ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Mr Chiam See Tong: Mr Speaker, Sir, the Minister of State for Health has pointed out to me that in fact there is a sum allocated as subvention for Woodbridge Hospital. Therefore, with your permission, I would like to withdraw the statement that I made that there was no subvention for Woodbridge Hospital.

Mr Speaker: All right.

The Parliamentary Secretary to the Minister for Information and the Arts (Encik Mohamad Maidin B P M): Mr Speaker, Sir, this year's Budget, to me, is both special and unusual. It really indicates that our economy is doing well and we are, to sum it up, on the right track. I think it is also clear that it was designed to bring Singapore into a higher level of economic development and, hopefully, more prosperity for our people.

Some years ago, in the late 1970s and early 1980s, Singapore had, on several occasions, been highlighted by many international magazines as one of the economic miracles in the world. Until today there are several more examples highlighted from time to time. It was Jurong at one time, later on the Port of Singapore, Changi Airport, Singapore Airlines and various other stories.

Sir, all these were products of good and prudent financial policies, good Government and, of course, the hard work of the people of Singapore. Today, we have a Singapore, not as one of the richest countries in the world, as mentioned by the Leader of the Opposition yesterday, but despite not being one of the richest countries in the world, we know, by international reports and findings, that Singaporeans today are enjoying one of the highest standards of living in the world and by the purchasing power parity, ranked ninth in the world and the first in Asia. This is in a way another miraculous situation whereby our country has progressed so fast within such a short period. That means we have from year to year budgets that were specifically designed to manage the success stories of Singapore. I think this will become very challenging.

Firstly, I notice that this year's Budget has no new tax introduced. Of course, what we heard from the Minister for Finance was that almost all of them are tax reductions and even financial contributions to Singaporeans. I am sure this will draw welcome news from many people in Singapore.

One matter that I would like to mention here today is the $500 top-up, comprising $200 CPF top-up and $300 Share Ownership Top-Up Scheme. Sir, to me, this is something very unusual, and for many Singaporeans it is also unusual that they are getting special cash grants from the Government although it started last year. I am sure many welcome it. But I am not sure how Singaporeans would be able to appreciate such a gesture. In the long term, my fear is that people will get so used to getting direct contributions from the Government that they would expect similar gifts every year, and every year they would even expect higher give-aways, ie, more money from the Government to them through CPF or other means. Already today there are some people who have said that the amounts given through the CPF and other means, like the payment of rental of HDB flats and S&C charges, were small and they compare this to the $1.5 billion collected by the Government through GST.

Sir, it is also indicated that many people, or at least some of them, have forgotten that the GST was introduced last year and when it was introduced the level of income tax has already been brought down. I think we should wait for one or two years before further changes can be expected. These and other rebates given to flat dwellers, especially rental flats, I consider as bonuses from the Government to the people of Singapore as a way to share the nation's wealth that we have accumulated over the years. On top of that, the Minister for Finance also announced the contribution of $1 billion to the Edusave Scheme and a 10% tax rebate to income tax payers.

Sir, the Minister in this case may want to address one issue that has been brought up through the feedback channel that many of these rewards were actually benefiting the not-so-poor or even the rich in Singapore. I am not sure this is true. But maybe it would help if we could assist Singaporeans to see the meaning of these rewards clearer so that they could appreciate it better, especially those in the lower income group. In future, I would also hope that the Government, through the Minister for Finance, would perhaps consider and think of other ways to reward Singaporeans for their hard work instead of these direct financial rewards. Of course, one way is, if you want to help the lower income group, to assist in providing financial assistance through various organisations, like one area mentioned by my colleague from Thomson GRC, Mr Leong Horn Kee, that the Government consider in assisting CCCs and other grassroots organisations to help finance the lower income group so that they could attend school in Singapore from primary one right up to university level without any financial worry.

Sir, on this note, I would like to support the Budget Statement made by the Finance Minister.

Mr Lau Ping Sum (Ang Mo Kio GRC): Mr Speaker, Sir, against a forecast of a FY94 budget surplus of $1.58 billion, the revised figure was $5.95 billion. As we all know, Singapore is one of the few countries capable of increasing the cumulative surplus year after year. Other countries with recurrent deficit face mounting debts or escalating inflation or both. The surplus of $5.95 billion is therefore good news. However, the original assumptions underlying the forecast of $1.58 billion appear to have been extremely conservative. While prudence in budgeting is necessary, official estimates may lose their credibility if the gap between the estimated and the final figures is too large. In this case, the revised FY94 budget surplus is 3.8 times the estimate.

In the MTI Economic Survey of Singapore 1994, it is stated that sustained efforts were made to maintain a small and efficient public sector to release maximum financial and manpower resources to the private sector to build up the Singapore economy. Some people have therefore wondered if the high excess of receipts over outlay has not compromised these efforts.

The Minister mentioned three key areas in which we need to devote attention. First, to prepare Singapore for the global economy; second, to provide maximum incentives to create wealth; and third, to build a more cohesive society.

Without a cohesive society, even a highly skilled population will not be able to sustain Singapore in the long run. At the first sign of trouble, some of the highly skilled will leave for the greener pastures of other countries. On the other hand, if a large number of Singaporeans are not convinced that their future or their children's future is in Singapore, dissatisfaction will spread.

It is noteworthy that the Government has time and again re-emphasised the importance of every Singaporean to have a role to play and a contribution to make to the country. The HDB upgrading programmes, the CPF top-up schemes, rebates on rental and service and conservancy charges are visible measures to allow every Singaporean to enjoy the fruits of success. To promote social cohesion, these measures are necessary but not sufficient. But the desire for more of the good things in life can never be completely satisfied. We should be mindful of the universal values of diligence, thrift, mutual support and respect. Our neighbours in Malaysia have recently discovered that there are certain common principles between Confucian and Islamic teachings. We in Singapore should re-examine the way in which such basic values can be strengthened now that the teaching of Confucian ethics and religious knowledge has been discontinued in the schools. When Singaporeans learn to be more gracious and less self-centred and develop an interest in the non-materialistic aspects of life, we will have a more balanced perspective.

Next, I would like to comment on some of the tax changes. On the payment of tax-exempt dividends out of foreign income, at present, a Singapore company may distribute foreign income as tax exempt dividends to its shareholders. If the shareholder is a company owning not less than 50% of the capital of the company paying the tax exempt dividend, it can in turn pass on the tax exempt dividend to its own shareholders. But the flow through of tax exempt dividend is restricted to two levels of shareholdings. Any further upward payment of dividend would be taxed in the hands of the recipient.

In order to encourage companies to venture abroad, the Minister announced removal of the two-level restriction. However, it is not entirely clear what the 50% shareholding requirement entails. Does it mean that the flow through is allowed as long as the company receiving the tax exempt dividend holds directly or indirectly at least 50% of the shares of the company paying the dividend? Or is a direct shareholding of at least 50% in the company from which it receives the dividend sufficient, notwithstanding that its indirect interest in the company paying the dividend is less than 50%? The incentive would be more attractive if the flow through of tax exempt dividends is allowed in both cases.

In addition, the Minister has stated that the 50% requirement may be waived on a case-by-case basis. As the granting of a waiver on a case-by-case basis involves some degree of subjective judgement, can the guidelines used in such reviews be made known?

Furthermore, would the Minister consider the following measures to further encourage Singapore companies to venture abroad:

(1) To review the credit limitations rule from an itemised income basis to permit `averaging' of foreign taxes with respect to foreign income from different countries.

(2) To allow carry-forward excess foreign tax credits without time limit for utilisation in subsequent years.

Taxation on Unit Trusts

The Minister announced a number of changes for interest, gains on disposal of securities, dividends and other income received by the unit holders. These changes by and large benefit the non-resident unit holders. Can the same benefits be extended to the individual unit holder resident in Singapore? For example, 10% of the gains on disposal of securities used to be taxed at 27%. It will be exempted in the case of non-resident unit holders. By granting the same benefit to Singapore residents, investment in unit trusts will be more attractive. For the CPF account holders who use their CPF savings for investments, unit trusts will be a much safer bet than venturing into the volatile stock market.

Encik Harun bin A. Ghani (Hong Kah GRC): ( In Malay): Mr Speaker, Sir, basically the Budget presented by the Minister for Finance this year is intended to satisfy all sectors of society. I think the Minister's objective has been achieved because the Budget has benefited both individuals and the business community. However, people being what they are, when money is the issue, there is often a desire for more, as we have heard from speeches before. The Government's generosity in returning the surpluses to individuals and to those living in the flats gives the impression that the Government is beginning to pamper the people, although that is not the real intention.

Here I am concerned that this generosity might be held by the people against the Government one day when it is not in the position to continue giving these handouts. I hope this will not happen and the Minister for Finance will continue to increase our surpluses so that the people will always be grateful for whatever they are given. At the same time, I would like to say that in raising the surpluses, the Government should consider the difficulties caused when levies are imposed abruptly and at high rates. In this regard, I must commend the Singapore Post for its wisdom in raising the postage rate by only 2 cents, when we know that petrol prices have not gone down and the cost of transportation continues to rise. In this way, the people do not feel the burden and I have not heard anyone criticising Singapore Post for the increase in postage. I believe the move by the Singapore Post should be followed by other authorities in terms of raising their charges. Similarly, Singapore Telecom has been bold enough to reduce the subscription rate for handphones from $50 to $45. These are two examples out of a number of measures.

This is the best way to do things. I mean, when profits have increased, levies should be reduced. Charges should also be reduced. These are things that the people always look forward to, and they will be really appreciative of them.

Having made these points, I can conclude by saying that the PAP Government -P A P - has become a Profitable government and from its profits, the government Pays the people and I would urge the Government to continue doing so. As an example, the Government has given out a total of $594 million to the people, $234 million through the 10% income tax rebate and $360 million through CPF top-up on 1st October. This amount does not include rebates for Service and Conservancy charges and rentals. I believe these measures will leave the people with a sense of pride in the efficiency of the Government, and they will continue to support the Government.

Some quarters might look upon this generosity as an economic or fiscal instrument to curb undue expansion of the economy without sacrificing growth. The Government actually realises that the people play an important role in the country's success because the people have been hardworking, because they have maintained stability and racial, social and political harmony in the country and because they have been determined to improve their life and education. In appreciation of their hard work, the Government is now distributing the surpluses gained. I believe the people of Singapore are proud to have an efficient and effective Government and will continue to support the Government.

I support the motion.

Mr Chay Wai Chuen (Brickworks GRC): Mr Speaker, Sir, I would like to speak in support of this motion in the name of the Minister for Finance.

Most of the people the GPC members talked to in the business sector are concerned with rising business cost. We have heard this so many times and the Government has rebutted this issue so often that somehow I feel somewhere something is amiss.

In response to concerns and queries received in the House by Members, the Minister has included a Table this year in the Budget Statement to show how our tax revenue and non-tax revenue compared with other countries. At 22.1%, comprising 17.7% of GDP for tax revenue and 4.4% of GDP for non-tax revenue, it is interesting to note that we are not exactly the lowest in this respect. The fact is that the data show that we are higher than the average for the other four ASEAN countries, comprising Indonesia, Malaysia, Thailand and the Philippines, and higher than the average of 21.6% of GDP for the NIEs. But tax and non-tax revenue in relation to GDP is only one dimension to this problem of concern for rising cost of doing business.

The other part to look at is from gross profit rate in the business sectors in Singapore. If the tax and non-tax revenue part of GDP is high and the gross profit rate part is relatively low, then naturally the complaint by those business sectors must be justified. What we should focus on is that the tax and regulatory costs and fees constitute only one aspect of the problem. The level of the cost structure affects the gross profit rate. If the high costs, including regulatory cost, impinge directly across the board on many sectors - rentals, wages, levies, transport cost, COEs - many of the lagging business sectors will naturally feel the pinch more than the others.

Perhaps I would like to suggest that what we are seeing at work is an economic allocation process. Naturally, resources, whether it is labour, office workers, managers, or tearing down of old buildings and building new ones in its place, will move to higher value-added sectors or more profitable business. The problem is that we need some of these laggards.

The solution to the predicament is not necessarily less regulation or let the free market rein wild but targeted assistance to certain business sectors to improve and imbibe newer technology and organisation with the goal to raise value-added. It is in this area that we should do more, particularly assistance schemes to the small and medium enterprises. Small and medium-sized enterprises given a chance will also want to move out of Singapore. That is a sentiment I get talking to some of them. The difficulty is that they may not have the ready access to opportunity and capital, compared with the bigger companies. It is perhaps inevitable that a certain hollowing-out of industries and businesses may take place as regionalisation takes up speed.

MNCs who have been investing overseas for decades finally end up using more and more of the local industries as supporting contractors where such industries have the low cost, the skill and the quality in servicing them. But for the home-based suppliers and the contractors who have certain technologies or special skills in the production of the intermediate input, it is possible to continue supplying the MNCs overseas from home. Hence, I consider a renewed and more deliberate scheme to pull up the small and medium-sized industries to be a corollary to our regionalisation drive.

As our big boys go and establish beachheads overseas, our small and medium-sized industries should be pulled along. Otherwise, the so-called building of the second wing is not complete. One may ask why do we need to specially help our own small and medium-sized industries when they are supposed to be competing with the world. My answer is because they are largely our own.

Our own market, we all know, is too small. Our economy is largely dominated by MNCs who can make their own way in third countries on their own in collaboration with the locals in those countries. They will also bring along their own home country suppliers or subcontractors or pass jobs to them. All these have been done by MNCs for decades. If our SMEs are not pulled along, the danger is that our economy will not only be hollowed out, the linkage in the business sectors will be more and more fragmented. Entrepreneurial businesses riding on the coat tails of the big boys will be affected. The political economy will lose its social economic bonding. Suddenly, as the Minister has so aptly put it, the balls may not be so readily fed for the goals to be scored because the team has been thinned out.

According to Command Paper 3 of 1995 which spells out the Budget spending of the Government last year, in 1994, only $5 million out of a budget allocation of $20 million was used to assist under the EDB assistance schemes under Phase I, that is, 25% of what was allocated. And only $20 million out of an allocated sum of $56 million, that is, 36% was used to assist under the EDB assistance schemes under Phase II. This figure for 1994 was very much lower than for 1993. These figures are found in page 675 of the Command Paper. Are we reaching out to the SMEs in a timely and approachable manner?

I am very glad that the Minister has mentioned that the Government is studying possible changes to its fiscal policies to make the economy more competitive and to strengthen the incentives of businesses and individuals to venture, succeed and enjoy the fruits of the enterprise. I hope he can consider how to give the SMEs a great lift.