ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Mr Stephen Lee Ching Yen (Nominated Member): Mr Speaker, Sir, first, let me congratulate the Finance Minister for a prudent Budget, a budget that is designed to keep Singapore on track for further growth in 1995, the coming out of two consecutive years of double digit growth in 1993 and 1994, the prospects for 1995 are good, the external environment is expected to remain favourable, albeit a slower growth in the USA. Our ASEAN neighbours are likely to register robust growth. The Singapore economy is expected to continue to grow at 7.5%-8.5% this year, higher than our long-term sustainable growth. In short, our economy is in good shape. However, I have some concerns. I have three points to make this afternoon.

Point number 1, to hold business costs. With two years of good growth behind us, our domestic cost pressures are intensifying. Rentals for office and industrial space are on the rise. The labour market will continue to tighten this year which will increase upward pressure on wages. Coupled with higher interest rates and the dramatic strengthening of the Singapore dollar, this will have an impact on the cost of doing business in Singapore. One example is our cost for industrial space is now the highest in the region including Hong Kong. This is a reversal of the situation of two years ago. The main cause of this is the slump of the Hong Kong property market and the strengthening of the Singapore dollar. The Singapore dollar has strengthened more than five percentage points against the US dollar in just the last six months. Whereas I support the need for a strong Singapore dollar to maintain investor confidence, I worry that our dollar may be going up too fast too soon.

The high cost of doing business in Singapore is the most talked about problem among the business community today. I am heartened to hear Finance Minister's recognition that the use of fiscal measures to allocate scarce resource may have resulted in some unintended cost impact and that the Government is studying possible changes to its fiscal policies to make the economy more competitive.

The unleashing of free and unbridled market forces can lead to excessive competition for a scarce resource in the short term. This happened in earlier years of the textile quota bidding leading to the weakening of the industry. I hope that the Government will look at a combination of fiscal and other measures in the allocation of scarce resource in order to contain business operating cost at a reasonable level relative to our capabilities.

To help contain operating cost for Budget Year 1995, aside from the increases already announced, eg, the water conservation tax, the Government should hold any pending increases in public sector fees, charges and levies.

I would also like to suggest that as much as possible, for future financial years, all intended increase in public sector charges and levies should be announced in the Annual Budget Statement. So businesses can in turn control their own budgets more accurately. Increases outside the Budget should be kept only to unforeseen and unavoidable circumstances.

I now go to my second point on local SMEs. Singapore's economy has performed well in 1994 led by the manufacturing sector whose 12.9% annual growth and 11.4% productivity growth are the best in recent years. A survey of industrial expectations by the Ministry of Trade and Industry recently indicates continuous strong growth in the manufacturing sector in the first half of 1995. Overall productivity growth of 5.3% last year was also much higher than those of previous years except for 1993. But we have to be concerned about our local SMEs. Are they keeping pace with the national growth performance or are they falling behind? How are the SMEs performing in terms of productivity gains? From feedback, many SMEs are facing difficulties in regionalisation. Problems like insufficient funding, lack of know-how to regionalise and operating below optimal scale are some of the problems. This is in spite of the many schemes that the Government has implemented through agencies like EDB, TDB, etc.

Coordination among the Government agencies assisting SMEs have improved since the Economic Report of 1987. However, pressures faced by the SMEs have also intensified in recent years. Apart from the tight labour market and their difficulty in recruiting workers, and the increase in business cost, regional competition has also increased, adding to their woes. Local SMEs need more than incentive schemes. They need the combined assistance of agencies like the EDB, TDB, NPB and SISIR to upgrade and compete effectively.

Can we not rethink about an old suggestion of a one-stop centre to help our local SMEs? I am not suggesting that the Government set up another large statutory board to help all SMEs. Perhaps some parts of the existing agencies could be restructured and some of their relevant departments regrouped to form a unit to provide coordination and strategic assistance to those SMEs that are vital to Singapore. The Ministry could give direct grants to this unit which could then be held accountable for the overall assistance to local SMEs.

Now, let me turn to my last point which is the retail sector. This particular sector is very hard hit and is fighting for the same and limited domestic market. In 1994, there was a reduction in the property tax for industrial, commercial and let-out residential properties by one percentage point from 16% to 15%. In his 1995 Budget Statement, the Finance Minister has reduced the property tax by 2 percentage points to 13%. The Government strongly encourages landlords to share this reduction in property tax with their tenants. However, we have feedback from the Singapore Retailers' Association that not many landlords are sharing this reduction with their tenants. Can the Government consider incentives that can impact retailers more directly?

It has been a year since the introduction of GST which was implemented very smoothly. I would like to congratulate the Government for its efficiency. Now is perhaps a good time to review and fine-tune the GST system. One area that the Government can assist the retail sector is on the refund of GST to visitors. At present, we only refund GST at the airport for purchases of $500 or more and this has to be on one single receipt. This is not very shopper-friendly. For instance, I draw the comparison with Japan. In Japan, any purchase, except food, of 5,000 yen or more, which is about S$80, can receive cash refund immediately at the point of purchase. This is much friendlier to shoppers. Visitors need only surrender the receipt at the point of departure and subject to the occasional check of merchandise when requested. Other European countries give cash refund to tourists at different points of departure when presented with receipts. Minimum purchase to qualify for refunds is also lower than our $500.

A major local distributor of electronic goods has told me that their sales have declined since the introduction of GST. He gave the example that visiting seamen who used to purchase large quantities of electrical goods have stopped because they cannot get GST refund when they leave by sea. This electrical appliance business is very price sensitive. Another major outlet is the causeway. I think these are some examples of the unintended fall-outs of the GST. The Government should review the GST refund to visitors. The Government may wish to consider point-of-sales refund together with lower qualifying minimums or, short of that, the setting up of more GST refund counters at departure points outside of Changi Airport.

Sir, with these comments, I join my other Parliamentary colleagues in support of the motion.

Encik Othman bin Haron Eusofe: Mr Speaker, Sir, our economic success has been achieved mainly because of honest and competent leadership and the firm and prudent financial management of our limited resources.

Sir, the budget for financial year 1995 correctly continues with the development process aimed at building a stronger foundation for sustained economic growth into the next century. Sir, as we all know, the world is now more compact and increasingly competitive as we move into the next century. With new and formidable players in the international economy who are determined to step up their pace to develop quickly, we face a serious challenge if we do not act urgently to enhance our competitiveness.

Sir, the development of our economy must therefore be managed in the context of this serious challenge in the international economy. Capital and technology are mobile and will vigorously seek locations where they will get the best returns for their investment. At the same time, on the local scene, we have to deal effectively with the challenge of the rising expectations of our people. Sir, the younger generations have grown up in a period of general affluence and have not experienced the hardship and difficulties which the older generations have. While we have to do our best to push and improve the quality of life of the people, we have to continue to remind ourselves of the need to adhere strictly to the principles of prudent financial management and living within our means. We cannot afford to be soft and complacent when we do not have any natural resources and our domestic market and human resources are limited.

Sir, having said this, I have to also point out that it is crucial that our Budget must address adequately the concerns and needs of the lower income workers, especially the mature workers, and those with lower education and skills. We have to assure them that they are not denied a fair share of our economic success. Sir, this is most crucial because we want to develop a cohesive society where everyone, regardless of race, religion or creed as well as social and economic position, can live in peace and harmony and can contribute to the nation's success as a strong, vibrant and united team. If we do not continue to have social stability, our ability to compete effectively will be seriously undermined.

Sir, Singapore's economy is small and open and vulnerable to external developments. Although the current external development is judged to remain favourable, certain developments, like the rise in the US interest rate, the devaluation of the Mexican peso, the earthquake in Kobe and now the US dollar crisis, can have an impact on our competitiveness. Sir, I think the Minister could help to explain and educate Singaporeans in simple terms how these developments can have an impact on our economy so that we can have a better understanding of how external development can suddenly change our economic fortune. Perhaps the Ministry can explain what measures it has to monitor these developments and to ensure that we are able to take timely action to limit the adverse impact on our economy. Sir, confidence is the important factor in ensuring that our economy continues to grow and that we are able to attract investment to Singapore to provide good and better jobs for our workers. We have to ensure that there is continued confidence in our ability to manage or weather any economic storm.

Sir, with these general comments, let me turn to some specific proposals. First, the issue of training of our workers. This issue has been discussed and recommendations have been made, both by Dr Ow Chin Hock and Mr Chew Heng Ching. Firstly, we should consider channelling part of the budget surpluses to the Skills Development Fund.

Sir, training of workers is a central factor in the way we manage our competitiveness. It is important that the lower income workers and the mature workers, particularly those workers over 40 years of age, are given adequate opportunities to receive training. The NPB has identified on-the-job training as one good way to train our workers. I think more emphasis must be given to this way of training workers. Although the Skills Development Fund will have increased earnings by virtue of the fact that the salary ceiling for contribution will be increased from $750 per month to $1,000 per month, there is still general concern that there might not be enough finance in the SDF. Therefore, channelling part of our budget surpluses to the SDF would be a good indication or sign that we take the training of workers very seriously and we want to make sure that they can be trained effectively to make us more competitive.

The second point is the announcement which the Government has made recently on the adjustment of salaries of top civil servants, particularly those in the Administrative Service. Sir, it is important that in any salary revision in the civil service, it should cover everyone in the service, and not only the top echelon. The contribution and hard work of all officers in the civil service should be recognised and that they be equitably compensated for their contribution and performance.

Sir, our civil service has been rated among the best in the world and it can certainly continue to be the best in the world. But there must be good and effective team work in the service. Senior civil servants should give due regard to the aspirations of their junior colleagues and help to motivate them to perform to the best of their ability. So as the relationship between senior and junior officers in the civil service is crucial to the effective functioning of the civil service and it would certainly help if, whenever there is a revision of salaries and benefits in the civil service, it goes to all officers in the civil service, and not only to a particular section of the civil service.

Sir, our economy has performed well and there are good budget surpluses for the past few years, from FY89 to FY94. With these good surpluses, the Government has given benefits in the form of 10% tax rebate as well as rebates in the form of rental and payment of Service and Conservancy charges to 70% of those who no longer pay income tax.

Sir, although this effort by the Government is considered to be generous, I share the same concern, and I have also received the same feedback, that many feel that not much has been done for the lower income. They felt that the rebates should be more generous to help those in the lower income.

I would like to make a suggestion here. Firstly, contribution to Edusave. What we can do is perhaps to help the lower income by making a bigger contribution to their children's Edusave. When we want to give rebates or return part of the surpluses to the citizens, we should do it in such a way that it is not merely a handout to those who are receiving it. We should try and do it in such a way that it becomes something which they can use to improve themselves. So by giving the lower income group better Edusave contribution, we can help them to see that their children can have better education opportunities. They can make use of this fund to help their children in education.

So I feel that when we have to make use of the budget surpluses to benefit the citizens, we do it in a way that we help them to use these surpluses or the rewards we have given them for the good performance of the economy to help themselves. Edusave is one way we can do it. Giving workers a contribution into their CPF for training purposes is another way. These are some of the areas in which the Government can help the lower income to help themselves and we help them to be more competitive. In this way, they will see that they have the opportunities to share in the success of the economy and the success of Singapore, and we can build a very cohesive and united team. We need a cohesive and united team in order to be competitive in this world.

Sir, on this note, I support the Budget.