COST REVIEW COMMITTEE REPORT (Motion)

Order read for Resumption of Debate on Question [12th October, 1993],

"That this House endorses the conclusions of the Cost Review Committee contained in Paper Misc. 5 of 1993 and calls on the Government to accept the Committee's recommendations to contain rises in the cost of living.". - [Mr Chng Hee Kok].

Question again proposed. 12.56 pm

Dr S. Vasoo (Tanjong Pagar GRC): Thank you, Mr Deputy Speaker, for allowing me to join in the debate.

Sir, the Cost Review Committee's Report has covered extensive grounds to examine public concern about cost increases. The Report is comprehensive but I am not sure it will allay public worries and reduce the debate about rising costs. This is because the accepted basic basket of goods used to measure CPI is differently perceived by different consumers. Some of them want to add on goods to the basket, others want to reduce this basket while others want to change it. So the saga will continue in terms of how people perceive what weighage to give to this basket. But in any case, Sir, we have to stick to international measures for CPI so that we can check consumer price index changes over a period of time. Hence, the debate on cost of living will continue. The CRC Report will not really put an end to this debate because we will always be confronted, whether we like it or not, with pricing and price changes all the time.

Sir, the only way to cope with reasonable cost increase of basic services is to ensure that we maintain our economic growth, increase productivity and secure more investments. As more jobs are created, more opportunities are available, and people will generally have better income to be able to purchase the necessary goods and services they desire. By doing so, people will get more dividends and income to live a better life.

Sir, we know that in a free market, there are possibilities of market failures and monopolies. Who will intercede in this area? That is the question. Do we allow things to ride? Who would salvage the situation? Who would come and rescue, particularly those who face the failures of the market? Would the private market intercede? As you all know, private markets are driven by profits and profits are the basic motives of private markets. I doubt very much that they are likely to intercede. They may not. We, therefore, should not move into a situation, like in some societies, where individuals care for themselves without regard for others. Excessive greed, profiteering and others can create unintended consequences for our society. Therefore, it will be sad if we get to that stage. Our Government would have to act as a referee and intercede, where necessary, to make some basic services such as education, health and housing affordable. Some of these are investments, as I see it, and I do not agree with some of the arguments that these are consumptions. It is investment to enable our people to grapple and to acquire the skills to manage the challenges ahead.

Sir, the Cost Review Committee has identified a few areas, namely, health, housing and education, where there are cost increases in the last few years that have raised public concern. These areas are universal services and hence the impact of price increase would naturally be felt very widely. As more people are affected by price increases, the concerns increase, the noise levels also increase and this is understandably so. It is therefore important to ensure that future increases or charges in these sectors are gradual and well coordinated.

Sir, in view of the fact that more public services are likely to be restructured and privatised, it would be necessary for Government to set up a board to monitor and check future charges by these various bodies. As you know, the hospitals have been restructured. Telecom has been privatised. Others are on the pipeline. We need to see how the excesses and charges of these various bodies could be monitored and checked from time to time.

Sir, these three universal services should remain affordable and accessible, as they are inputs to our nation building. They facilitate bondage of individual Singaporeans to our nation building and make us feel that we are cared for in our joint efforts to keep Singapore going. And the more we are bonded through access to these services, the more the identity of the person is built around such nation building processes.

Increased cost in these three universal services is inevitable, but it should be reasonable and affordable. I fully support the Cost Review Committee's recommendation that cost increase impact on different income groups should be examined separately. This is important as it will help us to understand better the consequences to their livelihood. In this respect, to the ordinary working class, we may have to encourage them to form neighbourhood cooperatives or credit unions to help them to save and to get the best of their dollar through cooperative activities and efforts. And I see there is tremendous potential for CASE and NTUC, at the neighbourhood level, to develop cooperatives which will buffer and mediate against further price increases and profiteering by various groups.

Sir, on the question of affordable health care, I see that in the next five years, we will be expected to face increasing pressures to keep our health care affordable. It is estimated that two out of every 10 households will have a senior citizen who, at some point, may require health care. The health costs to these families will be burdensome. We must find alternative community-based health care services to deal with the aged sick and to strengthen families to look after their old parents.

I support the Cost Review Committee's recommendation to keep at least one Government hospital accessible to the average income families. May I also suggest that we increase more beds for B2 and C classes? Maybe include a B3 class, if necessary. This I think could be worked out and there is in fact increasing demand for these classes. The Ministry of Health, in its health care review, could look at this issue and address it as quickly as possible so that the health care system will not be under serious pressure.

Sir, with regard to the remission of school fees, I see that with the establishment of independent schools and more autonomous schools in the near future, it will be necessary to review the income ceiling of families who would qualify for fee remissions in these schools. Currently, the fee remission is extended to families with an income of $2,000 and below. It is reasonable to increase the income ceiling to $2,500, as this will benefit more children. As more schools in the neighbourhood are going to be autonomous, fees are likely to increase and this will create problems of accessibility to these schools for some of the brighter children from low income families. I hope that we could take remedial action at that level.

Sir, with regard to housing, it would be useful for us to consider building 4-room budget flats instead of 3-room HDB flats. This is because there is a growing number of second generation parents with children getting married who are living in 3-room flats and the demand by them is for more 4-room flats. I think there is a need to step up the building of 4-room budget flats.

There is also an urgency to reduce the downpayment to 10% for families earning less than $1,500 per month and below and this will also help this group of people to gain access and to upgrade themselves into better housing.

On that note, I like to thank you, Sir.

Mr Loh Meng See (Kampong Glam GRC): Sir, I wish to focus my attention mainly on the health issues raised in the Cost Review Committee Report.

There are some Singaporeans who feel that our national expenditure on health and medical care is not enough. They ask for more money to be spent since our expenditure on health and medical care at 3.1% of GDP is relatively low compared to 6-9% spent by the developed countries.

But the point is that it is really not the amount of money spent on health and medical care that matters. If the low expenditure could give us as good a result obtained by the developed countries, we should be happy with our favourable situation. We are indeed comparable today in terms of long life span and low infant mortality. We are, in fact, achieving very high productivity and value for every dollar that we spend on health and medical care. We should therefore be careful not to throw good money away with frivolous expenditure that does not yield incrementally better outcome.

Sir, indeed the substantial adjustment in the ward charges in 1989/1990 after a lapse of five years since 1984 had the negative effect in the minds of Singaporeans that medical charges had gone out of hand and beyond the reach of ordinary citizens. But it is a thing of the past now. I am sure that the Government will not make the same mistake again by delaying the cost increases and lumping them together in one big dose. The lesson is that the public generally favours and finds it much easier to accept small and gradual fee increases. The Government has also since made its intention known that it wants to cap the hospital charges through the use of the CPI plus a X% formula in granting the subvention to restructured hospitals.

There was also the grievance that subsidised patients in class B2 and C wards have no access to specialist consultant treatment. The defect in the earlier consultancy fee scheme has since been corrected this year with the revised scheme of remuneration that pays consultants the same whether they treat subsidised or non-subsidised patients. This feeling that subsidised patients are not receiving treatment by specialists should be put to rest. Of course, the subsidised patient cannot choose a particular specialist to treat him.

Sir, it is about time that the Government defined what is basic medical care. Singaporeans would want to know what constitutes basic medical care in the Government and restructured hospitals. I am afraid that I differ slightly with the Committee's Report here. This clarification is necessary as it would allay the fears of those in the lower-income group who are afraid that they would not receive medical care on financial grounds. We also need to moderate the rising expectation of those in the middle-income groups. Singaporeans will then be guided as to the level of medical care and the cost associated with it. They will be able to determine the level of medical care that they can afford and make the appropriate choice.

With regard to the long-term subsidy targets for the different class wards in Government and restructured hospitals, the time-frame taken to achieve the targets should be carefully considered. It is not only the reduction of subsidy that causes medical cost to rise but also the passing on of a part of the increased hospital operational cost to the patients. The cost increases arising from these two items should be alternated and not done at the same time. The Government should be sensitive to the affordability of a large segment of the population using hospital services.

As a gesture, the Government may wish to quickly raise the subsidy rate of the class B1 wards at the Singapore General Hospital. The current subsidy rate at 11% for class B1 ward at SGH is well below the 20% long-term subsidy target. This will show to the people that the Government will give easily as much as it takes from the people.

The objective of hospital restructuring was to induce hospital management to manage the scarce resources more efficiently and to provide maximum value for every dollar spent in its operations. However, as it was pointed out in the Committee's Report that hospital restructuring had contributed some 14% of the total increases in the operation cost, it has no doubt, in the process, upgraded the quality of service delivered to the patients. However, there are patients who do not require the frills and pampering that the restructured hospitals provide, nor the administrative cost in terms of better reception and personalised services. As all these "extras" come at a price, the patients may not wish to pay for them. I therefore support the recommendation of the Cost Review Committee to ask the Government to retain one "budget" Government hospital with no frills for those Singaporeans who find such medical facility adequate for their purpose.

The challenge for such "budget" Government hospital, however, is the ability to attract and retain good doctors, nurses and other ancillary staff. The "budget" Government hospital will serve as an added choice but, more importantly, to allow the Government to compare operating cost and efficiency of the range of hospitals in deciding the appropriate subvention and whether the hospital charges are reasonably priced.

The Cost Review Committee has asked Singaporeans to exercise prudence in the use of their Medisave. This is right. If the account holder does not use his Medisave sparingly and chooses the category of ward according to his means, he will exhaust his Medisave account very quickly and he will have very little left for his future hospitalisation needs. It is disturbing to learn that 18% of the patients in the class A wards are from households with incomes of less than $1,000 a month. Should these patients blame the Government for the hefty medical bills incurred? Nevertheless, the hospital management has the responsibility to counsel and educate their patients that they should not incur medical cost beyond their ability to pay for them.

Sir, everyone is concerned with the very unpredictability of major illnesses befalling on them. We are uncertain as to when and how severe a medical condition that could afflict us some time in the future. The current rate of Medisave contribution can take care of most of the normal hospitalisation cases. However, it would be inadequate to cover the catastrophic and chronic conditions that require surgical and long term treatment. There are hundreds of thousands of Singaporeans who are working but do not have medical benefits from their employers. Many more self-employed and part-time workers do not have CPF accounts. Medisave contribution is the only source of financial support for hospitalisation needs of these people. We may need to set aside a larger portion of the monthly CPF contribution into the Medisave account in the near future to provide for hospitalisation needs.

The existing coverage under MediShield may not be sufficient. We have to expand the coverage of MediShield and we may have to also supplement with private medical insurance to provide for a wider range of illnesses and a larger sum to be insured for hospitalisation and outpatient treatment. The Ministry of Health and the CPF Board can look into ways to help provide such medical insurance protection for Singaporeans who are Medisave account holders.

The Government has since this year introduced the Medifund scheme for those Singaporeans who are unable to pay the medical bills. Maybe the Minister for Health could give us an update of the number of subsidised patients who have applied for and received a partial or full waiver of hospital charges under the Medifund scheme. It is important for us to demonstrate that in practice no Singaporean has been denied the medical treatment that he needs. It will debunk the vicious talk that one cannot afford to be sick in Singapore.

Sir, I am not sure if it is the right thing to do to extend the visiting hours of selected Government outpatient clinics, especially when the attendance at Government polyclinics has fallen from four million in 1980 to 2.9 million in 1992. Maybe the idea is to serve as a check against private doctors' charges. But at the macro-level, it may not be a cost effective way of using public resources. The private general practitioner clinics should be allowed to play their positive role in cultivating good family doctor/patient relationship. The general practitioners should be encouraged to play the key role as a gatekeeper to the expensive specialist treatment in hospitals. We need the support and cooperation of every Singaporean to help bring the cost of health and medical care down. It affects everyone and we are all involved. If we succeed in containing cost at the national level, it would be much easier for us to focus our attention on the smaller number who has special needs and we can devote our care and concern on this small number.

Notwithstanding what I said, I support the motion.

Dr Toh Keng Kiat (Nominated Member): Thank you, Mr Deputy Speaker, Sir, for allowing me to join in the debate on the Cost Review Committee's Report.

Concern over the rising cost of living was an issue in the last general elections. Whilst the Government and the people were agreed that cost had increased, their views on the reasons for this and the effect on the people were different. Some translated their displeasure into votes against the PAP. The Cost Review Committee was commissioned to address these issues. I compliment Mr Lim and his team for the work that they have put into this. They found health care, housing, public transport and education to be areas of concern, underscoring public consensus.

The Report is fair, objective and full of facts, figures and enlightening statistics. Although the veracity of some of these has been questioned, like the CPI, by the hon. Member for Potong Pasir, I agree with most of their conclusions and support their recommendations. But I would like to point out that I detect a tendency to lapse into academic rationalisation in some areas. Painful misjudgments cannot be dismissed by a simple justification and equation that as long as nominal wages are above rising costs, this is affordable and there should be no problem.

Sir, at the national macro-economic level, cost increase may be diluted. But for the individual who has to dig deeper into his pocket to buy the same bowl of noodles at the same outlet, or to find that he has less to eat for the same price, the perception is different. This can be exploited and here is where trouble begins.

The CRC has concluded that it was a confluence of factors like scarce resources, timing of fee increments, removal of subsidies and the upgrading to meet expectations which brought about some of these events. It was as if it was an uncontrollable cosmic event like the unpropitious appearance of Haley's Comet. The happening was iatrogenic. In the post recession years, everyone appeared in a hurry to recover costs to make up for lost time. When the recession came, we urged our workers to take a hefty cut in their CPF. They cooperated. It is well nigh on to 10 years since that recession. We have yet to repay our workers in full. Why, then, was there this hurry to recover costs?

Unfortunately, it was in health that the pressure was most felt. The citizen's right to good basic health care and who pays for it is an emotive issue. Restructuring, upward fee revision, reduction of subsidy, increased co-payment, upgrading and acquisition of new technology came close on the heels of one another. To top it all, the Ministry had to contend with the decimation of senior staff due to resignations for the private sector. To entice them to remain, a more liberal and lucrative scheme of remuneration was implemented. Because of the emphasis on bottom line figures, and the pressure for increased productivity, heavily subsidised and non-paying patients felt discriminated when attention was concentrated on the fee-paying, as it was easier to measure productivity by the amount of revenue generated than by an assessment of affective skills or the degree of complexity or difficulty of a case. This generated some unhappiness. Sir, may I have your permission to distribute a Table that I have prepared?

Mr Deputy Speaker: Yes.

Dr Toh Keng Kiat: (Copies of Table distributed to hon. Members). Discrimination was again evident when a review of subsidies was carried out. In Table 5.2 of the Cost Review Committee Report, the Long Term Subsidy Target (LTST) of 80% for the class C patients was reached in 1992, having been brought down from the previous level of 85%. The subsidy for B class patients was 71% last year, a drop of 2% from the year before, but still quite a distance away from the LTST of 65%, attainment of which has been kept open. Surprisingly, for class B1, where there had originally been a decision for a full recovery of costs, there is now a subsidy of 11%, with an LTST of 20%. The subsidy to this group would therefore be increased, I repeat, increased progressively until the ultimate is reached. The table I have compiled shows that on a patient day basis, and in dollar terms, the subsidy for C class patients in SGH last year was less than for the two categories of B patients. Even taking a 100% subsidy, it should still be less than for the class B. Sir, something must be amiss when those who have need of it less are given more subsidy.

I am as much against subsidies as the Government is and would certainly not like to see Singapore commit the same kind of follies that Albert Beveridge led his countrymen into with the British National Health Service. But there is a time and a place for all things and there is a group that needs to be subsidised. The Cost Review Committee has identified this in paragraph 16 of page 35, and I quote:

"However, lower-income households do have a sense of being left behind. Their living standards are better than before but those who remain in this group are still disappointed to find that they have not improved their position relative to others.... society must be prepared to provide a certain amount of support to this group like subsidised rental for flats, subsidised health care and education, and financial assistance to the destitute, as is the case at present."

There is yet another group that cries out for medical subsidies - children who are born with congenital and hereditary problems. No child chooses to be born unwholesome, neither has it a choice of parents nor of genes. Some, like the juvenile diabetics, the epileptics and the haemophiliacs, can, with good medical care, be productive members of society. But that care comes at a cost, which increases year by year. Their sustained well-being is a life-long commitment and financial burden to their families. To pay more than lip service to our claim that we are a caring society, let us have a foundation set up to look after them with public donations matched by Government funds.

On housing, I support the CRC's call to phase out subsidies for executive flats. The Government has to be mindful that its primary objective is to provide affordable housing to the lower income groups, but it must also not absolve itself from its duty to ensure that private housing does not rise above affordability for Singaporeans, as a result of manipulation by foreign speculators. Home ownership is what holds a people to the motherland. This is especially important now as more and more Singaporeans go abroad to work. They may not come home when there is no home to come back to. The CRC has concluded, and I quote paragraph 11, page 66:

"... private property has become less affordable in the last few years."

But people are still able to manage, despite the rise in the property price index of 100 points in the last two years relative to 1988. This is due to low prevailing interest rates and double family incomes. But interest rates change, and may increase during the lifespan of a mortgage loan. With more than 50% of a combined family income spent on servicing housing loans, any increase in interest rates, an economic downturn, or the loss of a spouse's income will have devastating results.

On education, like other speakers before me, I support the CRC's call that there should be no further reduction of subsidies on university fees and to cap this at 79%. Education is an investment in our human resource. But as it benefits everyone in society, the Government alone should not bear this subsidy. Clan and alumni associations, local and multi-national companies, as good corporate citizens, and service clubs, should make more student loans, scholarships and bursaries available. A review should also be carried out on our education system . Like all speakers before me who have commented on this subject, I feel it strange that our education system, good as it is, results in more than half of primary school students and one-third of secondary school students having private tuition at home at an annual cost of $260 million. One primary school has been reported to be successful in reducing this to a negligible level; others could learn from it and follow suit.

Public transport has also been an area for great concern. The CRC has recommended that fare increases be done in stages and in smaller amounts, and that new policies, such as re-routing and rationalisation and upgrading, be fully explained before implementation. I support this as well as the call not to deregulate taxis.

Sir, today's Straits Times, on page 36, carries an article headlined: "Inland Revenue rakes in record $1.13b in August", of which $38.38 million are due to import and excise duties on motor vehicles and this soared to 87.9% compared to last year. And we are not even talking of COE. This is for 5,000 new vehicles which were registered and 2,300 old ones which were de-registered. The COE for August for all categories of cars was between $20,000 and $30,000. A rough calculation would show that the income from COEs alone for August was between $100 million and $120 million.

Sir, I beg that the Government looks again at the ARF and reduce this in tandem with the COE for two reasons. First of all, it will dispel public opinion that ARF is a "cash cow", more than just a means of vehicle control and, secondly, the Government will absolve itself from blame for further increases in vehicle costs. More taxation on car usage rather than on its ownership should be quickly implemented.

Costs change with times, expectations and circumstances. The CRC has recommended a more permanent cost review body, and I agree with that, and I also agree that CASE is best placed to do this. Its close connection with the NTUC means that it can put its fingers on the pulse and ears to the ground and monitor changes quickly.

The Cost Review Committee must be congratulated for putting into focus the issue of rising costs. It was no easy task. Its work was even criticised as being as much a political exercise, as it was an economic one. But there need be no apologies for this, for the issues were critical.

Let me illustrate. In the post-mortem analysis of the last General Elections, the Prime Minister and other PAP Members spoke on the matter. Commenting on those who voted the Opposition, Prime Minister Goh said, and I quote from the Straits Times, 5th September 1991:

"Their concerns are bread-and-butter issues, and we are going to have to pay attention to them ... a big group of Singaporeans only care about daily life ... less taxes, less levies, cheap hospital charges, cheap educational services. So we have to reach out."

Dr John Chen, writing in Petir (No. 8/9 September 1991) commented, and I quote:

"The primary factor that caused the swing of votes was disenchantment with certain government policies ... by individuals who have failed to make it, or who are struggling just to make ends meet. The Opposition has thus been able to exploit the issue of escalating costs, put the blame on the Government, and persuade many of the disenchanted to vote against the ruling party."

The then Deputy Prime Minister, Mr Ong Teng Cheong, in a talk to the Chinese press, also said, and I quote from Government Press Release (No. 29), 16th September, 1991. He said:

"To the ordinary people, their main concern is their daily issues. The increase in maintenance fees, conservancy fees, carpark charges, school fees, medical costs, bus fares, telephone bills, etc. would affect their livelihood, especially people in the lower income group. Indeed, their standard of living deteriorates every time there is an increase in fees. The pressure of yearly inflation suffocates them; they feel desperate indeed. Shopowners, hawkers, small businessmen are badly affected by the increase in rental because of the free market economy. The rise in the price of the COE also increases the burden of the shopowner. Such dissatisfaction exists."

Sir, perceptions are very important. Wrong perceptions are even dangerous. They foment the politics of envy. The battle for votes does not only start on Nomination Day. The campaign is now.

The Prime Minister, in his address to PAP activists in Marine Parade on 8th September 1991, promised to have "a very sensitive ear". The people have cried. The CRC heard. Let us now listen.

Dr Michael Lim Chun Leng (Cheng San GRC): Mr Deputy Speaker, Sir, thank you for giving me this opportunity to speak.

The CRC has given us an honest and comprehensive Report on the issue of rising cost of living and it has provided concrete recommendations. To those who are empathetic, they will see eye to eye with this statement. To the sceptics, they will say this is a political exercise. To those who are apathetic, they will not pay attention and will just listen to hearsay.

These three categories of people have one thing in common: most will not have read that 229-page Report. So is this Report an exercise in vain? Certainly not. The Committee, or perhaps the Government, should go further by producing a small booklet, summarising the salient points in the Report, which can be easily read by the man-in-the-street in minutes, or perhaps they may produce a simple video clip that can bring across the findings of the CRC in an engaging and interesting, yet informative manner, and this can be distributed or loaned to community organisations, schools, etc. With so much information on an important issue such as the cost of living, I think that the average man-in-the-street deserves to be able to get the information in a succinct and digestible manner.

The CRC has provided several recommendations in its comprehensive Report and I just saw the Government's response to it today. To lend credibility to these recommendations and the Government's response, I am of the opinion that the Government should collate all the actions taken by the Ministries to address the recommendations put up by the CRC and perhaps give Parliament a follow-up report in a year's time.

I would now like to comment on two areas of interest - health and housing. I will first speak on health.

I agree with the CRC that health cost is generally affordable and the waiver system and the Medifund system that we have in the hospitals ensure that no one will be denied of necessary health care.

The CRC has recommended that at least one Government hospital be allowed to continue as a Government hospital so that patients have a wider choice. I fear that if we were to do this, the hospital may be thought of as a second-rate hospital or a poor man's hospital. I do not think that this is a wise suggestion and I do not think that people will have a healthy perception of such a hospital.

Instead of watching cost in one hospital, I think that the restructured hospitals should have a cost monitoring committee that will monitor the increase in health cost for subsidised patients and recommend measures to reduce cost. In this way, Singaporeans who prefer B2 and C class care, especially the lower income group, will not have the perception that they are getting second-rate medical care at a second-rate hospital, but first-rate medical care at a first-rate hospital.

The other issue of health that I wanted to address was partially addressed by my colleague, Mr Loh Meng See, and that is about the definition of "basic medical care". To the best of my knowledge, the care-givers in the hospitals do not really know what the Government means by "basic medical care". Perhaps a better phrase to use would be "adequate medical care", because this will be determined medically. If the term "basic medical care" is to be used, I think the Ministry of Health should define clearly what it means. I think if you keep on using a term which you cannot define, it really does not have very much meaning. And I notice that five categories of specialities are not available in the C class ward. Does it imply that these specialities are not part of the basic medical care package? Does it mean to say that if you have coronary artery disease and you need a balloon angioplasty or a bypass surgery, is it not part of the basic health care package, especially so when you know that coronary artery disease is a very prevalent disease in Singapore? Does it mean that if a person has a tumour on the face and needs resection of the tumour, or he has an accident that disfigures his face and he requires plastic and reconstructive surgery, that is not part of basic medical health care? Does it mean that a child that is born with some congenital abnormalities and has to undergo paediatric surgery, is that not part of basic medical care too? Or, for example, a worker who injures his hand, cuts his tendon, loses a thumb, and requires hand surgery, is that also not part of basic medical health care?

I think the Government or the Ministry of Health owes it to us to be more precise in its definition of "basic medical health care". Otherwise it would be very meaningless to bandy this term around without really knowing what it actually stands for.

On housing, I would like to refer to Table 6.6 on page 61. This is a table where it puts monthly repayment of housing loan as a percentage of median household income by flat type of three typical couples. I would especially like to draw Members' attention to those referring to the lower income couples who are purchasing a 3-room HDB flat. And you would notice that they said that in 1981, it would be about 26% of their median household income; and in 1990, it would be 10.7%. On the same page, paragraph 44, there is a statement which says that:

"As the stock of 3-room HDB flats is nearly depleted, the HDB should consider making more 3-room flats available to the public at posted prices." The point I am trying to bring across is that with the depletion of the 3-room flats stock, many of these people will actually be forced to buy 4-room flats. And if you say that it was 26% and then 10 years later, it is 10.7%, this may not be a very accurate reflection.

As we have heard from the Minister of State for National Development yesterday when I raised the question about the problem of revestment, in the last five years alone, more than 2,000 flat owners were subjected to the threat of revestment, of which more than 300 of them had their flats revested. Furthermore, most of these were 3-room flat owners. And the number of people who are applying for rental flats is fairly substantial. I do not have the figures, but the waiting period on average is about nine to 12 months. So I think there is really a segment of our population who would benefit if HDB continues to build 3-room flats. I am not suggesting that HDB does not build budget 4-room flats. Please go ahead and do that. But there will be a category of them that will not be able to even afford these budget 4-room flats and I feel that HDB should continue to build 3-room flats.

With this, I would like to thank the Deputy Speaker again for giving me this opportunity to speak. 1.46 pm

Dr Ong Chit Chung (Bukit Batok): Mr Deputy Speaker, Sir, I rise in support of the motion. The Cost Review Committee should be congratulated for its objective and comprehensive Report, for a job well done.

The statistics cited present a fairly accurate picture of economic growth, cost increases and improving standards of living in Singapore. It is reassuring to know from the Report that during the period from 1980 to 1992, Singapore's inflation rate averaged 2.4% a year. Moreover, income growth has outstripped increases in prices. In fact, there is an increase in real wages. But how do these statistics impact on the ground? Not many, I gather, have read the original Report. Not many will be able to make head or tail out of these statistics. However accurate they are, some will still be sceptical.

The point is, it is not just about facts, but perception. It is an emotive issue, especially when it touches the pocket. I am not suggesting for a moment that we leave the problem alone or hide our head in the sand like the ostrich. Far from it, the Government should mount a concerted and sustained effort to explain the market philosophy, pricing mechanism and economic growth.

We must sell these policies in simple terms to the man-in-the-street, using the mass media, including television and direct person-to-person contact, speaking their lingo in the coffeeshops. CASE and grassroots organisations can, I think, play a vital role in promoting consensus and cohesion in our nation.

We can also lift the discussion to a higher plane, by focusing on Singapore's position in an increasingly competitive world. We should not be parochial. Indeed, no man is an island, nor a nation. If we do not keep up the pace and others around the region overtake us in terms of competitiveness and what they can offer to the world, then there will be no increases to debate about: no cost increase to complain about and no wage increase either. In this context, we have an urgent need, I think, to upgrade the skills of thousands of our workers at the lower end of the skills and income groups. Indeed, this is the crux of the matter. There should be a renewed sense of mission from the Government, unions and management to further pursue this important aim.

If we can upgrade the skills of our workers, there will be higher productivity and Singapore will, on the whole, be that much more competitive. And these upgraded workers will at the same time enjoy real wage increases.

Our target then is to expand our economic cake. Rather than arguing and fighting amongst ourselves over a shrinking cake, we should take the expanding cake approach. The Government, on its part, should take to heart the CRC's recommendation to maximise efficiency, keep costs down and to space out public sector cost increases. We all know that the public sector has a major part and impact on our lives. If cost increases in the public sector can be moderated, graduated and spaced out, then half the battle is won.

In terms of public housing, I support the CRC's recommendation to concentrate the subsidies mainly on the 3- and 4-room HDB flats. However, we should rethink the move to phase out subsidies completely from the Executive flats. By all means, reduce the subsidies, but some small percentage should remain, lest prospective buyers of Executive flats feel that they are missing out on something, or that such flats are being priced out of their reach. After all, Executive flat residents are also staying in public housing estates. And such Executive flats will help to set the benchmark in the market.

To meet the rising demand for housing, the Government should help increase the supply by building more HDB flats and releasing more land for residential development by the private sector. It is a matter of supply and demand. Increased supply may help to moderate price increases in the future.

In terms of education, I support the CRC's recommendation to maintain the subsidy rate for university fees at the current 79% of recurrent expenditure. Education in a local university is the key to social mobility for many Singaporeans from the lower-income groups. We must do our best to make university education affordable.

But university authorities and staff must play their part and do their utmost to increase productivity and cut down costs. More can and should be done in this direction. For example, a body can be formed to do an audit of university expenditures.

Likewise, independent schools should be more conscious and stringent in their cost control. They must bear in mind that they receive substantial public fundings. The management of independent schools should think through long and hard on such matters as class size, staffing and their impact on cost increases. They should not be given a free hand to increase fees as and when they like. They should be subjected to some form of audit.

Overall, in education, the Government and community organisations should review whether the number and quantum of scholarships and bursaries are adequate to meet the needs of the lower-income group as well as to promote our principle of meritocracy and social mobility.

Mr Deputy Speaker, Sir, in terms of health care, the public-funded hospitals should not go too upmarket. We should cut down on expensive buildings and expensive equipment. All public hospitals should have adequate numbers of class C wards. There is no point in going upmarket and being unaffordable.

Finally, much has been said about the rising aspirations and expectations of our younger Singaporeans. It is true that we must all moderate our expectations. But at the same time, we must bear in mind that aspirations are the stuff that motivate and propel us forward.

They are opportunities and problems one at the same time. In the final analysis, it is a fine balance or a difficult balancing act.

Overall, Sir, I think this Report proves again that our Government is a caring, compassionate Government who delivers what it promises to do.

Mr Deputy Speaker, Sir, I support the motion.

Assoc. Prof. Walter Woon (Nominated Member): Thank you, Sir, for letting me join in the debate.

First of all, I think we should thank the Committee and the minority member who gave a separate report for the work that has gone into this Report. It is a very impressive piece of work and it clearly shows that they have put in a lot of effort. The main criticism, if you can call it that, is that it tells people what they do not really want to hear, that is, rising costs are an effect of growing affluence. For something like cars and houses, we just cannot keep costs down because of the pressure of supply and the pressure of affluence. But while the head can accept that, the heart is different, and we can only hope that people will act rationally.

I have got two short points that I will make quickly. Firstly, the question of private housing. We see the prices going up despite the fact that the Minister of State for National Development keeps telling us there is enough to go round and that land will be released. But property prices go in cycles. Other countries have seen booms turning into bust and I do not think we can feel that we will be immune from this. If there is a bust and a serious enough bust, there may be a situation where people who bought properties at high prices find that they have got negative equity, or that the loans they are servicing are way beyond what they can afford. But the only hope for many of those who seek to upgrade to private property is that there should be a price correction. I hope that the Government will not succumb to pressures to keep the prices up just because those who bought houses high later on feel that the Government owes it to them to keep the prices high. For many people, that would be totally unsatisfactory.

One effect of these high property prices coupled with the strong Singapore dollar is that there are a lot more middle-class Singaporeans who will own properties outside Singapore. You can get a lovely house with a sea view for $350,000 in Perth and middle-class Singaporeans are moving out of the country, they are working out of the country. Chances are that some of these people will choose to stay out of the country. In the past, people who have moved out of the country, or worked outside the country have been treated as traitors. They have been treated like rats who have left the ship and, therefore, we should not welcome them back at all. But I think we have to face the fact that circumstances have changed. And that we should view this phenomenon constructively, and not treat these people as if they are traitors.

These people who have moved out because they wanted a better life should be encouraged to keep their links with Singapore. And we have to remember that in our grandfather's time, it took eight hours to get from Singapore to Penang, which was part of the same political entity. Nowadays, in five hours, you can be in Australia. So the world has shrunk in that sense. If we treat the people who have moved out as traitors, then they are not going to come back. They and their children will be lost to us, their talents will be lost to us, their resources will be lost to us. I think we should accept that people are going to move in and out of Singapore. The trick is to encourage them to keep their links with Singapore. And to do that, we have to offer them something that other countries cannot offer - a better quality of life, a more gracious society, a place where people have intellectual space to hold different opinions, safe streets free from crime, a thriving art scene, pleasant environment, a Government that is not too intrusive into people's private affairs, a good place to bring up children. These are the things we should be concentrating on. And quality education, which brings me to the second point.

Quality education is not cheap. I fully endorse the Committee's recommendation to keep tertiary subsidy at 79% and it is rather unfortunate that, in this paper we got today, the Government's response to that is that they cannot freeze the subsidy at 79%. If we want our university to be world class, you cannot have a world class university with cut-price lecturers and cut-price equipment. These things cost money. If you keep the subsidy at a fixed rate and costs go up, the cost to the end consumers also goes up proportionately. So if costs go up 10 times and your subsidy is fixed, the cost to the end consumers also goes up 10 times.

The response from this paper is that it is fair for graduates to pay 25% because they are going to get the benefit of the education. Unless things have changed drastically since I was an undergraduate, my impression was that it was usually the parents who paid and not the graduates themselves. A fee increase of $100 may mean very little to a parent who is a graduate himself and earning a four-figure salary. But it may mean a lot more to a person in the lower-income group whose hope for social mobility lies in his children.

The children of graduates do not value tertiary education, I think, as much as children of non-graduates. You will very often find children of parents who are tertiary-educated wanting to do something else. They want to dance, they want to write plays, they want to go travelling. But those in the lower-income group, especially those more traditional ones, see education as a magic key that takes them into a new phase, for their children a better life. If you say that you cap the subsidy at a particular level and costs go up 10 times while income only goes up five times, this eats up more of your disposable income and that affects your lower earners much more than it affects your higher earners. It affects the people who need the help more than it affects the people who do not need the help. So it is rather unfortunate that the Government is unable to accept this. I urge them to reconsider.

May I also say that the 79%, 75% or whatever percentage point we put down there should not be considered as a sacred cow. In some cases, we may find that the cost goes up. Nobody can help that. If costs go up higher than the general level of inflation and higher than the general cost of living, I think we should apply this mentality of cost recovery selectively and flexibly. There is no rule engraved in stone that says that you must recover X number of dollars and you must recover it every year.

Education, as has been pointed out by many other Members of this House, is not consumption. It is investment. And when you invest, you cannot say, "OK, this is the most that we want to do." In any particular year, let these subsidies fluctuate according to the circumstances. If you want to raise the fees, fair enough, but keep the fee rises small, keep them manageable, and do not be fixated with any one particular level of cost recovery. In some years, it may be that the recovery will be less than the desired subsidy. In good years, you may increase that recovery. But remember, for most Singaporeans, the education of their children is one of the most major things in their lives and people are willing to sacrifice for that. But I think a point will come when they think that really it is not worth the sacrifice any more because this place is being run by graduates for graduates and really the lower income group is not being taken care of.

With these rather small caveats, I fully support the motion that is before the House.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Deputy Speaker, Sir, thank you for allowing me to speak at this time.

Chapter 7 of Mr Low Thia Khiang's report on the Cost Review Committee's proceedings deals specifically with the GST. In it, he makes some recommendations to which I would like to respond. He also makes certain allegations which, if unrebutted, are likely to mislead and confuse the public.

Regrettably, many of the points made in his report were regurgitations of what he had said during the GST debates on the White Paper and the Second Reading of the GST Bill. This means that either he has not been listening to Government's explanatory responses to his earlier questions or that he does not understand them but, more probably, he has heard and understood but, nevertheless, has raised them again for political reasons.

I will now take his points one by one. He has said that GST is regressive and affects the lower-income groups more because they consume a larger proportion of their income. Therefore, all basic consumption items like food, clothing, public transport, medical care, education, conservancy charges, etc, should be exempted or zero rated. We have explained, but I will explain again, that the experience of other countries has shown that exemptions and zero ratings of so-called basic items always result in endless quarrels over what comprises basic items and inevitably lead to higher administration and compliance costs, with the result that the GST tax rate on the remaining unexempted items has to be raised substantially in order to offset the exemptions.

Much of the revenue loss through such exemptions do not benefit the poor but is enjoyed by the higher income groups who do not need it. We do not want to fall into this trap. Instead the Singapore GST will have few exemptions and zero ratings. It will be simple for Government to administer and will involve the lowest possible cost for businesses to comply.

We prefer to address the issue of regressiveness directly by giving generous cash equivalent rebates and grants to the lower income groups. The money given goes directly to those who need it and is not dissipated through a generalised welfare scheme. People will have freedom of choice over what they want to spend their money on and we avoid quarrels over what is essential and what is not. For example, Mr Low says that clothing is a basic item of consumption which should be exempted. Does it mean that all clothing should be exempted including $100 designer shirts and jeans? Or should we draw the line at shirts, blouses, skirts and pants in plain white or blue cotton containing no more than 25% polyester fibre, fitted with no more than one zipper each, costing no more than $20 and sold only at HDB and NTUC outlets? I think Mr Low will get my drift.

Secondly, he has said that the offset package proposed by Government should not be withdrawn as it is intended to reduce the burden of GST on the lower income groups and on retirees. In my Budget speech earlier this year, I announced a total of 12 measures designed to offset the impact of GST. Three applied to the tax-paying population as a whole and these were tax reductions of 3% on personal and company income tax and reductions in existing indirect taxes. The other nine measures were specifically designed to assist the lower income groups. Of the nine, six were permanent measures and these were:

Increases in public assistance payments;

Increase in the Singapore Allowance for Government pensioners;

Property tax rebates on owner-occupied residential properties with annual values less than $10,000;

Additional subsidy for health;

Additional subsidy for education;

Additional subsidy for town councils on Service and Conservancy (S&C) charges to offset GST.

Only the remaining three measures which were rebates on S&C charges for 1-, 2- and 3-room HDB flats, rent rebates for tenants of 1- and 2-room HDB rental flats and the special grants issued through CCCs are transitory. They will operate for five years in the first instance. They are meant to be transitional measures to help households tide over the introduction of GST. During these five years, income should grow in real terms of between 5-7% per year. This will be more than sufficient to offset the impact of the 3% GST which should only lead to a one-off increase of no more than 3% in 1994. Higher incomes will reduce the need for the three transitory measures and after five years, we will reassess the situation to decide whether to continue with a modified scheme.

The Government has undertaken that nearly all households will be better off after GST than before. The full offset package fulfils this promise. However, Government cannot promise that households whose incomes are currently low and therefore pay little or no tax will never pay more tax than they do now, even after their incomes rise as a result of economic growth.

The Government's fundamental tax philosophy is that everyone, except a few indigent and handicapped, should pay some tax, however small, so that all are conscious of and share in the cost of running the State. The tax burden has to be spread as broadly and fairly as possible so that it will weigh lightly on both invididuals and on the economy as a whole. We must avoid at all costs the introduction of a free buffet welfare system of government. This has wide popular appeal and wins votes, but inevitably leads to national bankruptcy. If a country is rich and large, inevitable bankruptcy can be postponed but never eliminated. Things given free are never treasured and are usually wasted. Witness the downfall of the largest welfare state of all, the Soviet Union. Sweden, the paragon of western democratic socialism, has also fallen off its pedestal and is now desperately trying to claw back welfare give-aways it can no longer afford. But the road back will be long and painful because once given, state welfare becomes embedded into the system and has to be pried out piece by piece like slivers of metal embedded in your foot.

The Government's economic philosophy is well known. It abhors free hand-outs but it will spend heavily on education, training and on infrastructure. It will invest in the future but will minimise current consumption spending wherever possible. Its principal responsibility to its citizens is to create conditions which will allow them to get well-paid satisfying jobs so that they can stand tall and look after themselves instead of providing crutches for everyone.

Next, Mr Low claims that all countries that have implemented GST or VAT have had to raise their rates because lower rates have proved to be uneconomical. He quotes the UK and the USA as examples. I am afraid that he has confused the symptoms with the causes. As I pointed out earlier, many countries, especially the United Kingdom, operate complicated GST or VAT systems with multiple rates and many exemptions which substantially increase administration and compliance costs. They have succumbed to pressures from well-intentioned political pressure groups. The UK government recognises this now and there are moves to simplify its VAT system. But VAT reform will not be easy because withdrawal of entrenched exemption privileges will be strongly resisted.

In the case of the US, I am afraid Mr Low has got his facts mixed up. The US does not have a GST or VAT system. Instead, the US operates a state sales tax system which suffers from cascading and is therefore highly regressive. Cascading takes place when tax is levied upon tax at all levels of the transaction chain. This does not happen for a GST system.

In his Cost Review Committee Report, Mr Low inexplicably repeats his allegation that the GST tax could have a compounding effect. He illustrates this by calculation in which a 3% GST is applied to the schedule of polytechnic fee increases over the period 1983 to 1991. His calculations purport to show that the compounding effect increases fees by 57% or more than it should be over the 8-year period.

Mr Low's allegation is identical to the statements he made in Parliament during the Second Reading debate of the GST Bill, at which time his calculations were shown to be wrong because he had assumed that the GST would cascade and that tax would be imposed on tax. It is wrong because the GST system is specifically designed to avoid cascading, as would happen in the case of a simple sales tax. The correct version of the calculation in Table 3.7 of his report has been included in Appendix 2 of the CRC Report.

We have to ask ourselves why Mr Low has repeated his allegation although he has been told that he is wrong. It cannot be that he and his advisers do not understand simple arithmetic. And one is driven to the conclusion that he does understand but finds it politically expedient to repeat his allegation with the intention of confusing and misleading the public. Perhaps Mr Low would care to explain.

Next, Mr Low also says that GST is a money machine that gives the Government enormous power to collect taxes and this will allow the Government to grow larger and more powerful. I find that Mr Low's statement is incredibly naive and beyond comprehension. And I am sure that if he were not a politician he will not believe in himself either.

Let us look at the Government's record. In 1987, the Government announced that its long-term goal was to cap civil service manpower numbers at the December 1986 level of 108,700. There will be zero growth in manpower numbers beyond that figure and the Government's aim was to limit the size of Government so as to release more manpower and financial resources for the private sector so that it could be the main engine of growth in the future. The Government has also embarked on a privatisation exercise in which all commercially viable activities of Government would be spun off as companies in which citizens will be shareholders. Do these actions suggest that Government is determined to grow larger and more powerful? Surely not.

Since 1986, corporate and top personal income tax rates have been steadily reduced from 40% in that year to 30% and 33% respectively today, and will be further reduced to 27% and 30% respectively next year. In just about every year since 1986, whenever the Government budget has enjoyed significant surpluses, part of these surpluses have been returned to the taxpayers and the public by way of tax cuts or tax rebates.

The Government has also committed to make, over the next five to eight years, transfers of $5 billion to an Edusave fund and $1 billion to Medifund. In addition, legislation has been enacted to place all the accumulated past reserves of Government under the supervision of an Elected President. Are all these moves the action of a Government determined to grow bigger and more powerful? Surely not.

Finally, Mr Low has expressed concern that Government will quickly increase the GST rate after the five-year moratorium. I have said in this year's budget speech that the 3% GST rate could be extended well beyond five years. If the economy continues to grow within our medium term forecast, in the range of 4-6% per annum, and our expenditure requirements are not bloated by public pressure to increase subsidies and consumption expenditure substantially beyond present levels of GDP, there should be no need to raise tax levels, whether GST or direct taxes. In fact, as in the past, if revenue continues to exceed expenditure because of good economic growth and careful control over expenditure, we should be able to continue to return some of the surpluses to Singapore citizens, either by way of tax reductions, tax rebates, or via distribution of discounted shares in GLCs or in other innovative ways. May I suggest to Mr Low that he has nothing to fear from this Government except fear itself.

We are not a tax-and-spend Government so loved by many well-meaning democratic socialists. Our records show that we want to tax as little as possible and spend only what is necessary, and to save as much as we can. These are virtues which have built great nations. Although we are small, they are virtues we would like to emulate.

Mr Low Thia Khiang (Hougang): Mr Deputy Speaker, may I reply to the Minister?

Mr Deputy Speaker: You want to clarify points?

Mr Low Thia Khiang: Yes. It is not that I do not understand or I close my eyes and ears to the Government's explanation on GST. But I am not so convinced that GST will not have an impact on Singaporeans. It is my opinion and this is my worry. I have taken the position that I am against it, and I did not even want to sit on the Select Committee on the GST Bill. Nevertheless, it is my concern and Singaporeans' concern. I will express it here again.

As regards zero-rating, which the Minister has pointed out, I wish to point out that in the developed countries, there are items being widely zero-rated. I also know that there are complaints from some organisations, like the handicapped association, that they will be disadvantaged because certain items are not zero-rated, and this may seem to be not fair to them. Of course, I am not talking about zero-rating luxury items. I am talking about necessities. Of course, clothing is a general term. It is subject to interpretation.

As regards the regressive nature of GST, I am referring to the relative income of the lower income group and what they have to spend. The lower income group spends more on necessities. They have so much income and that is all. Whereas the higher income group has more money to spend. They can decide whether or not they want to spend. If they spend more they will be taxed more, and if they spend less they will be taxed less. In that relation, I say it is regressive. Moreover, some of the Government's help to the lower income family, which has been outlined by the Minister for Finance, are, to a certain extent, actually hand-outs. That proves that the Government also recognises that GST is actually regressive in nature.

The Minister also mentioned that income will grow. Of course, income will grow. My point is that, in my perception, there will be no extra income growth, because we are talking about competitiveness. In that case, with the normal income growth, how much more can the taxpayers benefit with GST? Because eventually, after five years, when some of the offset package are withdrawn, they will have to pay for certain of these things: income tax, company tax, as well as the GST. In that light, I question whether or not Singaporeans will really benefit from them.

As regards the compounded effect, I am just showing, by way of the table, an example that this could happen. The fact is that GST is a tax on the selling price. First of all, you will not ask a trader whether his selling price is inclusive of GST before he increases the price. If this is the selling price, GST will be imposed on the selling price. My understanding is that GST will be imposed on the selling price. So if a trader were to add on, how would the Government know whether or not the selling price is inclusive of the GST? Unless the Government is willing to separate the GST component from the selling price.

Dr Richard Hu Tsu Tau: We are doing that.

Mr Low Thia Khiang: You are doing that. Okay. As regards my allegation that the Government is growing stronger, it is not an allegation. It is my worry. I am not alleging that the Government is growing stronger. The Minister says that the Government has control on manpower. It is indeed a very good measure to keep cost down. But I notice that the cost of the Government has been going up. In the previous budget debate, I pointed out that manpower expenditure in Government had been increasing at quite a tremendous rate.

As to whether GST will eventually become a money-making machine, I am happy that the Government has assured, and the Prime Minister himself has assured this House and Singaporeans, that if there is an excess in tax, it will be returned to the people. With cautious spending, I hope Singaporeans will not be made to suffer too much with GST.

Dr Richard Hu Tsu Tau: I understand Mr Low's concern, but I think I had better clarify a few points. Firstly, we do not say that GST is not regressive. It is recognised that the lower income group spends more or proportionately more on their essentials. That is why we have designed the package, precisely to offset this. And we can afford to do this. The figures will show that we are giving back more than we think the GST is going to collect. I can show you the actual figures. We can show you the calculated figures for the impact of GST on different income groups of families, and the amount of rebates given more than offsets this because of the possibility of calculation or statistical error. So it is a general package designed precisely for this purpose. His concerns are understood and they are being addressed.

Secondly, Mr Low says that civil service costs have gone up. Indeed, they must, because the bulk of the civil service costs is wages. Are you suggesting that we should freeze civil service wages?

Mr Low Thia Khiang: No.

Dr Richard Hu Tsu Tau: No. They are the wages of people. Wages must go up. The important thing is that we grow faster, and incomes rise in line with productivity and economic growth, and hopefully, with our ability to do both, which means that as economic growth rises, we would expect all salaries to rise in proportion. Otherwise, what is the purpose of having economic growth?

Mr Low Thia Khiang: Point of clarification, Sir. I am happy to know that the Minister has said that GST is not likely to increase even after the five-year period.

Mr Chiam See Tong: May I clarify a point which the Minister has made. The Minister has said that the Government will spend heavily on education. May I just know from the Minister what is the upper limit the Government is willing to spend in terms of percentage of the GDP?

Dr Richard Hu Tsu Tau: We do not have a precise upper figure. We spend what we think we need for education. Throwing money on education, as many countries have proven, is not the solution to good quality education.

Mr Chiam See Tong: Can I seek a clarification again? I have spoken about this in this House many times. I think we do need a third university and yet the Government is not willing to spend that money.

Mr Deputy Speaker: Dr Hu, I do not think you need to reply. It is out of the subject. Dr Tan Cheng Bock.

Dr Tan Cheng Bock (Ayer Rajah): Sir, the Cost Review Committee Report did not cause great excitement. But many people talk about it. Most do not quite understand the CPI. Some expect the outcome of the Report to be what has been reported. They think we are trying to justify for the rise in health, education, transport and housing, after we started all these rises through the various measures like COE, independent schools, restructured hospitals and the GST. These rises, to a fair number, are Government departments' attempts to raise money for their coffers.

But I think the Cost Review Committee did a good and thorough job. There is no other way to explain cost than using the CPI. We should not be deterred by adverse comments because the Government is sincere to want to find out the truth. And if the conclusion is the same as what we thought the rises were due to when we started the search for answers, then we say exactly what we found. I do not think the panel members doctored or skewed the Report to please us. The panel members came from all walks of life and, as we all know, Mr Low Thia Khiang, the Opposition Member, is there too. They do not belong to the Government. Moreover, reading the Report which contains a wealth of data and information, one gets the impression of an open and frank discussion on the subject.

The views of research analyst, Koh Su Haw, and sociologist, Chua Beng Huat, have been challenged and rebutted. However, we should not get too worked up by people who criticised the Report, because this is where democracy is thriving at its best. They criticise, we challenge, and rebut their arguments, we bare the truth, and we let the people decide.

To me, I see the changes made in the past few years as too fast for Singaporeans to cope. First, they have to adjust to their high hospital increases, then the university and school fees, the rise in housing cost, COE, maid levies, workers' levies and now the GST, and all these within a span of less than 10 years. As these measures primarily hit their pockets, there is created a strain in the individual and the household. It is this difficulty to cope with the fast changes that have stressed many Singaporeans. How do they cope with this? Some work overtime, some take on a second or even a third job, some none of this, and vent their anger and frustration at the ballot box.

We must now look for the hows rather than the whys, ie, how do we manage these rising costs in housing? How do we manage health and transport costs? How do we make sure that education is affordable? The Cost Review Committee has provided us with some but not all the answers by way of recommendations in the four important areas of health, housing, education and transport.

They recommended that basic necessities, like essential foodstuff, housing, education, transport and health, must remain affordable. That I agree. This is to ensure a sense of security for our people. This sense of security is important because it gives the moral strength to be more effective Singaporeans even after they retire. If he feels a sense of insecurity, like afraid to get admitted to hospital because of the high cost, cannot attend a good school because of high fees, cannot go to the university because of high fees, or transport cost is putting a strain on his travel patterns, then we are in trouble.

So it is the responsibility of the Government to monitor these changes. There have been suggestions, like setting up a special committee to do this, and getting organisations, like CASE and NTUC, to help out. These are good suggestions. But I think you cannot expect CASE to do the job of a consumer watchdog if the grant is too small. My point is if you want CASE to be effective, lip service is not enough. Government financial support is important.

Having said all that, I think we must have an environment of choices so that the different income groups, different age groups, can feel comfortable that their needs are being looked after. And this is where, as a Government, we must provide these choices, these alternatives. Like in education, we started off by establishing independent schools. There were a lot of criticisms on fees and availability of school places. So the Government set up autonomous schools as alternatives. These schools would be good choices too. So now we should upgrade the neighbourhood schools to widen their choices. Singaporeans must feel comfortable when sending their children to neighbourhood schools. Therefore, such schools should be upgraded and improved, with good teachers and facilities, so that the students can do well, academically as well as in extra-curricular activities, and the costs remain affordable.

Public transport again must be affordable and good because not all can afford cars. Therefore, careful monitoring of the fares must be a top priority. It must be affordable to the consumer and fair to the operator, or else you will get, what Koo Tsai Kee said yesterday, the consumer pressure in the Philippines to lower electricity costs which caused so heavy strain on the operators that they end up having "brown-outs".

Housing is important and HDB's assurance that the HDB flats will always be pegged according to their income is a good practice and should therefore make HDB flats available to Singaporeans without much strain on their pockets.

With regard to health, the same principle applies. There should be choices of health services, like the schools. The restructuring of our hospitals has narrowed people's choices of hospitals. The Cost Review Committee's recommendation of one Government hospital not to be restructured, I think, is grossly inadequate. In fact, all future hospitals to be built should remain Government hospitals because there are already sufficient restructured hospitals. Choices must be adequate, not just the provision of one. Moreover, all restructured hospitals, so long as they receive Government grants, must provide adequate "C" class beds, and that includes NUH.

All community hospitals should be government-owned or controlled. The very name "community hospital" implies serving the community, that is, having in-patient services, as well as extensive outreach programmes, including some home-support services. Going restructured could change this hospital philosophy.

Mr Deputy Speaker, Sir, so far, I have only touched on what the Cost Review Committee and I consider the basic essentials in health, housing, transport and education that Government should provide. Beyond the basics, we are moving into a different world altogether.

Upgrading from public transport to private cars, from HDB flats to private homes, from Government hospitals to private hospitals has a price or premium. You must expect a steep rise in cost, because of different needs and services. It is like eating in a coffeeshop and eating in a hotel restaurant. The cost is at least five to six times different. Yesterday, I had a meal in a coffeeshop and it cost me $12 for three persons. We were served five dishes and drinks. I know the same would have cost us at least a minimum of $60. So here is the choice. One has to decide. I am not suggesting that we should not upgrade. I think for many who can afford, upgrading is essential, because it is a different quality of life. It is like Government's call to those who can afford should have more than two children. Those who cannot, should stop at two. People must upgrade in education and skills and improve their earnings before aspiring to higher standards of life. It took me five years of hard work to save up enough to put a downpayment for my first home, and another five years to buy my present home, which is a small single storey bungalow. It took me a long time, but I learn from the Cost Review Committee that more than 50% of engaged couples were opting for 5-room and more expensive flats. Times have changed. But opting for such expensive flats is all right if income is high. But they should not follow the crowd if they can ill-afford. People must learn to live within their means - an old adage, but still valid. Don't blame the Government if you want to live beyond what you can afford.

Mr Low Thia Khiang: Mr Deputy Speaker, Sir, may I seek a clarification from the Member before I speak? I would like to know whether Dr Tan has completed his mortgage payment of his bungalow.

Mr Deputy Speaker: This is a personal question. He does not need to reply.

Mr Low Thia Khiang: ( In Mandarin): Mr Deputy Speaker, from the Report of the CRC, we can see that some of my views are reflected on housing, health care, transportation. My analyses and conclusions have some divergence from those of the CRC. That is the reason why I have presented my own report. For example, on medical care, the Committee feels that Singaporeans can afford the medical expenses. But I feel that the Government's health care is inadequate. We must let people know what is the basic health care. Mr Loh Meng See and Dr Michael Lim have already explained what the Government should do.

On the rising cost impact on different age groups and different income groups, my views are again different from those of the Committee. Every Member here has got a copy of the Report, including my part of the report. I do not want to compare item by item the differences between my report and that of the CRC. But I have to emphasise certain areas. Unfortunately, the Report is available only in English. For Singaporeans who do not know English, I feel sorry for them.

Mr Deputy Speaker, Sir, the major differences are on the CPI. I would like to talk on this from two angles.

First, is the CPI an effective representation and what is the relationship between CPI and the actual cost of living? I agree that the formula and the calculation of inflation are in line with international practice. But because the conditions are different from country to country, and because of the special characteristics in Singapore, the representativeness of the CPI is in doubt. I have already pointed out in my report the defects of the CPI. (Please look at pages 184 to 186.) The major differences are the calculation of rentals. The special circumstance of Singapore is that over 80% of Singaporeans own their own accommodation. But in calculating the CPI, only a low weightage on rental is given. It cannot truly represent the actual expenses of Singaporeans. Please refer to pages 190 to 192 of the Report. Moreover CPI is based on household expenditure, to represent the whole population and income range from $500 to $4,999 cannot reflect different expenditures of different income groups. The Committee has made some effective recommendations to rectify this defect. One of the recommendations is that we must use rentals which are closer to market value rentals to calculate rentals, so that the CPI can effectively reflect the rise in the cost of accommodation. This is on page 18 of the CRC Report.

The CRC has also recommended that the calculation of CPI should be based on different income-group households. It is also recommended that the 1992 and 1993 household survey reports should be adopted as the basis for the weightage of CPI to ensure the representativeness of the CPI. This is set out in page 21 of the Report.

Mr Deputy Speaker, Sir, on CPI and the cost of living, the consensus of the Committee is that the CPI's basic effect is to reflect the national average growth or rise of the cost of goods and services. According to a survey on household expenditure every five years, no consideration is given to the change of lifestyle or consumption pattern. So there is a great difference between CPI and the cost of living. I feel that the use of CPI to measure cost of living has great limitations and is difficult to be convinced. CPI is a macro-economic indicator. It uses a fixed method measure and assumes that the consumption pattern is fixed at the same period. Then based on the average of different income groups and different household expenditure to arrive at an aggregate figure, that is the inflation rate. When we talk about cost of living, it involves different conditions in the different families, for example, number of members in the family, how many people are working, how many children are schooling, and what is the take-home pay, how do they live, what kind of lifestyle - do they go to the restaurant everyday or they have meals in the coffeeshop, like Dr Tan Cheng Bock - or do they employ a maid or do they have a car, etc. Yes, different patterns of living! Then, what is the expenditure on transport, on cars, on housing, and what is the housing loan, etc.

So if you want to talk about cost of living and you want to use some indicators of cost of living to determine the affordability of the people for Government services like health, education and housing, and to consider the increase in the fees of Government services, I think we should consider setting up some kind of cost of living indicators. Only then will it be convincing. For all these arguments, you may refer to my report on page 187.

On the other hand, after the Committee's deliberation, the conclusion drawn by the CRC is that the cost of living in Singapore has indeed gone up, especially in health, housing, education, and transportation. There have been substantial increases in cost. Some of the cost increases have already exceeded income increase. (Please look at page 129 of the Report.)

As to why this cost has increased, apart from the fact that Singapore is small, land is limited, I think one of the important factors is the trend in which Government cuts-down subsidies on housing, health and education to recover the cost of providing these services (please refer to page 118 of the CRC Report).

For example, from 1987 to 1992, the subsidy rate in health care has been reduced from 55% to 44%. Subsidy for university education has been reduced from the original 90% to the present 76%. It may be even further reduced. The Government feels that the wage increase has exceeded the cost increases. But our economy has entered into the period of maturity. With the economy becoming mature, income increases will slow down in line with lower economic growth. According to the Population Census of 1990, the average income of Singapore workers was $1,414 and more than half the number of workers were below this national average, and about 48% of the workers' income was less than $999. Viewed from the past ten years, the rise in the wages of the lower income group cannot catch up with that of the higher income group. So if the cost of living continues to go up at the speed of the past few years, I think many Singaporean workers will feel the strong pressure of cost of living, and even have to struggle for a living.

In every society, there is an income gap, and there are people who cannot catch up with the country's economic growth. How to level this gap to ensure that there will be no inequality, and to ensure there is better distribution of wealth to prevent social problem, to ensure the benefit of the whole population is the responsibility of the Government. The Government is given the mandate as trustee of the people's wealth, given the power, to levy taxes, to collect taxes - road tax, income tax, company tax, COE, and the array of taxes, to increase government's income in order to provide services to the people. Since the Government has been given this power to levy taxes, they must plough back the money collected for the benefit of the people. Apart from national defence and security, the Government should also provide health care, transport, education and other basic social services.

The Government must also improve the environment, and to overall improve the livelihood and standard of living of the people for the objective of enhancing the cohesiveness of the people. One of the major factors of improving the life of the people is to maintain the stability of cost of living so that the people can carry on working without having to worry about health expenditure when they are sick and the cost of educating their children. Although Prime Minister Goh has already said that heavy subsidies would be given for education and health, yet the costs of health and education are still going up to a worrying proportion.

The Government always says that if we keep on giving more subsidies for these people, we will fall into the trap of welfarism. But yesterday, some of the PAP MPs also spoke about subsidies. Why is the Government having this misconception? The Government does not know what its duties are. They fail to distinguish between the duties of the Government and welfarism. The Minister for Finance referred to UK where social security, social insurance, unemployment benefits are provided to the people, thereby over-burdening the Government because the people have the unemployment benefits to fall back on and they do not want to work positively. This is the problem of welfarism which is contrary to productivity and is not conducive to national economic growth. I am not preaching that the Government should practise this system of welfarism. I believe the Minister, Mr Lim Boon Heng, can confirm this.

In spite of the Government having huge budget surpluses every year, yet, for the basic services provided by the Government, such as health-care and education, the trend is that the rate of subsidies is being reduced all the time and charges for services have increased. Some of these increases even exceeded our average income growth. So what the Government says is one thing, what it practises is another thing.

Mr Deputy Speaker, Sir, the Government always talks about the principles of cost effectiveness, free market economy and how to maximise the use of our limited resources to maximise profit. When you provide social services, you also tie them up with economic efficiency as a premise.

In my view, if economics is about how to effectively distribute resources to achieve maximum benefit, the benefit of the distribution of resources should not deviate from the moral principle. Because the Government has got a lot of power in the distribution of resources, the Government could view that the most effective way of resource distribution is monopoly of limited resources, like acquisition of land, among others. The question therefore is how to provide better social services for the people. This is the moral duty of the Government. Here, I would like to quote David N. Pearce who said:

(In English):

`At the end of the day, you cannot divorce economics from what is desirable. Indeed just think about it. If economics is about how best to allocate resources, what does best mean? It could mean give it all to me. Or it could mean that we should make as much output as we can from the resources we have got. Or it could mean we should maximise output but allow for the quality of life. The "best" allocation can only be defined by reference to some moral principle.'

Mr Deputy Speaker: Order. I suspend the Sitting and will take the Chair again at 3.15 pm.

Sitting accordingly suspended at 2.50 pm until 3.15 pm Sitting resumed at 3.15 pm

[Mr Deputy Speaker in the Chair]

Debate resumed.

The Minister for Trade and Industry (Mr S. Dhanabalan): Mr Deputy Speaker, Sir, before I speak to give the Government's response on the recommendations of the Cost Review Committee, I would like to ask Mr Low some clarifications. He has said earlier in response to Dr Hu that he has listened and understood what has been said, but that he still holds certain views. I assume these views are based on sound arguments and on facts. In the case of the CPI, he has made the point that the CPI does not measure the cost of living. I think the Report does admit that it is so. And the Committee did ask various people to try and work out a cost of living index. In fact, one such index worked out by a university lecturer showed that the inflation in the cost of living index was even lower than the CPI. I assume that Mr Low was there. He must have participated in the discussions. He was told that no country in the world has a COL index and he was asked to suggest a methodology. Has he got the methodology or does he accept the discussions in the Committee? I would like to get a clarification on that first.

Mr Low Thia Khiang: Sir, in regard to the COL, I am not convinced with the methodology used by the university lecturer. When he presented his case in the Committee, the method and the components which he used to compile the COL were not exactly what I meant in my proposal about the cost of living indicators.

As regards the point that no country in the world uses COL, I would like to remind the Minister that I believe no country in the world has COE also. But we have it.

Mr Dhanabalan: What is the relevance of that? We are talking of CPI and COL. No country in the world is called Singapore. So what? Is that relevant?

Mr Low Thia Khiang: Why can we not have COL? If it is relevant to us and the circumstances in Singapore, I think we can have it.

Mr Dhanabalan: All right. That is why the Committee asked him to suggest a methodology. There are people who are well versed in these matters. They have attempted to do a study and came out with a conclusion. He does not accept it. He does not accept the methodology. I assume he or the think-tank that is behind him should be able to come out with a methodology. It is no point just saying he wants a COL. Every country in the world which tries to adjust various things in order to take into account inflation uses the CPI, not the COL.

The second point is that he has picked on small items to question the veracity or the accuracy of the CPI. For example, he says the housing rental component is not reflected accurately. I think Mr Low knows that the Committee did make a simulation and asked the Statistics Department to do a calculation to reflect market rentals. And it showed that, in fact, the impact on the CPI was very small. Does he accept that?

Mr Low Thia Khiang: Would the Minister refer to pages 184 to 186? I did not only point out one point to come to the conclusion, but there are several points there which led to my conclusion.

As regards the simulation, it did, in fact, show a higher inflation rate.

Mr Dhanabalan: I did not say it was not higher. But I said the impact was insignificant. Of course, it was higher. But the overall impact on the CPI was not very significant. That is the point I am making. Does he accept that?

Mr Low Thia Khiang: On the question of significance, it depends on what you mean by "significant"? For a macro indicator like CPI, I believe even a minor increase in the inflation rate is significant. I will give you a simple example. For instance, 0.5% of the interest rate on $3,000 and $3 million, I think the significance is totally different.

Mr Dhanabalan: The significance of the items will be determined by the weightage in the basket. That has already been determined. The point I am trying to make is, at the end of the day, even when you try to reflect the rentals more accurately, the impact on the CPI is very minor. Therefore, the CPI does not skew or does not inaccurately reflect the actual price increase. That is the point I am making.

The other point, I think, Mr Low made, which I would also like him to clarify, is that he says the CPI is based on expenditure and not on income. I assume that his concerns are more with the lower income group. Would he agree that in the case of the lower income group, the expenditure will in fact reflect quite accurately the income? Because the lower income group tends to spend all that they earn.

Mr Low Thia Khiang: Sir, of course, based on expenditure group, it will more or less be in favour of the lower income. That is why I mentioned, in the analysis of groups, that possibly the income group between $2,000 and $4,000 may actually be affected.

As regards the impact, the lower income group, because their income is lower, will suffer also from inflation in relation to their income.

Mr Dhanabalan: But the impact is less. Because the Committee did make another calculation to show the impact of CPI on the 1-roomers, 2-roomers, 3-roomers and so on. And it showed that the CPI for the 1-roomers, if we assume that they have a lower income, was in fact lower. Therefore, I want to ask Mr Low: does he accept that the CPI, as published, in fact, over-estimates the inflation for the lower income group?

Mr Low Thia Khiang: Sir, the CPI is a macro indicator. It represents income from $500 to $4,999. My understanding is that the CPI does not capture the lower end of the income group.

Mr Dhanabalan: That is precisely why the Committee tried to make a separate calculation for the 1-roomers. Agreed, the CPI is an average, overall macro indicator. But what we are trying to ask ourselves is whether this indicator over-estimates or under-estimates the inflation for the group that Mr Low and others are concerned about, ie, the lower income group. First of all, my point is that the lower income group's expenditure and income are very close. In fact, they coincide.

Second, in the case of the lower income group, the weightage of items like food is very high. In fact, the prices of those basic essential items have gone up very little. Therefore, the actual inflation suffered by the lower income group is lower than the CPI and that was shown by the Committee's calculations on the 1-roomers, 2-roomers, 3-roomers and 4-roomers; and the impact on the 1-roomers was the least. Mr Low participated in all the discussions. If he did not agree, did he challenge? Did he come out with alternative figures?

Mr Low Thia Khiang: In terms of CPI as an indicator, it is a macro indicator and, of course, you cannot measure exactly what it is about. For the lower income group, yes, to a certain extent, it might actually be below the rate. But that does not mean that they do not suffer from inflation because their income is lower.

Mr Dhanabalan: Thank you very much. That was the point I was trying to get at. Nobody said that the lower income group does not suffer from inflation. The allegation was that the CPI is not accurate in reflecting price increases and we had the Cost Review Committee go into this whole matter. The point we want to establish is this. In fact, if it is at all not accurate, it over-estimates the inflation for the lower income group. That is the point I want to make.

Mr Low Thia Khiang: Does the Minister agree that it also under-estimates the inflation for certain income groups?

Mr Dhanabalan: Yes, of course. It under-estimates for the higher income group, yes.

There is another point. I really like to understand Mr Low's thinking. I think it is important for me to understand because he might represent some people who really do not understand these things. He makes the point about the CPI and the GST. It is in page 188 of the Report. I like just to understand what he actually means. It is on "The Need To Have A Cost of Living Indicator". In that Report, he said:

`... CPI, given its limitation as a macro indicator, will not be able to fully reflect the impact of the broad based GST on households.' That is the point that Mr Low makes, Sir. Am I right in understanding that Mr Low means here that the CPI would not show or would under-estimate the impact of the GST on households? In other words, the GST has a greater impact than what the CPI shows. Is that what he is trying to say?

Mr Low Thia Khiang: First of all, the CPI captures only expenditure items. On the introduction of GST, the Minister for Finance has said that they will come out with a certain package to help the lower income group, like payment for S&C charges, rentals and so on. This is basically given as income. It will not be captured in the CPI. On the introduction of GST, it is expected that prices will increase by about 3%. The prices will increase. Actually, this group of people who are helped by the Government do not pay the price. CPI will track the price movements. Five years later, this assistance will be withdrawn. They actually have to pay. And this payment will not be captured in the CPI. The CPI will show whatever is the price. The people who actually did not pay for the first five years on the introduction of GST because of the assistance, later on, they will have to actually pay a higher price. That was what I meant.

Mr Dhanabalan: I understand you now. He has divided the impact over two periods, the first five years and the next five years. In the first five years, the CPI will over-estimate the impact of GST. In fact, the GST impact is less. Because for the lower income group especially, the GST will be completely offset or, in fact, more than offset by various subventions, grants, rebates and so on. In the first five years, the CPI will, in fact, show more than what is the actual impact of GST. Mr Low accepts that.

For the next five years, if the Government withdraws all these concessions and the Finance Minister has already said that it will not automatically be withdrawn, there will be a review, but assuming for the moment that it is withdrawn in five years, does Mr Low think that in the light of what has happened over the last 10, 15, 20 years that we can safely assume that there will be a real income growth of about 4% a year for the next five years? In fact, it may be higher, but at least 4%.

Mr Low Thia Khiang: Sir, the point I wish to say here is that the Minister also accepts that CPI may not actually be able to measure accurately the cost of living. That is why I said we need a cost of living index.

As regards income, it will not be captured in the CPI.

Mr Dhanabalan: The point I am trying to make is that after the five years is over, and all the various rebates are withdrawn, incomes in real terms would have gone up very much more than the 3% GST. Assuming it is 4% real income growth a year, five years is 20%. Even if you take away the 3%, there will still be 17% increase in real incomes. Would you accept that?

Mr Low Thia Khiang: That is the assumption of the Government. I hope it will be realised.

Mr Dhanabalan: Is it a fair assumption, based on past experience?

Mr Low Thia Khiang: I hope so.

Mr Dhanabalan: Thank you very much. Thanks for the clarification.

Mr Deputy Speaker: Order.