ANNUAL BUDGET STATEMENT

Debate resumed. 3.40 pm

The Prime Minister (Mr Goh Chok Tong): Mr Speaker, Sir, this Budget is indeed a landmark budget. This is so not because of its plethora of incentives, rebates, offsets, goodies. But because it sets new directions in three major areas. It lays the foundation for a fundamental reform of our tax system, from a narrower - based income tax to a broader - based GST. It introduces significant incentives for our businessmen to invest outside Singapore, in particular, in the region. It puts in place a new mechanism to reinforce support for good policies - the CPF Top-up Scheme to help Singaporeans own a stake of the economy.

The Finance Minister has explained the need for tax reform and the GST in his Budget speech. You have heard the arguments for adding an international wing to our domestic economic wing. I want to explain the philosophy behind the CPF Top-up Scheme.

The Government's primary duty is to build the right conditions for Singaporeans to create wealth for themselves. These conditions include security, law and order, political stability, social discipline, a level playing field, the free market, meritocracy and reward in accordance with a person's ability, performance and contribution.

Within this framework, how wealthy a person becomes depends on himself. If he has the ability and puts in the effort, he will do well. If he has exceptional ability, entrepreneurial spirit and good business sense, he can become extremely wealthy. In short, the more successful Singaporeans will end up better off than the less successful Singaporeans.

This does not mean that the less successful Singaporeans are ignored. We will help them, and their children, to do better. We oppose welfare programmes and soft-headed solutions to hard problems. But the truth is we do subsidize productive social programmes heavily - housing, education, and health. On average, a typical Singaporean living in a 3-room flat will receive direct subsidies amounting to about $70,000 during his lifetime. Housing - about $35,000; education - about $25,000 for 10 years of primary and secondary education; health - about $10,000, assuming normal rate of C class utilisation - a total of $70,000.

The income tax he pays over his working life, say, he has a monthly income of $1,500, for 40 years, is about $20,000. With GST and the various rebates, he will not have to pay income tax. Even if he spends his entire income of $1,500 a month on goods and services which attract GST, his maximum GST per year at 3% is $540. Over 40 years, this comes to $21,600 - less than one-third of the direct subsidies he can expect to receive. This ignores the many indirect benefits of being a Singaporean, for example, security, law and order and the large investments in the infrastructure of Singapore.

Who pays for his subsidies? Mostly the more successful Singaporeans. They pay a disproportionate amount of taxes. For example, in 1991, the top 10% taxpayers paid 76% of the total personal income tax collected. Even with the revised income tax rates, higher earners will be the major payers of tax, both income tax and GST. They have more money to spend, they will spend more, and so they will pay more GST.

This system has worked well. It has served us very well. The able strive, become successful and well-off. They pay more taxes, but not so much as to force them to emigrate, under-perform, or find creative ways to avoid paying taxes. They have the incentive to create more wealth. The less able are helped along to improve themselves. They pay some taxes, but much less than the benefits they receive from the system. They work hard to improve themselves. There is economic growth, employment and wealth leading to more growth, higher wages. We are in a virtuous cycle.

In a free market economy underpinned by meritocracy, the distribution of incomes cannot be completely equal. The able and more hardworking will earn more than those less able and less hardworking. Someone will always be at the bottom of the income ladder. This cannot be helped. Even in Communist countries, like China and the former Soviet Union, people at the top earn many times more than those at the bottom. In addition, the top people in these countries enjoy generous benefits in kind, like free housing and first-class medical care. This can amount to many times the cash salary. If you take them into account, the ratio of top and bottom incomes is much higher.

The question for us is whether the lowest 20% live in abject poverty, or are only poor in comparison with others. If it is absolute poverty, we must eradicate it. No Singaporean should live below subsistence level. Indeed, hardly any Singaporean does. But we cannot eliminate relative poverty. There will always be the bottom 20%, no matter what we do.

I have no quarrel with the SDP, or anyone else, who argues that we should do more for the poor. That is exactly what the PAP has been doing all these years, is doing, and will continue to do. But I totally oppose the way the SDP seeks to agitate Singaporeans through the politics of envy. The SDP deliberately exaggerates the gap between the better-off and the rest. It paints a distorted picture of Singapore society, to arouse jealousy and class resentment. It offers no solutions to improve things, to solve problems.

Mr Chiam and his SDP colleagues are doing this to win votes. If they succeed in pushing the politics of envy, Singapore will go down the drain. The middle class will envy the rich, the upper class. The poor will envy everyone else. The well-off, instead of helping others to succeed, will react by developing a me-first mentality, and seek to enrich themselves at the expense of the rest of society. Our society will be torn apart.

The virtuous cycle that we have so carefully built up over the years will turn vicious. People will seek to knock down the system of meritocracy, instead of using it to raise themselves, to climb the ladder, to do better, to go higher. They will demand more welfare programmes, more handouts. This will mean raising taxes. Higher taxes will discourage everyone from working his best. Companies will go elsewhere where taxes are lower. Investments will fall, so will economic growth. Incomes will stagnate. As people become poorer, they will demand still more assistance from the state. The state will have to raise taxes again. A vicious cycle sets in - welfare programmes, more taxes, slower economic growth, demand for even more subsidies, and so on.

We should admire and emulate those with ability and wealth, not envy or hate successful people.

Without natural resources, our wealth is all man-made. The able do more than their share in creating wealth and generating surpluses for the country. If they are squeezed, or levelled down, the surpluses will quickly disappear. We will have no more budget surpluses to worry about, and no more resources to help the less able and the poor.

We cannot allow the "red eye" disease to infect Singapore. That will be the end of Singapore.

We want to strengthen the virtuous cycle of effort, growth and wealth creation through the CPF Top-up Scheme. This is the rationale for the scheme. We intend to make Singaporeans owners of the Singapore economy through ownership of blue-chip shares. We intend to build up their assets through regular declaration of dividends and capital appreciation of their shares.

The Government is the trustee of Singaporeans' collective wealth and guardian of their future. The reserves that we have built up belong to all Singaporeans, not to a few people in the Government. But it is the Government's job as trustee to protect the reserves and safeguard Singaporeans' future against contingencies. Unfortunately, some Singaporeans fail to see how these reserves directly benefit them. They do not understand that it is because of the reserves that the Singapore dollar is strong and, therefore, the value of their CPF savings is safeguarded and preserved. They do not see how the reserves give investors confidence in the Singapore economy. They do not believe that, despite the rosy prospects for the economy, we may one day run into an unexpected prolonged recession and then the reserves will prove very handy. So they are sceptical when the Government builds up more reserves, and such an attitude has been encouraged by the Opposition. We hope to change this attitude through the CPF Top-up Scheme.

This is how it works. Imagine that we incorporate a company called Singapore Incorporated, or Singapore Inc., to own and run Singapore. All Singaporeans are employees of Singapore Inc. But they are also shareholders. Each has one share. In other words, Singaporeans, both you and I, work for and own Singapore Inc. The Government is the Board of Directors of Singapore Inc. Its job is to manage the Singapore economy in such a way that it turns in a profit every year. The profit is economic growth. Part of it shows up as the budget surplus.

As employees of Singapore Inc., Singaporeans are paid in accordance with their ability, performance and contribution. But they are equal shareholders. This is the crucial difference between employees of Singapore Inc. and employees of other companies. They have equal shares of the company. For Singapore Inc. to succeed, all its employees and shareholders must, in turn, be committed to work for its success. The Board of Directors must also provide dynamic leadership and sound judgement to lead Singapore Inc. from strength to strength.

The CPF Top-up Scheme is a way to realise this idea. If you put $500 into your CPF account between 1st March and 31st August this year, we will, in effect, issue you a share scrip stating that you own one share of Singapore Inc. Your share will entitle you to an immediate dividend of $200 this year. This is 40% return on your capital. It will entitle you to purchase several hundred Singapore Telecom shares at a discount later this year. The total discount will be substantial, and the capital gain hefty, not immediately but over a few years.

Mr Chiam See Tong says that the CPF Top-up Scheme has a catch. The Government puts in $200 to lock up your $500 for 30 years. As usual, he distorts and exaggerates. The fact is that the $700, that is, $500 plus $200, can be withdrawn after 1st September subject to the CPF rules of withdrawal. You can use the $700 to buy shares, properties, or gold. You can withdraw it at 55 years. If you are 54 years old, you can withdraw the $700 in a year's time, not 30 years. And if you are over 55 years and working, you can withdraw the sum after three years. The rule says that you can withdraw once every three years after 55. And if you are not working for six months, that is, unemployed for six months prior to the date of withdrawal, you can take it out after six months. In other words, a retiree who puts in $500 and does not wish to buy Singapore Telecom shares can withdraw $700 after six months, not 30 years, as Mr Chiam has said. This is a hefty 40% return after six months.

We intend to credit this $200 automatically if a person has contributed $500 into his CPF account between 1st March and 31st August. It is automatic credit. But we should not force anyone to accept the $200, if he does not want it. So I am going to ask CPF to print opt-out forms and place them at convenient places in Potong Pasir, Bukit Gombak and Nee Soon Central. I do not know about Hougang. Did the MP there support the scheme? If he did, then I would not place any forms there. Let us see how many Potong Pasir residents and SDP supporters will opt out.

The $200 top-up this year will not be a one-off exercise. So long as Singapore Inc. shows healthy profits and the Government accumulates strong budget surpluses, we will top up from time to time.

Some hon. Members: Hear, hear!

The Prime Minister: We can do this provided we keep taxes low and growth high. We therefore must eschew soft-headed welfare policies and confine Government spending to essentials. This is your surest guarantee that the GST rate will not increase above 3% after five years.

There will be more opportunities for Singaporeans to acquire shares in Singapore Inc. when we convert other statutory boards into public companies and list them on the Stock Exchange. Singapore Telecom, PUB and PSA are part of the infrastructure of the Singapore economy. Their performance reflects the Singapore economy's performance. If they are run well, the Singapore economy will grow. Conversely, when the Singapore economy grows, they will be profitable. Singaporeans with shares in these companies literally own a piece of the Singapore economy. They will have a direct stake in Singapore's success. Their shares will appreciate so long as the Singapore economy continues to grow. This way, we increase the assets of Singaporeans - through capital appreciation of their blue-chip shares.

But the CPF Top-up Scheme is not a handout. That is why we require you to put in $500 in your CPF account to buy a share in Singapore Inc. The $500 is evidence of your contribution to the Singapore economy. It can be present contribution, it can also be contribution from your past savings.

The CPF Top-up Scheme is only one component of the Government's assets enlargement programme. The other components are HDB upgrading, sale of tenanted HDB shops and Edusave. Each of these components has its unique features, but all of them will benefit lower income Singaporeans more than the upper income Singaporeans. They redistribute wealth. They will help Singaporeans to level up.

The HDB Upgrading Programme will benefit HDB owners living in older housing estates by increasing the capital value of their flats. The sale of HDB shophouses to tenants will benefit the hardworking families who provide us with convenient shopping close to our homes. The Edusave programme will benefit all eligible students in schools. When Edusave is fully operational, every eligible student can expect to receive $4,000 during his 10 years in school. The CPF Top-up Scheme will benefit every Singaporean over 21, rich, middle class or poor. Like Edusave, every citizen gets the same absolute dollar amount. But in relative terms, the benefits mean more to the less well-off.

Of the four components, the CPF Top-up Scheme has the most promise of reinforcing the virtuous cycle of effort, economic growth and wealth creation. It can go on for as long as Singaporeans work hard and Singapore Inc. enjoys strong budgetary surpluses. We intend to top up your CPF periodically, not every year, but when Singapore Inc. has the surpluses to do so.

Nearly all Singaporeans already own their homes. We should now work to give every Singaporean a tangible share in the Singapore economy. This share will appreciate in value provided we work hard and we do well. Every Singaporean has a stake in the Singapore economy and every Singaporean has a stake in Singapore's success. The CPF Top-up Scheme will bring this home forcefully to every citizen. [Applause].

Mr Low Thia Khiang (Hougang): Mr Speaker, Sir, may I clarify with the Prime Minister on a point? How would the Government ensure that the shares of so-called Singapore Inc. will not in time fall into the hands of the wealthy, because shares can be sold anyway you like?

The Prime Minister: Mr Speaker, Sir, this is a conceptual share. When you put in $500 into your CPF account, conceptually you own a share. It is your $500. You cannot sell it. But you can use that to buy Singapore Telecom shares or shares of other statutory boards when they are turned into companies. Then, of course, it is up to you. If you want to sell them to the rich, so be it. But then you will benefit from the capital appreciation. If you sell them below the price you paid, which I do not think will happen, unless of course the economy collapses and then it is the fault of Singaporeans, the choice is up to the individual. So if you want to sell it to the rich, it is your right to do so. But I would advise you to keep it for as long as possible because this place is going to succeed and the shares which you hold are going to go up in value.

An hon. Member: Hear, hear!

Mr Chiam See Tong (Potong Pasir): Sir, can I just ask the Prime Minister one question? With this top-up scheme, how many more new CPF members the Government expects to have?

The Prime Minister: Mr Speaker, Sir, at the moment, we have some one million active CPF accounts and we think that all these active accounts will benefit from the CPF Top-up Scheme. But my own estimation is that we should be able to bring in another million into this scheme, because if you have the funds it would be silly if you do not use the funds to help your parents to take advantage of this Top-up Scheme.

The $200 million is based conservatively on the one million accounts, but I believe that we will be disbursing more than $200 million. I do hope that as many Singaporeans as possible would take advantage of this scheme and I hope to see, if possible, closer to 2 million CPF account holders benefiting from this scheme. But if Mr Chiam wishes to opt out, then of courseit is his right.

Mr Chiam See Tong: I hope the Prime Minister and other Members of this House would not put words in my mouth which I have not spoken. I did not say that I am disagreeable to this scheme. I said that it was a clever scheme.

If we have one million, in other words, instantly the Government would have the benefit of $7 million worth of funds to use. Is that not right?

An hon. Member: It is the people's money!

The Prime Minister: That is wrong, Mr Chiam.

Mr Chiam See Tong: $700 million.

The Prime Minister: Right. It is not $7 million but $700 million. But the $700 million will comprise two components, $200 million from the Government and $500 million which belong to the people. Most of them would have this amount put into their CPF accounts anyway because they are working Singaporeans. So there is nothing extra which you need to put in. You may be referring to the one million CPF accounts which may be opened to take advantage of this?

Mr Chiam See Tong: I am talking of these new accounts.

The Prime Minister: Yes. The new accounts may be one million and I hope there will be one million new accounts to take advantage of this. So by your reckoning, we are locking up $500 million because we have one million accounts. But you can take it out after six months if you are not working. Is that not a good deal?

Mr Chiam See Tong: I said that it was a clever scheme because you are flushing out many of these one million CPF members who would not have come out in the first place.

An hon. Member: Why not?

The Prime Minister: Mr Chiam, if you meant it as a compliment, I accept it. The question is whether you would state categorically that you support the scheme. Would you say so, Mr Chiam?

Mr Chiam See Tong: I say it is a clever scheme and I support it.

Encik Zulkifli bin Mohammed (Jalan Besar GRC): ( In Malay): Mr Speaker, Sir, I rise to join my colleagues in endorsing the fiscal principles as expounded by the Minister for Finance on Budget Day.

Without doubt, this year's Budget is a most welcome one judging by the many positive reactions from various quarters. Not only is it painless, but more importantly, it is a well-balanced Budget that had adopted new approaches aimed at keeping costs down and to make Singapore stay competitive. To help Singapore take off in its next stage of economic development, the Budget has introduced a number of incentives for the business community. At the same time, the Budget this year can also be described as very generous and compassionate in terms of the wide range of rebates, tax reliefs, financial assistance programmes and additional subsidies in education and health which will benefit a wide cross-section of Singaporeans, including the lower-income group.

Mr Speaker, it is indeed heartening to note that our nation has a healthy budget surplus in 1992. As the Minister has informed the House, this position is expected to continue in the next few years so long as our economic growth is sustained. We are indeed blessed, Sir, as not many countries in the world are in this enviable position and what this proves is the principles underpinning our fiscal policy are sound, pragmatic, prudent and realistic. And for this, credit must go to the Minister for Finance and his team of officials for making it possible for all Singaporeans to reap the fruits of our economic success.

Having said all that, Sir, I would now like to make some observations on the Budget Statement. First, I would like to raise the issue of CPF contribution. Workers are generally disappointed that their contribution rate is reduced only by half a percentage point despite the favourable economic growth in 1992. They would have been happier if the reduction had been one percentage point because they have been eagerly looking forward to have more take-home pay to assist them to cope with the high cost of living we are experiencing in Singapore. On the other hand, employers have no reason to lament on the increase of half a percentage point in their contribution bearing in mind that they have been given several incentives in this year's budget. Also, employers must never forget our workers' sacrifice when they willingly accepted the immediate reduction of employers' CPF rate during the recession years of 1985-1986. Perhaps the Minister could clarify why the contribution on the part of the workers is not reduced by 1%.

Another aspect of CPF which I would like to touch upon is the CPF Share Ownership Top-up Scheme. The objective of this Scheme is to enable our citizens to own shares so that they will have a more direct stake in the growth and prosperity of Singapore, and this is indeed praiseworthy. But the scheme as announced appears to be restrictive as it is confined only to citizens aged 21 and above who are CPF members. What I would like to ask here is what about CPF members who have not attained the age of 21? Will they be eligible for the scheme as well? Could the Minister please enlighten the House on this point?

Sir, the next issue I would like to comment on is the capping of tax deduction for medical expenses to the maximum of 2%. While most of us understand the rationale behind the proposed capping as one way of curbing rising health costs, what is disturbing is that some employers have already started to take advantage of the situation by proposing cost-sharing between employers and employees. Therefore, it is not surprising that workers are beginning to be concerned as they consider this development as a sign that employers who are presently providing medical benefits beyond 2% would seek to withdraw these benefits even though there is no necessity for them to do so at the moment. In this connection, I would like to know what measures the Government can take to check on such unscrupulous employers, as the Minister has said in his budget speech, and I quote:

`The Government's aim is to pre-empt a future problem and not to deprive any worker of existing benefits.'

Finally, Mr Speaker, I would like to make a brief comment on the issue of the Goods and Services Tax. Feedback from the ground revealed that there is a widespread concern about the final retail prices to be paid by them when GST is introduced. They strongly believe that prices would go beyond 3%. This fear is reasonable and expected because, firstly, people are unclear of the multi-stage collection process of the GST, and secondly, retailers will seize the opportunity to jack up prices through the rounding off process. I would like to ask whether something can be done to allay the fear. Could the Government consider the suggestion that retail stalls be asked to show the breakdown between the sale price and the GST when sales are made or when services are given?

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

Mr Kenneth Chen Koon Lap (Hong Kah GRC): Mr Speaker, Sir, I support the motion moved by the Minister.

This year's Budget Statement is to be and, in fact, has been welcomed by everyone. But first I would like to touch on a point made by the hon. Member for Hougang yesterday. He said that the reduction in corporate tax by 3% is not fair, as it would benefit larger corporations or the MNCs more, and the smaller companies or the SMEs would lose out. Mr Low is a businessman and I am sure a very smart one. Surely he knows that in business the larger the investment the higher the profit is to be expected. But at the same time, it carries a much greater risk. He cannot believe that a neighbourhood shop expects to make the same profit as a supermarket or a large departmental store. I wonder if, instead of tax reduction, the Government decides to increase the tax by 3%, would Mr Low come out to fight for the MNCs because they would have to pay more tax? Perhaps nowadays it is fashionable for the Opposition to engage in the politics of envy by pitting one section of the population against another, and doing the same for the business community.

Sir, this undesirable and dangerous practice, as our Prime Minister has just put it so forcefully, must be stopped because it can threaten the future stability and prosperity of our nation. Just look at the example of some of the countries in our region which engage in this type of politicking. Their economy is in total ruin and their nation divided.

Sir, the three main features of this year's Budget Statement must be: (1) the introduction of GST, (2) the call for building up of an external economy and (3) the topping up of the CPF scheme.

As the subject of GST has been extensively debated and it would be debated later in this House, and the CPF Top-up Scheme has been so eloquently put forward by our Prime Minister, I would like to go on to my comments on overseas venture.

Although venturing overseas is nothing new to both Singaporean entrepreneurs and professionals, the need to speed up our effort has never been so sharply focused. Our domestic economic growth approaches its maximum potential as our economy matures. Like all other NIEs, the need to expand outward is inevitable. Up to now, our overseas ventures in the private sector have been mainly through individual effort, although organisations like EDB and TDB have constantly been making contribution in promoting trade relationship with other countries in our region. They cannot be said to be well-coordinated with the private sector. Our Government has always been far-sighted enough to spearhead business ventures and had laid foundations for development investment abroad, notably the promotion of the Growth Triangle, which took off some five years ago.

At the present moment, we are becoming the largest investor in Johor in terms of the number of projects. Many projects in Batam and Bintan have been completed or in the process of being commenced. Of course, the effort taken by our Senior Minister in building up ties with China through the years and the appointment of Dr Goh Keng Swee as Economic Adviser to China, paving the way for our entrepreneurs to invest heavily in China, should be much appreciated.

Recently, we have stepped up our trade promotion to Vietnam and have even looked towards Cambodia, Myanmar and Laos. But all these efforts will come to nought if we do not have a population with a spirit of entrepreneurship and adventure and the courage to look beyond our shore. So far, we have a very efficient business community with well-trained managers and technocrats who have been responsible for the rapid economic growth in Singapore for the last two decades. The business climate in Singapore and other countries in our region is different in both outlook and operating procedures. In Singapore we rely on data facilities, feasibilities, projections, etc. Overseas projects like those in China, Vietnam and even Indonesia, we rely very much on the vision and judgment and personal skills of the individual entrepreneur. In areas where regulations and procedures are much more fluid, the risks of doing business are much higher. But, of course, higher gains can be expected. We therefore have to nurture the young generation of entrepreneurs, professional or even technicians, to this new orientation. They may have to start from scratch to learn new skills and techniques to face up to these new challenges.

On the other hand, the Government should give maximum support, not so much in terms of monetary guarantee, but rather logistics and facilities to this group of adventurers. It is most important for our Government to set up embassies and send trade representatives to the designated countries to give the necessary support to our overseas workers and families, and assist them to settle down in their new environment, help in their children's education and rendering assistance in case of any emergencies. The Government should also speed up R&D programmes to train the necessary manpower for such ventures.

The proposed tax cut on corporate tax and personal income tax and all other tax incentives to encourage overseas ventures are of great help to our entrepreneurs. However, it is apparent that there is no way for us to compete purely on cost. To give an example, last month the hon. Member, Mr Ho and myself, visited Vientiane. The Laotian Government assigned two doctors to accompany us during our visit. We asked them how much they are paid, and we were informed that their monthly pay is US$30, and maybe US$40-$45 with overtime. A 500 cc HondaCub costs about US$1,500. We can see that even taking living cost into consideration, the wage gap is quite astonishing. In order to compete, it must be on value-added areas, whether in goods or services. We must be able to compete in organisation and managerial skill. We must also be able to reinforce our network overseas where information and support can be readily obtained so that we can have the edge over competing entrepreneurs from other countries.

It is an urgent agenda as other NIEs, like Taiwan, South Korea and Hong Kong, have already had a great headstart, not to mention that their entrepreneurs are not as sheltered as ours. But this is a matter for our survival and in order for Singapore to maintain our target to be a developed country, we must make this undertaking a success. I am confident that with the Government's support and the experience we have gained through our two decades of economic progress, we should be able to carve ourselves a niche in the economic progress in the Asia-Pacific region.

Sir, I support the motion.

Encik Othman bin Haron Eusofe (Marine Parade GRC): Mr Speaker, Sir, I support the financial policy of the Government for the coming financial year. I would like to take this opportunity to provide feedback on the workers' views on two topics -the proposed adjustment of the CPF contribution rates by half a percentage point with effect from 1st July 1993 and the cap on deduction for medical expenses.

Sir, workers are disappointed with the proposal to adjust the CPF contribution rates by only half a percentage point with effect from 1st July 1993. I do not have to remind that our workers have made a big sacrifice in 1986 which helped Singapore to recover from the recession and to enhance our competitiveness. It was the understanding then that the CPF cuts would be restored when the economy recovers. However, the pace of restoration has been painfully slow. Sir, there is a good case for faster restoration. The rate should have been adjusted by at least one percentage point with effect from 1st July 1993. Our economy performed creditably in 1992. The growth of 5.8% compares favourably with that of the other NIEs. Taiwan grew by 6.1%, Hong Kong by 5% and South Korea by 4.9%.

Nominal wages grew by 7.5% in 1992 compared with 9.2% in 1991. Moderate wage cost increases in 1992 helped to moderate business cost increases. The wage share of nominal GDP increased only marginally from 45.1% in 1991 to 45.4% in 1992. This is well below the figure for Taiwan which was 53.1% in 1990 and the developed countries which ranged from 52.4% in West Germany (1989) to 62% for Switzerland (also 1989 figures). As a result, the increase in manufacturing unit labour cost in 1992 moderated to 3.8% from 5.7% in 1991. In addition, there was a higher productivity growth of 3.1% compared to 1.5% in 1991. The Unit Business Cost Index for the manufacturing sector rose only by 1.9% in 1992, comparing favourably with the average annual increase of 4.9% between 1987 and 1991.

Although Singapore's competitiveness in the manufacturing sector vis-a-vis the other NIEs declined in 1992, as measured by our relative unit labour cost index in US dollar term, this was mainly due to appreciation of the Singapore dollar against the Hong Kong dollar and the Korean Won.

Sir, in view of MTI's assessment that growth in 1993 will be between 6% and 7%, workers look forward to a faster pace of restoration of the employer's CPF contribution rate in 1993. Their reasonable request for an adjustment of one percentage point should be favourably considered by the Minister.

Sir, let me now deal with the proposed cap on tax deduction for medical expenses at 2% of total employees' remuneration with effect from the Year of Assessment 1994. The aim to encourage both employers and employees to be more prudent in health care spending deserves support. This measure is but one of the many measures to enhance our competitiveness. However, it is important that employers take this proposal in the right spirit. And they should be rigorously reminded that they should not take this as an opportunity to withdraw existing medical benefits. The Minister has said, and I quote, "Government's aim is to pre-empt a future problem and not to deprive any worker of existing medical benefits."

In fact, Sir, in cases of companies where employees' remuneration forms a small part of the company's overall budget, employers should provide medical benefits even beyond the 2% cap, even though such expenses are not tax deductible. In this way, they demonstrate their concern for their employees' well-being, and this will spur their employees to work harder for their company's success. There are other ways to monitor and bring down health cost. Employers can implement health promotion programmes for their employees to enable them to keep fit and healthy. Such expenditure will bring them good returns because fit and healthy employees who are properly motivated can help companies to attain higher productivity and more success.

Sir, let me now turn to some aspects of the GST. I am happy that the Government is providing a comprehensive package of assistance, namely, lower income tax, higher personal relief, rebates to help our citizens to overcome problems which they may face following the proposed tax reform and the introduction of the GST. This assistance package will no doubt help the majority of our citizens to cope, to some extent, with the introduction of the GST. As pointed out by many of my PAP MP colleagues, Government is able to cushion the effects of the GST because we enjoy healthy budget surpluses arising from the good economic growth since 1987.

The Minister for Finance has given the undertaking that "as far as possible, no household will be worse off when the GST is implemented."

Sir, I have to point out that there is need to ensure that with cost of living increases over the years, this package will continue to be adequate. The examples given by the Minister in Appendices E and F (Part 3) of the Budget Statement are worked out based on current prices. Like Dr Wang Kai Yuen, I would like to ask whether they will hold if there is inflation and increases in prices. I would like to urge Government to do a periodic review of the impact on workers' standard of living. An assurance should be given that additional measures will be considered in the event that there are income groups which face hardship because of the tax. It is also important to note that in assessing the revenue loss to Government, because of these measures, the estimated GST collection of $921 million is based on the 1990 private consumption expenditure. With rising expectations and economic growth, this can lead to an increase in private consumption expenditure, and this may well alter the revenue position significantly in the ensuing years.

Sir, for the pensioners, the proposed increase in the Singapore Allowance may not be sufficient to help them. Government should do more for pensioners, taking into consideration the fact that they are former employees of the Government who had worked hard and contributed towards Singapore's progress. I think we owe it to the pensioners to ensure that they will be able to continue to enjoy a reasonable quality of life in their retirement, taking into account their contribution to the nation.

Sir, on this note, I support the motion. 4.38 pm

Mr Ling How Doong (Bukit Gombak): Mr Speaker, Sir, this is a good budget, save for the GST. I therefore suspect that, on the one hand, it encourages investments from foreigners and, on the other hand, it is a sugar-coating over the GST bitter pill. And like contact pills, once swallowed, it takes a period of time to react accordingly.

I question the timing of the introduction of GST, simply because at the moment we have a very sound economy and we have a healthy reserve of over $70 billion. And every year we have huge budgetary surpluses. In 1989, we had $3.7 billion, 1990 we had $3.4 billion, in 1991 we had $5.7 billion, and now we have $4.9 billion surplus. With such strong financial standing, I therefore question the timing of the introduction of the GST.

The Budget is introducing a very radical change to our tax system - from direct to indirect taxation with a broad base. The question before this House is whether the middle and lower-income groups have in the past been paying something like a GST. I am going to say, in fact, they have been paying GST, though not called GST as such. It is a way of indirect taxation by the Government. For example, the foreign workers levy. Because of the foreign workers levy, in the manufacturing sector and the construction sector, costs have gone up and, invariably, the costs have been passed on to the consumers. So that is indirect taxation to that extent and, therefore, they have to pay more, because costs have gone up. And costs have gone up because of the imposition of levy by the Government, bearing in mind the foreign workers levy amounts to $975 million. The foreign workers levy amounts to $975 million which the Government has received in advance and later on you get the people to pay this back to the Government. It is indirect taxation, which amounts to GST.

Similarly, we depend heavily on foreign workers. With the imposition of this levy, the construction industry has to pay more, resulting in rising cost for building condominiums, including HDB flats. Ordinarily, before the levy was imposed, for example, a flat cost $100,000. Now, with the imposition of the levy of $450, probably the cost has gone up to $120,000. But the $20,000 would have gone back to the Government. When the flat is completed, and when the Government sells it to members of the public or its citizens, they would consider this as the cost of increase for the new HDB flats. Therefore, the Government benefits twice over. The first time, they collect the levy, but when the property is for sale, it has not taken into consideration that the increase of $20,000 has already been collected by Government through the levy. That is why the price of the property has gone up. That is also a form of GST.

The next form is HDB rentals. HDB rentals have gone up, and hawkers will have to charge more for their food. It is very obvious. Ultimately, it will be the people, the consumers, who have to pay more for this. That itself, I consider, is an indirect taxation in the form of GST.

Another form is the COE, PARF, ARF, and the road tax. The Government has collected in excess of $1.7 billion from this source of revenue. Quite obviously, this would have resulted in the increase in cost of transport and production. It will again land on the laps of consumers. This, I consider, is also a form of indirect taxation. Like petrol, for example, the ad valorem duty on petrol is about 60 cents per litre. The people have to pay. I know in the Budget there is this provision for reduction. But we do not know what percentage it will be reduced. This is again indirect taxation made through the people.

The next item is diesel tax. With the imposition of $7,000-odd diesel tax on taxis, the taxi companies will have to raise taxi fares. Had it not been for the imposition of the diesel tax, and had it not been for the imposition of duties on petroleum products, the taxi fare could have been $2, instead of $2.20. So the people are paying indirect tax on the service in this sense. The money has been collected by the Government and the taxi drivers have been made, in a way, the agents for the collection of revenue for the Government.

The duties collected from petrol in 1990 came to $499 million and, in 1991, $531 million. Then the statutory boards, like TAS and PUB, are monopolistic bodies. You either get their services or none at all. You cannot go elsewhere for water, neither can you go elsewhere for electricity. Similarly for TAS, their prices will keep going up. They will never lose money. So that explains why all these statutory bodies have got surpluses. And the services rendered to the people through these monopolistic bodies will result in the people paying more for the services. This, in a way, is also service tax.

The next point is the reserves of over $70 billion. These reserves have been invested somewhere. Even on a very conservative calculation, based on 4% interest, $25 billion would generate $1 billion in return annually. Where are these returns? And I am sure all these reserves are not just invested by putting them in the bank to collect the 4% interest. They are invested elsewhere. I am quite sure the return would be much higher than just the 4% interest.

In the new budget, the Government would lose a revenue of $1.1 billion if they are not implementing the GST. With the GST, they will collect about $221 million. Of course, there is a loss of over $100 million. But bearing in mind, the $1.1 billion loss in revenue was meant partly to induce or to get foreigners to invest in Singapore. Surely, there will be returns for this investment. And as the Prime Minister has said earlier, in good times, the Government is prepared to give back whatever the state has. Why not set an example here? In good times, we should put the budget in practice. Without the GST, the loss in revenue will be $1.1 billion. Set this amount against the budget surplus of $4.9 billion, the Government will still have a surplus of over $3 billion. Why not plough this money back in good times? I am quite sure that the people will go all out to support the Government in bad times.

We are worrying about the greying population 20-30 years from now. The ratio is 8:1 but it will be 3:1 later on. With the CPF net being widened now, long before the 20 years, you would have got nearly every Singaporean under the CPF. With the new law to raise the retirement age to 60 years, and with more and more people buying health insurance, MediShield, even the ratio of 3:1 should pose no problem to Singaporeans because all these people would be self-sufficient. And as we pump so much money into education, more and more people will be educated. They will be the working population including the female. Therefore, why are we worrying about 20-30 years from now?

We said we model our system after the New Zealand GST. New Zealand introduced the GST in 1986 at 10% and, in 1989, increased it to 12.5%. But we are way-off from New Zealand. Of course, if you compare the percentage point, Singapore at 3% GST and, New Zealand at 12 1/2%, it is a wonderful proposition to Singaporeans. But then the comparison must not just stop there. New Zealand is a welfare state. They get social security. They get welfare services from the time they are born until they are dead. They get unemployment benefits. They get superannuation benefits when they reach the age of 60. The handicap will get assistance, and so on and so forth. And New Zealand paid $10 billion in welfare payments.

Look at Australia. It is also a welfare state but with certain modifications. They have to pay now for their tertiary education and health, like New Zealand. For New Zealand, they have recently introduced that anyone with an income of $1,300 has to pay ward charges of $44 a day. For those earning below $1,300, they do not have to pay any charges in the hospital at all. We are not even talking about a welfare state. We are talking of ploughing back the huge surpluses of $4.9 billion that we have, and we are only ploughing back $1.1 billion. And out of this $1.1 billion, part of it is considered investment to get foreigners to invest in Singapore. Why not? Why are we in such a hurry? Why are we so obsessed with increasing our budget surpluses every year? We have not even touched the reserves, which we should not, because we have very healthy budgetary surpluses every year. For all you know, if we introduce the measure to induce foreigners to invest in Singapore, surely we must have confidence that it will give us good returns and they may even be more than the $1.1 billion we are sinking in now. Even the Prime Minister of Australia has said that the GST is a monstrous tax which intrudes into every aspect of life. And he also said, "Don't have the GST at any cost."

Therefore, I urge this House to seriously consider this aspect - in good times, everybody enjoys the benefit for the sake of the country; in bad times, the people will share the burden of the country.

Mr Chng Hee Kok (Tampines GRC): Mr Speaker, Sir, I think I have to re-learn all my economics after hearing thislecture from Mr Ling How Doong. But I just want a point of clarification. Perhaps he will like to clarify whether he supports the New Zealand model or the Australian model. New Zealand today has a population of our size, with three million people, and welfare payments of $10 billion. Australia today has a population of 17 million or so, and welfare payments of $43 billion. Right now, unemployment in Australia is 11%.

Mr Ling How Doong: I am not supporting. I am only drawing a comparison.

Mr Chng Hee Kok: What is the purpose of the comparison? Obviously something is fundamentally wrong with that system.

Mr Ling How Doong: A comparison of 3% and 12 1/2% GST.

Mr Speaker: Order. Would the Members stop talking among themselves?

Mr Chng Hee Kok: If he had been here yesterday when my colleague, Mr Koo Tsai Kee spoke, he has pointed out very clearly---

Mr Ling How Doong rose ---

Mr Speaker: Mr Chng, would you like to give way to Mr Ling?

Mr Chng Hee Kok: Let me finish my sentence first. He will understand very clearly that Australia is trying to introduce the GST because their economy is in trouble. In Singapore, it is different. We are introducing GST to replace a direct tax system which we know the world is changing to. It is wrong, and it does not make us competitive.

Mr Ling How Doong: Mr Speaker, I must apologise for intruding just now because the Member asked me which model I supported. So in answer, I said that I did not support this. I merely drew an analogy by giving a comparison whereby the public seems to have the impression that if New Zealand has 12 1/2% GST and, Singapore has 3%, it is very reasonable. I said that if you want to draw a comparison, you must put all the facts on the table. You do not just say, "There, 12 1/2%, here, 3%." You must tell them what they get for 12 1/2% and what we get for 3%. I am not supporting the practice in New Zealand and Australia. And I do not support a welfare state at all costs. So I want to make it clear. I meant to draw a comparison here. Do not get me wrong.

Mr Chng Hee Kok: Mr Speaker, Sir, I am very pleased with the categorical statement that he does not support a welfare state. That is why the comparison should not stop at percentages. What is the state of the economy of New Zealand? What is the state of the economy of Australia? Why are they changing? I think these are comparisons that are worth going through. They are profound questions that we must answer. It is not to compare that because it is 3% in Singapore, it will be easier to swallow than Australia's 15%. Do you want 11% unemployment today? Three years of no economic growth and many more years to come? About five or six years ago, the Australian dollar was worth about S$2. Today, if you go to Australia, you pay the most A$1 to S$1. If I am not mistaken, today, the rate of an Australian dollar to one Singapore dollar is about $1.10. Why is this so? These are economics. I would suggest, perhaps, my colleague, Mr Koo Tsai Kee, or Dr Ow Chin Hock, give Mr Ling some basic grounding in economics.

Sir, I support the motion in the name of the Finance Minister. Since the consumption tax was first mooted a number of years ago, I have always spoken in favour of why a change in this direction is necessary. But I have also made it very clear that I have supported this idea on the condition that there must be corresponding changes in the direct tax system. I think the Finance Minister's very able and comprehensive handling of this very delicate issue has far exceeded my expectations.

The need for this structural change is so compelling, contrary to what Mr Ling has said. I think it should have been done long ago. We have been able to wait to take such a protracted approach only because our economy is very strong. In my various discussions with grassroots leaders and residents, there is a general acceptance that these measures are at the moment quite acceptable to them. Despite what Mr Ling has said, the response from the Opposition bench is rather muted on this issue.

So far, the debate on the GST has focused on two main areas. First, the effects on the lower-income group and, second, price increases or profiteering post-GST. I think the first area has been quite well covered by my colleagues. But I want to state that I am personally quite satisfied. I think most salaried employees and self-employed people living in 1-, 2- and 3-room flats will be better off after the GST. The biggest fear for most Singaporeans is that post-GST there will be high price increases and profiteering.

Sir, let me hazard a guess and paint a different scenario. In the run-up to 1st April next year, I think the predictable consumer response is to spend and buy way above their immediate needs. People are basically human. What they will do is to spend, buy in advance of GST, just to beat the GST deadline. What will happen is that manufacturers, traders, merchants and retailers will respond very quickly. They will make sure that they will create goods, and ensure that there are enough supplies to meet this sudden surge in demand. Our Singapore market is relatively free and goods move in and out without any restrictions. Basically, there are very few imperfections except for controls on cars and so on. Most traders will react in such a manner and, to my mind, it must end up resulting in an over-supply situation. This year's forecast of 6-7% economic growth is very conservative. I think there will be a consumer led boom as a result of this move by all consumers, all Singaporeans trying to beat the GST.

After 1st April next year, as is the case shown in Japan, I think consumers will loathe to part with their money resulting in a consumption slump. Nobody likes to pay money to Government on levies and taxes. And what will happen is that traders will be over-stocked and they will have to clear their goods. In fact, I predict that after the GST, there will be many post-GST sales.

Price increases, contrary to what many people believe, will be minimum. The statement by the NTUC that they will keep their prices, especially on essential items, within 3% of the GST, will also be a further dampener on prices.

In a free market like ours, a very fragmented market, meaning that traders can move in and out any time they like, it is very difficult to profiteer. Fears of profiteering, and I take it to mean that traders increase their prices just to take advantage of the GST, I think is a bit over-stated. With the changes in our consumer spending behaviour, a very strong economy and hence a strong Singapore dollar, a free market with endless supply of goods, and again a safety valve to our neighbouring countries as well - Singaporeans can travel to Johor if they find that Singapore prices are a bit high - and the pervasive presence of the NTUC, Singaporeans' fears on unreasonable price increases are really quite exaggerated. My alternative scenario, I am sure the Minister for Finance will hope that I am right, is not a wish but I believe that this will come about.

Sir, I now move on to the subject of exemptions and zero-rating. Reading the reports in the mass media and from discussions with residents, a common topic relating to helping the lower-income group is the idea of exempting certain goods and services from the GST. There have been reports in the press and the Minister has already rebutted it, that B2 and C class ward charges in hospitals should be exempted from the tax. Some suggested sugar and rice should be zero-rated, and even small television sets.

In my discussion with residents yesterday evening, one resident did suggest that because the lower-income group can only afford to buy small TV sets, we should waive GST on small television sets.

Sir, generally, GST exemptions are very very dangerous. I think it will lead to all kinds of economic distortions. After all, let us not forget that even the rich can use C class wards. In a free market, how do we ensure that all goods in a provision shop will not be passed off as rice and sugar, if sugar and rice are zero-rated? People, by and large, are very creative, in creating new ways to avoid any kind of Government tax or levy. The more exemptions we have, I fear there will be more avenues for avoidance and in the long run will lead to outright evasion. If we make GST comprehensive, with little or no exemptions, I think this will ensure minimal distortion in our economy.

Calls for such exemptions are very persuasive, especially when you talk about helping the poor or lower-income groups. However, Sir, no matter how simplistic or simple this idea is, the Government must make an effort to explain and win the hearts and minds of our people and explain to them why even for basic goods and hospital services, it is best that they are brought into the GST and that help of any kind must only come in the form of offsets and income tax reductions which the Minister has already announced. If they are not adequate, certain areas not covered, this can be reviewed. But as far as possible, make GST as comprehensive as possible.

That is why I am very wary of the proposed plan to exempt businesses with sales turnover of less than $1 million from charging the GST. I think this will in the long term act as a dampener to growth and this will also lead to a lot of vertical chaining of businesses from importers to retailers, all with very low sales turnover. For certain businesses, eg, with high volumes and very low profit margins, the 3% exemption is worth avoiding. I think the Minister should be aware of this and I really hope that he will reduce this limit and as far as possible only exempt hawkers and the small traders, and bring the limit of $1 million down.

Sir, this year's budget is also notable for another aspect, and it is very clear now that our internal economy, although it is the main engine of growth, as we have said in previous years, must be supplemented with an external dimension. Hence the call for Singaporeans to invest overseas. Our Senior Minister has alluded to a second wing in our economy. However, Sir, so far, this second wing alluded to seems to focus only on the large companies, the public listed companies and Government-linked companies (GLCs). I am no expert on the anatomical structure of a bird's wing, but I know that a bird's wing is made up of very large feathers, a lot of very small feathers and also the down feathers. The down feathers are equally important to the bird in flight. So if we take that analogy further, like the wings of a bird, the Government should not just focus on the large companies. I think the focus should be extended to the entrepreneurs and the small companies. Some of these smaller companies, from my own personal experience from meeting these people and also the points made by my colleague, Mr Chandra Das, yesterday, are making very good in-roads into very remote areas in China and Vietnam.

However, the largest obstacle to these small operations is financing. In the Singapore environment, our banking industry is very conservative and these small businesses have very little or no access to funds. If we are serious in encouraging more small and medium sized companies to venture abroad, I think they must overcome this major obstacle. May I suggest that, besides taking money out from the reserves to upgrade HDB flats, the Government should seriously set aside $1 billion at least from our reserves to back up an insurance scheme. This insurance scheme will back up all the loans that are being provided by the banks. With such an insurance scheme in place, I think bank borrowings can be more forthcoming. Although it needs very careful study, this $1 billion if set aside, can encourage and help more small businesses to go overseas. This will in a way secure our future and our long-term well-being. If this is so, then I think this must be looked into. Mind you, this is not necessarily a losing proposition, because, after all, with an insurance scheme, there will be premiums levied on such loans.

Sir, another aspect of encouraging our individuals to invest and venture overseas, and this again has been raised by the Senior Minister, is to lower our CPF safety net. I am surprised that, besides the announcement of the half a percentage point change in the CPF rate, the Minister has not made any substantial announcement in this area. There is no doubt that the CPF scheme has served Singapore very well in the past. I think the question we have to ask is: does it now make Singaporeans more "kiasu", especially those in the high income brackets, and if this is so, does it lead to a lack of entrepreneurship? If this is so, oeen the suggestion of allowing CPF savings for business ventures should be considered.

I see a problem here if we allow this to be done. I think the mechanics will be very unwieldy. That is why two years ago, I advocated then that an alternative way was to set an upper limit on CPF savings and progressively reduce CPF savings once a person has reached the upper limit. Presently, there are already cappings on CPF savings, on monthly salaries, on annual salaries above $100,000. So capping is not new. But my suggestion then was to cap the overall accumulated savings. I suggested then that the capping on these savings needed some study, as how much we need to set aside for old age depends a lot on the rate of accumulation of CPF and also depending on the age of the contributor.

High income earners, in my opinion, are quite capable of taking care of themselves. And if this move of capping our CPF savings can be a further boost to entrepreneurship, then this policy must be reviewed. The capping of CPF contributions has several benefits.

First, it frees the Government from having to debate with the people on how their CPF savings may be used. Second, the Government need not have to challenge the people to invest for higher returns. This is what we are doing now with the investments in gold and stocks and shares. Third, when we cap the CPF, there is more disposable income and increased investments and hopefully these investments will go overseas which is what we are aiming to achieve. Lastly, Sir, wherever possible, there should be less government. And less government in the area of personal savings and, of course, personal choice and this is what GST aims to do, makes for a much less rigid system and will also provide Singaporeans with a much greater measure of personal freedom.

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

Dr Michael Lim Chun Leng (Cheng San GRC): Mr Speaker, Sir, I would just like to take a few moments to address some of the statements made by Mr Ling How Doong. He said that a large proportion of the price of properties was due to the increase in the workers levy. I just want to dismiss his seemingly seductive but untrue point with a simple example. During the Gulf War period, terrace houses in some areas were sold for about $500,000. This day, those who have bought the houses can sell these same houses for about $800,000. During this period, I do not see how the price increase could have anything to do with the workers levy. So I think you can see the fallacy of his statement.

Secondly, he decries the fact that our statutory boards, in being very efficient, can provide low-cost service and accumulate surplus. I really do not know how he wants our statutory boards to be run.

Furthermore, he says why do we have to worry 20-30 years from now. He does not appear to have any long-term vision for Singapore. I wonder whether his statement reflects the view of the SDP, ie, SDP does not believe in worrying about the future of Singapore. Personally, I would be very worried if those who intend to serve the country do not have any long-term visions for the country.

Sir, I will now go on to the Budget proper. The 1993 Budget Statement, in addition to the usual hallmarks of our budget statements, has three important milestones, namely, tax incentives to promote an external economy, a CPF share ownership top-up scheme and measures to offset the GST.

The importance of building an external economy has spurred the introduction of tax incentives to promote an external economy. We scan the horizons for lands of opportunity and we encourage Singaporeans to embark on a venture to scour these far away lands for the grail of prosperity. These measures give an added impetus to those who answer the call. More can be done. Just as we encourage the setting up of a single window clearance for businessmen wanting to invest in various places such as Batam and India, the Government should consider the setting up of one-stop total business centres. At these centres, businessmen can come for advice on the feasibility of going into various types of business; be briefed on the facilitation measures that have been forged through the EDB or TDB with these countries; be advised on the benefits of the tax incentives available; be directly linked up with financial institutions for financing; and be facilitated in forging link-ups with joint venture partners.

Hence, in Singapore, a businessman may visit a one-stop total business centre on China, Vietnam, Indonesia, India, etc, where one can obtain a complete business package. Certainly, the private sector must take the lead in going overseas but we must give them the maximal chance to succeed.

I will next turn my attention to the CPF Ownership Top-Up Scheme. It is a generous gesture on the part of the Government. I support the Prime Minister's view that it is not a handout but a dividend for investing in Singapore Inc. However, there are those whose spirits are willing but financially are unable to do so. In this instance, retirees who have CPF accounts and do not have much savings may find it difficult to put in $500 to benefit from the CPF ownership Top-up Scheme. After contributing to the CPF during their decades of working life, they feel that they should not be left out of the scheme just because they find it difficult to contribute $500 to the CPF account. I feel that these people are the ones that are the most deserving to benefit from this scheme. The Government should consider exempting all retirees of more than 55 years of age, who have previously contributed to the CPF, from the need to contribute $500 before they are allowed to benefit from the scheme. If I may, I will go further to suggest that the Minister should also consider extending this exemption to those in low income families who have already accrued some savings in the CPF account but have had to stop working because of extenuating reasons, for example, physically handicapped or those who have medical illness which precludes employment. I hope that the Minister will not consider it an excessive request to reward those who have toiled hard during their younger days and do not have much to look forward to in their twilight years. With the GST looming ahead, this exemption for these deserving Singaporeans will be indeed a silver lining.

The measures to offset the GST have to some extent allayed some of my fears about its effect on the lower income group. It does show that the Government has taken great pains to ensure that the lower income group will not be adversely affected by it. However, we do recognise that there may be some families who may not benefit from these measures. As an example, in the area of health care, although subsidies may be given to the subsidised patients seen in hospitals to offset the GST, they will not be able to escape from the effects of GST completely. Let me illustrate with a specific example. In our hospitals, there are far more outpatients than inpatients and a large proportion of the bill comes from the cost of drugs. As the list of standard drugs is limited, there will be many who will be on drugs that are not on the standard list. It is difficult to see how these subsidised patients can escape the effects of GST. I would like to put forward the suggestion that families who are in financial difficulties as assessed by community organisations can be referred to a committee coordinated perhaps by MCD and those deemed deserving of assistance but do not qualify for PA under the current stringent criteria, may be given rebates on the GST on expenditure in essential areas like health care, education, and certain food items. These GST rebates can be reviewed on a six monthly or yearly basis for each family under this scheme.

Last, but not least, the Government must keep a close watch on profiteers. I suggest that for the first year of implementation of the GST, the Government should release a price list of the essential goods and services every month and this should be made known to the public through the mass media. In this way, we can prevent profiteering.

With these suggestions, I support the motion. 5.20 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I would like to begin by thanking all Members of this House who have spoken in support of the Budget over the last two days. The debate has been a long one, but many Members have given useful feedback, especially on our initiative to develop an external economy and to introduce the Goods and Services Tax.

Time will not allow me to address Members' concerns point by point. I will, therefore, focus on two areas: first, the building up of an external economy and, second, the introduction of GST. I will also deal briefly with some other major issues. Matters of detail will be carried forward to the Committee of Supply or to the Second Reading of the GST Bill.

The thrust of my Budget is to boost our international competitiveness. We must restructure our tax system to sharpen our competitive edge and strengthen our external economy. We must not take our past success for granted.

Sir, the current global economic conditions are not as favourable as in the past. First, world economic growth is sluggish. Many countries, including the world's three largest economies - US, Japan and Germany - are mired in difficulties. Although the US is showing some signs of a recovery, there remain structural problems, like a large budget deficit and an over-sized health sector. Second, trade frictions have increased. The looming trade imbalances are fuelling protectionist sentiments. The recent trade actions of the US Government have raised concern that it is veering towards protectionist policies. The US is the single largest market for East Asia's economic power houses - Japan, South Korea and China. US protectionism will retard East Asian growth. Without doubt, the world economic environment is more turbulent and competition is becoming more intense. With the collapse of communism and the dynamism of East Asia, there are more competitors than ever before.

We have so far been well served by our open door policy of attracting foreign multi-nationals to provide us with capital, jobs, technological know-how, and ready access to overseas markets. We can no longer rely solely on this paradigm. As we are a small country without natural resources, and with a very small labour base, we are becoming increasingly uncompetitive in labour cost terms with our neighbours - Indonesia, Malaysia, Thailand and, even more so, with countries such as China, India, Pakistan, East Europe and Russia. We must therefore build up an external economy to complement our present growth strategy. With our accumulated capital, technology and skills, we are well placed to do so.

Venturing abroad will create new business opportunities to bring us more wealth. I am confident that, in the long run, overseas expansion will enable us to build up some large local MNCs. Having said this, I must caution that we should not chase evanescent markets all around the world. We should focus our energies on markets which are on the point of take-off, and which we know well. The most promising is East Asia. It is the biggest, fastest growing and most dynamic new consumer market in the world. Our geographical, historical and cultural links give us a competitive edge in doing business in East Asia. We must move quickly to press home our advantage before the best opportunities are seized by others.

In my budget, I announced seven tax incentives to encourage Singapore entrepreneurs and companies to make direct investments as well as develop and market their goods and services in other countries. There have been comments that the incentives should have been given across-the-board instead of a case by case basis. With the exception of the unilateral tax credit which will be given automatically to any resident who qualifies, an across-the-board approach cannot be used for the other incentives. This is to avoid hollowing out our domestic industries, round tripping of domestic income and our being labelled a tax haven. Nevertheless, we recognise that companies need certainty in tax treatment in planning their overseas ventures. The overseas enterprise incentive has been designed to address this. Companies will now know in advance the kinds of investments which will qualify for tax exemption. This exemption will also be given for longer periods of up to 10 years.

Some Members hold the view that the regionalisation incentives will not benefit the small and medium enterprises. This is untrue. SMEs will benefit as much as big companies. They are eligible for all the incentives. Specifically, for the overseas enterprise incentive, all Singapore companies will be eligible, regardless of size. The criteria will be sufficiently liberal so as not to prejudice any particular sector of the economy nor the scale and form of the overseas venture. In addition, the tax exemption for venture capital funds will encourage the financing of SMEs, which would not normally have access to conventional capital markets.

Sir, developing an external economy is a multi-dimensional problem requiring a total approach to succeed. We are only at the beginning of our efforts to develop our external economy. More can be done eventually as the needs for those going regional become more clearly defined. Tax incentives alone will not enable us to grow an external wing.

Members have given many suggestions on the kind of support that Government should provide our companies in their overseas ventures. They include financial support, insurance against political risk, greater Government participation and the setting up of Singapore schools and clubs overseas. Government will do whatever else it can to assist in outward economic expansion. The Committee to Promote Enterprise Overseas will look into these suggestions.

Mr Heng Chiang Meng, the Member for Cheng San GRC, has urged Government to introduce group relief for losses in connection with the call to go regional. We cannot allow this because of the serious tax revenue implications. Where the incomes of the profitable companies comprise Singapore dividends, we may end up by repaying all the tax paid by the companies distributing these dividends. This is because we have a full imputation system in which the tax paid on corporate profits is passed on to the shareholders through the distribution of dividends. We would do well to learn from the experience of countries which allow group relief for losses. They have found that even without a full imputation system, such relief is easily exploited by tax planners.

Dr Wong Kwei Cheong has asked for a two-tier corporate tax system to promote entrepreneurship. We will not do so as this allows tax avoidance through business splitting. The better approach is to lower corporate tax across-the-board. People will know that those who dare and succeed will not have a large part of their rewards taken away by tax.

I will now turn to GST. The GST will be introduced to allow us to lower our corporate and personal income taxes. By shifting the burden of taxation from the production of income to the consumption of goods and services, we will encourage individuals and companies to work harder and produce and invest more. It will also make Singapore a more competitive place for doing business.

The Member for Potong Pasir has expressed the view that we need not cut our corporate tax rates because we have sufficient tax incentives already to attract foreign investment. If he is referring to pioneer-type incentives, then I would remind him that these are only given for a limited period of time to attract new and specialised investments, and are not enjoyed by the bulk of established companies, particularly those in the manufacturing sector. Even in this area, our competitive edge has, however, been eroded in recent years by competitors who have also cut their corporate taxes and introduced similar tax incentives. Their actions clearly illustrate that we do not have a monopoly on these strategies to attract foreign investments. Cutting our corporate tax rate at this time buys us insurance for the future. It ensures that the profits of Singapore-based companies remain taxed at a rate that will make them competitive with other countries which are also recipients of foreign investment. In this way, we will continue to attract foreign investments to secure our future economic growth and prosperity.

Thanks to Government's prudence and continued economic growth, we have a healthy surplus and do not need more money now. This is precisely the time to introduce the GST. This way, we can offset the tax through cuts in personal income taxes, rebates, and so forth, and make it easier for households to adjust. If we were to wait until we encounter an economic downturn and the money was needed before implementing the GST, households will find it very difficult to cope.

Mr Chiam has said that the Singapore Government in the 1960s opposed the introduction of turnover tax by the then Federal government. He has conveniently failed to point out the high rates at which incomes were then taxed in the Federation. Personal income tax rates were as high as 50%, while tax on corporations was 40%. Obviously, the imposition of a turnover tax posed a further burden on individuals. As the turnover tax was a tax on tax and with cascading effects, it discriminates in favour of large firms which can do many stages of production in-house. For these reasons, the government at that time opposed the introduction of the turnover tax.

Today, circumstances are different. Over the years, income tax has come down. This trend is likely to continue as countries compete for capital. In Singapore, we are introducing the GST as part of our restructuring to lower personal income and corporate taxes. It is not done for revenue reasons. Our package of offsets is proof of this. The majority of households will be better off after GST. Unlike a turnover tax, the GST does not cause cascading. This is because businesses are able to get a refund of the GST paid against the GST collected. There is obviously no basis for Mr Chiam's comparison.

Dr John Chen, the Member for Hong Kah GRC, is concerned that the lower income households living in 4-room HDB flats will be worse off after GST. Mr Speaker, Sir, although these households will not benefit from the rebate on S&C charges, they will gain from the property tax rebate of about $150 per year. Those with household incomes of $1,000 to $1,500 per month will on the average be able to save $240 per 2year from the reduction in income tax. Together, these two measures will be adequate to offset the GST payable for most of these households.

Members of the Opposition have also raised concerns that the middle-income group will not be taken care of under our offset package. This is not true. Households which earn above $1,500 per month will be able to benefit from the generous tax cuts. The tax savings will more than offset the GST payable. Take, for instance, an average household with a monthly income of $2,400 and which spends about $1,700 per month. It would save on income tax by almost $740 per year. This exceeds the GST payable of $590 per year by about $150. This computation has not even taken into account the savings on property tax that can amount to as much as $150 per year, if he owns a property with an annual value of $5,000 or below. If we add the property tax rebate of $150, the total net gain to the household is about $300 per year. Even if we assume that the household spends all of its income after CPF, the GST payable on its expenditure of about $2,000 per month would be, at most, around $720 a year. The saving of $740 from just the income tax alone is more than the GST payable.

Some Members are concerned that the package of offsets for GST may be inadequate for retirees. Most pensioners and retirees will be covered under one or more of the various rebate schemes announced in the Budget to help the lower-income groups. Some will benefit from the tax reductions. Others may be supported by their children who will also benefit from the tax cuts and other rebates. There are, of course, a few who may genuinely need help because they cannot enjoy the benefits due to their specific circumstances. This group comprises not only retirees but also low income families living in non-HDB premises. These people will be helped through assistance schemes administered by the CCCs.

Concerns have also been raised that while the GST is permanent, the offsets for the lower income groups are transitional. The offsets will operate for five years in the first instance to help lower income households tide over the introduction of GST. During this time, income should grow by 5% to 7% per year in real terms. Most will graduate into the higher income groups and benefit from the tax reductions. However, Government recognises that there may remain a small pocket of lower income households, comprising mainly the older generation, without the skills needed to secure good paying jobs. This group will shrink over time. I have said that Government will re-assess the situation after five years to decide whether we need to continue with the offset package in a modified form. The public can be assured that Government will always look after those who need help. We have done this before, and we will continue to do so.

Mr Speaker, Sir, when families do their sums, practically all will find that the reduction in personal income taxes and the package of rebates and subsidies will fully offset their GST burden.

A major area of concern is that prices will rise beyond 3% as a result of profiteering by retailers when the GST is introduced. In our market economy, competition will be our best safeguard against profiteering. Today, there is an abundant supply of necessities in Singapore. If need be, Government will ensure that the supply is increased even more. Government has done this before. Members will recall that the last occasion was during the Gulf crisis. We will not hesitate to do this again, if necessary. NTUC FairPrice has given the assurance that they will not raise prices by more than 3%. This will provide shoppers with a reference point.

On their part, consumers should shop wisely. They should boycott shops which raise prices unfairly. This will ensure businesses keep their prices competitive. Consumers can also form consumer groups and clubs. For instance, the Residents' Committees can set up price control groups to monitor and publicise the culprits. CASE is well placed to play a larger role and Government is prepared to increase its funding to CASE to allow it to do so.

On its part, Government would take tough action against blatant profiteers. The Inland Revenue Authority of Singapore will review their accounts. As a last resort, the Price Control Act can also be invoked.

Some Members are also concerned that, although the GST rate is 3%, prices may increase far more as businesses will add on to the cost of administering the GST. The GST system that we have proposed is a simple one. The tax will apply as a single rate without complex exemptions and zero rating. As we will also exempt businesses with annual turnover below $1 million, only the bigger ones with proper accounting systems will have to collect the tax. The standard accounting period is three months. These businesses will in fact enjoy a cash flow advantage as they collect the GST on their sales first and pay to the Government only later at the end of the accounting period. All these will help minimize the cost of businesses of complying with the tax. Furthermore, businesses will be able to offset the cost of compliance from the cut in corporate tax. There is, therefore, no reason for any business to raise prices beyond 3%.

There have also been fears that the GST may spark a wage inflation spiral. This should not be the case. At most, the introduction of the GST will cause a one-time increase in prices. This is borne out by the experiences in most other countries. Where introduction did lead to inflation, this was not caused by the GST itself, but by other factors such as excessive wage demands. In Singapore, we have designed a package of tax cuts and rebates to offset practically all households for the GST they will incur. The majority will, in fact, enjoy a net gain in disposable income. There is, therefore, no reason for wage demands to increase on account of GST.

There has been much concern that the GST rate will be raised after five years. The rate will not be raised as long as Government does not need additional revenue. This is possible if our economy continues to grow within our projected range of 4% to 6% and public expenditures are contained. Government has so far been successful in keeping its costs down. To a great extent, this depends on everyone not making unreasonable demands for subsidies. In short, the way to keep the 3% GST rate for as long as possible is to ensure that our income levels continue to rise with economic growth and Government costs are kept under control.

Mr Chng Hee Kok is of the view that Government should not exempt businesses with an annual turnover of below $1 million. The experience of other countries with GST shows that the cost of complying with the tax falls unfairly on small businesses. In Singapore, we have decided to exempt businesses with an annual turnover below $1 million because it would be difficult for them to collect the tax as they may not have in place a proper accounting system. Small businesses, like neighbourhood retail outlets, HDB shopkeepers, GP clinics, wet markets and hawkers, will as a result not be burdened with having to comply with the GST accounting and collection requirements.

Dr Wang Kai Yuen, the Member for Bukit Timah, has noted that out of the total GST offsets of $1.1 billion per annum, $318 million will benefit companies, leaving $786 million for individuals. As the GST collection is estimated at $921 million, he has asked who will bear the balance of the tax.

Mr Speaker, Sir, the GST revenue is collected on consumption by both residents and tourists. The estimated yield of $921 million consists of $677 million from residents and $244 million from tourists. The yield from residents is therefore less than the $786 million that Government is giving back through the personal income tax reductions, rebates and subsidies. Government will therefore be giving back more to households than what it collects from them through GST. The net gain to households will amount to about $109 million per annum. In the case of tourists, Government has said that the GST collected from them will be refunded if an administratively simple refund mechanism can be found. Such refunds of course would be borne entirely by the Government.

Mr Umar Abdul Hamid feels that the tax rate cuts favour the top brackets. This is not true. The top rate has been cut by three percentage points. This is equivalent to a tax reduction of 9.1%. The tax payable at all other marginal rates has similarly been cut by at least 9.1%. In addition, the 15% rebate for the first $10,000 in chargeable income has been subsumed in the lowest three rates. This means that the tax payable at these three rates has, in fact, been reduced by at least 16.1%. Hence the tax rate cuts do not work against the lower and middle tax brackets.

The Member has also asked for higher personal relief. As I have said before, Government gave higher tax rebates than more reliefs because doing so works to the advantage of the lower income groups.

Mr Low Thia Khiang is inaccurate in his assertion that the gap between the rich and the poor will widen. The personal tax changes have been structured to benefit the lower income groups. While it is true that the higher personal reliefs are more beneficial to taxpayers in the upper tax brackets, the Member should take into account the other personal tax changes. The tax rate cuts are proportional. The tax rebate of $700 favours taxpayers in the lower brackets. It becomes a reducing proportion of an individual's tax as his income increases. Overall, the personal income tax structure is now more progressive.

Mr Walter Woon has suggested that legislation be introduced to impose an obligation on children to maintain their parents. This is an interesting revival of a recommendation made by the

1984 Committee on the Problems of the Aged. The recommendation was not taken up then as it was felt that the timing was not right. The issue was again studied by the 1988 Advisory Council of the Aged. It concluded that such legislation was unnecessary as statistics indicated that few parents were neglected by their children. However, if Mr Woon feels that the legislation is now timely, he may wish to move a motion in this House to introduce a Private Member's Bill for Parliament's consideration. If there is sufficient interest in the concept, the Government will be happy to support the proposal.

I am confident that the structural tax reform package that the Government has proposed will serve Singapore well. It will raise our competitiveness and increase our growth. We will have a bigger economic pie to share out every year. Overall, everyone will benefit.

Now I will turn to issues of rising business costs in Singapore. There have been comments that this issue was not adequately addressed in the Budget. The issue is a complex one and it is currently being studied by the Cost Review Committee. We should await the Committee's detailed findings and recommendations. The Minister for Trade and Industry will also be dealing with this subject at the Committee of Supply and I will not dwell on it further.

Dr Wong Kwei Cheong and other Members have raised questions over Government's plans to raise the employers' contribution towards CPF to 40% over the next two years and its consequent impact on wages. Government's policy on this matter is well known and I do not propose to expound it again at this time. Members, if they wish, may raise the issue again in the Committee of Supply proceedings.

Some Members have raised questions over the Government's proposal to cap the tax deductibility of medical costs by companies to 2%. Like CPF, time does not allow me to enter into a debate on this issue and I will take it up again in the Committee of Supply.

Much interest has also been generated by the CPF Top-up Scheme. As the Prime Minister has already explained the philosophy underlying the scheme, I will not dwell on it further.

Finally, Mr Speaker, Sir, allow me to sum up. 1992 has been a good year. If all goes well, 1993 should be better. The general mood is upbeat. I have no doubt that this optimism will be borne out so long as we stay ahead of our competitors. We have launched our incentives to develop an external economy and restructure our tax system at a critical stage in our economic development. I am confident that these initiatives will fuel our progress from an NIE to a developed nation and create a better and brighter future for all Singaporeans. [Applause].

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 1993 to 31st March 1994.