ANNUAL BUDGET STATEMENT

Order read for Resumption of Debate on Question [26th February, 1993],

"That Parliament approves the financial policy of the Government for the financial year 1st April, 1993 to 31st March, 1994." - [Minister for Finance].

Question again proposed.

Dr Ow Chin Hock (Leng Kee): ( In Mandarin): Mr Speaker, Sir, I would like to raise two subjects. First, on tax reform. One special feature of this year's Budget is on tax reforms. Our tax system will be gradually shifting from direct taxes to indirect taxes. Earlier, the Government has published the White Paper on the Goods and Services Tax (GST). In his Budget Statement, the Finance Minister announced reduction in corporate and personal income taxes, rebates on property tax, abolition or reduction in some existing indirect taxes and rebates on HDB conservancy charges and rentals for the low-income families. On tax reduction and rebates, I feel that we should look at it from a macro point of view so that we will realise that tax reform is part of our entire economic strategy and the main purpose is to assist Singapore in maintaining its competitiveness in the world market.

First, on the benefits for the lower-income families. I feel that these rebates are necessary. Of course, I realise the benefits of shifting from direct taxes to indirect taxes. However, without all these measures of tax reduction and rebates, I do not think I would support the implementation of GST. Now I believe when the Government offers all these rebates and compensation, it would help the lower-income families to cushion the effect they will have to face with the introduction of GST. In Appendices E and F of the Finance Minister's Budget Speech, he had given a few concrete examples to illustrate how the lower-income families will benefit from all these rebates.

Example 1. For households living in 1-room rented flats, with a family income of $500 per month, the average GST burden will be about $14 per month but the rebates given by the Government average $32 per month. Net gain: $18. Example 2. For households living in a 3-room purchased flat, with a monthly income of $1,800, they would benefit from the rebates on property tax, income tax relief and rebates on conservancy charges totalling $63 per month, and their GST burden per month is about $38. Net gain: $25.

I am not surprised with this series of rebates. To offset the regressiveness of GST, there are basically two approaches: (1) Exemption, ie, to exempt certain necessities and essential services from GST. (2) Compensation, ie, to give rebates, subsidies or transfers to offset the impact of GST.

In implementation, perhaps the compensation approach is a better one because it would not reduce the comprehensiveness of GST and it would also avoid a dispute on what are "necessities". Moreover, it would give the consumer a greater freedom of choice. However, I was very pleasantly surprised by the generosity of the Finance Minister. Last year, my university colleagues and I did a research for the Chinese Development Assistance Council (CDAC) to determine which are the Chinese families that require assistance in education and training. In our report, we used $1,212 as the cut-off income for a 4-person household. At that time, we were criticised for being too generous. However, when the Finance Minister announced the various rebates, he defined the lower-income family as one with a cut-off income of $1,500, much to my surprise. No wonder some people observe that this is the most compassionate Budget and some even say that our Government is practising the "policy of benevolence" ( ). There are many residents whose incomes are below $1,500 in the older constituencies, including my constituency. On their behalf, I would like to thank the Finance Minister for his "super generosity".

In the Straits Times of 5th March, there was a report quoting the Finance Minister as saying "Want more is human reaction". For example, Mr Chiam See Tong said that the middle-income families should also be looked after and he was disappointed that there was no rebate for the foreign maid levy. If Mr Chiam had done his homework on arithmetics, he would find that there are a lot of benefits given to the middle-income group, eg, rebate on property tax, increase in personal relief, and a rebate of $700 on income tax payable. Unless they spend lavishly, these rebates would be enough for them to offset the GST. Perhaps the Inland Revenue Authority of Singapore (IRAS) should give more illustrations to people like Mr Chiam to tell them how these tax changes have benefited the middle-income group. At the same time, it would also convince the general public that this Budget has looked after the interests of people from all stations of life.

On the question of corporate tax, some people feel that the reduction of 3% point is inadequate. They feel that it should be reduced by 5% point at one go to 25%. But, looking at it from another angle, we will find that the reduction in corporate tax would benefit companies which make money, and the higher the profits, the greater the benefits. A rebate on property tax for the industrial and commercial sector is more extensive, and it will benefit all enterprises by lowering their business costs. Perhaps the Finance Minister would consider lowering the property tax rate or the annual value in next year's budget to slow down the increases in business costs. I would elaborate further during the Committee of Supply stage.

Now let me turn to the second subject "Taking the whole world in view" ( ). First, I would like to comment on the remittance of overseas income. The other special feature of this Budget is that the Government encourages our local enterprises to develop overseas so as to expand our external economy. Our domestic market is small; we do not have natural resources and our labour cost is on the increase. Under such circumstances, developing overseas is an inevitable course. It should be a strategy in our overall economic development. In fact, many of our industrialists and entrepreneurs have already taken off some years ago. However, these foreign investments do not necessarily boost our GNP unless all the investments and earned incomes are remitted back to Singapore. In the last few years, our GNP was higher than our GDP. Last year, in fact, the difference was $1.2 billion. But I believe the investment income from abroad came mainly from the Government and statutory boards, and not from the private sector. The investment incomes of the private sector could be used for other investments or re-investment abroad or parked in Hong Kong or other countries where the tax rates are lower. In this context, the offer of tax incentive for overseas investments so that their investment income would be remitted back to Singapore is indeed a wise move.

Apart from our Singaporeans expanding the size of their overseas assets, the establishment of an external economy is of great significance. This should be viewed as an extension of our domestic goods market and sources of materials and labour. To attain this target, our local enterprises and their investment companies abroad should complement each other to reap the benefits of the economies of scale so that they would bring in more, larger and better orders and contracts for our local enterprises. Venturing abroad also enables our economy to link up with the rapidly developing economies in the Asia-Pacific region so that we can reduce our dependence on the western industrial countries.

No doubt, our entrepreneurs could go overseas on their own with their sharp business acumen, foresight and risk-taking spirit. However, we could also emulate the Japanese to treat the market as a battle field. The Japanese do not waste time in doing fragmented guerilla warfare. But they would pool their resources to take up a "large formation warfare" (

). To do so, we should formulate our competition

strategy, and in venturing overseas, we must know our competitors as we know ourselves. As the Finance Minister has pointed out, one of our comparative advantages lies in "our organisation with proven professionalism and collective competence". But I believe that our other advantage is the credibility and image of our Government, as well as the high prestige of our Senior Minister, Mr Lee Kuan Yew. But we are not without weaknesses: most of our local enterprises are small in size, we are unable to have the bargaining power when we deal with the large enterprises from overseas and we find it difficult to compete with the giants from Japan, Taiwan and South Korea. Furthermore, we are poor in inter-human relationship: Some tend to be arrogant ( ), some are too preoccupied with legal forms and regulations, and some lack understanding of local culture and mentality of the local people. Therefore, our statutory boards, Government-linked companies, and private enterprises should complement each other, work together, and manifest the spirit of the Singapore Incorporated.

The modes of cooperation can be in various forms. Firstly, our statutory boards and foreign governments could set up some sort of "pioneer development district" ( ) to attract our local enterprises and GLCs to set up factories or to invest there.

Secondly, our public and private enterprises should form joint ventures to set up a commercial centre, or to tender for overseas infrastructural projects.

Thirdly, the local enterprises could make the landing first with their own connections and relationship and then use the Government-linked companies as the back-up and supporting troop.

The mode of cooperation depends on the nature of the investment. But, the most important thing is the spirit, not the mode, of cooperation. The private enterprises are faced with a dilemma. On one hand, they want the Government to help them to reduce the investment risk. On the other hand, they are afraid that the Government would be too strict in their regulations and some civil servants could go by the law, so that they are unable to maximise their potentials in a different enterprise cultural environment. In order to manifest the spirit of cooperation between the private and the public sectors, we should narrow the perception gap and psychological disparity between the entrepreneurs and the civil servants.

From what I have observed, I gather the impression that a good number of civil servants are treating the entrepreneurs as the ones who seek loopholes in the legal framework, like "pulling strings", and they even look at them as "crooks". On the other hand, the entrepreneurs feel that the civil servants are always finding fault and specialising in officialese. So on one side, we have these bureaucrats, who are generally the English-speaking elite, seeking efficiency and productivity in performing their duties. On the other hand, we have these loud-speaking and wealthy ( ) towkays who attach more importance to connections and human relationship and they do not speak English but speak Mandarin or dialects.

The difference in educational background, the language barrier and the different values have deepened the disparity between the two groups. I hope the entrepreneurs will always remember that an honest and effective civil service system is part of the institutions of a country which is ruled by law, and it is not easy to establish such a system. On the other hand, I hope that the civil servants will realise that if they could take the initiative to actively help the entrepreneurs within legal means, it would be conducive to our economic development and would benefit our nation. The civil servants can, and should, service the economy.

The functions of regulators and facilitators are not necessarily opposing. So when they are dealing with our Singaporeans' investments overseas, we should take into consideration that these entrepreneurs are entering different boundaries where the cultural environment is different. So it is not quite possible to apply our rules and regulations on them to the dot.

In a recent dialogue session conducted by the Feedback Unit, some local entrepreneurs criticised our local bankers as being too conservative. For example, the banks refused to allow the entrepreneurs' foreign land and assets to be used as collateral, resulting in their having to face double risks inside and outside Singapore. Perhaps the Development Bank of Singapore should live up to its name to perform the function of promoting development. The Development Bank of Singapore should not forget its origin. It should help the local entrepreneurs to invest overseas. Perhaps we could set up another "securities bank" to help our local entrepreneurs in their overseas investments.

I know that some people are putting the blame on the Monetary Authority of Singapore because they were being too strict on the bankers, resulting in our bankers being conservative. The Committee led by Cdre Teo can perhaps take up this matter and look at what regulations on the financial sector can be relaxed. But at the same time, we must not forget that if not for this very strict control by the MAS, many of our depositors would have lost heavily in the BICC incident or a similar event. We have to strike a balance in the regulation and control of the financial sector.

With the coming of the Asia-Pacific age, we should not tie our hands and lose out on good opportunities. Hence, to develop externally is an inevitable trend. However, we must examine our own strength and evaluate the external situations. We must not rush into it; we should realise that not every local enterprise is able to venture abroad. We need also to have some people to take care of the local economy. So when we talk about deregulation and adoption of more flexible and enlightened policies to encourage our people to develop externally, it does not mean that we have to give up all the systems and rules that have contributed to our economic prosperity and social stability over the last 2 decades or so. Tearing down the "social security net" will not necessarily produce a few entrepreneurs like Li Ka Shing. Even if we can do so, can these entrepreneurs' wealth really benefit our people at large? Can they ensure that our people would have "Home for Everyone", and that all our children would have the opportunity to be educated? Can they assure the sick be given basic medical care and our people be able to enjoy life after retirement?

In all the hue and cry, we should ask ourselves one basic question: what is the ultimate objective of economic development? The purpose of tax reform and incentives for enterprises to invest overseas is, first, to create wealth, and then to redistribute wealth through the upgrading of HDB flats, the topping-up of CPF for the purchase of shares so that our people could share the fruit of success. When we measure the success or failure of our tax reform and our incentive schemes for overseas investments, the criterion should also be based on the same ultimate objective. In other words, we have to see in a few years' time, whether the standard of living of our people is better than what it is today, and whether they are owning larger assets than they do today. At the same time, I hope that our people would, in their struggle for economic success and personal careers, spare some time to put some qualities into their lives, for example, in culture, arts, virtuous or spiritual growth ( ) so that their lives would be much richer.

Mr Speaker, Sir, I support the motion.

Mr Peter Sung (Buona Vista): Mr Speaker, Sir, I would like, first of all, to congratulate the Minister for Finance for this year's Budget.

Tax changes that support an external economy

The measures which the Finance Minister has outlined are a substantial beginning in the Government's efforts to support Singaporeans in their effort to go overseas. How successful these measures will be is left to be seen. But I feel sure that once the Government has decided, it would take appropriate measures from time to time to make sure that we would succeed in our effort to develop an external economy.

What I had hoped to see was a package of measures to help the individual Singaporean. As we know, Singapore companies find it difficult to recruit Singaporeans for overseas postings. In large measure, this is due to the lack of basic facilities such as education and health facilities in some overseas cnetres. Singaporeans will be reluctant to consider postings overseas where the country to which they are supposed to be posted has facilities that are very different from ours, because it is very comfortable to stay home in Singapore. I hope that in the course of this debate the Government would give some indications as to what it would do in this direction.

The GST

Mr Speaker, Sir, the intention of the GST is to make everyone better off. The GST comes in a package which as a whole and on the average makes people better off, at least in the first five years. And the Finance Minister has said that he would not raise the rate after that, unless there is a need to do so.

Mr Speaker, Sir, consumption taxes are regressive. Therefore, the rich and the upper-middle class should welcome indirect taxation. For the poor, the package of offsets, rebates and subsidies, which the Finance Minister has introduced, should ameliorate the effects of the GST.

Implementation of the GST

I would like to make some comments. First, GST is new to Singapore. In the process of implementation, it is possible that snags can surface, especially in the initial period. There may be a small section of the community which would miss the safety net which the Finance Minister has put out. The Government has chosen to use the Citizens' Consultative Committees (CCCs) to help reach out to these people. CCCs have an important role to play; it is an additional role. And I hope the $3 million that the Finance Minister has put aside will be sufficient. If not, I hope the Minister will increase the amount.

Second, I support the GST from a macro-economic point of view. However, there may be people who suffer financial hardship in a way that is not intended. I hope the Government will closely monitor the implementation and introduce modifications and adjustments wherever necessary. If the people are confident that the Government would do this, I feel sure that they are more likely to accept the GST.

Third, in the implementation of GST there may be practical and technical issues. For example, an architect may have done some work for a client. Part of the work is done before the effective date of the GST and part of the work after. It is not easy to determine exactly which part of the work falls during which period. I am sure the Finance Ministry will get tax experts who have experience in the application or implementation of consumption taxes to help technically. But the way in which a decision is made will have an impact on the bottomline of companies. It will have an effect on the profit and loss. To be sure, such effect is just one time and would have very little effect on the long-term profitability of companies. But companies operate on a much shorter time-frame than the Government. If there is a decision to be made, I hope the Government will be generous. And, if it has to make a mistake, it should err on the generous side. After all, GST is now introduced not as a means to raise revenue immediately and the amount of revenue forgone would be very small to the Government.

Why GST?

Mr Speaker, Sir, why is it that the Government is going to introduce GST now? The Government, if it needs to, can always increase revenue by increasing direct taxes if GST is not in place. By introducing the GST, it is going to lose revenue. As the Finance Minister has said, GST will be implemented in a revenue negative way.

Besides, there is also a political price to pay. Some Members of the Opposition are likely to confuse the people about the intentions of the Government and the efficacy of GST. They will hope to generate more heat than light both in this House and outside. Although their claims and accusations may be ill-founded, I am afraid that there will still be a political cost to the Government. So why would the Government introduce GST now when it loses financial as well as political points. I believe it is because GST is the way to go for the future.

With GST in place, the Government can make sure that Singapore remains tax- competitive. And this will ensure that we will continue to be able to attract foreign investors to come to Singapore. We must not forget how important foreign investments have been to us in the past 20 to 30 years. They bring in new technology. They bring in new investments. They bring in new jobs. And those people who have worked for international companies will realise that their salary levels are higher than those paid by local businessmen 20-30 years ago. Foreigners investing in Singapore have raised the standard of living and the level of wages to the point that even local businessmen have to follow suit, if they were to attract the best talent. So if Singapore does not stay tax-competitive, foreign investors will not come. They will go to places where they can have a better return on their investment. In that case, our standard of living may drop, our salary levels will drop and we would not have such a comfortable situation, economically speaking.

Long-term effects of the GST

Mr Speaker, Sir, first the Finance Minister has said that he would not change the GST rate for at least five years and after that, he hopes not to raise the rate unless it becomes necessary to do so. How would such a necessity arise? Firstly, if the Government is spendthrift and spends money on unworthy and unproductive projects, then this necessity may arise. Secondly, if the people were to pressurise the Government to increase expenditure and subsidies on all types of services, then the need may again arise. So the lesson to learn from the very beginning is that the people must encourage the Government to be frugal; then there will be less need for the GST rate to go up.

Second, consumption taxes have one particular advantage. We only pay GST when we consume. The choice is ours. We pay more when we consume more. In this respect, the Finance Minister is like jiang tai gong diao yu [ ]. In other words, those who are willing will pay. Those who do not want to consume more do not need to pay more. This will in the long term, I hope, encourage people to be personally more frugal.

Thirdly, I think people will make their own adjustments. In order to minimise the effects of GST on themselves, companies may integrate vertically. Vertical integration means that less transactions are made, and taxes will not be paid when no sales are made. And the tax on the value added will only be paid towards the end when the transactions actually take place. Also, the fact that we exempt companies with turnover of less than $1 million would mean that companies would sometimes split up their operations in order to take advantage of the tax situation. Vertical integration has one advantage. Companies become bigger; and bigger companies may be in a better position to strike out overseas. The effect of companies splitting up into smaller ones is left to be seen. I hope the Finance Ministry will closely monitor the situation so that we do not have undesirable effects developing as a result.

Fourthly, consumption taxes are paid at the point of sale. So companies will pay tax whether they make profits or not. In the case of direct taxation, companies only pay tax when a profit is made. In this situation, companies that are marginal may go bust earlier. Whether this is a good thing or not is really a moot point.

Fifthly, consumption tax being regressive, I hope that the Finance Ministry will closely adjust the proportion of taxes to be collected from direct taxes on the one hand, and the GST on the other, because to have too high a proportion of taxes collected through GST will be to place an undue burden on the poor. I hope the Government will continuously monitor the position of the bottom, say, 5% of the population, to ensure that they are not badly off but, of course, doing so in a way that does not encourage dependency.

Conclusion

Finally, Mr Speaker, Sir, may I make three other points? Firstly, I quote from the Finance Minister who in March 1987 told this House that a broad-based consumption tax will only be introduced if the revenue shortfall is substantial and a permanent deficit inevitable. There is no permanent shortfall now. But even so, I support the Finance Minister in the introduction of the GST because he is preparing for a rainy day. He is putting the machinery in place at a time when it is very auspicious and very convenient for him to do so. He has got sufficient revenue reserves to buffer any unforeseen effects of the introduction of GST. But because we are in such a happy situation, I hope the Finance Minister would be generous in the initial years of the introduction of the GST.

Secondly, I hope the Ministry will continuously monitor the machinery for the collection of GST to make sure that it is as uncumbersome as possible in order not to increase the cost of collection of GST. Thirdly, financial prudence is very important for a country. As a result of a long and uninterrupted period of financial prudence, Singapore is in a strong financial position. With GST in place, a firm foundation would be laid for the long-term financial stability of the country. I would ask the people of Singapore to have faith in the Government. After all, the Government has a very good track record for the last so many, many years.

The country is financially strong. The Government knows what to do to maintain this position and to keep it strong. And with GST in place, the future of Singapore will be secure from the financial prudence and financial management point of view.

On this note, I support the motion and once again congratulate the Finance Minister for being able to offer such an attractive package this time. 1.10 pm

Mr Leong Horn Kee (Thomson GRC): Mr Speaker, Sir, thank you for allowing me to join in this very important debate. If you take a global review of the 1993 Budget Statement proposed by the Hon. Minister for Finance, we can discern that the Budget has two main thrusts - the first is the new direction to promote a stronger external economy and the second is the tax reforms arising from the introduction of the GST.

These are two new developments which will mark a critical milestone in the economic growth of Singapore, that is, we are setting a new course of growth via external expansion, and that we are making a complete revamp of the philosophy and structure of our tax system. This is why I call it a very important debate. In fact, I would term it as a "watershed" one.

Ironically, though these two issues are the main thrusts of the debate, maybe we have to leave the detailed discussion on these two matters to a later date. The reasons are that there will be a Second Reading on the GST Bill (where there may be a fuller debate on GST), and we are still awaiting the report of Cdre Teo Chee Hean's Committee to Promote Enterprise Overseas.

Nevertheless, I think it would be an opportune occasion for us, as Members of this House, to put forth our views regarding these two subjects at this juncture. Since there will be a Second Reading on the GST Bill for the subject to be debated further, I intend to confine my remarks in this debate to the issue of developing an external economy.

Sir, in the early years of Singapore's economic development, it is natural that the initial emphasis should be inward-looking. Local businesses have to establish a firm domestic base before we can start to have the confidence and desire to expand overseas. For larger countries, especially those with rich natural resources, such as the USA, Indonesia and Australia, the pressure to expand overseas is less urgent. For countries with limited resources, such as Japan and Switzerland, the need is quite strong. But for a country, like Singapore, which is both small (with a very limited local market), and lacking in natural resources, this urgency to develop an external economy is indeed very pressing. The Minister for Finance has announced some incentives to encourage local businessmen to go overseas. Besides financial incentives, I feel strongly that we must also set out to organise ourselves in an effective manner in our plan to expand overseas. I would like to propose the following strategy to organise ourselves. First, the need to restructure our domestic orientation. Second, better cooperation in overseas ventures. Third, focus in targeting markets, and fourth, strengthening our people's stake and attachment to the nation.

There is a need to completely change the mindset of the Government as well as the people. In the past, the Government and the public officers tend to harbour a certain mistrust of businessmen. Businessmen are looked upon with suspicion, as sharp and unscrupulous and also, very often, too profit-seeking. Businessmen, in turn, feel that the Government is too intrusive and, maybe, very restrictive, and Government officials are often also very inflexible and uncompromising. But, fortunately, with the new thrust to venture overseas and the closer interaction between the public and the private sectors over the last few years, the attitude has changed for the better. In line with this change of orientation, I would like to suggest that the yearly National Day Awards system be also modified. I read recently that even in the UK, the Prime Minister, Mr Major, has proposed a change in the UK's honours system. Prime Minister John Major has announced reforms to the British centuries-old honours system, saying that it would no longer reflect class distinctions and would reward achievements rather than long service.

Similarly, in Singapore, we should I think do a thorough review of our National Day Awards system here. The typical practice is to confer yearly National Day Awards to people who have served with distinction in the civil service, in public service or in community service. Awards are rarely given to entrepreneurs and businessmen who have contributed to the country's economic growth. In fact, more often than not, businessmen get clobbered, summoned or fined by the authorities, less so for the awards. At present, the private sector organises its own honours system, for example, Businessman of the Year and, lately, Woman of the Year. One Member in this House, Dr Kanwaljit Soin, was recently conferred the Woman of the Year award. I feel that prominent business leaders, entrepreneurs, researchers and professionals should also be considered for National Day Awards. And all of them, together with those who have contributed significantly in public or community service, should be equally honoured. In addition, they should be respectfully addressed by titles such as Dato, Tuan, Tun or Tan Sri, in recognition of these people's contribution to society.

Given the better understanding between the public and private sectors, we should also encourage GLCs and private companies to cooperate in joint ventures. These joint ventures can be for projects both in Singapore and overseas. The emphasis here is that cooperation can start even in Singapore, rather than just for overseas ventures. In this area, I am sure Commodore Teo Chee Hean's Committee will no doubt study further.

Since Singapore is a small country, and we are very limited in the number of entrepreneurs who can venture overseas, I feel that we, as a group, should be very focused as to which are the target markets for overseas expansion. It is correct to start by defining that it should be regional rather than global. But within this region, in the immediate future, we should also focus on countries which are ripe for us to expand into. The three obvious possible targets are Malaysia, Indonesia and China. In view of our limited numbers, even within these countries, I think we should zero in on a few suitable cities in these countries. Take China, for example. It is a huge country and if we all go out looking for joint venture partners and businesses there, we would be very spread out. I think we should focus ourselves on a few main cities in China.

On strengthening our stake and attachment to the nation, while we are encouraging our dynamic, young and talented people to venture abroad, we may run the risk that these precious people do not return. Hence, we have to strike a balance between encouraging a global mentality and strengthening the people's ties and attachment to Singapore. There are a few areas that need further review. These are:

(1) to inculcate a stronger national patriotism and comradeship;

(2) raising each individual's stake in the nation, eg, owning HDB flats and private housing, and larger stakes for them in local investments and local companies' share ownership;

(3) maintaining the high level of living standards and physical environment in Singapore. Here, the idea is that while our people go overseas to work and toil, Singapore is the place for us to return happily to rest and recreate, and perhaps to procreate as well.

In relation to the above, I agree with the Minister for Finance's two proposals in his budget. First, the cut in personal and corporate tax rates. It is justifiable to introduce GST so that personal tax and corporate tax can be reduced. If we continue to maintain high personal and corporate tax rates, while other countries such as Hong Kong and the Western countries have lower tax rates, we will find that our local talents may be attracted to live overseas and eventually to stay there and may not return.

However, I notice that the Government still maintains a 3% difference in the new rate of 27% for corporate tax rate and 30% for the top personal tax rate. Perhaps to encourage personal effort, the Government can consider bringing down the top personal tax rate over the years in future to match the lower corporate tax rate.

On the CPF share ownership top-up scheme, it is a very generous gesture of the Government to give $200 to all citizens above 21 years old and who are CPF members so that they can buy shares or invest. This gesture will particularly help the poor and the working class. However, at the same time, the Government has also put them at a grave disadvantage by requiring them to pay $500 into their CPF account. This rule is particularly difficult for the low-wage casual workers who have no CPF contributions, the self-employed, housewives, retirees and the unemployed. Many of these people may have to top up with cash, which they do not have much to spare. It is like dangling a juicy two feet long carrot in front of them and then put up a five feet wall so that they cannot get to the carrot. This can be quite frustrating. I would like to urge the Minister to consider some alternatives in introducing this scheme:

(1) to consider waiving the $500 deposit for CPF members who do not choose to top up. But they can still buy odd lots of shares, eg, Telecom shares, with the $200 contribution from the Government. Others who do the top-up can buy up to $700 worth of Telecom shares.

(2) to consider allowing CPF members to accept topping-up from the CPF accounts of their immediate family members such as parents, children or siblings;

(3) to consider allowing those who top up with $500 cash to withdraw the original $500 cash contribution when the shares are sold later.

(4) to consider imposing a moratorium period of perhaps two years or more for those shares purchased with the $200 contribution from the Government.

Mr Speaker, Sir, I wish to conclude by congratulating the Minister and his colleagues for an excellent and well-considered budget for FY 93. In turn, I hope that he will consider some of the comments I have made.

Mr Chiam See Tong (Potong Pasir): Mr Speaker, Sir, there are two broad areas in this year's Budget Statement. First, it is the Government's introduction of the GST package and, second, its attempt to encourage more Singaporeans to go abroad to do business.

First, let us look at the GST. The PAP had, in fact, in the past rejected the idea of a consumption tax, and it has been mentioned by the previous speaker and was highlighted at an earlier date that the GST is retrogressive. Consumption tax was basically similar to the goods and services tax. Now, the PAP is shifting its position. It is doing something which it has rejected before. The majority of the people then supported the PAP for the policy of rejecting a consumption tax, and now the PAP has let those early supporters down by introducing the GST. The PAP's credibility, of course, has been dented and it is going to be dented again when the GST Bill becomes law.

When the PAP was in the opposition in the Malaysian Parliament in 1963 to 1965, it vigorously opposed the turnover tax on public utilities such as electricity, water and gas, the payroll tax and the tax on crown corks. The Senior Minister, the former Prime Minister, was the main spokesman of the PAP in the Malaysian Parliament. He vigorously opposed those taxes. I quote the Senior Minister who spoke in the Malaysian Parliament on 12th December 1964 as follows:

'Where is the justice in a turnover tax on public utilities - electricity, water and gas - all of which will be paid by the consumer? Is the intention to collect taxes from a public corporation like the Central Electricity Board or the Singapore Public Utilities Board, or is it the intention to pass on the turn-over tax ultimately to the consumer?'

Despite criticizing the Malaysian Government in the 1960s on the turnover tax, the PAP has not only slapped a tax on our PUB bills but also on telephone bills as well on Singaporeans. By the huge profits that those two public bodies have made every year, I do not think I am wrong in saying that much of the taxes on utilities and telephone bills have been absorbed by the PUB and Telecom but rather passed down to the consumers. In 1964, the PAP was complaining of only one item, the turnover tax on public utilities being passed on to the consumers. The GST, when introduced, is a hundred times worse than the Malaysian turnover tax on public utilities. The GST shall be a tax on all items in the market place and they shall all be passed on to the consumers, notwithstanding the exemption on small businesses which do not have a $1 million turnover per year. All the goods ultimately sold to the consumer would have been transacted at least once and would attract the GST. I say Singapore definitely does not need a goods and services tax at this moment.

The previous speaker has said that the Minister is preparing us for a rainy day. But Singaporeans are sophisticated and they do understand the situation. If the rainy day comes, they will accept a GST readily. It is not necessary to introduce it at this point of time. The Finance Minister knows it. He has said that we do not need the money, at least for the short term. However, in the long-term, if the experience of other countries is a guide, the present 3% GST rate could easily escalate to two, three or four times after the five-year honeymoon period is over. If the Government thinks that I am wrong, I hope the Minister can assure the House that the rate of GST shall remain at 3% after the initial 5-year period.

In the case of other countries cited by the Minister like New Zealand, England and very soon Australia next year, those countries have a heavy welfare burden to carry. And because of their welfare burden, they have gone into deep debts and they were quite justified in introducing a goods and consumption tax. Australia will be introducing a goods and services tax next year. At the moment, Australia is having something like $200 billion deficit, one million unemployed and they are in financial problems. Under those circumstances, I think it is quite justified to introduce a very substantive goods and services tax.

In Singapore's case, our citizens are paying for everything they get from the Government, whether it be education, housing or in terms of health. What the Government is doing by introducing the GST is, in fact, to introduce another layer of tax. So the people of Singapore will have to bear the consumption tax when it is introduced. The Minister's main rationale for introducing the Goods and Services Tax is to make Singapore more competitive internationally. In the case of Singapore, there are already provisions to make Singapore attractive to foreign investors. There are in place many tax incentive provisions so that multi-national companies which come to Singapore to set up factories or regional headquarters pay very little or no tax. So the reduction of the corporate tax finally to 25% is really not an issue when Singapore has already provision for a pioneer status in regard to foreign companies.

I am surprised to see that as a result of all the rebates, offsets and waivers, the Government's revenue loss per year is estimated at $183 million for the next five years. This is really a surprising thing. For the first time, the PAP Government is planning for a deficit, a loss of $183 million per year for the next five years when the GST is introduced. From the feedback I get, and despite the Government's statistics, I, like many others, do not believe that the Government shall be out-of-pocket. My view is that despite what the Government statistics show, there shall be a break-even, if not, even a positive collection of revenue from the GST. I would like the Minister to prove me wrong on this point. I would like the Minister to prove to me that the tax will not be a positive collection. In other words, what I am saying is that the Minister, with his statistics, has not presented the true picture.

As regards the CPF Top-Up Scheme, it is a very clever move. These days you see in advertisements all kinds of inducements in the newspapers and one, in particular, the Credit POSB is even giving a car as a prize to encourage people to put money in the bank. This is a similar scheme. The Government puts out a bait of $200 into your account. But the catch is that you must have $500 CPF deposit in there first. Not only that, before you can put in the $500, you must open a CPF account. This is another way of getting those who have got no CPF account, in fact, to open a CPF account, in particular, the many stallholders. In the long term, you get many more people, who are not CPF members, coming forward as CPF members and, at the same time, the Government will be benefitting not only from the $500 deposit, but also even the $200 that has been placed there, because it will be locked in for the next 30 years.

The Minister of State for National Development (Mr Lim Hng Kiang): You can advise your constituents not to put in their money in the CPF account.

Mr Chiam See Tong: I am not saying that it is a bad scheme. Mr Lim Hng Kiang, please listen carefully to what I have said. I said it is a clever scheme.

Mr Lim Hng Kiang: Thank you.

Mr Chiam See Tong: So in the end, you get massive amounts of money coming in and they will be locked in for the next 30 years, and the Government can have free use of them.

As regards the Government's incentives to encourage Singaporeans to go abroad to do business, I would like to know, as many people have been asking, why only at this juncture is the Government openly asking Singaporeans to move offshore. Has the initial thrust of the Government-linked companies and the statutory boards into overseas markets proved disastrous? Or are they not making headway and need the assistance of the private sector to join in? Or is the market so plentiful abroad and the Government wants also the private sector to participate and exploit the potential there? Perhaps the Minister could enlighten us on this point.

As I study the seven incentives for Singaporeans to go abroad, I do not think they can be effective. The more important thing for the Government to do is to make an environment, or as one writer in the Straits Times has put it, to change structurally our environment, to make Singaporeans as go-getters, who can show initiative, leadership and who are willing to take adventure. I think these moves by the Government are equally important.

Dr Arthur Beng Kian Lam (Bedok GRC): Mr Speaker, Sir, the budget presentation on 26th February 1993 came as welcome relief to the majority of Singaporeans. The fears and speculations of the GST were by and large satisfactorily addressed. To some, the generosity of the Minister for Finance was welcomed with disbelief. It is said that there are four ages of man:

(i) where you believe in Santa Claus when you were a child;

(ii) where you do not believe in Santa Claus when you became a sceptical adult;

(iii) where you are Santa Claus himself when you were in a position to hand out; and

(iv) where you look like Santa Claus. I guess the Minister is really in the stage of being like Santa Claus in this particular budget.

Goods and Services Tax (GST)

The proposal of 3% as the starting point of the GST has been made more palatable by the offsets offered by the Government. These offsets enhance the credibility of the PAP, and not otherwise, as stated by Mr Chiam. It is the success of the PAP's economic policy that allows the Government to implement a revenue negative low 3% GST. The promise that the GST will stay at 3% for at least five years or longer is reassuring. However, the Minister may like to clarify whether the increase in retail cost due to GST would be actually 3% or more. This is because there will be, and must be, an administration cost incurred by businesses in the implementation of the GST. Furthermore, the collection of the GST will be "up-front", thus incurring a "cash-flow" or "bank interest" on these moneys. Some retailers have expressed that these administrative costs may amount to something like 2%. Thus, the final cost to the customer may be closer to 5%. Will the Minister please clarify?

External dimension of the Singapore Economy

Over the last year, and especially in the last four months, much has been said and done to encourage Singaporeans to venture overseas. In this area, statutory boards and GLCs, I believe, have done well. I am glad that the statutory boards and GLCs have been urged to link-up with the private sector for these overseas ventures. Indeed, the private sector, especially the small and medium-sized companies need the assistance (financial and infrastructural support) of these bodies to take that first bold step overseas. This should be actively pursued by both parties. I am glad to note in this morning's papers that financing is also being looked into by the Minister of State's Committee on Promoting Enterprises Overseas.

Sir, the Minister in his speech said, and I quote:

'The Government is sometimes accused of levying increasingly heavy taxes on Singaporeans.' This is a general perception. The Minister produced figures "to show this up". However, the figures that he revealed showed that taxes made up 22% of GDP before the 1985 recession, 20% of GDP since 1988, it went down; and then it went up again to 23% of GDP for 1992. These taxes included taxes and levies like the ARF, COEs, and the foreign worker levy. My feeling is that for certain categories of Singaporeans, for example, the middle-income group, this figure may actually be higher. His officers may like to look into this in detail. The general perception is that the Government is levying increasingly heavy taxes. In particular, we should review the foreign maid/foreign worker levy, and the whole array of taxes and levies with regard to private vehicle ownership. As this is a time where we are making a major change in our tax system, no tax or levy should be sacrosanct, and we should dare to review some of these "sacred cows".

Assistance for the lower income

The rebates on HDB rentals, service and conservancy charges, the proposed tax rebate, the increase in Edusave grants, Public Assistance and the Singapore Allowance will cover 90% of the households with incomes below $1,500. The CCC grant scheme of $3 million per annum is meant to cover the other needy citizens not covered in these schemes. I note that this scheme will be administered by the CCCs which come under the umbrella of the Ministry of Community Development. I hope that the MCD will accept the recommendations of the CCCs readily without too much bureaucratic impediments.

Health Care Expenditure

Sir, I next come to the health care expenditure. Mr Speaker, Sir, before I speak on this, I wish to declare my interest as a medical practitioner in private practice.

While I agree that as a national objective, we must contain health care spending, I feel that it is unnecessary for the Government to cap the tax deductibility of expenses on medical benefits by employers. This is because, like all other overhead expenses, every employer will be extremely conscious of costs. Furthermore, a contradiction arises when companies are being urged to raise the retirement age. To be fair to the Minister, he did say that "companies are free to give medical benefits even beyond this 2% figure". However, now that the figure has been endorsed by Government, many would take this as a limit of their responsibility, or as a benchmark.

Mr Speaker, Sir, most companies provide hospitalisation medical benefits and outpatient medical care. The employee, when admitted to hospital, has the Medisave scheme to fall back on should medical cost exceed that provided by his employer. However, as early ambulatory care, ie, outpatient treatment is the favoured mode of treatment whenever possible, the cost of outpatient medical care will increase. This is now, by and large, taken care of by the employers. Thus, to have a "cap" on this may encourage the employer now to pass this on to the employee. As Medisave cannot in the main be used for outpatient care, except for certain cases, this would mean that the employee has now to foot his own medical bill. May I propose for the Minister's consideration that health care costs for those re-employed after retirement be not included into this 2% and be made tax deductible.

Furthermore, a significant portion of an employer's medical bill may be incurred through statutory requirements, eg. work-permit medical examination and tests; statutory medical examinations required under the Factories Act. In my mind, these "medical costs" again should not be included into the 2%, which should be used for curative medicine.

What about preventive programmes? The promotion of healthy life styles (a national goal for us), health screening and health education all cost money. These are very important to creating a healthy nation. Should expenditure of these also not be excluded from the 2%?

Lastly, as a point for clarification, will costs incurred under the Workmen's Compensation Act be included in this 2%? In my mind, they should not be.

In conclusion, Sir, I support the motion, and hope that the Minister will continue in his generous mood for next year's budget.

Dr Toh Keng Kiat (Nominated Member): Mr Speaker, Sir, 1993 will go down on record as a "vintage" year for the Singapore budget. A wide range of tax concessions, rebates and non-tax benefits, which were announced on Budget day by the Finance Minister, has made this a budget for everyone, except the smokers.

While some of these changes are needed to cushion the effect of a shift from direct income to indirect consumption tax, and others to encourage local entrepreneurs to go overseas, it is the gradual erosion of Singapore's competitiveness that has made them essential. There are already some ominous signs.

Competition by emerging economies in the region for foreign capital and the scramble by multi-nationals for the regional markets have put increasing pressure on us. The rising strength of the Singapore dollar has also not helped. In 1992, after three consecutive rises, our RULC (or Relative Unit Labour Cost) against the other NIEs rose to 146.2, not far from the 1985 high of 153.3. We had a recession then. Whilst we cannot force others to re-align their currencies with the US unit, we can certainly adopt measures to reduce our RULC vis-a-vis the other NIEs.

Apart from the dollar's strength, high corporate and personal income taxes, other fees, levies and charges have been cited as business disincentives. The saving grace has always been our work ethos and efficiency. Some still bemoan the high foreign levy for workers, the ARF, and the CPF. Like Dr Arthur Beng, I would like to suggest that we review the foreign workers levy and perhaps reduce or waive it for workers with special skills not available here.

The additional registration fee for cars was introduced as a fiscal measure to control vehicle growth. It indirectly affected the cost of doing business. Many see the ARF no longer necessary as a measure to curb car growth for this can be effectively controlled now by the Government through the COE scheme. Its continued levy at such high levels can only be construed as its use as an instrument for generating income.

The CPF contributed by employers will be raised by half a percentage point in July. There is a possibility that this may go up by one-and-a-half percent next year. Sir, the CPF account of our members is flushed with cash. As at December 1991, there were $46 billion in its coffers. And there were suggestions that Singaporeans should withdraw the excessive CPF savings to venture overseas for higher returns. May I suggest that the employer's contribution be gradually allowed to increase to the 40% level on a half-and-half basis, rather than by a one-and-a-half percentage point next year.

Sir, I want to declare my interest now as a practising doctor before I take up the next point.

The Minister has announced a cap on medical benefits to 2% of the total remuneration for companies from next year. This is to discourage excessive use of the health service and also to prevent escalation of medical fees. It followed the survey of 325 companies, of which 85% were found to be not spending more than 2% on health care. We are not told the nature or the business activity of the small percentage going beyond 2%. For them, this could have been a necessity and, as Dr Beng has alluded to it, statutory requirements. The decision to cap them could cause problems. Already the NTUC has warned employers not to cut back on the employees' health benefits.

On the other hand, some of the 85% may be agitated to urge the unions to negotiate for more medical benefits, especially when costs rise. And costs must rise with time, though they may not escalate. Perhaps an annual adjustment, according to the Consumer Price Index, should be considered. On this, Sir, I hope the Minister will not remain silent.

The Government has announced measures to plug a loophole in the offset of losses against profits on a dollar-to-dollar basis by introducing an adjustment factor related to the tax differential. This is long overdue and will correct the anomaly and reduce the occasion for tax avoidance. This disincentive may upset foreign business but, I think, it should not be a deterrent as any potential loss is more than made up by gains in other areas. In tandem with this, a requirement by local firms for each overseas investment to go through a Singapore Incorporated company has been removed. To further facilitate overseas ventures, the loss and profit offsetting should be extended to local firms, especially those with related business activities. The tax concession on foreign income should also not be based on a case-by-case basis.

Budget 1993 will result in wide-ranging changes to Singapore life and business styles. To promote ourselves as an international art centre, the Government has unveiled tax concessions for dealers in art. Donations to the local museums will also earn tax credits. May I suggest that gifts of a million dollars or more should qualify the foreign donor to permanent residency status. Coupled with the museum development programme which should now be accelerated with the setting up of a National Heritage Board, this should entice more collectors from Hong Kong to move here before 1997. Together with the suspension of some entertainment duties, the cultural life of Singaporeans will be enhanced.

Sir, the other major change resulting from Budget 1993 is the Goods and Services Tax (GST). This shifts taxation from income to consumption. High personal and corporate taxes, together with a greying population and a change in the dependency ratio, have made this more equitable form of taxation necessary.

As 1993 is "vintage" budget, the GST is Finance Minister Hu's legacy. Sir, I am not for any moment suggesting that the good Minister would do a Mulroney on us. He need not. For he has been prudent enough to introduce pari passu with the GST a generous package of cushioning measures which will leave no one out of pocket, but the Government itself. I am sure Mr Chiam will not agree with me on this.

The Government will therefore not be as incisive in the implementation of GST as it has been decisive about adopting it. Business style should change after 1994. Initially, a 3% GST will be imposed, offset by a similar percentage cut in the corporate tax to 27%. The ultimate is to reduce this to 25%. But whilst the GST is set to remain at 3% for 5 years, there is no time-table or indication as to when this 25% corporate taxation would be reached.

Sir, with the GST, taxation will also take on a new mien in Singapore. By an Act of Parliament, the Inland Revenue Authority will have at its disposal, when the GST is in place, an army of surrogate tax collectors. From being a "cat and mouse" game, revenue collection will now become one of passing the musical parcel, the last man has the forfeit. Vested interest, however, will dictate more accurate invoicing and truthful accounting, and tax revenue loss from avoidance and evasion should be reduced.

Whilst the corporate taxation is on profits, the GST is on inputs as well. A situation of zero inventory in business may arise. Hitherto, the mindset of the Government is to rely heavily on direct income taxation for operating revenue. In Singapore, our income tax revenue this year will reach $7.2 billion, enough to cover 75% of the operating expenditure.

In order not to continue punishing the successful, the tax burden will be spread to a broader base. But the GST will only lighten a finite term of direct income taxation to commute it into a lifelong sentence of indirect taxation on consumption. Nay, Sir, I must say, the taxation goes beyond that, from the womb to the tomb, for antenatal medical fees for the unborn child and the funeral paraphernalia and rites for the dead will not be GST exempt.

The GST has been perceived as a tax policy that favours the high income earner and business, especially by those who now pay little or no income tax. Nothing is further from the truth. The generous package of tax rebates and non-tax allowances has resulted in those with a chargeable income of up to nearly $30,000 having to pay little or no income tax. Low income households, pensioners and those on financial aid have not been neglected.

On the GST as a possible cause of inflation, the Government has stated that it should be no greater than a once only 3% rise. Like Dr Beng, I beg to disagree. An operating cost of the GST must be factored in plus the habit of rounding off, or should I say, rounding up, prices. The Government has declared war on profiteering, but this is hard to police and to prove.

Sir, man is often long in ingenuity, though sadly short of scruples. The enterprising will before its imposition insidiously raise the prices to cushion against the 3% GST, and when it strikes will, with magnanimity, declare that they have absorbed the 3% and would not be increasing their prices. They may even end up with a competitive edge over other businessmen who have been graciously full of scruples but foolishly short of ingenuity. Sir, the monitoring must begin now.

Finally, I plead on behalf of those needing financial assistance and the pensioners that the grants be further increased. The Minister has promised that the GST will remain at 3% for five years. But he has not promised that those now paying little or no tax will continue to do so in the future. The GST must immutably rise with time. And when it does, hopefully, the number of people requiring aid and subsidies will be negligible. From its past performance, they can rest assured that when help is needed, the Government will not be found wanting. Taking into consideration the pluses and the minuses, I support the GST.

Mr Chin Harn Tong (Aljunied GRC): Mr Speaker, Sir, the 1993 Budget provides much food for thought. Whether it will provide as much scope for debate is a different matter. It is a budget that seeks to give something to everybody. As it is simply not possible to give everyone all he or she wants, just as it is not possible to please all the people all the time, many people may have tiny bits of adverse comment to make on the 1993 Budget Statement.

Sir, but I do not think there will be any grand argument against the 1993 Budget because it is a good example of positive and decisive policy-making by the Government. It represents a watershed in fiscal policy as the Government proposes to raise a portion of the tax revenue from the consumption of income rather than wholly from the production of income as at present. Sir, I leave it to my fellow Members in this House, who are more competent to talk about it, to expound all the advantages or disadvantages of income tax versus the GST for this purpose.

For myself, I do not think the Government can be faulted for partly replacing income tax with the GST in order to safeguard Singapore's competitive edge. If we accept that the key to Singapore's future lies in trade and investment, then we have to accept whatever measures that are needed to promote trade and investment. On this basis, I do not think any reasonable person, in or outside this House, will begrudge the many sweeteners in this year's budget for the business community.

Unfortunately, some businessmen are never satisfied. Sir, I suppose businessmen, to be successful, must never be satisfied with what they have or what they are given. Give them one metre, they will ask for one kilometre. Despite the tax concessions in this year's budget, some businessmen are already moaning that the upping of the rate of CPF contributions by half percentage point this year will add to the cost of doing business here. Some other businessmen are saying that they have to cut down their employees' medical benefits or make their employees share medical costs because of the proposed 2% capping on tax deduction for medical costs.

Sir, workers are understandably irritated by this kind of talk by businessmen. Workers get the impression that the businessmen do not see them as human beings at all, but as work objects, that is, tools or robots for doing as much work as possible at the least cost to employers. It is bad enough that the businessmen do not consider workers are entitled to have some human dignity. What makes it worse is that the businessmen talk as if the wages of workers are the only significant item of cost of doing business in Singapore. It is a good example of insulting the intelligence of workers as well as injuring the spirit of tripartism.

That is why I am glad to note that the sweeteners in this year's budget include property tax rebates. For residences, the rebate is confined to those with an annual value of not more than $10,000. For commercial and industrial properties, there is a one-off 25% rebate for the year beginning on 1st July 1993. The significance of these rebates lies not in the amount of rebates but in the fact that the rebates have been given.

Sir, the giving of property tax rebates implies the recognition that land costs as well as labour costs contribute to the costs of doing business here. Rising land costs mean rising costs of doing business, as much as, if not more than, rising labour costs. Yet strangely enough, businessmen who react to wage increases as if they have red ants in their pants, seemingly accept the rising land costs as something as natural as falling rain. While many businessmen may grouse about the rising wage costs, probably a few businessmen may murmur about rising land costs.

Yet, it would be hard for any person to claim that wage costs have risen more steeply than land costs. In the last 20 years, the price of a piece of landed property may have shot up 20-, 30- or 40-fold, depending on its locality, while the average wage rate of workers, excluding the top executives, may have risen five-fold at the most. Wage increases are understandable because the rising level of prosperity in Singapore must affect the standard of expectations of workers. Moreover, the rising cost of living adds to the pressure for wage increases.

Sir, on the other hand, land costs are not so easy to understand. The wage costs of construction workers cannot vary too much from the wage costs of other workers during these past 20 years. The costs of building materials cannot have risen by 20-fold in 20 years, if the Consumer Price Index is any reliable guide. The inference is that the price of a plot of unbuilt land rose by leaps and bounds over these past 20 years.

Sir, I am not making this point of rising land costs with a view to hoping the Government might revive the Rent Control Act to tame the profiteering landlords. The point I want to make is that the local businessmen should be more imaginative, more discerning and more business-like when tackling the problem of the high costs of doing business here.

Sir, the cause of workers is championed by the NTUC, which is a high-profile organisation. As such, it is a visible target which serves as a convenient punching bag for businessmen to vent their frustration against the rising costs of doing business here. Yet, rising land costs also affect workers as badly as they affect businessmen. Workers find the costs of owning homes increasingly expensive as well as their cost of living on the up and up, although the Consumer Price Index proves them wrong.

Sir, I think it is high time that the businessmen did take a hard-headed look at the matter of the high cost of doing business here, instead of mindlessly repeating and echoing the perennial refrain of rising labour costs. The workers under the leadership of the NTUC have been very disciplined, patient and supportive of both the Government and the businessmen. The success of Singapore in the recent decades has been built on this tripartite cooperation. Sir, there is a limit to such cooperation if businessmen keep on blaming workers for the high costs of doing business here. Businessmen would do well to follow up on the faint pointer the Government has shown in this year's budget regarding the costs of doing business here. 2.10 pm

Mr Teo Chong Tee (Changi): Mr Speaker, Sir, kindly allow me to first commend the Hon. Finance Minister for his innovative package of tax and non-tax measures to help Singaporeans offset the impact of GST as revealed in the Budget Statement for the financial year 1993/94.

Sir, by and large, the Budget Statement has been well received by members of the public. Indeed, the rationale for the introduction of the GST package to strengthen and develop an external economy, to continue to invest in the future and a broad based consumption tax system to promote enterprise and growth and thereby remain internationally competitive, is widely accepted as sound. Furthermore, no other country which imposes a similar tax (like the GST) has given such wide ranging and comprehensive rebates and offsets to its people to cushion the impact of the GST.

However, Sir, whilst I recognise that much effort has been expanded to ensure that the introduction of GST is as painless as possible for all the households, there are invariably mixed reactions from the people. If Mr Speaker, Sir, will permit, I would like to highlight some of them.

I am particularly interested in the views of the lower-income groups, such as the low-income retirees and pensioners. They generally feel that the Government can do a little more to alleviate their financial difficulty in the face of GST. In the first place, the expected rise in income of 5% to 7% over the next five years will not benefit them significantly. Furthermore, most low-income retirees deposit their CPF savings with banks and financial institutions and depend on the interest accrued for financial support. In the light of low interest rates, coupled with inflation, the GST may further compound their financial difficulties. Perhaps, the Government may want to reconsider the Singapore Allowance limit increment of only $30 to recognise their past contribution towards nation building during our early years as an independent state. Alternatively, the Government could closely monitor the impact of GST on this group of people and take compensative steps to alleviate their financial plight, if necessary.

Sir, it is a well-known fact that the main concern of Singaporeans about the GST is the fear of profiteering on the part of unscrupulous shopkeepers and traders. This fear, whether real or imagined, stems from past experiences. For example, whenever the Government announced an increase in the rate of NWC allowances for Government and statutory boards' employees, prices of food and daily commodities invariably increased as well. The Government and the Consumers Association of Singapore could do little to curb shopkeepers and stallholders from capitalising on the larger pay packets of the workers then. This often led to the Government being blamed for the "price-hikes".

As a result of their past experience, the people are now naturally also worried that shopkeepers and stallholders will take advantage of GST and increase prices excessively, especially by "rounding" up the prices. Although consumers can help themselves by simply not patronising the profiteers, it may also be worthwhile for the Government to take the initiative and assure the public that (if need be) it will take effective measures against offenders to curb profiteering.

Sir, with regard to the 20,000 families earning $1,500 per month or less, it has been proposed that since this group is too diverse to be reached by a single rebate or subsidy mechanism, the Government will instead work through the Citizens' Consultative Committee (CCC) to administer assistance to families who need help to cope with the GST. To ensure that the CCCs are consistent and effective when extending grants to families under this scheme, the Government should perhaps produce guidelines and measures to help grassroots leaders manage these programmes fairly and efficiently. Their ability to do so can be further enhanced if professional training could be provided for them. For example, how to differentiate between actual welfare cases and hardship brought about by GST and the amount to be paid.

Furthermore, in order to properly assess the needs of such families, personal visits by grassroots leaders may be required, similar to those currently practised by the Social Welfare Department of the Ministry of Community Development whereby officers are sent to individual homes to assess the applicant's need for welfare aid. This type of assessment would normally involve probing into the privacies of families which may cause unnecessary embarrassment to the families concerned. In the long run, this may even deter people from coming forward to participate in such a scheme. If this happens, these residents may alienate themselves from the grassroots leaders for fear of being stigmatized. This, in turn, would undermine the very function of grassroots leaders. Hence, to make the scheme a success, the Government should make every effort to assist the CCCs in their work.

Sir, one other area that I would like to highlight involves the more than 55,000 households earning $1,500 per month or less and living in landed properties or 4- and 5-room HDB flats, shophouses, condominiums and private flats. These households may not necessarily be financially better off than owner occupiers of 1-, 2- and 3-room HDB flats. With the Government's encouragement for multi-tier family households, I believe that a significant number in this group may have many members living under one roof. It is in this light that I believe that a property tax rebate alone may not be sufficient to offset the impact of GST on such households' daily expenditures. For example, given two families of eight persons each, the first family may be able to purchase two 3-room HDB flats whilst the second family, due to financial constraints, may only be able to purchase either a 4-room or a 5-room HDB flat.

Under the proposed scheme, the first family will be able to enjoy rebates on service and conservancy (S&C) charges and property tax on both 3-room flats. The second can only enjoy the rebate on property tax even though it may be a multi-tier family living together. Would the Government perhaps reconsider and include rebates for S&C charges as an additional benefit for this group as well?

Sir, in a similar manner, households living in landed properties, condominiums, etc, may also not be financially better off than those living in 1-, 2- or 3-room HDB flats. Since there are no S&C charges for this particular group, would the Government consider a higher property tax rebate for these households?

Next, Sir, I agree with the Hon. Minister for Finance that the tax deductibility of expenses on medical benefits by employers should be a capped percentage of total employee's remuneration. However, there have been views that a fixed capped percentage on the tax deductibility of medical expenses will hurt the small scale companies with lower paid workers more than companies with higher paid workers. Allow me to elaborate. I will give an example. Company A has 10 employees earning $12,000 per annum each and Company B has five employees earning $24,000 per annum each. At this cap of 2%, both companies can claim a tax deductibility as high as $2,400 per annum. This, however, has ignored the fact that Company A has twice the number of staff as Company B. I believe that Company A, with more employees, should rightly enjoy a higher tax rebate than Company B. Following this argument, will the Hon. Minister consider a varying cap be implemented, ie, the capping of the individual expenditure be based on the number of employees to ensure a more equal distribution of medical benefits per employee and thereby prevent significant disparities from occurring.

Sir, in my deliberations, I only urge the Government to reconsider and fine-tune some of the issues after listening to the views and voices of the people. This way, we can bring the phrase "something for everyone" closer to all Singaporeans.

With this, Sir, I support the motion on the Budget Statement moved by Minister for Finance.

Mr Low Thia Khiang (Hougang): ( In Mandarin): Mr Speaker, Sir, on the face of it, the Budget this year appears to be one that pleases everybody. Both individuals and companies will get benefits and the objective of the statement is very clear, ie, before the implementation of the GST, some sugar coatings are being given to pave the way for the GST to make people believe that the GST is not only painless but also beneficial to the people.

Mr Speaker, Sir, GST is one of the major changes in the tax structure in Singapore with far-reaching effects. The characteristic is that whether you are poor or rich, you have to pay GST. But what we are debating on today is the financial policy and I would not like to dwell too much on the issue of GST. I will speak in greater detail during the Second Reading of the Bill. Here I would like to deal with the financial measures which will take immediate effect this year and which are not related to GST. This is to avoid confusing the people with fiscal measures of this budget and those of which to offset the GST, thus diverting the attention of the people.

In terms of enterprise, corporate tax will be reduced by 3%. This reduction will better benefit the big companies, especially the MNCs. The local small and medium enterprises will not benefit very much by the 3 percentage points because their profits are smaller. It is disappointing that SMEs in Singapore have not received the attention that they deserve. Last year, through various fiscal measures, they were forced to restructure. This year, generous incentives are given for overseas investment. Overseas expansion will further consolidate the economy of Singapore. This is a step in the right direction. But I doubt whether the local SMEs will be able to gather enough strength in the short time given to them to have the capability to go overseas and undertake greater risk. In order to expand our external economy, the local SMEs should have sufficient capability and financial resources before they can compete successfully overseas. If the local enterprises have even to fight for their survival locally, how do we expect them to succeed overseas?

More disturbing is that in our budget this year, the amount to be given to assist the SMEs through the EDB has been drastically reduced. Does this mean that the Government will pay more attention to those enterprises that will have the potential to develop overseas and leave the local SMEs to swim or to sink?

We must not forget that the local SMEs are owned by Singaporeans. It is only the Singapore-owned enterprises which are the bona fide enterprises of Singapore. It is only when such enterprises can expand overseas that we can really expand and consolidate "Singapore's external economy". Therefore, the Government should take realistic measures to encourage the growth of local enterprises so that they will have certain strengths to develop overseas in order that they will not succumb to their inherent weakness when they are away from their home environment.

As regards the 2% capping of medical fees in tax deduction, Mr Chiam See Tong has already dealt with the matter and I do not wish to go further into it.

For the taxpayers, the increase in personal tax relief by $1,000, the 5% tax rebate, and the rebates for service and conservancy charges, etc, are something that should have been done, and should be done when the country is enjoying a lot of tax surpluses, especially when the estimated revenue of Government will still be increased by more than $476 million after the implementation of these tax cut measures. What we should focus our attention on is that when you reduce the rate of personal tax, those with a chargeable income of more than $400,000 per annum will benefit by a 3% reduction, whereas those in the lower-income group will only benefit by a 1% reduction. This kind of tax reduction will only benefit the higher income group and create an unequal distribution of wealth and will widen the gap between the rich and the poor.

Mr Speaker, Sir, the special feature of this year's budget is the "CPF topping up scheme for purchase of shares". The Government will pay $200 into the CPF accounts of Singapore citizens above the age of 21 on condition that they must put into the CPF at least $500 from March to August this year. The Minister's estimate is that we need $200 million for this. We have over 2 million accounts in the CPF. How are we going to distribute the $200 million? And where would the $200 million come from? What is even more puzzling is that the people are required to first put in $500 into the CPF account before they can enjoy the $200 top-up. What is the reason for this?

I would like the Minister for Finance to announce the following information after September: One, how many Singaporeans have put into their CPF accounts $500 in order to enjoy the $200 top-up? Second, how many people have voluntarily increased their CPF contribution in order to enjoy the $200 top-up? Third, how much money will be collected by the CPF Board from the people of Singapore under this scheme?

Mr Speaker, Sir, the top-up scheme is to enable Singaporeans to buy shares in statutory boards like the Singapore Telecom and possibly the PUB when they are privatised. The idea is to let the people enjoy the fruits of our economic success. Sir, these statutory boards enjoy monopoly in Singapore. They have received very handsome and spectacular profits in the past and I believe that they will continue to make large profits in the future. The problem is these organisations also provide basic services like basic services like telecommunication and telephone services by Telecom, and water and electricity supplies by the PUB. These are statutory boards. When they are privatised, when they increase their charges as they have to look after the interest of shareholders, Singaporeans, being also shareholders, will suffer in silence.

More importantly, the Government can wash its hands off any responsibility, when there is any increase in charges. So by the same extension, if Government companies are privatised and they get their companies listed, then medical expenses can very well go up and the Government can tell the people that you are the shareholders, you also benefit from the profits made by the companies. So the more increases there are, the more profits you will get. The Government can tell the people that. By that time, Singapore will really become a so-called "free market economy" where the more you pay, the more you make.

If the Government is really sincere in sharing the fruit of success with the people by returning the profits to them, or to have a better and fairer distribution of their wealth, there are other channels for doing so. For example, the subsidy to the HDB can be increased so as to ensure that the prices of HDB flats can be maintained at a certain level. The people can also get direct allocation of fund for the upgrading of their flats so that they do not have to pay for the upgrading. The Government can also set up a "basic services endowment fund". To make use of this endowment fund, the revenue and income received and earned can be used to stabilise the medical expenses, medical fees, PUB rates and other basic necessities so that the burden of the people can be reduced. The cost of doing business can be reduced, and Singapore enterprise can maintain their competitiveness internationally. This will be of benefit to the economy of Singapore and the livelihood of our people. I hope the Government will consider this.

In short, Mr Speaker, Sir, the Budget benefits both the companies and the individuals. By comparison, bigger companies with more profit can enjoy more tax reductions. Individuals who earn more money can also get more tax rebates. If this trend is allowed to develop, then the gap between the rich and the poor will be widened and social cohesiveness will be weakened. This is certainly not in the interest of our country.

Most Singaporeans in the middle and lower income groups may benefit, to some extent, from the tax reductions. But I hope this is not a prelude to a greater burden of tax to be shouldered by the people. In the shadow of the GST, the people have the feeling that a great storm is brewing. Up till this year, taxpayers are the ones who were affected by the budget. However, in every household, these may be just one or two members who are taxpayers. With the introduction of GST, everybody will be affected, whether you are old, young, male or female. No one can escape from it.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.00 pm.

Sitting accordingly suspended at 2.33 pm until 3.00 pm Sitting resumed at 3.00 pm

[Mr Speaker in the Chair]

Debate resumed.

Mr Koo Tsai Kee (Tanjong Pagar GRC): Mr Speaker, Sir, can I request the Clerk of Parliament to distribute Charts 1 and 2, please?

Mr Speaker, Sir, I rise to support this Budget.

Sir, every year at Budget time, Members of Parliament dissect the Budget speech, sometimes wrongly by the Opposition, and we share our hopes, our fears, our dreams and aspirations with the nation.

All these speeches have two basic objectives. First, to ensure that the Budget provides a conducive environment for continued economic growth. Second, that this growth can be achieved with equity.

Yet, all over the developed world, economic growth has always been achieved with growing income inequities. Please refer to Chart 1. You see that in spite of all the efforts over the years, in the three countries (the United States, France and Japan), the top 10% has always earned more than the bottom 10%, and the gap appears to be widening. You look at France from the period, 1978 to about 1984, the gap appears to be constant, and it is not widening. That is because during that period, when France was under the Mitterand years, France was undergoing severe recession. In other words, if we want to close the pay gap, then we would have to suffer the pain of recession. It is clear that income growth and income equity pull in opposite directions. Even Japan cannot escape the malaise of diverging income inequity even though it is, by world standard, the nation with a remarkable degree of economic homogeneity. There is a lesson in these statistics, that is, if we want everybody to grow richer, then some of us will inevitably be richer than others. And I hope that Mr Chiam sends these charts to his Assistant Secretary-General, so that he can take a look at these figures closely.

What is the alternative? The collapse of communism points the way. If we design budget after budget to make everybody equal, then there will be equality of poverty and misery for everybody. Why? Because we will be sharing a diminishing amount of a smaller national pie. Poor and deprived citizens of the former mighty Soviet Empire swallowed the lethal cocktail of ignorance and naivety, believing that a Utopia was an equal system. In a cruel twist of fate, they found their Utopia. They are now all equally poor and equally miserable.

We can learn from the Communist Chinese. The quick thinking Communist Chinese reversed course. They saw that economic growth could only be achieved through a free market. So they liberalised the coastal cities, establishing pockets of affluence. But the clever Communists astounded our smart capitalists. They went one step further. At a time when western political economists were wrestling with the moral question of income inequity, the Chinese accepted it. They have reconciled themselves to the fact that if they were to grow rich, and rid themselves of chronic poverty, some will have to grow richer than others. Only then, the Communists concluded, from the central committee right down to the peasants, that only when everybody becomes richer, the richer among the richer ones can help the poor ones.

Mr Jiang Zemin, the Chinese Communist Party Secretary-General, made this profound and seemingly heretical statement at the 14th National Congress of the Chinese Communist Party. I quote him. He says:

" ... pay according to one's work". [But] "simultaneous prosperity for everyone is impossible."

He carries on:

[So for the sake of efficiency,], "we should widen differences in personal income ...". This was quoted in The Economist, page 23, 17th October 1992.

Aggrieved Singaporeans, fanned by the Opposition's diatribe that the Government only helps the rich and ignores the poor, should listen to the voice of the reformed Communists. The Chinese people have been through economic hell, and here our Opposition are tempting us to enter where even Communists fear to tread.

The key test of a budget, Mr Speaker, is not whether who gets richer. The real test is whether we will all get richer. The World Bank uses the percentage of people living below subsistence level as a test of equity. It recognises that the real test of equity is whether a society allows mobility among different classes. And it concludes that Singapore has almost nobody living beyond the poverty line. You look at Chart 2, and you see the countries with the percentage of people living below subsistence level, corrected for cost of living within the country. You see Singapore is not there. Why? Because nobody is living below poverty. You look at our neighbours - Malaysia, 2% below poverty; South Korea, 5%; China, 10%; Thailand, 16%, Indonesia, 15%, Philippines, 21%. The figures in the chart are for 1970, 1980 and 1990.

If we compare our success rate by combining economic growth and achieving income equity with the NIEs and the ASEAN neighbours, we will begin to understand why they would love to have our problems. So in fact we have no problems. The Opposition keep telling us and they are worried about the $500 equity topping-up with an extra $200.

I think the scheme is fair because we cannot give money frivolously away. This money has been accumulated over years of prudent management combined with the diligence of Singaporeans. In order to get something, it is fair that they put in an equity participation. $500 is one suggestion, and I think it is a fair one. It equates getting some more with either past participation, that means, you have accumulated money in the past, or present participation when you have earned cash today, or you can borrow from your children, future participation.

I understand that the scheme is to allow Singapore citizens who have participated in nation building to buy, in the first instance, Singapore Telecom shares and maybe other shares at a discount. These shares are not going to increase in value overnight. It will take some time, maybe two years, maybe three years. So it is fair to lock this money inside. For those people who have already retired, within three years I think Telecom shares, or whatever shares, would have gone up. Then it is time to cash it in. For those people who are still below 55, not yet retired, they will probably have their $500. For those people who cannot afford the $500, in the first instance, I think their children can help, their friends can help. I am sure the banks will be quite keen to help, or at least some banks, with the understanding that they are going to buy equity.

Mr Speaker, Sir, I endorse this Budget because it lays the foundation for further growth with minimal inequity. I use my words carefully - minimal inequity. Everyone will be richer because of the fundamental restructuring of the tax system. This budget re-focuses the perspective. It shifts taxes from direct income to consumption. This budget will encourage savings, promote investments and entrepreneurship. And the Goods and Services Tax, or the GST, lies at the heart of this tax restructuring programme.

Newspaper headlines and most dialogues and seminars have so far focused on the GST debate, principally, on how it will impact on the lower income and retirees. I think this is right. It has been said by Dr Johnson, the lexicographer, that the "decent provision for the poor is the real test of civilisation". By that yardstick, I think we have passed our compassion test. Unfortunately, the most compassionate and important reason for implementing the GST got the least attention.

Mr Speaker, Sir, it is important, in fact imperative, that we re-focus on the big picture. Singaporeans are worrying about the problems of full employment, things like how much will my bowl of laksa cost or how much will my cup of coffee cost. I think these are problems of the PAP - the Peace and Plenty syndrome. I think under SDP, if unfortunately it becomes SDP, it might be a different story.

Sir, prolonged full employment has lulled us into a false sense of security, that is, we will never be unemployed. Many think that Singapore is immune from recession. Cushioning the lower income and retirees is indeed important, but it is more important to provide jobs for our people. At a time of full employment, retrenchment is a remote thought. In fact, the prospect of unemployment is very real. Recent events in the West have proved that an economy can grow, and co-exist, with rising unemployment.

Milton Friedman, the Nobel prize laureate, and now fellow at the Hoover Institution, attributes this strange phenomenon to the alliance of two powerful forces: one, technological; and second, politics. In Friedman's words, "the technology revolution makes it possible to produce a product anywhere, using resources anywhere, by a company located anywhere, to be sold anywhere". In other words, there is no need to come to Singapore. At the same time, the political revolution caused by the collapse of communism and the rush for free markets by Latin America, Eastern Europe and China, has released to the developed world a seemingly endless supply of cheap labour that the technological revolution makes easily accessible. In short, unless we adapt to this New World Order - a world where investments have no loyalty, and where cheap labour is in plentiful supply - things will go quickly wrong with Singapore.

This 1993 Budget is a watershed, Sir, because it is about adapting Singapore to this changing world order, the changing world of technological revolution and political revolution. Jack Welch, one of the few CEOs that is not being chopped recently in America, the CEO of General Electric, and author of the best selling book "Control your Destiny or Someone Else Will", puts it succinctly and eloquently. "Change", he said, "has no constituency. People like the status quo. Because they like the way it was".

The GST is about making changes to our way of life. It is about making Singapore relevant to the third aspect of the New World Order which Friedman did not pick up. It is a world organised not according to free competition but according to geographic groupings; a world of trade blocs. The GST is about postponing, for as long as possible, our next recession which Singaporeans seem to think will never come. Mainly, the GST is about three things, Sir. It is about jobs, jobs and jobs. It was Marx, after all, who said, "Man is what he does".

Sir, while excited Singaporeans were counting down the minutes to midnight on 31st December last year, 1992, to ring in the new year, a trade bloc bearing the name of the Single European Market (SEM) was only seven hours away from becoming a functional entity in Brussels. The newspaper report did not pick it up. The newspaper report on 1st January 1993 did not pick up as its headline or even as the main story the formation of the Single European Market. Instead, it focused on all the parties, the fun. But the SEM in a way is an evil trade empire. It is a frontier free trading zone of the EC-12. Together, this vast market corners something like 30% of the world's GDP, with a vast catchment of 350 million people of the world's richest population. In a few years' time when the EC-12 eventually embraces the EFTA-6 (probably Switzerland will come out), the enlarged European Economic Area will be the most powerful and most affluent trading bloc in the world. In an issue of Economist two weeks ago, one Economist writer asked rhetorically why is it that Japanese companies are now going to Britain to invest because Britain does not offer the cheapest labour cost. It also asked why is it that it is going to Britain in increasing numbers because Britain does not offer the best management. The answer obviously is that they need a base to avoid the new ruling of local content, indigenous labour. They need to fight the trade war within the EC, so they need Britain. And because Britain uses the English Language, it becomes a natural advantage.

Sir, SEM is still in its infancy but it is really bad news for Singapore because white barriers within the SEM have fallen, barriers for non-SEM members, like Singapore, remain. So SEM confers privilege and access to members, while non-members, like Singapore, will suffer the pain of denial.

Sir, on a level playing field, Singapore has a fighting chance. At a time when Japan and the world were shrinking its world-wide direct investments, Singapore continued to attract quality investments and technology. Translated, this means we have more and better paying jobs for us, for our children, from which we can help the less fortunate.

Last year, the $3.5 billion worth of inward investments was a record. But why the flood of investments? Principally, because we offered very good risk of returns. According to the US Department of Commerce statistics, American companies investing in Singapore enjoyed a 30% return on investments, which is very high. This is more than double the average of 14% recorded for US foreign direct investments in all countries and above that of the G7 industrialised countries. Incidentally, it is 20.6% for UK, 15.9% for France, 15% for Germany, 10.1% for Japan. Singapore is 30%, which is very high. But the creation of the SEM will begin to divert marginal investments away from Singapore to Europe in the years to come, even though Dr Richard Hu has said that the 3% corporate tax cut will be enough to attract quality investments. I hope he is right. Sir, with the new SEM rules on indigenous labour and the use of local contents, I fear that some manufacturers, some marginal high-tech ones, will begin to move away from Singapore.

As if one SEM is not enough, Sir, you have another monster lurking behind us. The US, Canada and Mexico are finalising the final paragraphs of the North American Free Trade Area (NAFTA) agreement. Barring unforeseen circumstances, NAFTA will come into effect on 1st January 1994, and with it, NAFTA will unite the America, the USA, Canada and Mexico into a borderless trading zone of 370 million people which will account for more than 30% of the world's GDP.

Sir, the technological revolution and the political revolution, together with the creation of these two mega trading blocs, will divert trade and investments away from Singapore. I feel strongly that in order to retain the marginal investments, we have to give them a reason to come and one good reason is to give them a higher return on investments. The 30% on paper may still look 30% but because of the formation of barrier blocs within Europe, around Europe and around NAFTA, the 30% figure will drop in real terms.

Sir, the experiences in Australia, New Zealand and Canada are instructive. Some Singaporeans, like Mr Chiam and Mr Low, are still unsure of the benefits of GST. But many Australians, I think, most Australians, appear to embrace it. Dr John Hewson, the opposition leader, has been campaigning on a punitive 15% value-added tax (they also call it GST) if his party were returned to power. The election is this Saturday, 13th March. If we believe the polls, he appears to be within grasp of the prime ministership.

Sir, why do Australians accept the additional burden of a punitive 15% in consumption tax on top of a crushing income tax of 20% (lowest) to 49% (highest)? These are very punitive, burdensome figures. The reason is simple, because Australians need work. In Singapore, most Singaporeans have work. In fact, we have an over-employment problem. So we do not worry about unemployment. But the Australians need work and they appear to be embracing GST. Officially, 10% of Australians are unemployed. The unofficial and real figures are certainly higher. In some places, unemployment is as high as 30% and while the retrenched suffers a loss of esteem, the employed Australians are having nightmares over imminent prospects of retrenchment. Sir, John Hewson's proposed GST is not unwelcome. Why? Because it holds out the promise, however remote, of resuscitating the moribund Australian economy into providing more jobs. So they are not worried about the 15% because they are not paying any tax now. Because they are unemployed, they do not need to pay tax. So they do not mind the 15% if they have jobs, which is the bottomline.

Sir, New Zealanders embraced their GST under very similar circumstances some years ahead. New Zealand's economy appears to be on the mend, but the trail of broken homes, despondency and desperation caused by more than a decade of unemployment is something, I hope, will never set foot in Singapore.

Some critics point to the hated Canadian GST and tell us that there is a dark story to it and that we should not implement the GST after Canada's failure. But the parallel between GST in Canada and the proposed GST in Singapore is invidious. Ours is only an innocuous 3%, theirs is 7% on top of their extremely high tax rate. Second, Canada made the fatal mistake of introducing a GST when the economy was down and out - one troubled by high unemployment (about 11%, I read recently), high inflation and unbearable deficits. Third, Canada's GST was designed as a weapon to generate additional revenue to complement its income tax. Because there is a high deficit, they need to get money somewhere to top up and they cannot cut welfare.

The Singapore GST has been designed as a device to restructure our tax system. I think this is an important point. The Australian, New Zealand and Canadian GST was designed as an additional revenue source. Ours has been designed to restructure an existing tax system. Because of our accumulated budget surpluses, our Government can afford to offer a comprehensive package of offsets, rebates, income tax reductions and subsidies to cushion the impact of the GST on the lower income and retirees, which the Canadian, Australian and New Zealand governments could not do so because their coffers were empty and they were already borrowing money.

So the lesson for us is very clear. GST is a tried and tested tax system that works to encourage investments and create jobs. In all the developed world, not many countries are without an equivalent of the GST. When the rest of the world were taxing factors of production, a lopsided direct income tax was quite adequate. But when our competitors moved into different territories, when they moved into indirect taxation, through consumption, our outmoded tax system puts us at a severe disadvantage. Hence the question for us is not if we should endorse GST. The question is how and when to implement GST? I think the time to implement it is now. Why now? Because employment is full, inflation is low and our reserves healthy. How to implement it should actually be discussed in detail in the Second Reading of the GST Bill. But we have heard quite a lot of it today and I think that most of us welcome the Bill in principle. I want to ask Mr Chiam whether he actually agrees to the GST, in principle. He talks about the GST, he throws out a whole list of queries and he seems quite satisfied, but I am not sure. His only worry seems to be that, after five years, the GST rate might be moved up.

Sir, lessons of Australia, New Zealand and Canada are very instructive, and they are all late comers to GST, as to when not to implement GST. GST is like a medicine. It is a strong medicine. When it is taken to cure a sick economy, the economy will slip further into sickness before it gets better. This is a masochistic approach to good health. You are sick, you take strong medicine, it knocks you off and after some time you recover. But when the GST is injected into a healthy economy, like ours, it acts as an aphrodisiac, like the Chinese say, che pui [ ], immunising the economy from a host of sickness. I think this is the holistic approach to keeping healthy. This is the Singapore approach to GST.

Mr Speaker, before I end my speech I want to raise a point by Mr Chiam See Tong on the remarks made by our Senior Minster, Mr Lee Kuan Yew, in 1964 about not wanting to implement something like the GST. I am not sure in what context he quoted the speech but, in any case, since 1964 until now, times have changed. At that time, the people were unemployed. The economy was bad. If you had heard my speech earlier on, I said that you should never introduce the GST when the economy is sick. We should introduce it when it is strong. I think the GST is a good thing for Singapore. The rate is very acceptable and I support the motion.

Mr Peh Chin Hua (Jalan Besar GRC): ( In Mandarin): Mr Speaker, Sir, to me this is the most carefully thought out and farsighted Budget Statement I have ever heard since I came into Parliament four years ago. It has the best political and economic vision. I believe that our Opposition Members of Parliament are also secretly admiring the great wisdom of our Minister for Finance, although they may outwardly object for the sake of objecting. We can see this from the overall statement of Mr Low Thia Khiang when he spoke. On the face of it, they might have raised some objection for their own sake and made some irrelevant criticisms. I believe that they will begin to realise that if a two-party system were to be introduced in Singapore as proposed by the SDP, then could they be able to find another Dr Richard Hu to be their Minister for Finance? Can they bring up a systematic and comprehensive budget like the one before us?

Just now, Mr Chiam See Tong referred to the GST and he quoted the remarks of Mr Lee Kuan Yew in 1964. The environment and the social situation then were entirely different from ours in 1993. I believe in 1964, residents of HDB flats in the Bukit Ho Swee area had to share common toilets and kitchens. We do not have such problems now. Even Mr Chiam See Tong himself has changed. Perhaps, he has grown older and more matured. I believe that in Potong Pasir, the Town Council originally decided not to raise the SC & CC charges. But now, with cost going up, they have to raise the SC & CC too. I am not saying it is not right for him to raise the SC & CC. What I am saying is that Mr Chiam See Tong is a very realistic Chairman of the Town Council. I believe that a good government is like a good chairman of the Town Council. The policy cannot remain static.

Lianhe Zaobao, in its Editorial comments on 27th February, complimented the Budget Statement as "the share of the harvests and the strive towards success". The Straits Times, in its Editorial on 1st March, also remarked that "It is difficult to please everyone at the same time but Dr Richard Hu's Budget Statement made a most successful attempt to address the concerns of all Singaporeans, from big businesses to the poorest household in a one-room rental flat". However, the comments made by Dr Chee Soon Juan, Assistant Secretary-General of the SDP on 2nd March in the Straits Times are very vague and ridiculous. This PhD is very different from our PAP's PhD. I believe that because of the dire shortage of talent, it is difficult, if not impossible, for the SDP to have enough talents to realise the dream of Mr Chiam See Tong becoming Prime Minister. So the wisdom of the Minister for Finance has actually dashed Mr Chiam See Tong's political dream to become the Prime Minister.

The Budget Statement presented in Parliament by Dr Richard Hu has taken care of all sectors of the population. The proposed change in the tax system will enhance our economic growth. The citizens of Singapore may be used to direct taxation and they would need some time to adjust themselves to the new tax system before they could fully understand and realise the advantages. However, this will be the next boost for our economic growth. It is also the main engine of growth for the growth of our second economic wing. On the face of it, this change in tax system seems to be an additional burden to the non-taxpayers. But the Government is trying to cushion the effects on the lower income group when the GST is to be introduced in 1994 by offering many packages to relieve their difficulties. The various packages of tax rebates for the lower income group to offset the GST are commendable. It is a sincere intention to demonstrate to the citizens of Singapore that the objective of GST is not intended to generate more revenue for the Government. On behalf of the 70% of lower-income group residents in my constituency, I would like to thank the Minister for this.

I would welcome the suggestion by the Government on the assistance scheme to be implemented by the Citizens' Consultative Committees in solving the problem of non-HDB residents from the lower income group who are not able to enjoy the tax relief and rebates. On the other hand, the Government is also making a generous offer by sharing the fruits of our economic success with Singaporeans who are above 21, for them to own Singapore Telecom shares. Those who have $500 in their CPF will be able to receive $200 CPF top-up from the Government. This scheme will enable Singaporeans to appreciate the present achievements of Singapore and continue to work harder for a better future.

I fully understand Mr Chiam See Tong'sand Mr Low Thia Khiang's worries that once the voters in their constitutencies begin to enjoy these benefits they will cease to support them. Mr Chiam See Tong said that all the money will be locked up in the CPF.

Mr Low Thia Khiang also does not endorse the scheme. I fail to understand their objections. They seem to say that if we sell Government shares to the people, it is wrong. If we do not sell the Government shares to the people, it is also wrong.

Mr Speaker, Sir, the Government has set up a committee to be chaired by Commodore Teo to promote overseas ventures. The Government's Budget Statement has also provided for various incentives. This is a good idea. I support the view of Mr Leong Horn Kee that we should consider giving recognition to local entrepreneurs in appreciation of their success.

Mr Speaker, Sir, I would like to say that I am also a businessman with overseas ventures. Based on my personal experience as well as the feedback I received from those entrepreneurs who have invested overseas, I hope the Ministry of Finance will consider the following suggestions:

Firstly, we must allow the big four local banks to facilitate loans. The banks should grant loans to our local entrepreneurs by accepting their overseas assets, such as factory, property and lease as collateral. This loan will help entrepreneurs to raise enough capital to expand their business overseas without being hampered by cash flow problems. This inability to pit their skill will be a great obstacle to the growth of our second economic wing.

Secondly, we should consider setting up an insurance plan for local entrepreneurs who go on ventures overseas. The Government should encourage overseas investments in those regions with big economic potential like China, Vietnam, India and Philippines, etc. But the political climate of these countries is not as good as that in Singapore. There is no assurance that there will not be another "Tiananmen Incident" in China. If such an incident does occur again, then Singaporean entrepreneurs' investment will suffer great losses, get their capital locked up in the country concerned or their investment may all be lost. Therefore, if the Government can set up an investment insurance scheme to enable our local entrepreneurs to put in a wholehearted effort without fear of future losses, then with this kind of life buoy around, more entrepreneurs will be encouraged to swim in the ocean boldly.

Thirdly, the Government should also consider participating appropriately in the private sector to strengthen the confidence in our overseas ventures. The participation of the Government in whatever scale will serve to stimulate the confidence of entrepreneurs.

Lastly, Sir, we should also encourage the remittance of profits from overseas ventures. I understand that many local entrepreneurs are parking their profits in places with lower corporate tax rates, like Hong Kong. The main reason is that our corporate tax rate is so high that it deters them from remitting their profits back to Singapore. If such a situation continues, then the spreading of our second economic wing will not be realised and Singapore will not benefit from their overseas ventures. So the net result will be that other countries like Hong Kong will continue to enjoy the fruits of our labour. We must have a more favourable and comprehensive plan to attract the remittance of overseas profits back to Singapore. We cannot just sit tight and watch the profits flowing into the hands of other countries.

Mr Speaker, Sir, these are the four suggestions that I have to encourage our people to venture overseas. This will ensure that our second economic wing will grow quickly and enable us to soar in the global ocean.