result? It would be like what Mr Chiam said yesterday, the people would derive some short-term benefits. For example, the people would be able to buy more daily needs. But, this is only a short-term benefit. In the long run, heavy subsidies or recourse to national reserves, I believe, will result in the depreciation of our Singapore dollar. The moment the Singapore dollar is depreciated to a point when it is lower than the Malaysian ringgit, then as a country without natural resources, we will have serious inflation and prices for our daily necessities will go up and skyrocket. This will affect our economy and our livelihood will be affected too. Therefore, we have to consider and reconsider very carefully when we want to make use of our reserves to subsidise our people.

Secondly, he talked about the Government competing with the people, and the NTUC Cooperatives. I do not understand how the establishment of NTUC Fairprice Cooperative could do harm to the people. I believe everybody in Singapore today enjoys going to the NTUC Supermarkets for their shopping because the prices there are cheap. They can stabilize the prices of commodities. The prices of rice, salt, oil and the daily necessities remain so stable today because of the establishment of the NTUC Fairprice Cooperative. This, in turn, has resulted in the rapid expansion of the NTUC Fairprice Cooperative. Their supermarkets are set up in every nook and corner of Singapore to serve the people. If the NTUC Fairprice Cooperative is like what Mr Low Thia Khiang has described it to be, then I think these supermarkets would have been closed down long ago. They would not have prospered and expanded the way they do today.

Mr Speaker, Sir, I support the motion. 4.30 pm

Dr John Chen Seow Phun (Hong Kah GRC): Mr Speaker, Sir, Mr Chiam yesterday quoted the 8.6% economic growth of South Korea in 1991 and commented that it did better than Singapore despite its internal political problems. The truth is that South Korea's growth last year was led by strong domestic demand, in particular consumption and construction. Its economy continues to suffer from structural problems such as high inflation, weakening competitiveness of exports and a widening trade deficit. Its trade deficit rose to a record high of US$9.7 billion, double that of its 1990 figure. And its inflation rate for 1991 was 9.7%, the highest in 10 years. The South Korean Government is now trying to correct these problems. Does Mr Chiam want us to follow South Korea? And if he thinks that South Korea is a better place than Singapore, perhaps he may want to consider emigrating there.

Mr Chiam See Tong rose ---

Mr Speaker: Order. Are you giving way, Dr Chen?

Dr John Chen Seow Phun: I am not giving way, Sir.

Mr Speaker: He is not giving way.

Mr Chiam See Tong: Another coward!

Mr Speaker: Resume your speech, Dr Chen.

Dr John Chen Seow Phun: It is therefore better for us to go for a more sustainable growth rate and lower inflation. This means growth based on higher value-added activities, high productivity and better utilisation of resources - land resources, financial and human resources.

Sir, Mr Ling How Doong accused the Government of accumulating massive reserves and wanted the Government to specify a limit to the yearly surplus. First, how can our reserves of about $55 billion be considered as massive if it only represents about five months of our total imports, considering that we do not have any natural resources? Second, he wanted a limit to the yearly surplus to be specified. How big should that limit be? If the surplus exceeds that limit, does it mean that we should then spend the excess unnecessarily? I say we spend our revenue wisely. Give rebates to Singaporeans, if necessary, such as the proposed one-off rebate of 5% for personal income tax and rebate for service and conservancy charges and put whatever surplus we have into the reserves.

Mr Ling thinks that we do not subsidise enough in investing in our people and that we consider clamouring for more subsidies is bad. In fact, the Government not only subsidizes education, health care and public housing, but is proposing to increase its level of financial assistance through Edusave, Medifund and upgrading of HDB flats. Indeed, such subsidies are crucial to ensure that the basic necessities of life are extended to all Singaporeans. They also serve to maximise the potential of our people. For example, our children nowadays receive good education at nominal fees. Singaporeans who go to subsidised hospital wards receive better medical treatment than what is provided in public hospitals in many developed countries. Even our basic HDB homes are comparatively better than what most people in Taiwan, Hong Kong and Japan can afford.

While we should continue to provide for these good quality basic needs, Government cannot subsidise the better things in life without undermining our objective to encourage our people to excel. This should be the way Government structures its policy on subsidies.

Subsidies for A and B1 class hospital beds are being pruned. The same principle should apply to public housing. Subsidies for higher-end housing should therefore see a reduction or be removed. In education, the guiding principle must be that no child who is capable should be deprived of the best education possible, regardless of his family background. However, the nation's financial resources are limited and therefore must be allocated fairly. People who benefit from better education must be made to pay for it if they can afford. Hence, higher fees in independent schools and tertiary institutions. But students who cannot afford such payments can apply for study grants or loans from a variety of sources. In addition, scholarships are offered to motivate Singaporeans to realise their full potential. What better approach to providing Government subsidies is there?

Sir, allow me to say a few words on tax reliefs for reservists. I applaud MINDEF for heeding one of the major recomendations of the RECORD Committee by proposing tax reliefs for reservists. The amounts of $1,000 and $500 are not insignificant compared with the personal relief of $2,000. They are also structured in such a way that in a steady state, those reservists who serve longer will get more relief.

Sir, when the RECORD Committee was deliberating on the issue of a symbolic annual allowance for reservists, a number of reservists who sat on the Committee felt strongly that not only an allowance should be given, it should also be given through tax relief. We felt this way because, as we all know, most people treat the tax relief they are entitled to seriously when they come to filing their annual income tax returns. Tax relief is therefore one of the best ways to tell our reservists, once a year, without fail, that we recognise and appreciate their service to the nation. It is like sending roses to a girlfriend or a wife regularly. This should be the way we view this tax relief proposal.

Mr Chiam See Tong: How can you compare girlfriends with soldiers!

Dr John Chen Seow Phun: And not like what Mr Chiam has described as "mercenary". He demeans it by what he says. I wonder whether he is a reservist. But if he is opposed to the tax relief, then perhaps the Minister for Defence would like to consider not extending it to the reservists in Potong Pasir.

Sir, we should not take for granted the loyalty and service of our citizens and reservists, just as we expect our people not to take good government and success for granted. We must therefore continue to look for ways to recognise and motivate our reservists, taking into account changes in our social, economic and security environment, and the expectations of our people.

On that note, Sir, I support the motion.

Mr Cheo Chai Chen (Nee Soon Central): ( In Mandarin): Mr Speaker, Sir, before I enter into this debate on the budget, I would like to clarify the Singapore Democratic Party's stand on the use of reserves. Mr Choo Wee Khiang referred to this just now. His argument may lead people to misunderstand the stand of the SDP on the use of our reserves. Our stand is this. We do not advocate welfarism. We also do not advocate the indiscriminate use of the reserves. We are only holding the view that when the Government has some surplus fund, then we can make use of the surplus on certain necessary items such as education, housing, and health care. We feel that there is nothing wrong in using the surplus for these purposes to alleviate the burden of the lower income group. Otherwise, how is Prime Minister Goh Chok Tong going to explain his proposal to make use of the reserves to set up an Edusave fund?

Mr Speaker, Sir, now let me join in the debate on the Budget. Mr Speaker, Sir, on the whole, this year's Budget is not bad. Because at a time when the world economy is taking a downturn, the Government has not announced any apparent increase in taxes. On the contrary, it has given special attention to help the lower and middle income people. This is something that is hard to come by! For example, the Government will pay, on behalf of residents and owners of 1-room, 2-room and 3-room HDB flats, the conservancy charges for the last month of the year is a good example of this good gesture. But personally, I feel that the unexpected generosity showed in this Budget presented by the Minister for Finance may have something to do with the by-election that is going to take place in the near future. After the by-election, will the Government impose some new taxes which are not in this Budget? I hope this will not happen.

Sir, I do not wish to say too much in this House today because the merits and demerits of this year's Budget have already been touched on by many Members of this House and there is no need for me to repeat them. But there is one thing which I am very concerned about: the offices for Members of Parliament. The Government should make a special allocation in the budget for the construction of MPs' offices. Since the Housing and Development Board has given a "non-reason" for its refusal to provide MPs with offices on the void deck in order to meet their constituents, I think it is necessary for the Government to build permanent offices for the MPs on the vacant land in the constituencies so that Members of Parliament can provide better services to the residents. Whoever is returned as the MP for the constituency, irrespective of the parties they belong to, shall be entitled to make use of this office.

Mr Speaker, Sir, let me take this opportunity to remind the Housing and Development Board that it should respect the Members of Parliament, because they are the representatives directly elected by the people. They are certainly in a better position to represent the people in the constituency than the indirectly appointed members of the Residents Committees. A Residents Committee can have an office in the constituency, yet the Member of Parliament has no office. What is the reason? I really cannot bear to see MPs having no offices and some even having to squat in the education centres.

Mr Speaker, Sir, I personally support this year's Budget, but I hope the Minister for Finance would not forget and neglect my above appeal, unless the HDB can restore the provision of offices on the HDB void decks for MPs.

Finally, Sir, I hope the Minister for Finance will not be too hasty in implementing the consumption tax.

Mr Choo Wee Khiang: Mr Speaker, Sir, I would like to explain a part of my speech earlier on which I think may have been misunderstood. When I mentioned heiqiqi (pitch-dark), I did not mean to offend anybody. If I have offended anybody inside the House or outside, please accept my apologies.

The Minister for Defence (Dr Yeo Ning Hong): Sir, a number of Members have spoken on the tax relief for reservists. I want to briefly respond to some of the points.

Firstly, Mr Leong Horn Kee suggested that instead of the $1,000 tax relief for active reservists and $500 for non-active reservists, we change to a different system of giving a flat rate of $100 and $50. There are many different ways of providing a tax relief. The flat rate is one way. The method that we proposed is another. MINDEF has looked into this problem carefully over the last year. I prefer the method that we proposed for a number of reasons.

Firstly, the proposal that we have is symbolic. It shows very clearly Government's deep appreciation and gratitude to the reservists for the sacrifices that they have made, and for the contributions that they will continue to make to the nation's wellbeing, by providing peace and security. These are the essentials. These are the foundations upon which the nation is able to progress and to prosper.

Sir, the method that we proposed is also simple and comes closest to what has been considered by the RECORD Committee and recommended by the reservists. If Mr Leong were to look into the details and the numbers, he will probably share the conclusion that we have arrived at, namely, the MINDEF proposal is much more beneficial to reservists in the long run. As the years go by, and as the incomes of reservists increase, the amount of relief that they will get will increase. In other words, the tax that they will pay will be diminished by a bigger margin than the flat rate of $50 or $100. Indeed, if the workers were to receive a pay increase of about 7% per year on the average, over a 10-year period, there will be a doubling of their income. And we are going to give the tax relief to reservists over a 40-year period, ie, from the age of 20, and if they continue working until they are well past 60. If Mr Leong were to do some calculations, he will appreciate that the relief that we are giving is not insignificant.

Sir, Mr Chiam has said that the tax relief is too small, which does suggest that if it were bigger he would have given it his full support. Yet, at the same time, he says that we should not give any monetary reward, any monetary recognition, because in so doing, we make mercenaries out of our reservists. Is that right?

Mr Chiam See Tong: Yes.

Dr Yeo Ning Hong: Mr Chiam may not be aware of the fact that we are already making allowances of all sorts to our reservists. We give the Key Appointment Holders a Key Appointment Holder's allowance. For those in command, we also have a command allowance. For others, we have a service allowance. And for all the reservists, we have a make-up pay. Is Mr Chiam therefore suggesting that we take away all these allowances because money is involved?

Mr Chiam See Tong: Sir, can I clarify? Does he give way?

Dr Yeo Ning Hong resumed his seat.

Mr Chiam See Tong: Thank you. Money is given in all kinds of ways. But if you give it in the form of a reward, then it is wrong in principle. But if you give it to compensate for his transport allowance, for loss of earnings, I think that is fair. Then that is a completely different principle. Payments are made out on a different principle. But if there is going to be appreciation, you can give him a plaque, you can put him on a pedestal and give him a clap; or you can put up a statue. These are different kinds of expressing appreciation. If we must appreciate, what sort of appreciation are we giving? We should not dish out money and say, "We are happy that you are doing reservist service." I think that is wrong in principle. That is my point.

Dr Yeo Ning Hong: Sir, Mr Chiam is entitled to his point of view. What we have done is to structure the recognition for the reservists' contributions in a manner that expresses the nation's appreciation. It is a symbolic gesture. The amount of money is a matter of opinion, whether it is large or otherwise. But giving recognition through a monetary system need not necessarily make mercenaries out of our people. Sir, mercenaries are professional soldiers who fight in foreign armies, not our own citizens being paid or given monetary recognition. Indeed, armies all over the world pay their soldiers. That does not make all the soldiers of the world mercenaries. We give allowances to our national servicemen. Is Mr Chiam therefore saying that we should not do that?

Sir, Dr John Chen suggests that, because Mr Chiam said that he is not in favour of this system, we should not make the tax relief available to reservists in Potong Pasir. I do not think we should do that. I do not believe that Mr Chiam speaks for the reservists in Potong Pasir. But if there should be any reservist in Potong Pasir who shares Mr Chiam's point of view, he can easily ---

Mr Chiam See Tong: Can I have a second clarification, Sir?

Mr Speaker: Are you giving way?

Dr Yeo Ning Hong: If Mr Chiam would just let me finish the sentence.

Mr Speaker: All right, Mr Chiam, you can seek your clarification later.

Dr Yeo Ning Hong: If any reservist in Potong Pasir shares Mr Chiam's point of view and thinks that recognition through a monetary system is not appropriate, he can very easily opt out of it next year by not making a claim. It is as simple as that.

Mr Chiam See Tong: Sir, there are two points I want to raise. Firstly, whenever I put up a criticism, they will point to Potong Pasir: Potong Pasir can always opt out. Where are we going to end? Very soon, there will be more than one Potong Pasir and what is going to happen? They can all opt out. If they are not happy with their income tax, can they opt out? I would like to ask the Minister for Finance for that. If we are unhappy and we criticise income tax or property tax, can we opt out? That is the first point.

The second point is in regard to this matter of giving tax relief to reservists. The whole idea is wrong. It is not a question of quantum. The quantum is no longer an issue. It is the principle that is involved. If you are going to give monetary rewards for service to the nation, where are we going to end? Because service to the nation cannot be measured in terms of money, and we all know that. Public service, services to charity, this kind of services, are all in the same category. In this kind of work, we do it out of commitment or service or duty to the nation or for the love of it.

Mr Speaker: Mr Chiam, are you making a speech, or are you seeking clarification?

Mr Chiam See Tong: But certainly, it is not for the money. That is the last thing in mind.

Dr Yeo Ning Hong: Sir, obviously, Mr Chiam did not hear what I said. I said that I do not agree with Dr John Chen not to make that tax relief available to all reservists in Potong Pasir. But if you speak on behalf of them, and indeed if there are reservists who believe exactly as you do, which I think will be an exceedingly small number, then as I said, they can easily exercise their right not to make the claim next year.

Sir, I think we have spent enough time on Mr Chiam. We will move on. Mr Ho Peng Kee has suggested that we should consider not making available the tax relief for those who have completed their reservist training and also for those who are not actively in reserve. This was a distinct possibility which we looked at during the consideration of this proposal made by RECORD. What that means is that we will only be making a tax relief available for 13 years, because most of the reservists serve a 13-year in-camp training cycle, and after that they will not enjoy any tax relief at all.

Over the last 11 years, I have been round the army camps and bases. I have been into the jungles with our soldiers. I have seen them training, and I appreciate the amount of effort and sacrifices they have put in. I believe that we should express our appreciation in a manner that is consistent with the way in which the soldiers have sacrificed and contributed to the nation. I have therefore decided that the tax relief will be available even after they have completed their reservist training. In other words, it is a life-long expression on the part of the Government to the reservists. As long as he has contributed in national service, as long as he has contributed in the reserve service, he will continue to receive that tax relief. When they are doing active reserve training, we give them relief at a higher level.

Sir, there is also a small number of people who, for medical reasons, do not go on to do reserve service after they have finished their national service. I have decided that it would be mean on the part of MINDEF not to allow these people also to enjoy the tax relief. Therefore they too would enjoy the tax relief, again at the lower level of $500 instead of $1,000. It will really be splitting hairs to say that reserve service is much more important, much more valuable, and therefore to be regarded at a higher level, and recognised by the Government, but not national service, which all of them have completed. That is the reason for my decision to make the tax relief available to all who have completed national service, with those in active reserve receiving a slightly higher level of tax relief.

Sir, Dr John Chen and Mr Lew Syn Pau, both reservist officers, have spoken positively of the tax relief. Our own surveys have shown that the majority of Singaporeans support this relief. Mr Lew has indicated that this does give reservists a very much higher level of status. I agree with him. Indeed, MINDEF will be liaising with the Ministry of Finance to encourage the Ministry of Finance to put a star next to the names of all reservists. People with a star will enjoy the tax relief for life, as long as they are working, as long as they are contributing towards Singapore's prosperity.

Mr Chiam See Tong: Sir, may I raise a point of order?. Just now, Dr John Chen spoke up in favour of the tax relief. I was not aware that he is an active officer. I have just been told that he is an active officer. He should have declared his interest because he is going to get monetary rewards.

Mr Ho Peng Kee: Can I just make one point of clarification? I think I was misunderstood on one point. Just now I was talking about those people who have done national service, but do not do reservist training because they were exempted for medical reasons. I think the Minister for Defence has covered that point, which I take. I did not actually argue a case for not giving tax relief for those who have completed reservist training. I fully agree that those who have completed reservist training should enjoy some form of tax relief, which is the case here.

Dr Yeo Ning Hong: Sir, I have covered that point, but maybe I will just explain further. If we give tax relief to those who have completed national service and have served in the reserve service 13 years of tax relief, until they are 60 or 65, then, in effect, we are giving them tax relief for 40 or more years. But for those who have completed national service, but for some reason or other, mainly medical, they do not go on to do reserve service, we are saying that they are entitled to nothing at all. It is too big a discrepancy. We are putting too high a value on the 13-year cycle reserve service and ignoring completely the contributions that they have made during national service. Sir, it is unrealistic to say that reserve service is much more valuable and therefore has to be recognised in a much more dramatic manner than national service because national service is duty. I believe that is splitting hairs. I prefer to put it this way: They have completed their national service. Many of them go on to serve in the reserve service for 13 years. Because they have done that, the Government is grateful. The Government reflects the nation's gratitude for their sacrifices, for their contributions. Because of that, I have urged the Government to be generous, in making sure that the tax relief is available for life.

Mr Chiam See Tong: Sir, may I make a further clarification? Why should the Government be grateful? It is the people of Singapore that should be grateful.

Dr Yeo Ning Hong: That is what I said.

Mr Chiam See Tong: The soldiers are defending the whole country. And it is for the whole nation to show appreciation and respect to them. It is not the little group of people who call themselves "Government". They do not serve this little group of people who call themselves "Government". They are serving the nation. They are in fact the defence of the whole nation. So why do you say the Government is grateful and so must show appreciation?

Dr Yeo Ning Hong: Sir, time is moving on. The Government is the representative of the people. We operate a democracy, in case Mr Chiam is not aware of it. We were elected by the people, to represent the people, and the Government acts on behalf of the people. And as I said earlier, the Government reflects the nation's, the people's gratitude and appreciation to the reservists for their sacrifice and contribution. Mr Chiam repeats what I have said, again and again.

Mr Speaker: Order. I think we have gone on this point long enough. You can continue in the Committee of Supply. Mr Goh.

Mr Goh Choon Kang (Braddell Heights): ( In Mandarin): Mr Speaker, Sir, in his speech just now, Mr Cheo Chai Chen said that this Budget is one which is very hard to come by. I believe he was speaking from the bottom of his heart when he said that.

Mr Speaker, Sir, this debate is being televised "live" by the Singapore Broadcasting Corporation. Anyone who has just switched on his television set and listened to certain MPs speaking may perhaps get the wrong impression that this Budget is one that yields a very large surplus. Worse still, they may even think that the Government will again be putting a large budget surplus into our reserves. If they have this sort of wrong impression, then I think it is bad.

Let us do a little simple arithmetic. This Budget provides for an operating revenue of $15.2 billion. The Main and Development Estimates total $14.2 billion. The difference is only $1 billion. This $1 billion will go to the Education Endowment Fund which the Government is going to set up. So, the balance is zero. There is no money to go to the reserves this year.

Just now, as I said, Mr Cheo described this Budget as one which is very hard to come by. This comment came from the bottom of his heart. This is also my comment from the bottom of my heart. At a time when we face a very bleak global economic outlook and our economic growth is likely to slow down, our Minister for Finance is still able to give us a well-balanced budget. On top of that, he has some "goodies" to give to our people. This is something which is very hard to come by indeed! However, as my friend Mr Choo Wee Khiang said just now, it is very hard to be a good man. You may please one, but you may not please another. Some may be happy with the "goodies" in this Budget, but there are also people who have expressed the view that they are not quite satisfied. I would like to mention a few of these dissenting views to the Minister for Finance for his reference. At the same time, I hope that he will give us his views on them.

First of all, the tax on liquor. For those who drink beer, perhaps they may not have to bear additional burden. But for those who drink stout, a small bottle would cost 20 cents more while a big bottle would cost 40 cents more. A taxi-driver telephoned me and said, "You must urge the Finance Minister not to raise the liquor tax any more!" His reasoning is that they are manual labourers doing hard work. So, every night they need to drink a bottle of stout so that they can be revitalised. I do not know whether there is any medical ground for that. But this is a general belief among the manual workers. This is what they feel.

Secondly, with regard to the tax relief for our reservists, the feedback I received is that the majority feel that this is a good thing to do. But one resident telephoned me and said that this is not fair. He feels that only full-time soldiers should be entitled to the tax relief, because in case of war they will be the ones standing in the frontline defending the nation. For this reason, all their incomes should be exempted from income tax. Well, this is what the resident told me over the telephone! This is his view.

Thirdly, I would like to talk about the Government's intention to pay one month's conservancy charges, in December this year, for people in the lower income group who live in HDB flats. Generally, the people are happy with it. They feel that by so doing, the Government can be seen to be one which cares for its people. At a time when the economic outlook is not very promising, the Government is still prepared to set aside some $8 million to look after those in the lower income group. This is certainly an excellent gesture on the part of the Government. However, there are some anxious ones who feel that this is not in keeping with the Government's philosophy of not giving direct subsidy or hand-outs to the people as a form of welfare. By so doing, will this set a precedent for welfarism so much so that it may fall into the quicksand and sink deeper and deeper into being a welfare state like some of the developed countries where people may raise higher and higher demands from the Government?

Finally, Mr Speaker, Sir, I would like to mention some feedback that I have received from the residents. They feel that the immediate effect of the Government's promotion of privatisation over the past years is a reduction in subsidies, for example, the reduction in health and education subsidies. They feel that since there is a reduction in subsidies, there should be a corresponding reduction in tax. In other words, the tax rate should be correspondingly lowered, particularly in personal income tax. This argument may sound too simplistic, but there is some logic in it. I hope the Minister for Finance would give us his comment on this.

Mrs Yu-Foo Yee Shoon (Yuhua): ( In Mandarin): Mr Speaker, Sir, I would like to support the Budget presented by the Finance Minister. I would like to touch on a number of points.

First, is this Budget a reasonable one? Personally, I think this is a prudent, stable, balanced and reasonable Budget. When we look at the Budget, we have to take into consideration the overall policies of the Government, and some of the things the Government has decided to do. Otherwise, we may sometimes quote out of context, quibbling over a certain sector and neglecting the whole picture.

As a matter of fact, there is already an element of welfare in the tax structure in Singapore. Some MPs commented that this Budget favours the rich. But, if you analyze the total revenue collected from personal income tax, you will see that it is in favour of the people in the low income group. In fact, out of the total revenue collected from personal income tax, 91% is paid by those who earn more than $20,000 a year. That is to say, the balance of only 9% comes from those earning less than $20,000 a year. If we go further into the matter, we will see that the tax paid by those who earn less than $10,000 a year accounts for only 3% of the total amount. Therefore, 97% of the personal income tax collected are paid by those with higher income. The personal income tax by itself has an element of welfare in it. So, it is wrong to say that the Government has not looked after the welfare of the lower income group.

I fully support this scheme to upgrade HDB flats. In this aspect, the Government is very generous. The subsidy to be given is 75% to 90%. In fact, some friends who live in private estates are asking, "Why is the Government only upgrading the HDB flats? We in the private housing estates have been paying a lot of taxes, why are we not getting any benefit?" From many of the Government's activities, it is evident that the Government is really having the interest of the low income group at heart.

As to whether the Budget is a fair one, I will quickly run through this point. While looking after the lower income group, the Government has not neglected the corporations. In view of the forecast of an economic slowdown, the corporate income tax is being reduced by 1%. At the same time, in looking after the interest of the lower income group, the Government will pay the December conservancy charges for those living in the 1-room, 2-room or 3-room HDB flats.

I would like to give my views on CPF contribution rates, in support of the views presented by my fellow labour MPs. I feel that the delay until 1996 for full restoration of the employers' CPF contribution rate to 20% is not long. The cut in employers' CPF contribution rate from 25% to 10% took place as far back as 1985. I hope the Finance Minister will monitor closely the development in the matter. If our economy continues to grow within the range of our forecast over the next one to two years, then the employers' CPF contribution rate should be fully restored to 20%, as targeted.

The Finance Minister also mentioned that a White Paper on consumption tax will be tabled some time in the middle of this year. In economic theory, if we compare consumption tax with personal income tax, consumption tax is not a bad form of taxation. In personal income tax, tax is payable the moment we start to earn money. But in consumption tax, after earning our money we have the right to make a decision, and tax is payable only when you start spending your money. However, I urge the Finance Minister to look after the interest of the people in the lower income group when implementing the consumption tax. Basic consumer goods and services should be exempted from such tax, as far as possible.

Another point I would like to touch on concerns the reserves. Many MPs spoke about the reserves yesterday and today. Some felt that Singapore's reserves are large enough, some felt that the Government should be more generous. Personally, I feel that as a tiny country without any natural resources, our reserves of $55 billion are inadequate. Just now, one Member mentioned Kuwait. The population of Kuwait is less than one million. They have very rich oil wells. However, their reserves are in the region of US$100 billion, or $160 billion in terms of Singapore dollars, three times more than our reserves. That Kuwait is able to rebuild the nation so quickly in less than a year after the war, is due to the fact that they have such vast reserves. If we do not make a comparison, we might be wondering what is adequate, and what is inadequate? So if we take Kuwait as an example, then we can see that our reserves of $55 billion are inadequate. As one Member pointed out just now, it is barely enough to cover five to six months of our total imports. In the event of a war or a severe economic recession, with massive unemployment, we can only maintain about half a year of life at the present standard. So, think it over! I feel that our reserves are inadequate.

Of course, I am not saying that since our reserves are inadequate, our Government should totally refrain from subsidising or assisting in education, health care, etc. I believe our Government, particularly our Prime Minister, has already proposed the setting up of Edusave and Medifund. However, we have to look at the whole picture when we consider these expenditures, to see how much money we actually have. On the whole, the reserves of Singapore, as a sound nation, are inadequate. Although the United States is in debt, they have oil fields and gold mines. They have just to dig out all these minerals for sale, they can solve a lot of their financial problems. We have nothing to dig. To us, every dollar counts!

Another point I would like to touch on is the lowering of productivity and the rise in wages. We are very concerned with the slowing down in our economic growth. The growth in our retail, manufacturing and financial sectors is slowing down, resulting in a drop in our productivity. However, I personally feel we should not advocate the low wage policy because if you want to raise our standard of living, the low wage policy is not the answer. In any event, we can never compete with countries like India and China, or even Indonesia, insofar as cheap labour is concerned. Then, how are we going to peg our productivity to our wages? I will elaborate on this at the debate on the budget for the Ministry of Trade and Industry.

However, I would like to serve a reminder. In the last nine years, BERI rated us as 14th in the world, in respect of skill level of our workforce. Perhaps this may be the time for us to conduct an overall review on our efforts over the past nine years. Why is it that the skill level of our workforce cannot be raised?

Another thing I would like to speak on is our Government's economic philosophy and economic principle. I support the Finance Minister's preference for the American school of market theory and free economy. He is not in favour of the British economic school's advocation of more government intervention. I feel that we can adopt the free market theory as our general guiding principle. However, when we apply this principle, we must adapt it to suit our circumstances. If we go for full implementation of the free market theory, then there will be no HDB flats in Singapore. There will be no MRT! Therefore, we owe our success to the Government's prudence and flexibility in adapting this economic theory to suit our local situation.

We often talk about privatisation of some Government agencies, such as SBC. I hope that SBC, after privatisation, will not go only for profits and choose only programmes which have commercial values, or put too much emphasis on commercials, or televise only programmes which cater for the interest of the viewers. It should strike a balance between these and the educational programmes. Take the children's programme, for example. I am aware that children's programmes are not normally supported by commercials. However, if we gradually reduce the number of these children's programmes or educational programmes, giving our children no choice but to watch only films imported from Europe or the US, then they may soon address their parents by names instead of Papa or Mama. My children may just address me as Yee Shoon and not Mama. (I told them that I would never accept that.) Therefore, when we privatise these Government agencies, we must consider the impact on our people and its long-term implication.

On culture, I notice that our per capita expenditure on culture is only $5.14, much lower than the $8.00 to $9.00 in UK and $9.00 to $10.00 in Hong Kong. For this reason, I hope that the Government would be more generous in the promotion of culture and the cultivation of a more gracious society. We are going to spend $400,000 on the construction of a cultural city. If this is going to be run privately on a commercial basis, then I am afraid many cultural organisations and cultural bodies will not be able to afford the rent and very high hiring charges. Therefore, when this city is completed, we should consider keeping the rental at popular rates. The Finance Minister may consider granting some subsidy to these cultural bodies so that they can make full use of these facilities.

Lastly, manpower planning. I would like to commend the Finance Minister for the successful implementation of the manpower zero-growth scheme in the civil service without compromising its efficiency and quality of service. However, I would like to make special mention of those people who are working in the community service, such as the People's Association and the RC secretariat. They have no fixed hours of working. Moreover, they have to deal with the masses and the problems they deal with are diverse in nature. I feel that their duty is very important, no less insignificant than the policy makers who work in air-conditioned office. Their duty is to explain our policies more accurately to the people. Therefore, I hope that we could treat them more fairly and give them a better deal in their terms and conditions of work.

Dr Tan Cheng Bock (Ayer Rajah): Mr Speaker, Sir, I shall be very brief. I would just make general comments on the Budget as a whole.

I feel that this is a sound Budget for two reasons. Firstly, given the economic uncertainties which lie ahead, it is better to err on the side of caution, and not to attempt too much fine-tuning of the economy to fiscal policy. The flip-flopping of the tax positions in the US over the past 18 months has made it difficult, or more difficult than ever, for both companies and individuals in that country to plan ahead. There is much to be said, therefore, in support of constancy of purpose and resolve in our fiscal and economic policies.

Secondly, it is right that the Budget emphasises the upgrading and improvement of our infrastructure. The efficiency of our infrastructure is a critical pillar of our competitiveness as a nation, in relation to both the attraction of investments and a generation of exports. It is not endowed naturally and it must be mindful that just as we can overtake other locations, in terms of the quality of our port, airport and other infrastructure facilities, there are other countries who are looking over our shoulders, attempting to do the same to us.

However, I would like to raise two issues in connection with the Statement which may require further examination. Firstly, while it is right to subject the allocation of our scarce resources to the discipline of free market as far as possible, it is not possible to recognise that there are sectors where free market conditions may not exist. An instance of this will be telecommunications. There may be many important commercial and, indeed, strategic reasons why Telecom, when privatised, should continue to enjoy a monopoly in the provision of most categories of telecommunication services in this country. However, it will be useful for the privatised Telecom to provide Parliament annually with a comparison of telecommunication charges in the country and of those countries, eg, Hong Kong, which have an approximately similar level of economic development.

Secondly, from the business vantage, the budget could adopt a more encouraging stance, in terms of supporting the export of our services. This can be done without necessarily eroding the export, the amount collected as tax revenue. We might consider providing a tax incentive only on the amount by which export revenue in that particular year exceeds that of the previous year. For example, if a consultant's fee for projects or assignments undertaken overseas during the preceding year is $5 million, and the amount for this year is $6 million, a special tax incentive could apply to the $1 million increment. In the following year, the export incentive will only be applicable if revenues from overseas operations exceed the new base of $6 million and so on. Such a mechanism will encourage our firms to stay competitive in global terms, and Treasury can afford to be generous in granting incentives on such terms.

Mr Speaker, Sir, I would take up details on the various Ministries during the debate in the Committee of Supply. 5.28 pm

[Mr Deputy Speaker in the Chair]

Mr Kenneth Chen Koon Lap (Hong Kah GRC): Mr Deputy Speaker, Sir, I support the balanced and measured Budget Statement by the Minister for Finance.

Against the backdrop of world economic gloom, it is comforting to note that despite the steady slowdown of economic growth in almost all sectors, we are able to achieve a growth rate that most developed countries would envy. But our economic performance in the next year or so will prove to be most critical. The US is struggling to get out of a possible prolonged recession. The normally strong economic standing of the Japanese is showing sign of decline, and the situation in Europe, at best, can be described as uncertain. For a country like ours that depends heavily on external trade, it is indeed worrying. However, an over-pessimistic outlook will only result in over-reacting in both investments and spending. This should be avoided at all costs as we will run the risk of talking ourselves into a recession.

The outlook of the immediate future does not look encouraging because the only high growth rate of over 19% registered last year is the construction sector, and this may not be a true reflection of the mood in the property development market. The present rapid construction activities is really the result of development projects committed 2-3 years ago, when the property market enjoyed a certain buoyancy. The true indication of the property market perhaps can only be reflected accurately by the number of projects committed at the present moment and by the actual sales and occupancy rate of the completed developments. In fact, I believe this has already been experiencing a slowdown.

In the light of the uncertainty we are faced with, we may want to learn a lesson from our 1985 recession. It was to the whole nation's credit that we got out of the recession almost as swiftly as we encountered it. The Government took the initiative of taking speedy and decisive action. The disciplined workforce responded in unity and the whole population rallied behind the Government positively, and we were able to avert a major economic setback for Singapore.

Apart from that, one of the main reasons for this speedy recovery is the result of the setting up of an Economic Committee led by our then and now Minister for Trade and Industry, BG Lee Hsien Loong. This Committee comprised top talents from the public sector, the private sector and also from the multi-national companies. It was a powerful and effective committee. Because of the talent and experience of each member of the Committee as well as the close association with the various sectors of our business community, their inputs have helped the Government to formulate policy and taken effective actions to achieve the desired result. Therefore, this Economic Committee can be a powerful and effective committee to monitor the total economic progress of our nation, especially at this crucial period. I would suggest that perhaps the Government can consider reactivating this Committee and charge them with a new agenda. The new terms of reference can be, firstly, to monitor closely the economic impulse of our nation and, secondly, to recommend any short to medium-term actions to be taken from time to time to keep our economic objectives on course.

Although the various Ministries keep close contact with the private sector, and MTI and the various economic machineries such as the EDB, TDB, CIDB, etc, constantly provide support and assistance to the various business sectors, the Economic Committee can provide additional impetus to the Government in monitoring the economic impulse of the nation, as well as help in formulating economic policy to respond to the ever changing situation.

Although we are now more prepared and resilient in handling any economic setback, we must formulate an overall strategy to overcome this declining economic trend, instead of looking into problems in isolation and suggesting piecemeal solutions like cutting taxes and lowering charges, etc. We must prevent another 1985 recession from happening and not wait for it to happen and find ways to cure it.

Encik Umar Abdul Hamid (Ang Mo Kio GRC): Mr Deputy Speaker, Sir, I rise in support of the Minister's financial policy.

Sir, from the Minister's Budget Statement, I am pleased to note the Government's commitment to ensure that we remain competitive and attractive in order to retain investors. The proposed 1% cut in corporate tax is a reflection of the Government's effort to keep operating costs low in Singapore. I am confident that, slowly but surely, we could reduce the corporate tax to a level where it will provide optimum return to the investors and Government.

Sir, when the Minister announced that our economic growth is going to be slower in the years ahead, it has caused great concern to many Singaporeans who have been enjoying the fruits of high economic growth for the past few years. Many have taken the signal as the coming of another recession, particularly the employers. I was made to understand by some of my colleagues that employers have started using the two favourite words, ie, "to cut" and "to freeze". If this phenomenon of crying out wolf goes on, it will affect the morale of our workers and eventually the level of productivity. The Government must closely monitor to ensure that employers do not take advantage of our slower economic growth to be the reason for any wage freeze or, even worse, wage cut.

Sir, given the adverse conditions of our external markets, we should be thankful and grateful that we have achieved a moderate economic growth. We have achieved, and are capable of achieving, continuous moderate growth at a time where many countries are struggling to narrow their deficit and are faced with zero or even negative growth.

On the consumption tax, Sir, in the 1989 Budget Statement, the Minister for Finance mentioned:

' ... that in the longer-term, we will need to introduce some form of comprehensive consumption tax to complement our system of direct taxes. This is to cover the contingency that we may be compelled by external forces to cut our direct taxes to a level where it can no longer support the revenue we need for Government purposes. Or alternatively, if Government is persuaded by Members and the public to spend greatly increased amounts of revenue on social purposes, social welfare or on health measures which are considered desirable, and this imposes an exceptional burden on the Government budget process, and if the direct tax budget cannot support it, then it will have to come from consumption taxes. We cannot rely on the drawdown of reserves.' - [Hansard, Vol. 53, No. 3, col. 197].

My question to the Minister is: are we already in a state of condition where we have to spend a greatly increased amount of our revenues on social and health purposes? I am definite that we have not done so and, if not, why the need to introduce the consumption tax now?

The only explanation that I can offer to the rationale of introducing the consumption tax is that the Minister is very concerned with our greying population. With many of our population reaching retirement age, we should expect an increase in expenditure on health and community development programmes. Let me provide figures so that we can understand the situation better.

In 1990, 1 out of 9 persons was 60 years old; in the year 2010, 1 out of 7; and in the year 2030, 1 out of 4 persons is going to be 60 years old. What does it mean? It means that in the coming years we are going to have fewer people in the workforce and that means fewer people contributing to revenues via direct taxes. On the other hand, our expenditure will be on the rise in order to provide services to the elderly. If expenditure is more than the revenues collected, the Government may have to adopt either one of two solutions. One, increase tax rate on individual income or, two, cut down expenses. Cutting down expenditure would mean low quality health programmes, poor standard of education and inefficient Government services.

Sir, both solutions are of no advantage to Singaporeans and the Government. This is where consumption tax will come to the rescue, because it is a more stable form of revenue and will make our economy less susceptible to economic changes.

Perhaps another feasible solution to the problem is to increase the retirement age of our workers to 65. By stipulating that people can withdraw their CPF account at 55, the Government has made that age as the beginning of old age. But the biological clock tells a different time. People who have been healthy most of their lives generally do not begin to decline rapidly until their late 70s. Therefore, I would like to urge the Government to consider delaying the retirement age of our workers to 65. Massive effort must also be carried out by the Government to encourage the private sector to follow en suite.

However, Sir, as much as I agree with the principle of consumption tax, I would like to register my disagreement to the timing of its application. My contention is that we are not, in any way, in a situation where our expenditure exceeds revenues and have started meddling with our reserves. Introducing consumption tax now will mean to supplement our system of direct taxes and not to complement it, as mentioned by the Minister in his 1989 Budget Statement.

If we need to introduce the consumption tax, I would like to urge the Government to consider reducing the top marginal tax rate on individual income and to consider tax reduction on capital income. Reduction of personal income tax rate will make people work harder and for longer hours. Some economists advocate tax reduction in order to encourage savings and stimulate productivity. Savings should be encouraged to enable society to invest for the rate of productivity is related to investment rate. Moreover, encouraging people to save is one of the objectives of introducing consumption tax.

Sir, I support the Government's principle of investing on human capital as well as physical capital. Education and public health should always be given the weightage. Singapore depends on its human resource for economic growth and continual investment on human capital will unquestionably increase the productivity, versatility and adaptability of our labour force. Our infrastructure must always be improvised to ensure efficient mobility and working environment for Singaporeans.

However, Sir, as much as the Government would like to invest on human and physical capital, we must not forget or neglect the significance of the rate of technological change. Technological change is in fact one of the persuasive and determinant features in our economic growth.

Technology is a society's pool of knowledge concerning industrial arts. It includes the knowledge of engineers, scientists, managers, craftsmen and others on how goods and services can be produced and capitalised. New technologies like microelectronics, computers and biotechnology have greatly influenced the rate of increase in labour productivity.

Technological change takes the form of new methods of producing existing products. New designs make it possible to produce goods with important new characteristics and new techniques of organisation, marketing and management. To do so, we need innovators, people with the foresight or vision to see new things that can be brought out from the transformation of mere ideas into reality.

Sir, our industries have reached a point where we need innovative people with creative ideas. Innovations which can help increase the level of productivity and as Joseph Schumpeter, Harvard's distinguished economist and social theorist, puts it:

'Innovators are the mainspring of economic progress.'

Innovative people are out there in our industries and learning institutions. We must create an environment in which they could surface and come forward to contribute to our economic progress. Creating this environment is a painstakingly slow process, but it is a process worth investing because of its long-term benefits.

I would like to compliment the Government for taking our research and development (R&D) industry seriously and I think more can be done to enhance this field in Singapore. However, what we need urgently now is design and development support to our industries, particularly the construction and marine industries.

In a tight labour situation, we need to automatize our industries before they become over-dependent on foreign labour. The effort for automation must be a concerted one. Government should provide incentives to encourage industries, particularly SMEs, to go for automation. Many SMEs still do not see the long-term benefits of automation. Despite tax concession on all capital expenditure to buy equipment for automation, many are still reluctant to convert to automation. Therefore, I would like to urge the Government to consider providing other incentives that will make it more attractive for SMEs to consider going for automation.

Finally, I would like to touch on the tax relief for reservists. Sir, I must say that the introduction of tax relief for reservists is timely and long awaited by many. It is a fact readily accepted that our reservists play an important and crucial role, not only to defend the country but to ensure continuous economic progress and political stability. Not only do they contribute to our private and public sectors, they also help to guarantee the continuity of appeal for investment in our country. The recent development following the post cold-war era, particularly in the Asia-Pacific region, makes it more imperative for us to have a formidable deterrent force to defend the prosperity of the nation. Hence, there is an irrefutable need for us to continuously appreciate their services and contributions.

In this year's Budget Statement, the Minister has generously given a tax relief of $1,000 for all active reservists - an amount that I would deem substantive in comparison with the amount allocated for personal relief. Sir, our reservists deserve the tax relief because of their commitment to attend their in-camp training and other activities to maintain their operational proficiency. In appreciation to those who had served national service, but not an active reserve service, the Minister has granted a relief of $500. The Minister for Defence has pointed out that there is a group of people who had served their national service and completed their reservist training, I appreciate that the Minister is considering giving them a tax relief. May I now suggest to the Minister to consider giving them a one-time $1,000 tax relief and a relief of $500 for the successive years. I would consider it appropriate because it will serve as a token to show how the country appreciates the services rendered by them.

Before I end, allow me to reiterate that for a country like Singapore that depends primarily on its human resource and its location as a world-known commercial centre, we must be economically viable and be able to stand through the hardest of global drawbacks. We must then carefully plan for an invincible financial stability and at the same time creating a balance between a desirable state budget and meeting the well-being needs of our population. Every accessible opportunity has to be taken. Sometimes what it takes is a little ingenuity added to our present technology to make it as if we are years ahead in standard and comfort. And this, Sir, I am sure Singaporeans are capable of. 5.48 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Deputy Speaker, Sir, I would like to thank the many Members for their keen interest in this year's Budget. The debate has been a long one, and I will try to respond as briefly as possible.

Members were generally supportive of the Budget. Some, nevertheless, felt that more could be done to help businessmen in the face of an expected economic slowdown. Others, like Mr Chiam, even believe that the slowdown was brought about by Government-induced cost increases. I will respond to these concerns and try to correct the misconceptions.

In resource-scarce Singapore, economic expansion is dependent primarily on growth in the labour force and productivity. Over the longer term, our labour force growth is expected to be no more than 2% per annum. As attainable productivity growth is in the region of 3-4%, we can expect sustainable non-inflationary GDP growth to be around 5-6%. To grow significantly beyond this, we will need to deploy our capital overseas into areas with the requisite land and human resources. Growth in this area will boost our gross national product.

This year, the economy is expected to slow down. There is, however, no cause for alarm. The Ministry of Trade and Industry's 1992 growth forecast lies within our long term sustainable rate. We are comfortable with this. Hence, the fiscal year 1992 Budget is a mildly stimulative one, with a mild tax cut accompanied by increases in development expenditures. Excessive fiscal stimulation now will only add to pressure on wages and fuel inflation. Members can, nevertheless, be assured that Government will monitor the situation closely and respond if circumstances warrant it.

In this Budget, I have, on the revenue side, cut corporate tax rate and increased personal reliefs for reservists. Individuals will also enjoy a 5% rebate on income tax for the Year of Assessment 1992. These changes reaffirm Government's philosophy of taxing businesses as lightly as possible and to reward individuals for their contributions to our nation. In particular, the cut in corporate tax will help businesses cope with increases in business costs. The Budget also contains tax incentives to promote growth areas. Together with those introduced in earlier years, the overall package of tax incentives is now quite adequate.

On the expenditure side, the Budget's emphasis is on investment in education, basic health care, public housing, defence and infrastructure. This is to enhance our productive capacity and ensure our national security. Investments in infrastructure, such as upgrading of HDB flats and basic hospital facilities, will also improve the quality of life without reducing the drive to work.

The underlying philosophy behind this Budget remains the same as that of previous years. It is to invest in our citizens, encourage work and enterprise and subscribe to the free market. Government has succeeded in providing our people with education, public housing and basic health care at affordable costs. Those who want more must be prepared to pay for it. Government will not subsidize consumption expenditure. To do so will only undermine the incentive to work and to deplete the reserves which we have accumulated over the years.

Our success has been possible because of prudent fiscal management. We should not deviate from this well-tested formula. On the contrary, the challenge ahead for Singapore would be to deal with increases in expenditure while revenue declines, as our population ages over the next 20 years.

I will now deal with specific issues raised by Members. I will not respond to all of them as some will be more appropriately dealt with under the relevant Ministries in the Committee of Supply.

A few Members have questioned whether a lower economic growth rate would necessarily result from a maturing economy. The Member for Potong Pasir has, in particular, compared our growth rate with that of Korea. Dr John Chen has touched briefly on this and I will deal with it briefly also. Korea has indeed grown faster than Singapore last year, by about 8.6% against our 6.7%. However, if we take the period from 1965-1991, the average economic growth rates of Singapore and South Korea are the same, with both attaining 9% per annum.

The growth in Korea last year was accompanied by serious problems created by over-heating. Inflation was 9.7% while the current account deficit reached an all-time high of US$8.8 billion, four times that of 1990. As a result, the Korean Government is aiming for a more sustainable growth rate of 7% this year. In addition, South Korea's per capita GNP in 1991 was an estimated US$6,300. This is only about half of Singapore's. Korea is therefore growing from a lower per capita base compared with us. When we reached this base in 1983, we were growing at more than 8%.

Several Members were concerned that the Budget had not addressed fully the problem of rising business costs. Sir, the increase in business costs is a natural consequence of our strong economic growth. The Singapore economy had been growing rapidly at an average rate of 9% per annum for the last five years. This is way above the potential output of our indigenous factors of labour supply and productivity growth, with the inevitable result that there has been a strong upward pressure on wages.

Business costs as measured by the unit business cost (UBC) of the manufacturing sector grew by 5% in 1991, down from 6.7% in 1990. Many of the factors leading to the rise in business costs are not within the control of Government. The bulk of the increase is due to the rise in labour costs. Unit labour cost rose by 6.8% in 1991, about the same as the 6.6% in 1990. This is a reflection of our tight labour market.

The solution to the high cost is not to avoid the increases, as these are necessary to send the correct signals to businesses to optimise the use of our scarce resources. Instead, we have to slow down the over-heating in the economy. Government will not burden the private sector with unnecessary statutory costs, but the private sector must do its part to improve productivity.

I share the Members' concern that over the last three years, productivity growth has lagged substantially behind increases in real wages. This cannot be sustained year after year. All in the workforce must realise that we have to increase our value-added to enjoy higher standards of living in the future. The National Productivity Board has recently announced a four-pronged programme to raise productivity in Singapore. The Retail Sector Development Plan unveiled by MTI will also help retailers upgrade. Furthermore, the Government will continue to invest in education and training of our people in order to bring about continued economic growth in the long term.

On the increase in the CPF contribution rate for employers, this is necessary to keep faith with our workers. Employers should remember that the 15% point cut in CPF rate in 1986 was meant only to be temporary. It is in cognisance of the slowdown in our economy that the employers' contribution rate is increased by only half a percentage point this year. Furthermore, I would remind employers again that CPF contributions constitute part of wages, and any increases in their CPF contributions should be taken into account in wage adjustments. That this exhortation has consistently fallen on deaf ears is a clear indication that the economy has been over-heating and creating a demand for labour which can only be met by constantly rising wages.

Several Members have suggested that if the economy picks up, Government should speed up the restoration of CPF contribution rates. Let me assure Members that the Government is committed to restoring the CPF contribution rate to the target of 40%, with equal contributions by employers and employees. However, this must be done without hurting the economy. Government hence reviews and adjusts the CPF contribution rates each year according to economic conditions. We have allowed ourselves up to 1996, at the latest, to restore fully the CPF contribution rates. This, however, does not preclude us from a quicker restoration if the economy is able to support it.

Some Members and many businessmen are concerned about the continuous strengthening of the Singapore dollar against other currencies, and the impact of the strong Singapore dollar on our export competitiveness. I should explain that the strengthening of the Singapore dollar is a reflection of our strong economic fundamentals. These include good economic growth, low inflation, budget surpluses and a healthy foreign reserve position. Funds have flowed into Singapore because investors have confidence in the continued sound management of the economy. The strength of the Singapore dollar has itself been a factor underpinning our economic fundamentals. It has allowed us to enjoy a significantly lower rate of inflation in recent years compared to the other NIEs, and most other countries.

The appreciation of the Singapore dollar in recent years has served to neutralise completely foreign inflationary pressures. It has also exerted a cooling effect on the economy which had been growing well above its underlying potential until recently. If the exchange rate had instead been held at its 1988 level, inflation would have averaged 7% last year, twice as high as the 3.4% that we actually experienced.

Calls have been made for a weakening of the exchange rate to offset the effects of higher labour costs in view of the economic slowdown. Such a move is bound to be counter-productive. In the short term, there would indeed be some gain from a weaker exchange rate. Our exports will become more competitive and we may achieve a little higher GDP growth. Import prices, however, would also be higher. Since our exports have a high proportion of imported inputs, ranging between 60% and 70%, the benefits of a weak currency would largely be nullified.

Over the longer term, export competitiveness arising from a weaker currency would be further eroded in two ways. First, in the present tight labour market, wages would rise even further as the initial expansion in exports would lead to more demand for labour. Second, the increase in the price of imported energy, food and other consumer goods reduces real wages which workers would want to restore. The resulting increase in wages and other costs would completely offset the gains from a weaker currency. The level of competitiveness would be back to where it was. The only change is that inflation would be higher.

Exchange rate policy, like any other Government policies, should be guided by long-term considerations. The best way exchange rate policy can promote long-term export competitiveness and sustained economic growth is through keeping inflation low. With the slowing down of Singapore's growth rate, I would expect the upward pressure on the Singapore dollar should also ease.

A few Members have also commented that several Government-mandated cost changes were made outside the Budget. I would like to assure Members that, whenever possible, Government will announce major cost changes in the Budget. However, it is not always possible to do so if the changes are not introduced for revenue or budgetary reasons. For instance, the increase in foreign workers levy was necessary to curb the sharp increase in demand for unskilled foreign workers. However, it was announced before the Budget in order to give sufficient notice to the industries affected so that they could make the necessary adjustments.

I shall now turn to the discussion on taxation. A few Members have asked for a comparison of the corporate tax burden in Singapore with that in Hong Kong. I would point out that it is not appropriate to compare ourselves with Hong Kong in this area. We are neither a colony nor a tax haven. What Singapore is aiming for is not to have the lowest corporate tax rate in the world. What we want is to keep our rate sufficiently low to attract a continuing stream of high quality investments and promote private sector growth, and we have been quite successful in this area.

Some Members have commented that Government has not given sufficient assistance to help local enterprises develop and expand overseas. This is not the case. Government recognises the importance of local enterprises in our economic development. Many programmes have been implemented to help these enterprises grow. They include the Local Enterprise Financing Scheme, Market Development Assistance Scheme, Local Industry Upgrading Programme and the Business Development Scheme. These schemes are to help local enterprises acquire advanced production and marketing know-how, improve product quality and gain new markets overseas.

Many local enterprises have benefited from these programmes. Last year, grants amounting to $33.8 million had been given to over 13,000 projects undertaken by local enterprises. In addition, $376 million in loans have been granted to over 1,700 projects under the Local Enterprise Financing Scheme.

To help the larger local enterprises to expand their operations overseas, the Economic Development Board (EDB) has recently introduced the International Direct Investment Programme. The aim of this programme is to develop a core of home-grown MNCs by facilitating overseas investments by Singapore companies. As for the smaller local companies, EDB is formulating a new initiative called the Local Industry Globalisation Programme. Details of this programme will be released when it is finalised.

Local enterprises also enjoy a number of tax incentives. Pioneer, Post-Pioneer and Investment Allowance incentives are all available to them. In addition, local enterprises can obtain a double tax deduction for expenses incurred in carrying out overseas marketing campaigns and for maintaining trade offices overseas. For the past five years, a total of $135 million worth of investment allowances has been given to local enterprises. They also enjoyed double tax deductions amounting to $61 million over that period.

The Member for Eunos GRC, Mr Sidek Saniff, has called on Government to set up a business bureau to assist small local retailers. As part of the Retail Sector Development Plan, EDB will set up an Enterprise Promotion Centre later this year in one of the retail associations. This will be a one-stop assistance and referral centre where retailers can seek advice, information and contacts with relevant Government bodies.

Some Members have called for the top marginal individual income tax rate of 33% to be reduced to the corporate tax rate of 30%. On the surface, the 3% differential between the top marginal individual tax rate and the corporate tax rate appears to favour businesses. However, the effective tax rate for individuals in the highest tax bracket is considerably lower than the 33% because of our graduated individual tax rates. For example, the effective tax rate for an individual with a chargeable income of $400,000 per annum is only 26.5%. I would therefore like to reiterate that our individual income tax rates are lower than those in many other countries and there is no need to revise the tax schedule at the present time.

As pointed out by the Member for Leng Kee, the bulk of the tax burden falls on those in the higher income groups. About 10% of taxpayers contributed 75% of the total tax collected for the Year of Assessment 1990. On the other hand, taxpayers with chargeable income of $5,000 and below comprised about 40% of the tax base but carried only 2.3% of the tax burden.

A few Members have asked for a comparison of our individual income tax rates vis-a-vis Hong Kong. I do not propose to deal with it here as a comparison would be long and tedious, but I will take it up again in the Committee of Supply if time allows.

Some Members have called for personal reliefs to be increased. I must remind Members of our policy to ensure that the costs of social and security services provided by the Government are borne by as many people as possible. To achieve this objective, we need to maintain a wide tax base. As increasing reliefs would reduce our tax base, we have therefore instead preferred to reduce the tax burden for everyone through the alternative route of lowering our individual income tax rates over the years, which we have indeed done.

I must also point out that the personal allowance of $2,000 is the only relief which has not been revised. Several increases in the reliefs for earned income, wife, children, parents and handicapped dependants have been announced in the past 12 years. In the past five years alone, we revised the following reliefs: wife relief was increased in the year 1990; child reliefs were increased in the Years of Asessment 1988 and 1990; while reliefs for parents and handicapped dependants were increased in the Years of Assessment 1990, 1991.

Furthermore, our package of personal reliefs for the average family is comprehensive and generous. Let me illustrate this point with some examples. A working couple with two children and husband in active reserve service is now entitled to $10,000 in personal reliefs. A working couple with three children and husband in active reserve service is entitled to $11,500 in personal reliefs. In addition, if the couple qualifies for procreation incentives for the second child, they will be allowed a special tax rebate ranging from $5,000 to $20,000, depending on the age of the wife when the second child is born. If the couple qualifies for procreation incentives for the third child, they will be allowed a special tax rebate of $20,000. Each special tax rebate can be consumed over a seven-year period.

Some Members have spoken on the goods and services tax. I would like to thank them for their suggestions. We will take note of these in the finalisation of the White Paper. So I would not deal with this matter today.

Questions have been asked on the subject of personal expenditure tax. Again I would not deal with the subject today, but will refer it to the Committee of Supply.

Fiscal prudence. Government frugality appears to be an over-rated virtue in the eyes of some commentators and some Members. For example, a recent article in the Straits Times said, and I quote, "Budgets revolve around maintaining the corporate entity's capacity to grow and maintain its economic capacity." I am quoting from a commentator, who declined to be named, who said that, "The adjustments are made by those below" with the implication that it is the poor who carry the load.

Further on the article said, "But such frugality has been achieved at a price. Social security and welfare spending in Singapore is minuscule by international standards." Some Members appear to share the same sentiments. I believe that this is a dangerous line to take. It gives the impression that the Government budget does not spend enough on things that matter, and that, as a result, some people have suffered.

Let us also have an international comparison, but with countries at a similar stage of development and who are also acknowledged to be economic successes, that is, the newly industrialised economies, or the NIEs. A number of tables (Cols. 727 - 732) have been distributed by the Clerk. I refer you to Table A which shows the latest Government expenditure expressed as a percentage of GDP of the four Asian NIEs. Some points are worth noting. tables - FUNCTIONAL CLASSIFICATION OF GOVERNMENT EXPENDITURE, Comparative Performance of Selected Low-Tax and High-Tax Countries, TAXATION AND ECONOMIC PERFORMANCE (Cols. 727 - 732)

Governments of the NIEs spend roughly the same amount. The NIEs' expenditure averaged around 20%, with Taiwan the highest at 27%. This compares with a world average of 40% and a high of nearly 60% in countries like Sweden, Norway and the Netherlands. Singapore spends about the same on general administrative services and defence as the other NIEs, at around 7% to 8% of GDP. The exception is Hong Kong which is a colony and hence has no defence expenditure.

In terms of economic services, it is interesting to note that the other NIEs are doing more than Singapore. Some of the higher expenditure in the other NIEs represents catching up on major infrastructural works. But the need to "hone our productive capabilities" is not an imaginary one. We are also above average in spending on social services, although details vary.

All the NIEs spend heavily on education, reflecting the importance of the quality of human resources and economic development. Spending on health care and social welfare is comparable to the other NIEs. We spend about 1.4% on this compared with 2.9% for Hong Kong, and 2.3% for Korea. But the figures do not give the full picture. In Singapore, we have Medisave and CPF which are tax exempt. These provide Singaporeans the resources to look after their health care and social security needs.

Our spending on housing and community amenities is again comparable to the other NIEs. What the figures cannot show is that, over the years, Government has allocated large amounts of land for our public housing programme. Singaporeans have been able to buy flats at subsidised rates, sometimes even below the cost of construction. The result is that 86% of our population live in public housing and more than 90% of them live in flats they own.

Table B shows much the same pattern on a per capita expenditure basis. It is worthwhile noting that, on this basis, Government expenditure is highest in Singapore. Bigger Government does not mean better Government. Bigger Government means heavier tax burden. In Singapore, Government frugality has not been at the expense of a higher standard of living for Singaporeans or higher investment. I refer you to Table C which shows comparative figures on Government taxation and the economic performance for a cross-section of countries based on figures taken from the 27th February 1992 issue of the Asian Wall Street Journal. The figures show clearly that lower taxes are directly related with higher investment and higher productivity growth and, hence, faster growth in per capita income. The same information is presented graphically in Chart 1. It is, therefore, fallacious to say that lower Government spending and lower taxation would extract a price in the form of adjustments to be made by "those below", meaning the lower-income population. Frugal government spending in the right areas allows the economy to grow and citizens to prosper.

I will now touch on the level of reserves and their usage. I was pleasantly surprised to note that Mr Chiam, Mr Ling and Mr Cheo have come out firmly against the squandering of our reserves. It is gratifying that they recognise the need for a country, like Singapore, to maintain adequate reserves, and I hope that this means that they recognise the wisdom of Government's policies and will vote in support of the Government's Budget later on.

However, both Mr Chiam and Mr Ling have also said that they are strongly opposed to the Government's continued accumulation of substantial surpluses year after year, with the implication that this has only been achieved through taxing the people heavily and by not spending sufficiently on vital areas, such as education, culture and the arts. They have also demanded that Government declares its target level of reserves, again with the implication that without this, there will be no upper bound to the Government's appetite for reserves accumulation, and that this can only come from squeezing the people for increased taxes. I will respond to both these statements and, in the process, I hope that I will be able to clear up some misconceptions.

First, on what is considered to be an adequate level of reserves. It is generally accepted internationally that countries should have hard currency reserves equivalent to between three and six months' imports. Depending on a country's degree of self-sufficiency, reserves at these levels should be sufficient to provide a cushion against temporary dislocations in a country's economy.

For a country like Singapore, which imports all its energy, practically all its food, and up to 70% of its manufacturing inputs, its comfortable level of reserves should clearly be around the upper bound of the three to six months' range, and more, if possible. Singapore's current level of official foreign reserves is $55.8 billion, equivalent to 5.9 months of total imports, or around 80% of GDP. Our current level of reserves is, therefore, comfortable. However, bearing in mind that as our population grows and our standard of living increases with economic growth, our import needs will also grow. This means that the absolute level of our reserves cannot remain static but must grow in line with GDP growth. This we can achieve if our reserves are invested wisely and the income from such investments is allowed to accumulate and is not consumed. Hence, the provision that reserves accumulated by past governments should not be spent without the concurrence of the Elected President.

Having said this, I should also point out that for a country like Singapore, which does not have natural resources, our aim should be to accumulate, over time, as much reserves as we can afford to do so, without overtaxing our people and without denying ourselves the expenditures necessary for economic growth. This we have succeeded in doing over the past 25 years, and we should continue to do so in the future.

We should endeavour to emulate the Swiss whose surplus foreign assets stand at US$185 billion, or 94% of GNP. In addition, the Swiss also have a cushion of US$237 billion in 1989, or 120% of their GNP in private foreign assets held overseas; whereas in Singapore our private overseas assets are only US$7.5 billion, or 25% of our GNP. We have a long way to go before we can hope to attain the Swiss level of security. A comfortable stockpile of reserves is our best insurance against future external economic uncertainties.

I will now turn to the question of the annual budget surpluses, which Mr Chiam and Mr Ling imply, have been achieved through increases in taxation and through insufficient spending on essential areas such as education. The facts contradict these contentions. On taxation, corporate taxes have been cut from 40% in 1987 to the just announced 30%, and for personal income tax the top marginal rate has been reduced to 33% since 1978. The only increases in Government levies have been in areas where prices have been used as the mechanism to allocate scarce resources, such as foreign labour and cars. And I hope that Mr Chiam and Mr Ling are not suggesting that we should resort to a process of pure allocation as the preferred route in order to avoid the levies. Such an alternative has been used in Communist countries and the outcome has always been spectacular inequities and general economic chaos. I would also remind Mr Chiam and Mr Ling that much of the revenues generated from the levies are now used to fund both educational and social programmes.

The Member for Bukit Gombak is supportive of the Government's emphasis on education. He has, however, expressed concern that Government has not invested sufficiently in it. I should point out that Government will be spending $2.78 billion on formal education in fiscal year 1992. This amounts to 4.2% of GDP, which is substantially higher than that in recent years. In addition, a sum of $1 billion has been provided to the Education Endowment Fund.

The Member has specifically raised the point that 75% of independent school students who would not be receiving scholarships under the Edusave scheme, would not be adequately provided for. Let me remind the Member that Government has time and again given the assurance that no student would be deprived of an independent school education because of financial hardship. All students with financial difficulties would have recourse to assistance schemes, administered by the Ministry of Education and the independent schools.

The giving of scholarships to the top 25% of independent school students serves a different purpose. It is intended to motivate students to give of their best. All these demonstrate the Government's commitment to developing each individual to his highest potential.

A number of questions have been raised on civil service manpower, but I will not touch on them this afternoon as they are more appropriately dealt with in the Committee of Supply.

Finally, Mr Deputy Speaker, Sir, I would like to conclude by saying that over the last few years, Singapore has enjoyed spectacular economic growth. As our economy matures, we have to come to terms with a lower but more stable rate of growth. This Budget reflects the Government's long-term policies, serves to consolidate on what we have achieved so far and provides for continued economic growth in the future. [Applause].

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 1992 to 31st March, 1993.