ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Assoc. Prof. Low Seow Chay (Chua Chu Kang): ( In Mandarin): Mr Speaker, Sir, before I commence my speech, I would like to respond to what the MP for Nee Soon Central, Mr Cheo Chai Chen, has said. He mentioned that when a company is not making any profit, then it should be exempted from paying taxes. And when it does make profit, then it should have no problem paying more taxes. On the question of the poor, he said that for a society to be stable, we should levy more taxes on the rich and then the society could be stable. Then he went on to say that when our coffer is rich, we should give more tax rebates to our entrepreneurs.

So, when he talked about the poor, he said the rich should be paying more taxes. But when he talked about the businessmen, he said if the country is rich, it should not levy so much taxes on them. If that is the way he puts it, I think Mr Cheo does not have a clear fundamental stand on taxation. Perhaps he has been talking in such a manner to please the people according to circumstances.

When he talked about GST, he said it is a flat rate for everybody and the lower-income group will suffer more. But then, if we look at it, we should view the Finance Minister's package as a whole. Whether this Budget would benefit the rich or the poor, we have to look at it from an overall picture. The contents which I would be elaborating in my speech will be able to prove that what Mr Cheo said was wrong.

Mr Speaker, Sir, this year's Budget emphasises the restructuring of our taxation system. The Finance Minister has provided for a substantial reduction in corporate tax at a time when our economy is healthy and when we have a substantial budget surplus. And he would be implementing a 3% GST on the condition that our personal tax burden would not be heavier. In fact, "GST" is not a pleasant word because many people will realise that in the developed countries, the rate is very frightening. It could be as high as 10-20%. In fact, a few years ago when we were talking about GST, many people were very apprehensive about it. At that time, I indicated that I would support the implementation of GST provided the rate was low and that it would not increase the burden of our taxpayers. When our Finance Minister announced the introduction of GST, he did not disappoint us because from the White Paper on GST and in his Budget Statement, he has provided for a number of measures such as rebates and tax reductions to offset the effect of GST on the taxpayer.

As a scientist, I fed all the information on personal income tax rates for Year of Assessment 1993 and Year of Assessment 1994 into my computer to study the effect of GST on our taxpayers. First of all, if we take in the $700 tax rebate plus the additional personal tax relief of $1,000 and the $200 CPF top-up as well as the $130 rebates for service and conservancy charges for the lower income group, the net result is that for YA 1994 only those with an income of $150,000 per year, I repeat, $150,000, will have to pay $30 more in taxes when GST is implemented in 1994. As for the others, whether they are from the higher income group or the lower income group, when the GST is introduced next year, they will be paying substantively lower taxes. For those with an income of $15,000 per year, if they are living in a 4-room flat or a smaller HDB flat, then their tax burden for next year will be reduced by as much as $778. Even five years later, when the $700 rebate is reduced to $500, those who are living in 4-room HDB flats or smaller flats and their annual income is less than $34,000, they will not have an additional tax burden. As for those whose incomes exceed $34,000 per year, so long as they set aside 13% of their income in savings or on expenditure where there is no GST, for example, purchase of residential property or cars or travelling, then they would not have to pay any additional taxes. It is therefore evident that the implementation of GST will not increase our tax burden.

On the contrary, if in the past, every Singaporean did honestly, I emphasise honestly, submit their income tax returns, then in fact the Inland Revenue Authority will be suffering a loss next year with the implementation of GST. As for people from the lower income group who do not get any subsidy on housing, they would not suffer a loss in the first year of implementation of GST because they will get the $200 CPF top-up in their CPF account. Thereafter, with the GST, they will have to pay at the very most an additional tax of $91 per year.

I support the Finance Minister's measures to set aside some money for the CCCs to find out how they could help the people who are adversely affected by the implementation of the GST. I hope the Finance Minister will announce the operational details of this fund so that those people who are affected by GST could relax and adopt an optimistic and active attitude towards the implementation of GST.

In the income tax rate, which has been announced, I feel that there is one group of people who have been neglected. They are the working mothers with high incomes who are now receiving enhanced child benefits amounting to as much as $60,000 a year in tax relief. With the GST, they will have to pay an additional $1,800 a year, but there is no provision for them to benefit from this new scheme. I hope the Finance Minister will look into this matter so that this group of people could be given a fair treatment as well.

This year, the Finance Minister is also very generous in giving a 5% once-off rebate on our tax payable. I hope that, with the implementation of GST, the Finance Minister would also be generous in allowing this sort of rebate to be given to us, provided we have a budget surplus.

From the Forum pages in the newspapers and from discussions with my friends, I feel that many people still lack the knowledge or understanding of GST. Let me quote two examples. For example, in the papers it was reported that the Association of Provision Shop Owners have a misunderstanding that with the implementation of the GST, their members (the provision shops) will have more accounting work to do, which will result in their operational cost being increased. From the way they put it, I feel that they have not understood the operation of GST because even if they have to pay GST to their suppliers, the wholesalers, the process will not affect their accounting system. Because if their turnover is less than $1 million, they would not have to pay GST to the Government. Therefore, they would not have an additional account ing burden.

As for the other people, they said that the 3% GST may be very low, but on every stage of transaction, there will be 3%. By the time it reaches the end-consumer, it will accumulate to quite a handsome sum. As a matter of fact, there are a large number of people having this misunderstanding. It is wrong. As far as the consumers are concerned, all they have to pay is 3% at the end. Because many people do not understand the real operation of GST, I hope that the Inland Revenue Authority would, in conjunction with the mass media, be able to illustrate in a very simple manner to members of the public so that they will understand the operation of GST.

Sir, I hope with the tax restructure, and with the substantive reduction in corporate tax, the enterprises in Singapore will increase their profits. In return, they would increase their investment and reinvestment on projects which would improve productivity and high value-added products. With the restructuring of our tax system, we would be able to attract more quality investments from overseas. This will be a great help to our future economic development and, in the long run, whether it is to the Government's revenue or to the enterprises or the salaried workers, it will be of great benefit.

Sir, I support the motion.

Mr Tong Kok Yeo (Nominated Member): Mr Speaker, Sir, thank you for allowing me to join in the debate.

As with other hon. Members of this House, I wish to commend the Minister for Finance for the budget which has been hailed as a "bonanza" budget with something for everyone. For the individual, the CPF Top-up Scheme to help Singaporeans own shares is indeed an icing on the cake. I believe the same can be said of the companies with the tax incentives to go regional to promote an external economy for Singapore.

In announcing the capping of the medical expenses at 2% for tax deduction purposes, the Minister has shared the results of a recent survey of 325 companies conducted by the Inland Revenue Authority of Singapore. I hope the Minister will also share the profile of the 325 companies so that there will be a better appreciation of how the 2% capping is derived. I agree with Mr Teo Chong Tee that the 2% medical capping across-the-board is not equitable to companies with a large number of employees. We must also acknowledge that in most companies the level of medical benefits provided differs between executive and non-executive employees.

The executive employees (those who are earning more income) enjoy ward A accommodation when they are hospitalised and it is very much costly as compared with the lower ward accommodation enjoyed by non-executive employees, namely, ward B1, B2 or C. Going by the daily ward fee rates of the restructured Singapore General Hospital, the ratio of the daily fees of ward accommodation of ward A to ward C is in the ratio of 1:10.5. For ward A and ward B2, the ratio is 1:5.5. For ward A and ward B1, the ratio is 1:1.85. Therefore, it is apparent that executive employees tend to incur higher hospitalisation cost. As such, employers and businessmen must take cognisance of this.

Sir, against this backdrop, the impact of this medical capping should not be allowed to result in the deterioration of medical benefits currently enjoyed by workers. As I understood it, the Government's intention in introducing this medical capping is "to prevent a future problem and not to deprive any worker of existing medical benefits". I believe this would be the main consideration when the Government itself reviews the medical benefits of public sector employees. This is of paramount importance because the private sector employers will obviously be watching how the Government do it. The overriding concern is that employers will be inclined to use the medical capping of 2% as a yardstick to cut the cost of medical benefits provided to the employees. This may be an issue for serious contention when unions and employers meet to negotiate their collective agreements.

The Budget Statement states that the medical capping does not mean that companies cannot give medical benefits beyond the 2% medical capping. I would see that it also means that workers, through their unions, can secure medical benefits exceeding that limit.

Sir, the process of free collective bargaining should be allowed to determine the extent and scope of the medical benefits provided to employees by employers regardless of the capping. Employers are truly worried and concerned about rising medical cost. The more reason they should now look into ways of how best to implement an effective health promotion programme at the work place, as suggested by NTUC. The Government is already moving in the right direction with the promotion of a healthy life style amongst the population. However, I suspect that employers will be slow in this respect, as cost will be the main deterrent unless there are fiscal incentives to accompany it. But again, Sir, how are employers going to save money if they are reluctant to spend money?

Studies in the US have shown that companies which actively embark on health promotion programmes experience cost savings over the long term. AT&T announced that over a 10-year period they saved $22.4 million in preventing heart attacks. Lockheed spent $2 per employee on health promotion programmes and demonstrated with a saving of $116 per employee. New York Telephone realised savings of $663,000 in hypertension reduction, $1.5 million in alcoholism rehabilitation, $269,000 in breast cancer and $268,000 in general stress management. There are many benefits to be reaped, both by the employee and the company, by introducing health promotion programmes, such as improved corporate image, improved workers' attitude, decrease work-related injuries, decrease health care cost and, most importantly, increase worker productivity.

Mr Speaker, Sir, it is heartening to note that the productivity growth for 1992 averaged 3.1%, almost double that of 1991. However, despite this improvement, it still lags behind wage increases. This has been the trend since 1988 and many reasons have been given for this phenomenon. Many of our Hon. Ministers and Members of this House have repeatedly stressed that over the long term, this trend must be arrested if Singapore is to remain competitive. Experience of many countries, such as the United Kingdom, are good examples to learn from. A practical and logical course of action to take in arresting this trend, much reiterated and exhorted by many of our leaders, is to improve productivity through continuous education and skills upgrading and training of our workforce.

The National Productivity Board has targeted the expenditure on training to 4% of the payroll by 1995. It will be interesting to know how our employers are faring in this aspect. It was 1.5% in 1986, 2% in 1991. It takes five years to reach the half-way mark. I see it that this simply means that employers are not doing enough in the education and skills upgrading and training of our workforce. The Budget outlines the strategies and incentives to make Singapore more competitive. All this will be negated if education and skills upgrading and training of our workforce are taken half-heartedly. We need not wait for 1995. The 3% reduction in corporate tax is best diverted to investment in the training of our workforce.

Mr Speaker, Sir, many a time the wages of workers or costs of labour have always been the punching bag whenever employers or businessmen talk about the rising cost of doing business in Singapore. I agree totally with what Mr Chin Harn Tong said in his speech yesterday. Wages or cost of labour is only one factor of production. Employers and businessmen had better look into more innovative ways to reduce cost in other areas such as manpower optimisation, curb extravagance, reduce wastage and duplication of resources and, of course, productivity improvement through education and training of the workforce.

Pointing at wages is the easiest way out. Workers have often been reminded of the 1985 recession. But we should also remind employers of 1979 when the Government restructured the economy to move from low-intensive industry to high-technology and capital-intensive industry.

For workers in the lower-income and middle-income group, two matters are of major concern to them. They are wages and promotion. Such workers want better wages. There is nothing wrong with that. Just as employers and businessmen want more profit. Such workers look forward to annual wage increases. As long as wage increases are not eroded by inflation, cost of living is not a big problem. However, when such a worker is near or is at the maximum of his job rate, he aspires for promotion because he sees it as the only way of earning more. Otherwise, his wage will be stagnated. Of course, there is a limit to the number of employees that can be promoted. Nevertheless, this is their aspiration. Therefore, many of such workers, especially those with low-paying jobs and those at the maximum of their job rate, have heeded the call to upgrade on their own. Despite their comparatively low or stagnant income, they are motivated to do so because they believe this will help to enhance their promotional prospects and earning capacity. This was also the message given by our national leaders that workers will be able to earn more if they go for skills upgrading and training. It will therefore not be far from wrong to assume that the skills acquired by them will inevitably show in their work. Thus, employers and businessmen indirectly benefit.

For such workers, if a promotion is not forthcoming or their wages are stagnated for many years, these workers will be disillusioned. They can only conclude that it does not pay to upgrade. Their peers will likewise be discouraged to go for upgrading. They will be caught in this trend where there will be no winners but losers. Productivity will suffer, so will workers and employers. Therefore, due recognition must be given to such workers who on their own initiative took up upgrading courses. In this respect, employers should be encouraged to provide incentive schemes to reward them. Just as employers or businessmen clamour for more Government incentive, to go regional.

Sir, given the profile of our workers, it will not be surprising that a good majority of our workforce is at the maximum point of their job rate for many years. In the years where NWC came up with quantitative recommendations, such workers could at least look forward to some annual wage adjustments. This was not the case after 1986. The NWC comes up with qualitative recommendations. As such, over the years, these workers perceive that the standard of living has declined, their earnings being eroded by inflation. The plight of these workers will be further aggravated next year when the GST is introduced. Perhaps, Mr Speaker, Sir, the tripartite partners in NWC should address the issue of how to ensure that the standard of living of workers who are at the maximum point of their job rate is not eroded year after year by inflation without annual wage increases.

Finally, a few words on GST. I am glad that most of the rebates are given upfront, in particular, the pensioners' allowance which over the years has never been indexed to the rate of inflation. The package of benefits reflects the Government's concerted efforts and its sincerity in ensuring that the introduction of GST will not have any adverse impact on the population. It leaves now for the Government to ensure that profiteering does not occur. The over-riding concern with the introduction of GST is profiteering, in particular, by way of rounding-up. It is comforting to note that the Government will monitor prices closely to prevent profiteering by unscrupulous traders and to expose them publicly and, of course, to enforce the Price Control Act.

I see these as an enormous task with immense enforcement difficulties. I ponder how effective these measures are going to be. Nevertheless, I would like to join Mr Ho Peng Kee in asking the Minister whether the Government will encourage and take the lead in reactivating the usage of one-cent coins. I feel that the Government should, so that should there be any eventual MRT or SBS fare increases, it will not be rounded up to the nearest 10 cents. After all, it is the lower and middle-income group that takes this form of public transport. Employers and businessmen do not. They use their own transport. Cost of petrol is not rounded up to the nearest 10 cents, but price down to the very one cent.

Mr Speaker, Sir, with these comments, I support the motion.