ANNUAL BUDGET STATEMENT

Dr Richard Hu Tsu Tau: The Skills Redevelopment Programme was launched in December 1996 by NTUC to equip the lower educated workers with relevant skills to enhance their employability. EDB and PSB will fund about 70% of the cost of $9 million training programme. The back-to-work programme is targeted at those who have left the workforce for some time and need to be retrained before rejoining the workforce. About 2,500 persons, of whom 43% who are married females in the age group of between 30-50 years, have participated in the programme so far. These new programmes have cost the Government about $20 million in less than 10 months. Our efforts to encourage companies to support more training have also paid off. In 1996, companies in Singapore invested 3.6% of their payroll in training, up from 2% in 1992.

Mrs Yu-Foo Yee Shoon has suggested that a national centre for training be set up and for Government to fund such a centre. Government will consider this and other proposals which would raise the overall workers' productivity and enhance our labour resources.

Dr Tan Boon Wan has also spoken on the need for Singapore to develop our human resources in the face of regional competition. Mrs Lim Hwee Hua has commented on the implication of manpower shortages in terms of rising wage costs. Manpower is our most important resource. It is a main driving force behind Singapore's economic development. To ensure that we have the necessary manpower to support our economic growth, the Government has and will continue to invest heavily in the training and education of our workforce. Over the last five years, total spending on education has risen steadily at an average of 8.6% per year. For FY97, the increase is even larger, $700 million more or a jump of 18% to $4.6 billion, which comes close to one-fifth of the FY97 Budget.

In addition, the Edusave Endowment Fund will be increased by another $500 million to reach its target level of $5 billion. We will continue to invest in our educational and training infrastructure and expand the intake to universities and polytechnics to improve the quality of our workforce.

To augment our existing pool of manpower, we also seek to attract foreign professionals to come and live and work in Singapore. EDB's International Manpower Programme, for example, attracts foreign talents to work in strategic industries in Singapore. To date, 3,300 professionals have been placed in jobs in Singapore through this programme. We also allow foreign workers in Singapore to complement our limited domestic pool in selected sectors. Companies such as HP and other organisations have also on their part been actively recruiting foreigners.

Overall, all these measures will help alleviate wage increase pressures. Nominal wages, as measured by average monthly earnings, have risen by an average of 7.1% over the period 1991-1996. This is due partly to the tight labour market. We must not let wage increases to continuously outstrip productivity growth which has averaged 4% in the last five years, as this is unsustainable and will erode Singapore's longer term competitiveness. This is one of the reasons for the Government's recommendation to moderate wage increases this year.

Mr Lim Swee Say and Mr Inderjit Singh have also asked for our Government's policy with regard to intensifying the use of industrial land, and whether the differential premium and development charges should be reviewed. Land is scarce in Singapore. We have to optimise its use among competing applications. Although we are carrying out extensive land reclamation for industrial use in Tuas, Jurong Island and other areas, reclamation is costly and there are physical limitations as to how much reclamation can be done.

The Jurong Town Corporation has studied ways to intensify the use of industrial land. One way is to redevelop old industrial estates where land utilisation is poor, and to relocate the industries affected to other locations where higher plot ratios can be achieved. Assistance will be provided to companies to relocate. JTC has also been implementing new building designs and creative layouts for the standard and flatted factories to make better use of the land. The intensification of industrial land use is estimated to potentially lower the total demand for industrial land by up to 12% in the year 2030, while catering to the quantity of floor space required by industrialists.

The Ministries of Law, National Development, Trade and Industry and their agencies have been reviewing, on an on-going basis, land policies which impact on the intensification of land use, including differential premium and development charges. Such reviews aim to strike a balance between providing incentives to encourage lessees to use land more optimally and preserving Government's interest in the value and planning of our land resources.

Mr Inderjit Singh has also commented that asset price inflation had escalated the costs of doing business in Singapore. I should clarify that asset price inflation is not the main cause of rising business costs. According to the index of unit business costs compiled by the Department of Statistics, rental of industrial premises comprises less than 5% of total business costs for the manufacturing sector in Singapore. In contrast, labour cost accounts for nearly half of total business costs.

Nonetheless, the Government is concerned with asset price inflation because of its macro economic and financial consequences. The experience of a number of countries has shown that the deflation required after a prolonged period of asset price inflation could lead to painful economic adjustment as the net worth of households, businesses and financial institutions deteriorates during a downturn. The financial system will also come under severe strain, sometimes requiring costly Government intervention to prevent systemic risk.

The strong growth in asset prices has, by and large, reflected fundamental factors like rapid growth in real income and the scarcity of land in Singapore. The speculative element, however, exaggerated price increases, specifically in the residential property market. It was to quell this speculative element that we introduced the package of anti-speculation measures in May 1996. These measures have achieved a salutary effect as housing prices have moderated. The Government has also acted to dampen property price inflation through the release of more State land for both residential and industrial developments.

Mr Inderjit Singh has also commented that the strength of the Singapore dollar has made Singapore expensive to US investors, and that the situation has been made worse by the recent devaluation of other ASEAN currencies. As Mr Singh will be raising the same issue in the Committee of Supply, I will respond to this question in detail tomorrow.

Mr Peh Chin Hua, the Member for Jalan Besar, has given several comments on reducing business costs. He has asked whether HDB shop rental increases and rental increases for hawker stalls under the Ministry of the Environment could be frozen. On HDB rentals, HDB will be freezing the rentals of HDB properties which are already at market level or 1996 levels for the next 12 months. For properties already enjoying less than market rentals, HDB will continue with their rental adjustments based on existing policies. This is similar to JTC's rental adjustments.

On the suggestion to freeze rentals of hawker stalls, Mr Peh would know that they are in fact already heavily subsidised compared to market rentals for stalls in private eating outlets.

Mr Iswaran has questioned the rationale for not abolishing estate duty when the collection is not significant compared to other major revenue sources, and its usefulness as a redistribution tool is limited. He has also expressed concern that the estate duty could force high net worth individuals to tax-plan. The collection from estate duty is naturally not large when compared to other revenue sources, but only because we target it at the very wealthy estates. But the sum collected in absolute terms is not insignificant. For last year, it was about $70 million. There is still, therefore, a role for estate duty for the purpose of income redistribution.

On estate planning, there are many factors involved in estate planning, and it is also not easy to tax-plan effectively. With the high exemption limit and low rates of duty, not many have found it worthwhile to resort to tax planning. Mr Iswaran may wish to note that some countries which have abolished estate duty have imposed other forms of wealth tax, such as the capital transfer tax in the United Kingdom and the gift tax in New Zealand.

NCMP Mr J B Jeyaretnam has described the Budget as one favouring the rich and not the ordinary man, as the 10% rebate would mainly benefit the rich. It is invidious for Mr Jeyaretnam to make such a comparison. Such rhetoric to score political points is not helpful in maintaining social cohesion. If he persists in continuing in this vein, it will soon solidify his claim to be the Rip Van Winkle of Singapore. Let me point out to him that only about 30% of the high income Singapore residents now pay income taxes and it is these taxes which contribute substantially to Government's tax revenue, which provides the funding for a host of Government programmes designed to help the middle and lower income groups. These include the HDB Main and Interim Upgrading Programmes, Edusave and Medisave programmes, CPF Top-Up Schemes and a variety of grants to the voluntary organisations and self-help groups, the Public Assistance Scheme and the Rent and Utilities Assistance Scheme and subsidies on flat rentals. Even the cost of the 3% GST has been fully offset for the lower income groups through a package of rebates on HDB S&C charges and flat rentals.

In addition, the majority of the lower and middle income groups also enjoy subsidies in HDB housing and medical expenses. All these programmes cost the Government about $1.5 billion a year, which is very much more than the revenue forgone through the 10% rebate which is estimated to cost $250 million. The amount is also much higher than the $400 million that Mr Low Thia Khiang claims is all that the Government is giving back to the people. It is also not correct for Mr Low to compare the amount of revenue collected with the amount of rebates given out. Government revenue is primarily used for essential Government programmes, such as education, defence, infrastructure, public housing and health. Rebates, on the other hand, are over and above these programmes.

Mr Low has also claimed that all the rebates given are not sufficient to offset the increases in various fees and charges. However, the real issue is whether Singaporeans could cope with these increases and still enjoy better living standards each year. Even after factoring in the various increases in fees and charges cited by Mr Low, the expected inflation will still be well below the wage increase this year. In addition, for the lower income groups, we have taken special measures to help them. The utilities rebates for the hike in water tariffs announced in this year's Budget is a good example. The amount of rebate given to the 1- to 3-room HDB flats will more than offset the increase in utilities rates.

Mr Chiam See Tong has said that the rental rebate for HDB households represents a mere transfer from one Government pocket to another and that the people would not be impressed by the rebate. I am afraid that Mr Chiam clearly does not understand how the rebate works. Without the rebate, these HDB 1- and 2-room households will have to pay HDB their rentals from their own pockets. With the rebate, they now save between one and two months' rental. They pay less to HDB. It would therefore be more accurate to describe the rebate as a transfer from the Government's pocket to the pockets of those living in 1- and 2-room HDB flats.

Mr Chiam has also said that the higher parent relief would not encourage children to live with their parents as the amounts needed to maintain parents are much higher than the relief. I would like to clarify that the relief is never meant to fully defray the cost incurred on the maintenance of parents. It is to partially offset the maintenance cost. While the Government would want to encourage children to live with their parents, this cannot be achieved by just increasing the reliefs. The higher relief is given more as a recognition to those who live with their parents.

Mr Lew Syn Pau has asked why the wife relief is only $2,000 whereas the relief for aged parents is $3,500. The quantum of the two reliefs have differed since the Year of Assessment 1990 when we raised the relief for maintenance of aged parents. We have deliberately set the parent relief higher because of the higher cost required to look after the aged and their greater medical needs. The higher quantum of relief for aged parents is also to encourage families to care and provide for their aged parents.

Both Mr Lew Syn Pau and Dr Tan Boon Wan have warned against the risk of encouraging a welfare mentality through the giving of S&C and rebates yearly. In particular, Mr Lew has suggested that the rebates be confined to the 1- to 3-room HDB flats. The S&C and rental rebates are aimed mainly at those who are unable to benefit from the 10% tax rebate. In determining the rebates to be given, we are careful to ensure that the amount is not excessive so that it would not result in a welfare mentality. The rebates are also given in a graduated manner with the 1- to 3-room HDB flats enjoying the highest rebates. The 4- to 5-room HDB flats are only given one month's S&C rebate.

There were also some concerns that giving rebates to HDB flat dwellers to pay their public utilities bills is a direct contradiction of the Government's policy of conservation of water. However, such concerns are entirely misplaced. For 1- to 3-room households, while the offset package is more than sufficient to cover the increase in utilities rates, these households would still have to pay substantial sums on utilities bills like everyone else. This is because the utilities rebate itself will only cover about 10% to 20% of the annual average utilities bills for the two years from July 1997 to June 1999. In the case of the 4-room households, the utilities rebate would only cover 5% of the annual utilities bill. While the lower income households will not be worse off, they would still have to pay out a very significant portion of their utilities bills in cash. Hence, there will be every incentive for these households to save water and electricity to avoid paying for their utilities.

Dr Vasoo has commented on the plight of retired pensioners whose pensions could not keep up with inflation. He has asked whether there are any further reviews to provide top-ups for lower income pensioners. The Government has regularly reviewed the Singapore Allowance. The last revision was made in 1993 when the allowance was revised in connection with the introduction of the Goods and Services Tax. The Government will continue to periodically review the Singapore Allowance.

Dr Vasoo has also suggested better relief for taxpayers who are looking after their aged sick. With the introduction of GST, around 70% of Singaporeans do not pay income tax. Introducing a tax relief for medical expenses incurred by the aged or giving a higher quantum of relief for taxpayers looking after the aged sick will only benefit those taxpayers who are more well to do. Hence, instead of adjusting tax relief, we have taken the more direct route of helping the elderly by topping up their Medisave under the CPF Medisave Top-Up Scheme as well as the pre-Medisave Top-Up Scheme. Many of the retired pensioners will also benefit from the various grants and rebates given in the Budget.

Mr Iswaran has asked whether the Government could relook into the basis of financing certain core community services which are essential for social development instead of a strict co-payment scheme. The Government will be providing more funds to voluntary welfare organisations which run social and family services. For FY97, the capital and operating grant for voluntary welfare organisations is expected to come to $73 million, a substantial 35% higher than the amount given out in FY96. The Government has therefore provided considerable financial assistance to help the voluntary welfare organisations. However, giving money alone is often insufficient. The families themselves must play their part as well, especially in the case of juvenile delinquency or taking care of the aged.

Dr Yaacob Ibrahim has commented that Government should consider giving more incentives to encourage people to pursue an education in arts. The Member may be pleased to note that currently both the public and private sectors are already offering a number of scholarships for arts studies. In particular, the National Arts Council has allocated $1 million in scholarships, bursary and training grants for arts studies in FY97. This is an increase of 15% over FY96.

Dr Yaacob Ibrahim has also asked whether a fund for National Education could be set up from which private groups can obtain financial support to run the National Education programme. The Ministry of Education intends to infuse National Education across the whole school curriculum. Hence, it will be entirely funded by Government. There is therefore no need to set up a fund to run the National Education Programme. However, the Ministry of Education is keen to work with private groups and organisations which wish to participate and contribute to the programme. They can collaborate with the Ministry in devising creative materials and media for reaching students and in reaching out to parents as part of the National Education effort.

Dr Ker Sin Tze, MP for Aljunied GRC, has asked whether Government would be prepared to allocate more funds and grants to promote the use of Mandarin. I fully agree with the hon. Member that all Chinese should learn to speak Mandarin in order to preserve our cultural heritage. However, this process is expected to take many years. That is why the Government has been setting aside funds to mount a Speak Mandarin Campaign every year. However, spending money alone is not sufficient. There must also be a willingness on the part of Chinese Singaporeans to use Mandarin in their daily lives. On its part, the Government is actively encouraging staff in its departments to respond in Mandarin to Mandarin-speaking members of the public.

Finally, Mr Speaker, Sir, allow me to sum up the past two days' debate. As we come closer to the turn of the century, Singapore faces more challenges, more competition and more uncertainties. These are the inevitable consequences of having to operate in an increasingly globalised economy. However, I am confident that we will surmount the future challenges. We have in place a sound and stable fiscal framework. We will continue to invest in our future. With courage, conviction and creativity, Singapore will stay ahead in the 21st century. [Applause.]

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 1997 to 31st March, 1998.