ANNUAL BUDGET STATEMENT

Order read for Resumption of Debate on Question [11th July, 1997],

"That Parliament approves the financial policy of the Government for the financial year 1st April, 1997 to 31st March, 1998." - [Minister for Finance].

Question again proposed.

1.00 pm

Mr Lew Syn Pau (Kreta Ayer-Tanglin): Mr Speaker, Sir, this year's budget has been announced at a rather unusual time in July, instead of March every year. It has also come at a time when the US economy is surging ahead very strongly with low inflation, with the Dow Jones hitting a record 8000 recently while the regional economies here seem to be taking a beating with the Thai baht and the Philippine peso having depreciated significantly against the US dollar. The ringgit has also come under pressure lately. Even the Singapore dollar has weakened somewhat against the US dollar.

There is general consensus that we are facing an economic slowdown today. The good news so far is that it does not seem to be as bad as the one we experienced back in 1985-87, many of whom have already forgotten as it was so brief. In fact, this slowdown is useful as it serves to remind all of us that prices do not just go up one way. They can also come down and stay down, just like the share prices have done since January 1994. On the other hand, the bad news is that our costs of doing business have been creeping up, eroding our competitiveness. And unless some concerted action led by the Government is taken, the slowdown may become much more severe.

In the light of this economic backdrop, it is not surprising that the business community expects the budget to address the issue of competitiveness and to offer some relief to the high costs of doing business in Singapore.

The Government Parliamentary Committee for Finance, Trade and Industry met up for informal dialogue sessions with three trade associations, just before the Budget Statement was announced, namely, the Singapore International Chamber of Commerce, the Singapore Confederation of Industries and the Singapore Chinese Chamber of Commerce and Industry. They had wishlists which were largely not met by the budget. I will dwell upon them later. Our GPC also met up with our resource panel members comprising many prominent business people and professionals from a wide spectrum of the finance and business community. And this we did after the Budget Statement was announced. Their reaction generally was that the budget benefitted only the larger financial institutions and a small select group of business people involved in logistics. The local business community was generally disappointed.

I share some of the sentiments of the local business community. However, if we regard this more like an interim budget and also remember that the Committee set up to look into the long term competitiveness of Singapore is still hard at work, we put these into perspective, we will feel less disappointed. I think we should also be grateful that there were no new tax increases, not even the perennial ones on cigarettes and liquor. We should also not forget the number of positive tax reliefs on the personal side.

In my view, this year's budget is moderately positive, although skewed too much towards the foreign financial community.

This budget does not address the main concern of business people, and that is, reducing the cost of doing business in Singapore so that our enterprises can become more competitive vis-a-vis our neighbours. I believe some time before the Budget Statement, the JTC did announce the freezing of rentals for industrial properties at current prices. There were also some adjustments made to the foreign workers' levy for certain sectors. Off budget action taken to control costs, however, gives the impression that such action appears ad hoc and uncoordinated. There is a perception that nobody seems to be monitoring and coordinating measures to contain, if not to reduce the cost of doing business here. Otherwise, a package to this effect would have been announced at this Budget Statement. Perhaps, the Government is waiting for the Committee on the Long Term Competitiveness of Singapore to come up with its findings first before taking action. Whatever the real reason may be, the message I would like to put across today is that our business community is extremely anxious about the current state of affairs and would like to see an integrated Government approach in dealing with the issue of cost.

The Government should also not hesitate to revisit fundamental assumptions, or "sacred cows" that many policies are predicated upon. Today, many policies have been formulated based upon a mix of Government controls and free market forces. Perhaps, we should challenge some of these premises today and ask ourselves whether our economy and the people are mature enough to let market forces have free and full play. I will touch on these in greater detail in the Committee of Supply.

Let me now deal with the budget details, item by item.

Corporate Tax Rate

The corporate tax rate is held at 26% although the announced long term rate is 25%. I agree that at 26% today, we are already one of the lowest in the world, after Hong Kong, for corporate tax rate. Since we have brought this down to 26% only last year, I agree that there is no real urgency to bring it down further.

For the longer term, however, I would like to ask the Minister for Finance to consider a multi-tier corporate tax rate that will help small local growing companies that need to plough back their profits into the business. For example, the first $2 million in taxable income could be taxed at, say, 15%, the next $3 million could be taxed at 20% and the rest above $5 million at the long term rate of 25%. In this case, local companies could be defined as companies with 100% Singaporean ownership. This concession could be given for an initial period of between five to 10 years.

We are already helping many MNCs in Singapore in a similar way by granting them pioneer tax status for 10 years in the first instance. And this period, I am told, is sometimes extended depending on further investments made in their plants in Singapore.

In the financial sector, we have already introduced similar multi-tier corporate tax rates, although in their case, the tax rate is lower or even exempt for selected activities above a certain threshold.

Tax Incentives for Financial Services Sector

Most of us do not begrudge the tax incentives given to the financial services sector to further attract high value-added activities, mega fund managers or reputable credit rating agencies to Singapore. In this way, we enhance the development of Singapore as an international financial centre. The question most frequently asked, however, is how do these tax incentives translate into benefits for Singaporeans. These tax incentives are mainly benefitted by the foreign financial firms. Although there are some requirements for some of these firms to employ a certain number of staff based in Singapore in order to qualify for these tax incentives, many firms simply transfer their expatriate staff from their home country to Singapore. Many of them bemoan the difficulty in recruiting qualified local staff but, at the same time, they are reluctant to train younger local staff for fear of job hopping among them once they are trained. So they simply poach from one another and drive up the wage costs in the process. There is therefore little transfer of technical expertise to our local people.

In Thailand, I am told, foreign financial institutions are restricted in the number of expatriates allowed to be brought in. I am not suggesting that we do likewise here, but I certainly feel that more training of younger staff should be undertaken so that our pool of qualified financial professionals can be increased in the long run. If all the firms involved are compelled to train younger local staff, there will be less fear of poaching among them. This is important if we want to add breadth and depth to our financial markets. So I hope the Minister for Finance will look into the possibility of linking some of these tax incentives to the imposition of some requirement to train younger local staff to add to our pool of financial expertise. In the longer term, this will also ease the tight labour market for financial professionals and make it easier to further attract more financial institutions to Singapore.

Overseas Enterprise Incentive (OEI)

The OEI was introduced as part of the Government's effort to encourage Singaporean companies to regionalise. Thus far, the tax incentives are aimed at companies that are profitable, with income or dividends to remit home. The further relaxation of the OEI scheme is welcomed.

Companies that venture overseas usually do not make profits in the initial years. Right now, their losses cannot be grouped together, although they can be carried over for a number of years at the individual company level. To further encourage regionalisation by local companies, the Minister may wish to consider allowing such companies to group their losses for an initial period of, say, five years, provided certain conditions are met. This will certainly help such companies to make longer term investment decisions overseas.

The Government could also help local companies venturing into new markets, such as Vietnam, Myanmar and Cambodia by setting up insurance schemes for country risks to help reduce their exposure to risks arising from war, terrorism, rebellion, insurrection, coup d'etat, etc. These events are usually not insurable commercially. If available, they are either limited in coverage or the premium would be too hefty. Such Government support, I am sure, would be most welcome by many Singapore companies and would certainly encourage them to venture more boldly into new markets.

Tax Changes for Individuals

The across-the-board one-off rebate of 10% on individual income tax in the Year of Assessment 1997 is indeed a welcome relief for all of us, especially in a year of high property prices and escalating COE prices. For many of us, it is probably not enough to pay for the increase in the COE prices since the beginning of the year.

I commend the Government for finally consenting to raise the income tax relief for dependants by a modest amount of $500. My only regret is that the Government did not use the opportunity to increase the allowable relief for wife to at least the same level as for our aged parents at about $3,500 to $4,500. Those of you who have wives who are not working and also aged parents to support will know what I mean. Why should a non-working wife who is active economically managing your home be given a tax relief which is lower than that for your aged parents? Will the Minister help explain the rationale for this?

Next, I also fail to understand why the top marginal tax bracket for individuals should be maintained at 28%, which is 2% higher than the corporate tax rate of 26%. Today, very high net worth individuals who are affected will have tax consultants and private bankers to help them to minimise their tax exposure. The end result may be more funds being kept abroad in tax havens to minimise their tax burdens. I have some suggestions too on property tax, estate duty and tax reliefs to promote regionalisation, which I will touch upon in greater detail in the Committee of Supply.

Rebates on HDB Service and Conservancy and Rental Charges.

These rebates were introduced some years ago as a result of the GST offset package which made 70% of individuals non income tax payers. Although these rebates were initially meant to be one-off, the Government has been giving these rebates year after year now because of good budget surpluses. My concern is that we may soon have 70% of the population developing a welfare mentality as they come to expect this and other handouts such as Edusave, CPF top-up schemes and so on year after year. What I would like to see is for these rebates to be confined to the lower income only, ie, perhaps the 1-roomers, 2-roomers and 3-roomers who are tenants or lessees who are more in need of financial aid.

Budget Surplus.

First of all, I think it is commendable that we have a budget surplus year after year. Many countries with much heavier tax rates are still grappling with breaking even on their budget. Recently, I read that we have broken the record of having the biggest budget surplus in the whole world, both as a percentage of GDP as well as in absolute quantum. This is a dubious honour that I think we should look in greater detail. It could mean that we are collecting revenue way above the Government's spending needs, thereby taking away cash and hence liquidity from the economic system. The retailers would like to believe in this theory as they attribute the poor purchasing power of consumers to lack of disposable income on households who are committed to large mortgage payments on houses and their cars. If this theory is correct and liquidity is tight, then you expect the interest rate to be high, which is not. In my view, the weak retail sector is due to more than just poor disposable income. Our consumers here and those from neighbouring countries have become much more discerning and are going for greater value-for-money purchases elsewhere in the region and even further afield as more and more people travel abroad.

If we take a closer look at the details of the revenue breakdown, we will notice that $4.4 billion come from the Ministry of Communications, presumably from car and road taxes and COEs. This is more than the total estimated budget surplus of $4.09 billion for FY 97/98. Do these taxes take money out of the system? Obviously they do, as a dollar more spent on a car would be a dollar less spent on other goods. What are the long term implications of having large budget surpluses on our local economy year after year? I am not an economist and I do not know the full answer right now, but I share the sentiments of many that it must be taking away some of the vibrance and enthusiasm of living in Singapore and contributing to the perception that Singapore is a very expensive place to live in.

Last week, Singapore also won another dubious honour of being among the most expensive cities for expatriate housing. It was quoted second to Hong Kong for property purchases relative to annual salary, and also second to Bombay for annual rental as a percentage of salary. This was the finding of a survey done recently by property consultant Knight Frank. I would like to suggest that the Committee on the Long Term Competitiveness of Singapore should also examine the long term implications of our large budget surpluses year after year.

Finally, I suggest that the Ministry of Finance work harder to get the estimated budget surplus figure closer to the actual realised. If you look at the record of the last five years, our estimates have always been far too conservative, and have been off by several billion dollars every year. This year, for example, with an estimated surplus of $4.09 billion, I take it that the actual perhaps may be nearer to S$10 billion.

Sir, with this comment, I support the motion in the name of the Finance Minister.

Dr Tan Cheng Bock (Ayer Rajah): Mr Speaker, Sir, I rise to support the Budget.

This year's Budget is obviously very focused on the financial sector. In fact, it has been called the "Shenton Way Budget". There are incentives for fund management, institutions involved in Asian Currency Unit operations, banks and merchant banks managing initial public offers in foreign currency shares, financial institutions that issue offshore debt issues and credit rating agencies. I see these incentives as ways to further strengthen Singapore's position as a regional financial centre.

There are, however, a few questions that many in the financial world are asking. For example, there are about half a dozen fund managers in Asia that manage about $10 billion dollars worth of funds and our minimum amount required to qualify for this Budget's tax exemption scheme. Also, there are not many banks that earn more than $50 million from ACU activities. Obviously, you have to be a very big player before you can benefit from these incentives. Why is this so? There are many people asking this question and perhaps the Minister can answer this.

Similarly, smaller and medium-sized companies in Singapore would not be able to benefit from the tax incentives from satellite operations and the building allowance for logistics operators. I wonder how many companies in Singapore have plans to launch satellites, or provide integrated logistics services which cover warehousing, distribution, information management and other high value added operators. It looks as if only huge companies can do that and benefit from the incentives.

Sir, manufacturers, retailers and property developers feel very let down by this Budget. They complain that the cost of doing business in Singapore is very high, and some of them move abroad and set up companies overseas. But many got their fingers burnt in the recent devaluation of the Thai baht, the Philippine peso and now probably the Indonesian rupiah and the Malaysian ringgit, which also took a down turn. These companies are hoping for the Minister to announce measures to bring down the cost of doing business. Of course, they are always concerned about the corporate tax, but we have already announced in the last budget that the corporate tax will be reduced for this year's tax concessions.

I think they are now turning to the Committee on the Long Term Competitiveness of Singapore Report early next year. I think they expect a lot of goodies, and I do hope by then they will get something.

I am in favour of more publicicity to be given to the more than $700 million to be spent on R&D, the Cluster Development Fund of $300 million and the Economic Development Assistance Schemes administered by the EDB and other Government agencies for Singapore companies. Singapore is only adapting to change. We are not leaders. We have no products we can say that we developed them from our own R&D. The West is still leading. They are the creators and inventors. We are just followers and adaptors.

Holland, for example, is a small country by comparison to many other big western countries, and the population is not very big. But they have very good multi-national companies and they have very good original products and companies like Philips that are world renowned. Well, we hope that we can do something like that.

But here in Singapore, I am afraid that the present thinking on R&D is that our R&D is based on bottom line. But real breakthroughs often start from research for its own sake. These are the breakthroughs which dictate what the future markets will be which separate the leaders and the followers. I hope this $700 million R&D fund will at least help some of these companies who want to embark on R&D programmes.

Although there were no announcements for a reduction in personal income tax, it was softened by a 10% tax rebate for the Year of Assessment 1997. I think Singaporeans should be satisfied with this, as in addition to the 10% rebate, there is also benefit on increases in certain of his personal allowances. As for those who do not pay taxes, the rebates and grants for citizen households staying in rental and owner occupied HDB flats are welcomed.

With the increase in water rates, lower income families living in 1-, 2-, 3- and 4-room HDB flats will be granted a rebate on utility bills in 1997/1998. This, I am sure, will help these Singaporeans to offset the increases.

Mr Speaker, Sir, there has been a lot of talk recently on creative thinking and I notice that the Ministry of Education will be given $19.4 million worth of money. I am sure a lot of this will be spent in this particular direction in our education. What do all these really mean? The term "creative thinking" necessarily implies that from time to time, old standards and old ideas will be challenged by new ones. And if we are committed to such a mood of thought, we must allow this challenge. This requires a change in the mindset of teachers who are teaching students and, of course, of civil servants who are running our many institutions and Ministries. There will be students who can solve, for example, mathematical problems in different and non-standard ways, and they should not be penalised for not following the teachers. Then there will be projects that need to be assessed by civil servants and because they are again non-standard, they are not given due consideration. Or perhaps our present rules and regulations do not allow such changes.

I remember there was one young man who came to me with a beautiful project and I passed this project to the URA. It was to deck the canal which is opposite Centrepoint. It was a beautiful project. I brought it to URA because I thought he had creative ideas. Unfortunately, it was turned down because our rules and regulations do not allow this particular project to be carried on in this manner. It must be tendered out. I am wondering when we start to have this trend, we are actually creating a lot of expectations in our population. They might come up with beautiful ideas but when they come to you, you say, "Sorry, you have to tender out."

I have no answers for this, Mr Speaker, Sir, but I guess we have to start thinking and find ways to accommodate all these changes that will result from our new approach to teaching.

Of course, finally, change must also come from the individual, ourselves, because a thinking individual is actually a responsible individual. If one is a victim of an offensive remark and because one is a thinking individual, one should have the maturity to brush it aside if it is not worthwhile rebutting. Or we could argue back in an objective, non-prejudiced manner without resorting to violence. Responsibility for one's action is important if our society wants to mature. It is always easy to put the blame on the Government for fear of not speaking up. I hope it is not used as an excuse for not speaking up.

Our multi-racial Asian society makes it even more so for the individual to be very careful in expressing his views, especially if he refers to race or religion. Many of us who are old enough to experience the racial riots and also read about the Maria Hertogh riots will definitely want to make sure that such events will never happen again. I remember that as a medical student I had to take care of riot victims in hospital. I was really shocked and was very determined that it should not happen again. Maybe this is one of the reasons why I was drawn into politics, because we must not allow it to happen. But when Singaporeans are given this signal about creative thinking we should expect a lot more than what we are doing now as they might want to do more. But this is a challenge that we have to face. How we address it will be very difficult, but I think we must challenge it. Of course, as Asians, this question of face-saving is very important. Can our society therefore evolve to a stage where the right of the individual to speak and to express his views transcends all these things? That is the question I would like to ask our Singaporeans.

Mr Chiam See Tong (Potong Pasir): Sir, the economy of China is booming and the countries in the region are also making good economic progress. This means that Singapore is facing up to more competition from those countries.

The Minister has said that the Government shall be spending more on economic and infrastructural development. There shall be a sizable increase of 68% over last year's spending. No one will quarrel with the Minister over this large additional expenditure to improve Singapore's business environment. This will put Singapore in a better position to meet the challenges from the other countries. But international organisations that report on world business competitiveness do not point to Singapore's infrastructural development as one of its weak points. The weak point in Singapore's economy is the low educational level of Singapore's workers and their low productivity. Singapore workers are the least educated among the so-called four tigers, namely, South Korea, Taiwan, Hong Kong and Singapore. Singapore has a workforce of about 1.8 million and nearly one-half of this workforce comprises workers who have not completed secondary school education. Out of this one-half, nearly 700,000 or about 40% of them have no or very little numeracy and literacy skills.

Sir, the low level of education of our workforce is not something new. It has been highlighted for many years, but the Government does not seem to be concerned about this problem. Low education of the workers is not just an economic problem but a problem about Singaporeans.

The economic progress of Singapore due to the low education of the workforce shall in some ways be hindered but, more importantly, a large section of our workers, with hardly any education, shall be condemned forever to a low or no cultural life with no chance of enjoying a richer and more fulfilling life. The Government should once and for all put its mind on this important task to solve the problem of low education among our workers. An educated worker can not only understand new methods of production but is also more disciplined and a better worker and, hence, more productive.

I have asked the Government to introduce compulsory education for our school-going children, but the Government thinks that it is not necessary. The Government's reason is that only about 2,900 children each year would be involved. To the Government, this number of school children who do not receive any education at all is small. But actually it is not a small number. It is about 6% of each year's intake of Primary 1 school children. Each cohort of children accepted into Primary 1 is about 46,000 in number. The Government should not take the attitude that since the number of children not attending school at all is only about 2,900, it is not worth enforcing a compulsory education scheme. If this is the approach, then this approach is wrong. It is important to make education compulsory, not because Singapore can afford to maintain such a system but, more importantly, to drive home to parents, especially among the lowly educated Singaporeans, that it is necessary to send their children to school. This is also the only way to stop parents from not sending their children to school. With compulsory education in place, the quality of our workforce shall surely improve with time.

The budget surplus is about $4.1 billion. The Minister says that it is a modest surplus. This does not mean that the Government has collected less money from the people. The budget surplus is modest only because the Government has put large sums aside to embark on substantial capital works such as the North-East MRT line and other capital projects. The question is: can the people of Singapore maintain such a huge budget surplus year after year? It is definitely a burden on the people. Under the recent Constitutional amendments, the accumulation of budget surpluses has to be made. Each succeeding government will have to build up its own reserves, as it cannot use the surpluses accumulated by other governments, unless of course clearance is obtained from the President, and no self-respecting government would want to approach the President to release surpluses accumulated by other governments for its own use. So what are the implications of maintaining huge surpluses year after year? It would mean that costs to Singaporeans would be high. Of course, there will be less money being circulated among the people.

Almost every Government department has, by policy, been converted to Autonomous Agencies (AAs). These Autonomous Agencies have to be efficient, not only in the services they provide but also in financial matters. Ultimately, these Autonomous Agencies will have to be financially self-supporting and probably make a profit, if possible. If these AAs want to be financially self-supporting, they have to charge more for their services. This can be seen by the fact that the Government is going to collect $4.1 billion for FY 97 for fees and charges. This is an increase from the last fiscal year by $0.6 billion.

The Government also earns revenue from other sources other than from tax revenue and the fees it charges. The Government in fact makes huge profits from the sale of land. Land sales are going to net for the Government about $18.5 billion in FY 97. Since the Government is the biggest vendor in the sale of land in Singapore, it is quite natural that the Government wants to maintain high prices of land in Singapore. This would mean that the prices of houses and flats in Singapore will remain high. High land prices will also mean high rentals. And, of course, high rentals would push up costs of doing business, and generally it will raise the cost of living.

The Budget has many "give-aways" to HDB flat dwellers. Strictly, as I can see, the only real give-aways are the rebates for the service and conservancy charges which are paid to the Town Councils. Once these rebates are paid to the Town Councils they are paid for good. But as for the rebates for rentals, they are in fact the transferring of money of the Government from one of its pockets to the other, as the HDB is a Government-related body. The Government also shall be giving rebates on public utility bills. Again, there is really no loss to the Government because in the end the Government will be getting back much of the rebates paid out with higher water tariffs.

Sir, newspaper reports show that businessmen generally are disappointed with the Budget. They say that there is nothing good for them in this Budget. They are disappointed that the tax rate for both personal and corporate income tax rates were not cut and they remain at 27% and 26% respectively. As for the individual income taxpayers, generally they are not impressed with the tax reliefs. One Singaporean commented that the relief for the aged parents, which has been increased from $3,500 to $4,500, does not impress him. It would not be enough incentive for a person to get his parents to live with him and enjoy the $4,500. So those persons who have parents with them would just enjoy the tax relief as a matter of course.

Government pensioners generally are also disappointed with the small increase in the Singapore Allowance. One Government pensioner has written to me to ask the Government to increase the Singapore Allowance. The increase of $10 to him is manifestly too low. The cost of living has gone up and since the introduction of the 3% GST in April 1994, the $10 increase is not enough to cover the rising cost. I would ask the Minister whether he would consider increasing the Singapore Allowance by at least another $10. I am sure the Government can afford this. If we look at the bottom line, in fact, the net receipt by the Government is a whopping $12.6 billion.

Mr Sin Boon Ann (Tampines): Mr Speaker, Sir, I rise to speak in support of the motion standing in the name of the Minister for Finance.

Sir, by any measure, our economy has done well. Although the economy has slowed down in 1996, after three years of strong growth, nonetheless, we have managed an overall growth of 7.6% for 1996. This, for a maturing economy, is quite commendable. We have been fortunate enough to register strong surpluses in our Budget with each passing year. We were able to accumulate such surpluses because of our sound budgetary policy. We do not spend more than we earn and our ability to earn comes from a combination of sound political leadership, wise economic judgment, a hardworking population, and a very successful industrialisation policy, a policy which since the early years is characterised by emphasis on sound infrastructural investments, and foreign investments in our country. In fact, it is the manufacturing enterprises, made up largely of the MNCs, that give us the impetus to bring us to where we are today. At this moment, manufacturing contributes towards 24% of our GDP. In employment terms, this translates itself to more than 365,000 jobs which the manufacturing industry provides for the people.

Mr Speaker, Sir, this year's Budget has been variously termed as a "pro-family" budget, a budget for the financial sector, and a "no-surprises" budget. However, for those in the manufacturing sector, much disappointment has been expressed because there is little in the Budget that they can be happy about. The consolation may well be that this is an interim budget. I would like to ask the Minister for Finance whether our policies for the manufacturing sector will only be announced after the Government has studied the competitiveness report by the Government appointed Committee.

Sir, it is often said that the cost of doing business in Singapore today is high. The cost appears to be mounting and if we do not check our business costs, Singapore may lose its attractiveness as a place to do business in and, in the long term, this may affect our economic well being. Presently, if you look at the component of cost in the manufacturing sector, amongst the two biggest expenditure items are rental and labour. If you look at the recent figures published by the Department of Statistics, the unit business cost of manufacturing for the years 1986 to 1996 has risen by slightly more than 25%. On the other hand, just looking at the rate of return of US investment in Singapore in the non-oil manufacturing area, the figure fell from 35.3% in 1992 to 22.6% in 1995.

I do not think I will be faulted for attributing part of the decline to the rise in the unit cost of manufacturing in Singapore. Sir, we should examine specific components of cost increases and see how these can be more effectively managed to make companies in Singapore more competitive in the world economy. The Government is aware and is as much concerned as we are with rising business cost, and I am sure this is an area which the Committee on Competitiveness will look into. In the same vein, I am not sure whether the solution is to cut income tax across the board as this does not sufficiently provide incentive or the challenge for companies to consider how they can be more productive and stay nimble on their feet. For the moment, the manufacturing sector, among others, may be held by a weaker Singapore currency. The weaker round of weakening of currencies in the region has no doubt affected the Singapore dollar. For many who see this as a sign of the weakening of the economies in the region, I see this as a positive sign, as a moderate weakening of our currency will help us to compete more effectively internationally. A strong Singapore dollar may not serve our purpose always as it will not help to push our exports overseas. If our strategy is to rely on the manufacturing sector to contribute towards 24% of our GDP, a moderately weaker Singapore dollar will no doubt help to serve the purpose.

Mr Speaker, Sir, we recognise that we have to push Singapore to the next level of economic development to make the Singapore dream a reality. We have accordingly restructured our economy by phasing out labour intensive industries and focusing more on high value-added capital intensive industries and financial services. Along similar lines, we have also embarked on a strategy of, I believe, moving to niche areas of specialisation and competence within our economy. For this reason, we have identified areas such as biomedical technology and wafer fabrication for development. Additionally, in recent years, we have been developing a second wing for our economy by encouraging Singaporeans to invest overseas, especially emerging economies like China, Vietnam, Myanmar and India. Today, our regionalisation efforts in these countries have been geared towards real estate related and manufacturing based activities.

Mr Speaker, Sir, these are no doubt some economic strategies that will help Singapore stay on course well into the 21st century. However, I feel that more can be and should be done for Singapore. We can ride on existing businesses and investments elsewhere to take us to the next level of development. Let me explain.

We have amassed for ourselves a sizeable amount of reserves. This is no doubt due to the surpluses which we have accumulated over the years. Just for financial year 1997/1998 alone, our budget surplus is in the region of $4 billion. There are many companies, both in the West and the East, that are well established either in certain businesses or in certain cutting edge technology that we are trying to develop. It will be much to our advantage if we can acquire these businesses and in the process use their technology to give us a headstart in some areas, rather than to build the Microsofts, the Glaxco Wellcomes and the ICIs of Singapore from scratch. We can set aside some money in our reserves to acquire these companies. Acquiring these companies will give us a foothold into their business network and technological base.

I believe the Malaysian acquisition of the Lotus car manufacturer will provide some synergy for Hicom in the production of Proton cars. In our case, besides developing our own indigenous biomedical base, we can perhaps look at acquiring some of these leading biomedical companies in the world. This will give us a strategic advantage and headstart in this area. To prepare for this, we should perhaps send some of our best and brightest graduates to work for these companies. Their knowledge and experience will no doubt give us a better understanding of the operations of these companies and will help us with our acquisition, as these companies are already established with perhaps a sizeable share in the world market. The acquisition of these companies will allow us to integrate ourselves further into the world economy. It may also help these companies by using our local knowledge to break into this region. As far as I am aware, our investments thus far have been confined to portfolio share investments in various companies, such as investing in these companies, especially shareholders, rather than to consider a strategic acquisition of target companies or technology transfer to provide the foundation of economic development.

In view of my foregoing comments, I would therefore be grateful if the Minister for Finance would enlighten us on whether our Government has a coherent strategy of acquisitions for the purpose which I have just suggested.

Mr Speaker, Sir, as we stand at the threshold of the 21st century, we face a global economy that is increasingly integrated and highly competitive. In order for us to stay ahead of competition, we must be prepared, as we have done in the past, to undertake constant reviews of our paradigms. I share the concern of the Minister for Finance for our future economy. However, I am also optimistic that there are opportunities out there to be exploited. So long as we are prepared to see the world as a hunting ground for world class operations, the prospect will be bright indeed for us to rise above our constraints of size, limited resources and a small population base. For this reason, I beg to support the motion.

Dr Teo Ho Pin (Sembawang): Mr Speaker, Sir, I rise in support of the motion moved by the Finance Minister. The Budget this year is prudent and strategic in nature. It signals to all Singaporeans the slower growth in the economy in 1996 and focuses on certain sectors which the Government would like to "champion" at this point of time in view of the growing Asia-Pacific economies.

At the individual level, the Government is quite generous in giving rebates to all Singaporeans. Feedback from the HDB heartland have been generally positive. Residents are pleased to receive the utilities, service and conservancy charges, rental and the 10% individual tax rebates. These rebates clearly reflect the Government's commitment to create wealth and share success with all Singaporeans.

At the corporate level, the Budget has given a boost especially to the finance and communications sectors. I hope the incentives given will further encourage growth in these sectors, thus creating more high value-added job opportunities for Singaporeans.

To cope with this potential growth, we need to provide more manpower for these sectors. More resources should be channelled to the respective training institutions to train more Singaporeans and upgrade our existing workforce in these industries. The Skills Development Fund must also be more generous towards companies in the finance and communications sectors.

Sir, let me now discuss the S&C grant provided by the Government for HDB residents. Town councils are indeed very grateful to receive this assistance.

The grant will help town councils to reduce the impact of rising maintenance costs on our residents. Over the years, town councils have been trying very hard to maintain the S&C charges of HDB residents despite rising maintenance costs. Many town councils have adopted many initiatives to save energy, adopt more efficient repair methods and maximise the economy of scale in the management of HDB estates. Despite this, some town councils are facing the financial strain of increasing maintenance costs. The rise in maintenance costs is attributed to a number of factors.

Firstly, manpower cost has increased over the years. The maintenance industry is faced with acute shortage of manpower, especially rubbish collectors, cleaners, and lift servicing technicians. The shortage of manpower and wage increase have increased the cost of maintaining HDB estates.

Secondly, the rising expectations and demand of HDB residents have also contributed to the high cost of maintenance. New HDB flats are designed with a wide range of better quality materials and fittings to meet the needs of new flat owners. However, these new flats are also more costly to maintain.

For example, new flats are installed with lifts stopping at every floor. Although this is necessary, it has increased the cost of lift maintenance drastically. At present, the monthly maintenance fee for servicing a lift with three stops is about $180 per lift while the fee for a lift with 14 stops is $310 per lift. There is a difference of 72% in the servicing cost for these two different types of lifts. Thus, town councils which collect similar S&C charges for various room types will have to bear the extra cost of lift maintenance for these newer flats which have lifts stopping at every floor.

In addition, the cost of spare parts for lifts is also increasing rapidly. Lifts in new flats are installed at the construction stage and handed over by HDB to town councils for maintenance. Town councils have no choice but to accept whatever brand of lifts as selected by HDB. As such, we have a wide range of different types of lifts servicing the estates.

Many of the lifts are specialised in nature and can only be serviced by the respective companies using their specified spare parts. As such, town councils are unable to enjoy much economy of scale or obtain competitive cost in lift maintenance. I hope that HDB will look into the rising cost of lift maintenance as faced by all town councils.

Thirdly, the installation of many new fittings and finishings in newer flats has also increased the cost of maintenance. For instance, new flats are installed with aesthetically pleasing light fittings at common areas. These fittings are costly to replace and are frequently vandalised or stolen, thus increasing the cost of maintenance. For example, a 2 ft fluorescent tube in an existing flat costs about $1.20 to replace, while a light fitting in a new flat costs about $12 to replace. Thus, it costs the town council 10 times more to replace a light fitting in new flats. Furthermore, new flats are installed with a wide range of different types of light fittings. This has also made it difficult for town councils to source for these light fittings and enjoy economy of scale in maintaining these fittings. I hope HDB will conduct a study to determine whether HDB residents really prefer to have these new light fittings and are willing to pay higher S&C charges for these features.

Finally, I hope the above examples will enable Singaporeans to understand the high cost of maintaining HDB estates and appreciate the good work done by the town councils. This is particularly so for those town councils which manage a large number of flats and thus are able to share the savings achieved through economy of scale with the residents.

With the S&C grant provided by the Government, town councils will be able to minimise the impact of rising maintenance cost on the residents, especially the 1-, 2- and 3-roomers.

Mr Speaker, Sir, I support the motion.

Mr Low Thia Khiang (Hougang): Mr Speaker, Sir, may I seek a point of clarification from Dr Teo? In his speech, he mentioned that the S&C grant to residents would help the town councils. Firstly, would he clarify how does this grant help the town councils? Secondly, is this grant given directly to the town councils or the residents?

Dr Teo Ho Pin: From what I understand, the grant will be given to the town councils but it is meant for the residents. Basically, it is to help rising maintenance cost. Of course, the residents will be able to enjoy the S&C grant because, without this grant, the residents may be faced with more increases in S&C charges. So with the Government helping the town councils to shoulder some of their operating costs, this will lighten the burden on the residents.

Mr Low Thia Khiang: Mr Speaker, a point of clarification. Is the grant meant for the residents or the town councils? If the grant is meant for the town councils, which means that the town councils would actually receive the grant, the residents will still pay the same charges. But if the grant is for the residents, they will pay less. So which is which?

Dr Teo Ho Pin: The grant is for the residents.

Mr Low Thia Khiang: Which means the town councils will not get any additional grants. How does the grant help the town councils? The residents will pay less, ie, they will enjoy the grant, but not the town councils.

Dr Teo Ho Pin: Just to clarify again. Although the S&C grant will be given to the residents, based on the different room types, it will be paid to the town councils and the residents will benefit. What I am trying to say is that, technically speaking, yes, with this S&C grant, the residents will enjoy the grant directly. But if you look at the trend of maintenance cost and the last revision of the S&C charges for HDB estates, you will note that town councils are facing financial strains because of rising maintenance cost. So you will find that, with this grant, theoretically, the town councils will have to increase the S&C charges by a certain rate. But with this rebate, the increase will be minimised. What I am trying to say is that the S&C grant by the Government will minimise the impact of any potential increase in S&C charges on the residents.

Mrs Lim Hwee Hua (Marine Parade): Mr Speaker, Sir, the tone of this year's Budget Statement is consistent with our larger goals of achieving a stable growth pattern. As echoed by several Members already, the incentives directed at promoting the financial services sector would further reinforce the establishment of Singapore as a regional business and financial hub.

Sir, I would like to make two comments on how we can position ourselves in the light of intensifying competition as these issues were not specifically addressed.

Managing our Resources

The Government has expended substantial efforts in arriving at a judicious mix of industry and services which would allow us to maximise the potential of available resources and capital, and consequently growth possibilities.

As is well known already, unlike other countries, we do not have a large domestic market or a greater hinterland to supply to. Hence, to stay relevant, we have to constantly be nimble-footed and be willing to restructure our industries.

At the same time, we face supply constraints, particularly to labour. We can, through religious and forward planning, adapt other factors of production to changing needs. In this regard, I would like to urge the Government to devote yet more effort to the difficult challenge of moulding the attitudes of the labour force, so as to better cope with changing demands.

Sir, it is inevitable that with a tight labour supply, employees are frequently in a good bargaining position, but only to a point. If a wage spiral forms, and consumption levels climb in tandem, any forced cutting back would be very painful. This could easily be precipitated by a loss of competitiveness when our wages rise too high too quickly.

London-based consultant Charles Handy, in his book entitled "The Empty Raincoat", offered a half-two-three concept to maintaining productivity and profitability, that is, keeping half as many employees but who are paid twice as much and who are expected to produce three times as much. If we can manage on only half as many people for existing businesses, we can then hope to do more despite our limited manpower resources. However, we would also need to ensure that overall productivity has risen as well.

Sir, there is a current fear that the wage level part of the equation may have risen ahead of the other two components. Whilst there is still a premium to be paid for good quality, top-notch managerial resources in Singapore, this has to be justified by a real superiority in delivery. There is a fine line between demanding what we think we are worth individually in a tight labour market and being priced out of the global market as a country.

Awareness of Sources of Competition

The Government has frequently been making comparisons between Singapore and other countries in Asia, in a bid to remain competitive. Amongst other things, it is heartening to note that the Government is closely monitoring the costs of doing business in Singapore. I would like to urge Government agencies to complement absolute comparisons with relative ones and with as many as possible as far as it is feasible to do so.

Let me illustrate. There is sometimes a false sense of comfort that prime office rates in Hong Kong at around US$9-10 per square foot per month are still a good 30% above ours. However, utilisation also tends to be higher in Hong Kong, so the total rental burden may be the same, and our cost-advantage is neutralised.

Or for that matter, prime retail rentals in Hong Kong of as much as US$50 per square foot per month are about double that of comparable space in Singapore. This, unfortunately, does not paint a complete picture. Retail sales for high traffic outlets can average up to US$1,900 per square foot per year in Hong Kong against an average of around US$600-800 per square foot per year here, which will more than compensate for the costlier space.

It is therefore important for us to be familiar with the cost profile of businesses in Singapore and elsewhere. For example, is the real estate component, whether as a percentage of overall costs or revenues, disproportionally higher in Singapore? If it were true for certain industries, then, given our scarce land resources, we would have to restructure those industries.

Sir, I would now like to extend this discussion to competition posed by the other non-Asian emerging markets. Asia is without doubt a success story and would continue to be for a while, particularly in countries with good economic governance.

However, as part of Asia, we should not dismiss the renewal of interest in some parts of the Latin American, Eastern European and African markets. Rampant or hyper-inflation woes in Latin America are giving way to steady, well-controlled inflation patterns, and growth rates for 1998, for example, are projected to be just a shade below Asia's estimated average of between 6% and 7%. Investment opportunities abound given their relatively low GDP per capita levels. It is thus not surprising that North American and European investors have begun hunting such possibilities, somewhat at the expense of Asia.

If Asia as a whole loses its allure, then Singapore would have to contend with a share of a smaller pie and intra-Asia competitive pressure. One way of further diversifying our economic base is to explore ways of participating in the growth of these markets, on a selective basis.

On that note, Sir, I support the Budget Statement.

Mr Peh Chin Hua (Jalan Besar): ( In Mandarin): Mr Speaker, Sir, I support the motion standing in the name of the Minister for Finance.

I feel that the 1997 Budget announced by the Minister for Finance is a conservatively optimistic, prudent and painless Budget.

In the early months of 1997, the sluggish export activities of our electronics industry and the slowing down of our manufacturing sector have led to a slower growth in the economy of Singapore. In the first quarter of 1997, we only managed to register a 3.8% economic growth. Furthermore, the regional currencies crisis has indeed hit the ASEAN financial markets. Except for the Singapore dollar which is not so seriously affected , other currencies, such as the Thai baht, Philippine peso, Indonesian rupiah and Malaysian ringgit, are being dumped by speculators causing their exchange rates to plummet. In addition, the rapid economic growth in ASEAN countries and the Asia-Pacific region has created dynamic and competitive financial markets among these countries. In my view, taking into account both external and internal factors, the Minister for Finance is very prudent and has kept in line with the present economic situation of Singapore when he presented our economic outlook as conservatively optimistic. Another important element mentioned in the Budget is the sharing of our surplus with the people, for example, the rebates on HDB service and conservancy charges and rentals, rebates for utilities charges, CPF Medisave Top-Up Scheme, Pre-Medisave Top-Up for Senior Citizens and another one-off 10% across-the-board rebate in personal income tax, etc.

The Budget was well tailored to take into consideration the land cost of industrial land and residential properties. The Government recognises that the cost of industrial land is a key issue for investors in the manufacturing sector. Therefore, the Government has taken cautious steps to allocate adequate land for industrial use and to price industrial land realistically to keep Singapore an attractive destination for investments. In the financial services sector, a package of new tax incentives and tax concessions are worked out for activities, such as fund management, management of initial public offerings (IPO) of foreign-currency shares, trading in foreign-currency shares, etc. These incentives will boost economic growth in the commercial sector. It will also help to keep Singapore stay competitive as we step into the next century. Therefore, I feel that this Budget can be described as objectively optimistic with dynamism.

Mr Speaker, Sir, in Singapore, among our small and medium-sized enterprises (SMEs), the majority are small factories, retail shops and small-time operators. These people are being pressurised as they face stronger competition, and they are at the same time affected by the slower Singapore economic growth. These businesses often encounter niggling problems. Recently, JTC froze the rental of their properties to help these small enterprises. We welcome such a move. At the same time, I hope that the Housing and Development Board will also follow the footsteps of JTC in freezing their rental increases. I also urge the Ministry of the Environment to consider freezing rental increases on the hawker stalls to help the small-time operators alleviate their operational cost, especially in the aging estates like Queenstown, Tanjong Pagar, Geylang West and Bukit Ho Swee. These shopkeepers and stallholders are not enjoying good business but they have to pay high overhead expenses. So, we should pay special attention to them and I hope the Minister for Finance will understand the plight of these small traders and ask the HDB and the Ministry of the Environment to consider our appeal to them.

Mr Speaker, Sir, in Singapore, the big enterprises are usually public-listed companies and multi-national corporations (MNCs). Should they require additional capital to expand their business, they can easily approach the banks for loans or through public offerings of shares. Yet, in coordinating with the Government's policy of encouraging overseas development, they are often over-cautious because of their own company policies. On the contrary, some of our local small and medium-sized companies are very adventurous and are more prepared to take risks. Their flexibility and adventurous spirit will positively develop not only the local business but also their overseas investments. I believe that if the Government imposes less restrictions and conditions on them, they will definitely be able to develop into big enterprises and corporations in one to two decades.

The Government is encouraging small and medium-sized enterprises to extend their business overseas and assisting them by setting up SME Investment Funds. However, according to the professionals in this field, enterprises who really benefited from these schemes are really very few. At the moment, many medium-sized enterprises investing overseas in industrial parks, lands, buildings, etc., are having difficulty securing loans from local banks. Even by investing a capital of $1 million in fixed assets, they are still unable to secure a bank loan of $200,000 or 20% of the capital. I find this very difficult to understand. The bankers told me that they had to abide by the regulation of the Monetary Authority of Singapore. If this is the case, I hope that the Ministry of Finance would take into consideration the situation of the medium-sized enterprises by giving the Singapore financial institutions more liberty and allow them to grant mortgage loans to Singapore enterprises against their tangible assets.

In this way, we can encourage greater economic growth and better overseas development outlook for our local SMEs.

Sir, to sum up, this year's Budget will benefit our country. It will help Singapore maintain its competitive edge and ensure the positive growth of the economy of Singapore in the next few years. It is indeed a prudent Budget.

Dr Tan Boon Wan (Ang Mo Kio): Mr Speaker, Sir, I rise in support of the Budget Statement.

In the new millennium, a crucial challenge is to maintain Singapore's competitiveness. Competition will intensify world wide. As developing economies improve, in particular, our neighbours, they will compete with us in more areas including those that we are traditionally strong. As our own economy develops, we will also compete more with the developed countries. This pressure will be exacerbated by rapid technological advances, especially in information technology.

The world will change perhaps in ways that we may not imagine. How do we prepare for this future? Although we may not be able to say exactly what the future will look like, we know the broad trends, the major drivers and the qualities we need to survive in such a world. We have to anticipate the changes we have to make as a society and take steps to bring about the needed change in our people. We have to be forward looking. By the look of things to come, bold changes will be needed. Tinkering with the system by fine-tuning it may not be enough. We already have a tight efficient system. We must change not just to make it run better for we must change because we expect the paradigm to shift. This will require a quantum leap of mind and effort. The quality of our people will make the difference. It will decide the winner. It will provide the sustaining edge.

I am glad to see that more money has been allocated for education and training. Give our people the avenues to acquire more knowledge and skills. There is much wisdom in teaching a person to fish. Creativity and thinking skills will be important. However, we must preserve in our people the virtues of hard work and the mental attitude to prevail and persevere over adversities and difficulties. Information technology will be important. The ability to assess and use information will be crucial. The Budget recognises the need for change as provisions are made for more IT in the schools and research and development. We must also teach Singaporeans to love family, fellow Singaporeans and country.

When we make decisions, we must maintain the rational approach. Our head must be in charge. We must adopt a long term view, but the heart has its place and must not be forgotten. We must temper decisions we make with the coldness of the head with the feelings of the heart. We must take cognizance of the short term impact of the decision on our people. In other words, we must smoothen out the rough edges to reduce the pain to the people when the decision is implemented. We have to help the weaker among us to cope with the changes while encouraging our able to fly.

The handling of the increases in water rates in the Budget reflects this tempered approach. Water is a crucial resource for the nation. References to our water supply during the recent difficult period with our neighbour clearly drove home this point. We must make Singaporeans take the importance of water seriously. We need to price water realistically to reflect its importance as previous campaigns to persuade our people to use water carefully did not have a lasting effect. When Singaporeans see their August utility bills, they will see water costing more. However, the Government knows that this increase will cause difficulties to those with low income. Hence, rebates on utility bills were provided for in the Budget. For those living in 1- to 4-room HDB flats, the rebates will be sufficient to pay for the increase and they will not have less disposable income. Hence, the pain will be ameliorated for those with lower income. But since they can keep their money for something else if they lower their use of water, this will encourage them to use less water. The continuance of the rental and S&C rebates and the addition of the monthly utility and S&C grants to HDB houses are also to make it easier for those with lower income, but we must be more careful as the rationale is less clear. We must be careful not to unwittingly create a welfare mentality among Singaporeans.

The benefit of prudence in our national budgetting philosophy is borne out recently by the run on the currencies of our neighbouring countries. The Singapore currency withstood this difficult period better than the baht, peso, rupiah and ringgit. This episode, which does not appear to have ended, shows that the ASEAN economies need to be further strengthened. Our economies are very much interdependent.

While competition between ASEAN nations is inevitable, there are many areas that we can and should cooperate. Competition is good because in the process, we better ourselves. But if we also cooperate, we will raise our collective ability to compete more effectively with other regions and countries in the world. Besides, it is always better to have rich neighbours and to live in a prosperous region. Nevertheless, this interdependence means that our economic performance is likely to be affected by the currency problem. What will be its impact on the performance of our economy this year?

Sir, we will succeed and prosper if we pull together in the same direction. We did it in the past when our means were scarce. Prudence and care in our national budgetting has helped. We are better equipped now. We will do it better and we will do it in style. Everyone will have a stake in the country, its future and its prosperity and wealth.

With that remark, Sir, I support the Budget Statement.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 2.50 pm.

Sitting accordingly suspended at 2.25 pm until 2.50 pm. Sitting resumed at 2.50 pm