ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL, 1997 TO 31ST MARCH, 1998

Order read for consideration in Committee of Supply [1st Allotted Day].

[Mr Speaker in the Chair]

12.52 pm

The Chairman: Estimates of Expenditure of Singapore for the financial year 1st April, 1997 to 31st March 1998, contained in Paper Cmd. No. 2 of 1997.

I shall take the totals for each head of expenditure in the Main and Development Estimates appearing in the last columns of the Main Estimates and Development Outlays for FY97 on pages 37 and 38 respectively of the Command Paper. Besides the "guillotine" times for heads of expenditure, which I have fixed under Standing Order 89(7)(a), I have also allotted the time for the discussion of each amendment in the Estimates. The time allotted for discussion includes the replies from the Frontbench. I shall announce these times as we go along and when necessary.

Although the sitting time of the Committee of Supply has been extended by one-and-a half hours each day, we will still be hard-pressed for time. We have a total of 343 amendments and the time we have available falls short of the times Members have indicated would be required for discussion of their amendments. Members will therefore not necessarily be given the amount of time they have requested. Other Members who would like to join in the debate on a particular amendment will be allowed to do so if there is sufficient time left on the amendment.

I intend to keep the debate going at a brisk pace and ultimately, we can make good progress if Members help me by keeping their speeches sweet and short!

I shall deal first with the heads of expenditure in respect of which amendments stand on the Order Paper Supplement.

Head V -

The Chairman: Head V - Prime Minister's Office. Amendment No. (1), Mr Sinnakaruppan.

Mr Sinnakaruppan: Sir, I beg to move,

That the total sum to be allocated for Head V of the Main Estimates be reduced by $100.

Sir, the Singapore Civil Service has undergone major changes in recent years. The entire civil service and the Government-funded statutory boards are now operating as Autonomous Agencies.

One of the major changes arising from this is the devolution of the personnel function from PSD to the ministries, departments and statutory boards. Another change is the revised staff appraisal system. While these changes are intended to make the civil service more efficient and productive, it necessitates a greater need than before to examine the working relationship between union and management.

For the management, it means that they need to be well trained to handle the personnel functions, such as grievances arising from the staff appraisal. They need to also understand industrial relations better and to develop better rapport with union leaders.

For the unions and union leaders, it means that their members must move in tandem with their organisation's goals to be more efficient, productive and service-oriented. It means that the unions must be forward looking and work closely with their management as the civil service faces new challenges and to help their members to adjust to the changes necessitated by these challenges.

As the union and management work towards forging closer rapport and working relationships, we must break the shackles of some of the archaic policies of the civil service and introduce bold changes that reflect mutual trust and the good industrial relations climate that prevails in Singapore as a whole.

Sir, I would like to speak on two such policies of the civil service. First, as far as I am aware, as a rule, Division I officers are not allowed to join the unions. Exemption has been given, from time to time, for a few services, such as the teaching service. Sir, according to PSD, in 1986, there were about 10,500 civil service officers in Division I, and the Division I officers accounted for about 17% of the total officers in the civil service. Ten years later, in 1996, there were about 19,000 Division I officers in the civil service and accounting for about 36% of the officers in the civil service. Therefore, the percentage has more than doubled within the 10 years. It is expected that this trend of increasing number of Division I posts and declining number of other Division posts is expected to continue to accelerate. This means that the public sector unions will continue to face a declining membership base, and this would have implications on union leadership as well.

Sir, on behalf of the public sector unions, I would like to urge Government to review its policy and allow Division I officers to join unions as an ordinary member. Those officers who have the final authority to promote or to discipline, who would number two to three per Ministry, should be allowed to become at least a General Branch member. In fact, all Permanent Secretaries and CEOs of statutory boards should volunteer to become at least a General Branch member so that it will signal a strong labour management relationship and pave the way for other officers to join the union.

Sir, second, I like to raise the issue of union representation at disciplinary inquiries. Presently, the public sector unions are not allowed to represent their members at disciplinary proceedings. It is very expensive for a civil servant, especially a junior civil servant, to engage a lawyer to defend himself or herself in the inquiry. In a number of instances, many civil service officers have shied away from defending their colleagues at such proceedings. The unions feel that it is their obligation to represent their members as advocates and would like to do so. I am told that the Amalgamated Union of Public Employees (AUPE) has been making this request for about three decades now. NTUC supports the public sector unions' request on this, and I strongly urge the Government to review this policy.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, may I respond to Mr Sinnakaruppan's points. Firstly, it is not true that Division I officers cannot join unions. In fact, today, nearly all civil servants, including Division I officers, are allowed to join unions as ordinary members. There are a few exceptions, for example, members of the SAF and the Police.

But there is one complication. The civil service is increasingly devolving its personnel management functions to the Ministries. More line managers are getting involved, directly or indirectly, in personnel management and they are making decisions which affect individual officers. For example, in the case of schools, as the Ministry of Education transfers more authority to schools, Principals and Vice-Principals are more and more involved with personnel decisions.

Difficulties will arise if the officers involved in personnel management are themselves union members. PSD will study this problem to identify which officers are affected and define whether such officers should give up their union membership or whether we can allow them to transfer to the General Branch.

I should clarify that not all ordinary union members in the civil service are eligible for collective bargaining. Only civil servants in the gazetted grades can do collective bargaining. So although Division I officers can join unions, most of them are not in gazetted grades. Today, about 20% of civil servants are covered by collective agreements and these include all Division IV employees and daily-rated employees.

Regardless of whether officers are covered by collective agreements, the Government has been responsive to requests to review policy rulings which have adversely affected individuals or groups of staff. PSD adopts a consultative style in dealing with the unions. It has made it a point to brief unions in advance of major changes in personnel policies and to explain and discuss issues of concern. To carry this proactive approach further and strengthen rapport and understanding between management and unions, PSD and NTUC intend to hold joint workshops together.

The Division I officers generally correspond to non-bargainable executive and management staff in the private sector. PSD therefore has no plans to gazette more Division I grades for collective bargaining. 1.00 pm

Mr Sinnakaruppan's second point is union representation on Committee of Inquiry. Disciplinary proceedings in the civil service are conducted by the Public Service Commission. It has disciplinary control over public officers under the Constitution, and it is an independent body, separate from the civil service or the Executive. When an officer faces a charge which is serious enough to warrant proceedings with a view to dismissal, the PSC may set up a Committee of Inquiry (COI) to investigate and determine the facts.

An officer who faces a COI may choose to be represented by a lawyer or by another civil servant. For some time, the unions have asked the Government to allow union members to be represented at a COI by a union official, if they so wish. I do not know if it is three decades, as Mr Sinnakaruppan told us just now, but I know that it has been for sometime. I am happy to inform the Member that the Government has now decided to allow what he has requested.

The Public Service Commission will appoint a panel of union officials whom union members can ask to represent them. In appointing panel members, the Public Service Commission will consult PSD and the NTUC. PSD will work with NTUC and the civil service unions to formalise arrangements on the composition of the panel, the terms of appointment, and criteria for appointment.

May I add, Mr Speaker, that we should not misunderstand that by allowing union representation at committees of inquiry, the civil service is becoming more lax towards officers who have done wrong. An officer who has been accused of doing something wrong should be investigated rigorously, fairly and expeditiously, and the case disposed of without delay, one way or another.

Unfortunately, this has not always been the case in the civil service. Disciplinary procedures tend to be long drawn and inefficient. Cases may drag on for several years. This is unfair to the officer, and bad for the organisation. It undermines morale, discipline and performance in the workplace.

The civil service will streamline procedures so that disciplinary inquiries adhere closely to hearing dates and deadlines for presenting their findings. One reason for the delay is the over generous length of time officers facing inquiry are given to submit what are called their exculpatory statements. Under the Disciplinary Regulations, they have a minimum of 21 days to do this. There is no maximum specified. So it is very vague and open ended. We will amend the Regulations to require officers to submit exculpatory statements within 14 days in the first instance, with provision to extend the deadline to a maximum of 28 days. So if you do not submit within 28 days, we will proceed with the investigation anyway. This is closer to private sector practice.

The civil service also needs provisions to terminate the service of poor performers. Poor performance is different from misconduct or neglect of duty. It is more a matter of ability and competence, and not necessarily a problem of conduct or character defect.

In the private sector, poor performers are routinely terminated with notice or with payment of salary in lieu of notice. The civil service has hardly ever terminated an officer for poor performance. I cannot recall any such proposal coming to Cabinet ever, in my time in Cabinet. Unfortunately, this is not because the public sector has no poor performers. It reflects the reluctance of supervisors and personnel managers to do an unpleasant but necessary duty. Not to take action against poor performers is detrimental to the morale, discipline and performance of the service.

The civil service has introduced new procedures for managing poor performers. They will be told that they are being put into a performance review process, and must show improvement in their performance. Supervisors will monitor their performance closely. They will have six months in the first instance to show improvement. If they continue to perform poorly, they will be given one final chance, another three months to prove themselves, failing which Ministries will terminate their service.

Poor performers who are pensionable officers will be retired compulsorily in the public interest. Since they have not committed any disciplinary offence, such officers will not suffer any reduction in their retirement benefits.

I know that union leaders have expressed concern that termination should be fair. PSD has built safeguards into the process. Every case will be reviewed by a Personnel Board, which is an impartial neutral third party, outside the supervisor- supervisee relationship. The Personnel Board will be able to make an objective judgment whether to proceed to terminate the officer.

I do not think the new procedures will fully solve the problem, which is essentially a human one. We need to get civil servants to be strict but fair in assessing subordinates, to deal rigorously with shirkers and under-performers, while rewarding generously those who give of their best. Civil servants must have the moral courage to do the unpleasant thing, and the integrity not to abuse their power over their subordinates. This is part of Public Service 21, and it is essential for building an outstanding civil service. The service looks forward to cooperating with the unions to achieve this.

Mr Jeyaretnam: Sir, my subject is Elections. I wish to assure the Prime Minister, who seems anxious about whether I am going to go back to Cheng San, that is not what I am going to do. So he can relax. I am going to talk about the general conduct of elections in this country.

Sir, the manner in which elections are conducted for election to Parliament or to any other legislative body is the touchstone of democracy. That is how other countries will test the question whether or not there is democracy in any particular country. And elections, may I say, are not a matter for the government or for the ruling party. Elections are an act of the people. It is the people's business. They are vitally concerned in the elections. So, in all democratic countries, barring perhaps a few, they have gone on immediately to set up an independent elections commission which will supervise the conduct of elections, and see that the scale is held fairly and firmly between all contestants to the election, and deal adequately with any complaints from any party interested in the elections.

When we decided that we wanted to be a governing nation of our own way back in 1954, the All-Party Delegation went to London to discuss this. We decided that what we wanted in Singapore was a free democratic country run on a parliamentary system, ie, we opted for a democratic country and, as I said, elections are the touchstone of the question whether or not democracy exists. And having decided that and the Constitution then having provided for it, what do we do? Ever since 1965 and even before that - for two years we were in Malaysia and I think they had an elections commission set up - no effort or attempt has been made to see that elections are conducted and supervised by a neutral, independent body, independent of the Government, independent of any one political party.

The Chairman: Order. Mr Jeyaretnam, may I remind you that "guillotine" time is at 1.15 pm. Would you like a response from the Front Bench?

Mr Jeyaretnam: Do I have to stop speaking now?

The Chairman: Yes, if you like a response from the Front Bench. Would you like a response from the Front Bench?

Mr Jeyaretnam: Yes, but I am far from finished. I thought I had about 10 minutes.

The Chairman: No. The "guillotine" time is 1.15 pm.

Mr Jeyaretnam: I see. All right, Sir.

The Chairman: Mr Wong.

Mr Wong Kan Seng: Sir, I know Mr Jeyaretnam wanted 10 minutes, but I do not think I need to hear 10 minutes of his speech to know what he is going to say.

Mr Jeyaretnam: Sir, could I ask one question before I sit down?

The Chairman: I will allow you to ask your question.

Mr Jeyaretnam: Thank you, Sir. May I have a clear and unequivocal answer as to why it is not possible for us to have an independent elections commission?

Mr Wong Kan Seng: Yes, I knew his question because I read about this in the 1983 Hansard. I read about this in the 1985 Hansard, and so it is not a new subject that Mr Jeyaretnam has raised. And I know the answer too. I think he also knows the answer. He has not brought up any new points, other than to say that if we do not have an independent elections commission, then we are not going to have free and fair elections. I think that is an absurd point.

What he has said so far therefore is not new. Our democratic system, I think, cannot be far more democratic than now. We even allow a loser to be in Parliament to make speeches.

Some hon. Members: Hear, hear!

Mr Wong Kan Seng: Where can you find such a democracy in other countries? Here, we have a system that allows the losers to be in Parliament to make speeches and attack the government, a system that he himself rejected in 1984 and 1988, and rejected again in 1997. Of course, he says that he represents 45% of the Cheng San voters and therefore he should be here to speak on their behalf.

Sir, why do we not have an elections commission? Why do we have the Elections Department under the Prime Minister's Office? It is not where the department or the commission is sited. It is the integrity of the people running the system that counts. In our system, we know it is transparent. The people are honest. They are trustworthy. And unless Mr Jeyaretnam is suggesting that the elections held so far have been dishonest and there has been vote rigging, I think he should withdraw his comments that we do not have a free and fair system.

When he was re-elected in 1984 and he spoke in Parliament in 1985, he quoted the views of some foreign commentators. He said, "Singapore has come of age. The people had matured and they were politically able to take charge of the country's affairs." Why? He said, "The ballot box is the most democratic method of selecting the government." Why? Because he was elected through the ballot box.

When he lost, what did he say in 1997? He said, "People were gripped with fear. People were gripped with fear in Cheng San because the Prime Minister went to campaign there." If people were gripped with fear, why would people in Hougang and in Potong Pasir, and in 1991 people in Bukit Gombak and Nee Soon Central, elect the opposition? There was no fear among them. There was no fear among the 30,000, 40,000 or 50,000 people who turned up at the eve of poll rally in Cheng San to listen to him.

The Chairman: Order. It is 1.15 pm, "guillotine" time. Mr

Sinnakaruppan, would you like to withdraw your amendment?

Mr Sinnakaruppan: Sir, I would like to thank DPM for allowing the unions to be represented in the committee of inquiry. On that note, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

The sum of $144,865,460 for Head V ordered to stand part of the Main Estimates.

The sum of $49,193,200 for Head V ordered to stand part of the Development Estimates.

Head K -

The Chairman: Head K - Ministry of Defence. Amendment (1), Dr Ong Chit Chung. Can you take your first three topics together? 1.15 pm

Dr Ong Chit Chung (Bukit Timah): Sir, I beg to move,

That the total sum to be allocated for Head K of the Main Estimates be reduced by $100.

Sir, defence relations with other countries are, I believe, important pillars of our defence policy and strategy. Good bilateral and multi-lateral defence relations will enable us to have joint military exercises. Through such joint military exercises, we can train our officers and men, stretch their capabilities, hone their skills and test our doctrines. Such defence relationships will also give us access to the important training areas overseas. I have in mind our bilateral defence relationships with our immediate ASEAN neighbours and the Five Power Defence Arrangements, which were set up many years ago.

I therefore would like to ask the Minister on the state of our defence relations with other countries and how such defence relations could be further enhanced and deepened in the future to our mutual benefit.

Sir, moving on to the next item, the concept of Total Defence was inaugurated by the Ministry of Defence a few years ago. MINDEF rightly believes that defence is comprehensive and indivisible, and for our very own survival and security, we must adopt a total, integrated approach in defence.

I believe an invincible defence strategy would have to encompass not only military defence but also civil defence, economic defence, social defence and psychological defence. In my view, MINDEF is doing very well indeed in promoting and marketing Total Defence. It is now a household word. Indeed, MINDEF is the pioneer in Singapore in terms of National Education.

Sir, way before National Education became a catch phrase in Singapore, MINDEF has already established a National Education Department, and a National Education programme, promoting understanding and appreciation of our national interests, our national history and our Singaporean way of life, and enhancing the support for National Service and our national defence policies.

Now, of course, the focus on National Education has shifted to the schools and the Ministry of Education. We should, however, not forget that the pioneer in all this is MINDEF. The schools and other Ministries should learn from this unique MINDEF experience.

I would like to ask whether the Minister would let us know of MINDEF's plan for National Education and Total Defence in the context of the wider National Education programme in Singapore.

Sir, last year, Deputy Prime Minister and Minister for Defence announced the establishment of the Institute of Defence and Strategic Studies (IDSS), which is located at the NTU campus. In my view, IDSS has a vital role to play in strategic review and analysis. It can play a special role in research and in the teaching of both our military officers as well as civilian students on campus. IDSS can put Singapore on the strategic map by networking with the established defence and strategic institutes in Asia, Europe, Australia and the United States of America.

Most encouraging of all is that the IDSS is scheduled to conduct a Master's degree in strategic studies. I would like to ask the Minister whether the IDSS is making good progress and is meeting the targets and expectations. I would also like to ask when the Master's programme will start and whether the professors have been appointed, and the post-graduate students selected.

The Deputy Prime Minister and Minister for Defence (Dr Tony Tan Keng Yam): Sir, permit me to respond to some of the points raised by Dr Ong Chit Chung.

Sir, when I addressed Parliament last year during the debate on the 1996 Budget estimates for the Ministry of Defence, the backdrop to my speech was the serious escalation in tension across the Taiwan Straits, with the Taiwanese armed forces being put on full alert and China massing more than 150,000 soldiers, together with air force and naval elements, in Fujian province opposite Taiwan and engaging in a major military exercise, which included the firing of missiles to land in an area just 20 nautical miles off the coast of Taiwan.

This year, Sir, another serious security situation has developed in a country even nearer to Singapore than Taiwan. After many years of war and bloodshed, Cambodia was on the road to recovery after the 1991 Paris Peace Accord laid the foundation for a return to normal government for that unfortunate country. Indeed, Cambodia was on the verge of joining ASEAN when the country was again plunged into crisis with fighting in the provinces and tanks patrolling the streets of Phnom Penh. As I speak in the House this afternoon, the Foreign Ministers of the ASEAN countries are meeting in Kuala Lumpur to discuss the Cambodian situation and how ASEAN can help to bring the country back to normal so that the Cambodian people can focus their energies on rebuilding their country and improving their lives.

What is the lesson that Singaporeans can learn from the Taiwan situation last year and the Cambodian crisis this year? Sir, the lesson is that a country can come to the brink of war and descend to instability and chaos very rapidly. We must therefore never take our stability and security for granted. As I said last year, Sir, and I quote:

"It can take only one year for a strategic and security situation of a country to change significantly, but it takes more than one year to build a credible defence force. To have a credible defence force, you must invest for many years in people, in equipment, in the development of doctrines and tactics. The best time for such investment is when the country is doing well and everything appears to be peaceful. By the time the situation becomes tense, and the need for a credible defence force is evident, it is too late to talk about investing in defence."

Sir, the 21st century offers the prospect of a golden and prosperous era for the Asia-Pacific region. For Singapore, the future is bright and exciting. There is no reason why we should not grow from strength to strength and enable every Singaporean to live a full life and develop his or her potential to the fullest. But as we try to build a better future for ourselves and our children, let us never forget that Singapore has no future if we do not have security. This is why a strong and credible SAF, supported by all Singaporeans, is a foundation for peace, progress and prosperity for Singapore.

Sir, our defence policy is based on deterrence. Singapore does not want to fight with anyone. But anyone thinking of launching a campaign against Singapore must know that they will be met with a sophisticated, well-trained and well-armed defence force that is capable of delivering a decisive victory against the aggressor and that is supported by the whole country through National Service and our Total Defence effort.

The SAF today is a modern, balanced and integrated armed force which is ready and capable of fulfilling its mission to defend Singapore when it is called upon. The SAF will continue to upgrade its equipment and acquire new state-of-the-art weapon systems to enhance its fighting capability. But more important than having good equipment and good technology is to have good people. That is why, Sir, we have restructured the terms and conditions of employment for SAF officers to ensure that we will be able to continue to recruit, retain and develop a fair share of the best and brightest Singaporeans to serve as officers in the SAF. The SAF will continue to monitor its terms and conditions of service to ensure that they are more than competitive with the market in order to ensure that we will have a capable and effective armed force that is staffed with committed and well-trained soldiers led effectively by dedicated and able WOSEs and SAF officers.

Sir, Singapore has done well in the three decades since we became an independent nation. But we must not allow prosperity to erode our commitment and capability to defend ourselves. Unlike bigger countries, we have little margin for error. A united people and a credible defence force are our most effective deterrent to any potential aggressor. The more we can demonstrate that Singaporeans have the will and the resolve to defend our nation should the need arise, the more likely would it be that we will be left in peace to cooperate with our neighbours for the peace and prosperity of Singapore and the region.

I will now go on to some of the points raised by Dr Ong.

First, defence relations. Sir, Singapore believes in the importance of having good defence relations with other countries, both in our region and outside our region. We have over the years developed a network of strong defence relations with many countries and we continue to put much effort into enhancing existing relationships and developing new ones. This network of defence relations, besides bringing mutual benefits in professional areas for the armed forces and deepening the bilateral relationship between Singapore and the respective countries, is also an important part of the regional security architecture and contributes to regional stability and security. Besides deterrence, diplomacy is one of the two pillars of our defence policy. We will continue to put much emphasis in this area, exploring new areas of cooperation and interaction.

Our defence relations with the ASEAN and the FPDA countries are good. The SAF trains and exercises with the armed forces of almost everyone of these countries on a bilateral basis. We also send officers to each other's military academies and command and staff colleges, and organise regular visits and exchanges for the rank-and-file as well as senior officers. Such interactions enable us to learn from each other and contribute to mutual understanding and confidence-building. 1.30 pm

In the region, our defence relations with Indonesia, Thailand and Brunei are particularly strong and warm. Just as we attach importance to our defence relations with these countries and the benefits we derive from our defence cooperation, so too do their political and military leaderships attach importance to their defence relations and cooperation with Singapore. This has led to our defence interactions with these countries increasing quite significantly in scope and depth in recent years. Defence relations with Australia and New Zealand have also expanded significantly in recent years. In addition to joint exercises, Australia and New Zealand also offer the SAF training areas and being a land scarce country, we are grateful for these offers. The defence relationships with these countries have grown steadily as both sides see benefit in expanding the cooperation.

Another important component of the regional security framework is multi-lateral arrangements such as the FPDA. Singapore is working with the other members to maintain the relevance and operational readiness of the FPDA. Among other things, we will work towards enhancing the professionalism of the FPDA in the form of exercises and other defence activities.

Beyond ASEAN and the FPDA, our defence relationships with the United States are noteworthy for the extensiveness of the interactions. This relationship too has grown in depth and scope. The RSAF has access to valuable training facilities in the United States. And over here, military exercises between the SAF and US forces have grown in complexity and scope over the years and testify to the value and benefit which the US forces derive from their training with the SAF.

I now go on to the Institute of Defence and Strategic Studies (IDSS). Sir, the IDSS was launched at the end of July 1996. It will develop two main areas of activities reflecting its two broad functions - teaching and research. With its development as an independent institute, the IDSS will enable scholars and students to research, critically examine and make a more detached assessment of defence and security issues, their impact and implications, especially from a longer time-frame perspective. The Institute's focus on research will thus be on issues related to the security of the Asia-Pacific and their implications for Singapore and countries in the region. Towards this end, the Institute is developing a research wing and plans to launch a Visiting Research Fellowship Programme to enable overseas scholars to work on such issues in Singapore.

The Institute is also tasked to provide educational opportunities at an advanced level to professionals from both the private and public sectors in Singapore in the initial years, and when the Institute is more established, to such professionals from other countries. Through its research and scholarship, the IDSS hopes to enhance political awareness of strategic questions which should help strengthen regional and international bonds among scholars and researchers working in related fields of study.

The IDSS will be launching its inaugural M.Sc in Strategic Studies Programme in the 1998/99 academic year. This will be a full-time course conducted by local and international specialists over one calendar year. King's College of the University of London, through its Department of War Studies, will serve as consultants to the programme. MINDEF intends to send some SAF officers each year to IDSS to do the post-graduate programme in strategic studies. This will broaden their outlook and give them a deeper understanding of the security issues confronting Singapore and the skills to make assessments of our strategic environment which will be pertinent to MINDEF's policy making.

IDSS also participates actively in the network of regional think-tanks and academic bodies which conduct seminars and conferences on various regional security issues. These "Track 2"activities make an important contribution to the efforts to enhance regional security in the formal ASEAN Regional Forum process by generating ideas and developing understanding. Just last month, IDSS co-organised the inaugural general meeting of the Council for Security Cooperation in the Asia-Pacific. This conference brought together established think-tanks in the Asia-Pacific region in a most useful exchange of views and ideas.

Sir, my colleagues will elaborate on some of the other points brought up by the Members in due course in this debate.

Dr Ong Chit Chung: Mr Chairman, Sir, I want to thank the Deputy Prime Minister for his reply. I will go on to the next item, that is, on National Service.

Sir, this year, we celebrate 30 years of National Service. National Service has indeed become an institution, a national institution. Parents and sons have accepted National Service as part of nation building, as part of growing up, and as part of character building.

National Service is now very much part of Singapore's culture. Whatever our background or station in life, we all serve in National Service. It promotes and enhances national cohesion and bonding.

Indeed, we now have second generation of National Servicemen. The sons of the first generation of National Servicemen have served or are serving in National Service.

I have myself served in National Service and I am sure many of my colleagues here in this Chamber have done so. My elder son has just completed his National Service this year and my second son went for his pre-enlistment check-up only yesterday. I must say he went for his pre-enlistment check-up with enthusiasm and excitement. He is looking forward to National Service, to follow the footsteps of his father and his elder brother.

Sir, thirty years is a fairly long time in the context of Singapore. It is time for us to take stock of National Service, review the trends and developments, for example, how the smaller birth rates affect our manpower requirements in the Armed Forces.

I would therefore like to ask the Minister to give us an overview, and his comments on the future trends of National Service, whether there can be even better recognition and appreciation of our National Servicemen and their contributions to the nation.

Mr R. Ravindran (Bukit Timah): Sir, this year marks the 30th anniversary of National Service in Singapore. Numerous tributes have been given by our national leaders to National Servicemen for 30 years of contribution towards service for the nation.

Our National Servicemen in the SAF, the Police Force and Civil Defence play a vital role in the Total Defence of Singapore. The Budget has goodies for many groups of people. One group that was left out was our full-time National Servicemen. Sir, I think it is once again time to review the allowance that is being paid to our NSF men. The last increase was in 1994. Three years have lapsed then. This being the 30th anniversary, I would urge and ask the Minister for Defence whether there are plans to increase or review the National Service allowance for our NSmen.

The Chairman: Mr Hawazi is not speaking. Dr Wang is not here. Dr Ong.

Dr Ong Chit Chung: Sir, all of us know that SAF trains seriously for operations. It has invested wisely in the right mix of hardware and given top priority to the training of our officers and men, with emphasis on the state-of-the-art technology, mobility, firepower and intelligence. The SAF trains locally as well as overseas, in realistic live-firing exercises.

I am sure the SAF is able and ready, operationally ready, for any emergency, as the DPM has said, ready to defend our national interests and integrity. To reflect this state of readiness, we have rightly renamed the reservists as operationally ready National Servicemen.

However, some sceptics still think that the SAF does not have the capability to operate in major scenarios that may face our country. Recently, however, I came across an interesting article in Parameters, a quarterly periodical of the United States Army College, published in the Spring of 1997. The article was written by D. R. Dillon, a Southeast Asian Foreign Area Officer serving in the Pentagon.

In the article, entitled "Contemporary Security Challenges in Southeast Asia", Dillon states, and I quote:

"Singapore set about turning its tiny post-colonial military into the most competent armed force in Southeast Asia . Singapore's ground forces are considerably more competent tactically than those of its neighbours . Singapore's equipment, personnel, training, and overall readiness are considered the best in Southeast Asia".

And this is not from our Pioneer magazine, mind you, but from a Pentagon specialist writing in Parameters.

I would therefore like to ask the Minister to comment in this context the readiness of the SAF and whether we are ready and able to deal with any crisis or scenario.

Mr Sin Boon Ann (Tampines): Sir, NSmen spend much of their time and effort for their country when they attend in-camp training. For some of these NSmen who run their own businesses either as proprietors or in partnership with others, the period of in-camp training may well translate itself into lost opportunities or lower profit margins. For employers, the absence of an employee from his workplace because of in-camp training may represent a certain opportunity cost to his operation. Whether it concerns the self-employed or the employee, in-camp training means setting aside precious time for the nation.

As an NSman, I have often received feedback from my fellow NSmen that not all of their time spent in-camp is put to good use. The most common complaint being that NSmen spend much of their time waiting. An example would be that if a major exercise is to begin at 9 o'clock in the morning, and in order to ensure that the exercise goes on smoothly, the Unit Commanders will require the soldiers to be ready and waiting, typically between half an hour to an hour, before the commencement of the exercise. This is to ensure that there will be no hitches which may delay the exercise. As a result, the soldiers who dutifully hurry, sometimes wait for a much longer period. When you translate this into the total number of manhours spent waiting for the exercise to begin, one would begin to appreciate the magnitude of wastage in terms of resources.

I know the SAF is very concerned that the NSmen spend their time in camp concentrating on their training to ensure that they are competent and capable soldiers. In this regard, I must commend the SAF for making the effort to cut down the amount of time spent by the NSmen in relatively unproductive tasks as area cleaning and administration. However, I would like to know whether the SAF has since taken or will take further measures to ensure that NSmen get maximum mileage from their time spent in in-camp training.

Dr Ong Chit Chung: Sir, this year we read with sadness the unexpected explosion of an artillery shell in an SAF exercise in New Zealand, which killed two of our National Servicemen. Subsequently, there was another death at the live firing area in Pasir Laba and a number of injuries.

The Committee of Inquiry on the New Zealand incident has completed its reports, and the Ministry of Defence has carefully reviewed various procedures and made safety the top priority in training.

Military training has to be tough and realistic. On the other hand, training should emphasise safety, and all necessary precaution should be taken. Parents are naturally concerned about safety in training and the well-being of their sons in National Service.

I would like to ask the Minister to update us on safety in training and whether any other measures can be instituted to ensure safety in training for our National Servicemen.

The Chairman: Mr Chong and Dr Wang are not here. RAdm Teo. 1.45 pm

The Second Minister for Defence (RAdm Teo Chee Hean): Sir, Dr Ong has asked about the operational readiness of the SAF. The SAF today is a modern, well-integrated and operationally ready force. Over the past 30 years, the SAF has steadily developed both its hardware and software. The strengths of the SAF lie in the quality of our manpower, our ability to harness technology and our ability to operate as an integrated force. With the high quality of our manpower, we can fully exploit sophisticated weapons and technology, integrate them into systems and employ them in the most effective way in the battlefield.

The SAF uses technology as a force multiplier. We use technology to improve our mobility, firepower and effectiveness, and to develop secret edge weapons which are optimised for our circumstances and will catch any aggressor by surprise.

And through integration, the Army, Navy and Air Force operate as a seamless system in which their capabilities and strengths complement one another to full advantage. These are aspects of the capability of the SAF which may not be apparent to the casual observer, the layman, or the average Singaporean, but which have been noted by knowledgeable observers, as in an article cited by Dr Ong.

Of course, to assess the operational readiness of the SAF, MINDEF and the SAF cannot just rely on articles and magazines. We have rigorous and objective criteria for the assessment of the operational readiness of the SAF. Nevertheless, articles such as these are useful in providing insights into how others perceive the SAF and the resolve of Singaporeans to defend our country and hence the ability of the SAF to deter aggression.

Sir, the SAF exercises with the armed forces of many countries and our servicemen also attend courses at institutions in many countries. Our servicemen and our units have done well in these exercises and courses and compare well with some of the best armed forces in the world. An example is the highly demanding Red Flag series of exercises in which our Air Force routinely takes part with the United States Air Force and in which our Air Force is consistently highly rated.

It may be useful at this point to note that the SAF's operational readiness has been put to the test several times and we have responded well each time. The most dramatic example is the SQ-117 hijack rescue. The recent Cambodian evacuation has also clearly demonstrated the SAF's proficiency and ability to respond quickly. More routinely, our open mobilisation exercises regularly chalk up very high turnouts of well over 90% within a few hours. This is testimony of the commitment of our National Servicemen to defend our country and is a good test of our ability to mobilise and be ready to fight within 12 hours.

Sir, I now turn to the subject of safety which Dr Ong has also raised. MINDEF and the SAF recognise that safety is an integral part of military proficiency and professionalism. As the activities conducted by the SAF can be inherently dangerous, the SAF places a very high priority on safety. The SAF has a system for systematic risk management and promotes organisation-wide safety awareness in order to prevent accidents.

The SAF must train and train realistically in order to maintain its operational readiness. Being able to operate and train safely, without compromising on operational standards, is crucial to the operational readiness of the SAF.

To achieve this, MINDEF and the SAF focus on three main areas. Firstly, risk assessment and management. Activities that involve higher risks are systematically assessed using, where applicable, internationally adopted protocols to identify all potential problem areas. Measures are then implemented to reduce those risks. One of the factors assessed would be the proficiency of all personnel involved in the activity. This serves as a safety check to make sure that nobody who is unfamiliar with the activity would participate or, worse, conduct and supervise the activity. Safety procedures and requirements are documented in detail in our safety regulations. These documents guide the conduct of activities and are referred to by supervising, conducting and safety officers. Prior to the conduct of activities, all participants are briefed and reminded of the safety procedures. It is also during this briefing that potential risks are highlighted to the participants in order to raise their vigilance in these specific areas.

Secondly, we exercise close supervision. Commanders at every level pay personal attention to the adherence of safety procedures by those under their command. Higher HQs supervise the conduct of higher risk activities of their sub-units. In addition, there is a separate safety organisation with safety officers to follow the participants and focus on safety aspects and safety compliance in each exercise. At the armed forces level, safety inspectorates audit safety practices of units and conduct spot checks to ensure that safety procedures are strictly adhered to.

Thirdly, we promote safety education and awareness. To heighten safety awareness and provide safety management, we have formal education programmes on safety. We are acutely aware that in a National Service force with a high turnover of soldiers and junior commanders, an institutionalised education process is essential to maintain a high level of safety awareness. Formal programmes on safety management are taught in all our leadership schools. Selected officers are also sent for local and overseas safety courses to enhance their safety management skills and to transfer their knowledge to their fellow officers.

However, in spite of these precautions, if a training incident does unfortunately occur, the SAF has in place a prompt and rigorous process of inquiry involving neutral third parties. The inquiry would look into the circumstances leading to the accident with a particular emphasis to establish whether there are shortcomings in the system and what ought to be done to correct them. Recommendations by the inquiry body get top level attention in the SAF and in MINDEF.

At the same time, we make every effort to provide timely care and support to the affected servicemen and their families. Such support includes the best medical attention possible as well as prompt financial assistance and fair compensation wherever applicable. The medical assistance also encompasses professional counselling and follow-up support for as long as it is required.

Sir, the SAF recognises that any incident that involves injury or loss of life is one too many and will do all that is possible to prevent such incidents from occurring.

The Minister of State for Defence (Mr Matthias Yao Chih): Sir, Dr Ong Chit Chung asked for a review or stock taking after 30 years of National Service.

Sir, the SAF is confronted by two trends - declining birth rates and improving education levels - both of which greatly affect the way the SAF trains and deploys full-time National Servicemen. The size of our NSF cohort has shrunk from 32,000 some 20 years ago to about 20,000 now. It will remain low for the next few years. About 60% of today's cohort have post-secondary education compared to only 22% in 1982. By the year 2005, 70% of the NSF cohort is projected to have post-secondary qualifications. Both trends pose immense challenges to the SAF. MINDEF recognises them and has implemented various measures to optimise the use of manpower in the SAF. I will briefly mention some of these measures.

(a) Commercialisation of support services. Wherever possible, we have commercialised non-combat support services. In addition to reducing the demand on NSF manpower, some of the support services are assigned to female regulars, civilians or non-uniformed SAF personnel.

(b) Technology upgrade. Weapons and equipment have been upgraded to reduce the need for manpower and to increase their effectiveness. For example, the new upgraded average FH2000 howitzer in the Artillery needs only eight men to operate instead of the 12 men needed for the old artillery system. MINDEF also puts greater emphasis on research and development to ensure that the SAF is able to exploit technologically advanced weapon systems to our advantage in the battlefield. Increasingly, new training technology such as simulators and computer-aided instructions are being used.

(c) Raising productivity. We constantly review and streamline work flow and procedures to ensure that manpower usage is optimised, for example, by using computers and office automation systems to cut down on manpower.

(d) Improved training. We have revamped our Basic Military Training (BMT) system so that it is more relevant to the NSF's deployment and their eventual role during their National Service period. Over the years, we have also restructured BMT and worked closely with the schools and polytechnics to improve the fitness levels of pre-enlistees to save time and resources in training them to the required fitness when they enter BMT. More importantly, we have minimised the attrition of combat-fit personnel due to training injuries. In addition, we have also enhanced the systems for selecting the officer cadets and specialists to ensure that the best and the brightest in every cohort assume positions of leadership and responsibility.

(e) Refining the medical classification system. We have also started to assign servicemen according to the specific needs of the appointments that they are assigned to. Servicemen who are able to, but would be deemed not fit for combat under the previous classification system, will be deployed to less onerous combat appointments as long as they are deemed medically fit to do so. Combat-fit NSF resources are then deployed in the areas which need them most.

Sir, the improved educational profile of our NSFs pose a challenge to MINDEF. It will be easier to train NSFs to handle the most sophisticated weapon systems and equipment which we acquire. They will also be able to master superior tactics because they can absorb the instructions and tactical concepts better. And to better engage their interest and to maximise their contributions, MINDEF has also entrusted NSFs with heavier responsibilities and widen their job scope. For example, many are employed as platoon sergeants which were traditionally held by regular soldiers. The NSFs have performed very well in their expanded roles and have discharged their responsibilities very well too. At the same time, MINDEF must continue to motivate these highly educated soldiers when they are in NSF and during their NS training. Their aspirations and expectations will be higher and more difficult to manage.

It is therefore important for MINDEF to offer our wholehearted support and encouragement to our NSFs and NSmen. MINDEF appreciates them and has implemented most of the recommendations of RECORD II to give greater recognition to our NSmen for their contributions to Singapore's defence. This, together with the measures I mentioned earlier, will enable MINDEF to cope with the trend of low manpower resources and take advantage of our servicemen's improved educational qualifications.

Mr Sin Boon Ann asked about optimising the time spent by NSmen during their in-camp training periods. Sir, our NSmen are our frontline troops and they form the bulk of the SAF. NSmen train seriously during their in-camp training that is designed to be mission-oriented and efficiently conducted. The NS training approach comes in three phases. (1) the commanders' training phase, (2) the functional training phase, and (3) the tactical training phase. NSmen in the various years of training are called up only for the appropriate level of training and this is in the form of high-key and low-key cycles.

2.00 pm

The commanders' training phase is mainly to enhance the commanders' operational proficiency. The soldiering skills and battle drills are done at the functional training phase. The tactical training phase is to integrate all the levels of the unit and the command in the conduct of full troop exercises. Over the years, we have reduced the duration of both local and overseas in-camp training to increase efficiency. For example, training in Brunei has been reduced from 22 days previously to 19 days currently.

It is true that when soldiers come for in-camp training, they may have to spend some time waiting for activities to happen. This is because in the past, we were training in small units and formations and, therefore, the national servicemen came in, did their training and off they went. Nowadays, we emphasise more on combined arms training and joint training with the other services in the SAF. And as we train in a larger formation, many more activities are concurrently happening which may not affect that particular unit at that particular point of time. We recognise this as a problem of NSmen spending some time waiting while other activities are happening. We are conducting a study to see how we can minimize the need for them to wait by, for example, employing simulators to simulate their activities while concurrent activities are happening so that we do not have to call in so many NSmen at one time.

We will continually refine the entire NS training system to facilitate the attainment of higher standards of training through mission oriented exercises, exploitation of training opportunities and technologies, optimising of training programmes and improvements to existing infrastructure and facilities. All these will ensure that the time spent on training by our NSmen are meaningfully utilised.

Sir, Mr Ravindran asked about National Service allowances. We will review the allowances from time to time. Unlike regulars, NSFs are not salaried employees. Their contribution to NS is an obligation that Singaporeans must discharge. The responsibility for defence is a shared one. The NS allowance is intended to help defray part of the incidental expenditure incurred by full time national servicemen. Adjustments will be made to cater for changes in the cost of living, eg, rises in transportation and food costs. MINDEF regularly reviews NS allowances to ensure that it keeps pace with the changes in the cost and standard of living. The last revision was made recently. NS allowances will be adjusted again in future should there be a need to do so.

MINDEF will assist NSFs in other ways. The SAF Central Welfare Council would extend interest free loans to eligible NSFs so that they will also be able to benefit from the Government's asset enhancement schemes. Over the past five years, the Central Welfare Council had extended four interest free loans to NSFs, three for the share ownership top-up schemes and one for the SingTel second share offer. All these ensure that the NSFs will continue to benefit from the Government's various asset enhancement schemes in recognition for their contribution to national service.

Mr Jeyaretnam: Sir, my subject is the people's money, the expenditure on defence.

I note that the amount allocated for defence this year has gone up by $435 million or so, and it is about 5% of GDP. I hope I am not to be reported tomorrow as advocating that we should all lower our defences, that we should surrender to whoever comes to our shores, as it was reported when I last spoke on defence some years ago.

The question is the bottom line on cost effectiveness. Do we need to spend all this money to keep our defences within the limits and possibilities that confront us? I have noticed that countries all around the world are reducing their defence expenditure, but we seem to be increasing it year by year. I wonder whether any proper study has been made to see whether any savings can be made in our defence expenditure.

I notice that we spend more than Malaysia and even Indonesia on our defence. I notice that way back in 1992-93 - I do not have the figures for Indonesia after that - Indonesia reduced its military spending. So I would commend to the Ministry that perhaps they should undertake a high-level study to see whether it is necessary for us to spend all that money that we are spending at the moment for our defence needs.

There is the question of the length of the national service. I have had complaints from our boys that these 30 months of national service before they are called to the university is too long. And their complaint is also that they are being displaced when it comes to jobs by non-Singaporeans. Is this an area where we can reduce the expenditure by shortening the time of national service for our boys? I would ask the Ministry to consider this.

Mr Hawazi Daipi (Sembawang): Sir, I do not wish to comment on the views of Mr J B Jeyaretnam, but I think our defence forces have been very strong, acknowledged as a very important deterrent factor from aggression and threat against Singapore's territorial integrity and sovereignty because we have a very strong Singapore Armed Forces. I think the money that has been spent has been well spent. The training that our young people have gone through has been worthwhile. But for it to continue to be effective and to be a coordinated defence force, SAF needs not only modern equipment and weaponry but also talented men and women. Thus far, SAF has been able to attract bright young men and women into the force. But as our economy further develops and restructures, there will be more high skilled, high technology and high paying jobs for our young people to choose from. In the face of such possibility, what is MINDEF going to do to recruit and retain talents in the Singapore Armed Forces? High salaries may not be the only answer to the need to infuse talents in the SAF. Can the Minister explain the personnel policies in the armed forces?

Mr Sin Boon Ann (Tampines): Sir, in our debate on the motion to thank the President for his Address, much has been said about National Education and the need to instill in young Singaporeans an appreciation of this country. Up to this moment, National Education has been seen to be left to the schools to conduct. I am sure this is not the intention of the Government to leave an exercise so important as National Education to the schools alone. The need to instill patriotism and pride in the country among Singaporeans is itself an important exercise. I am sure, given time, National Education will reach the people through the efforts of the different Ministries. In this regard, I have no doubt that the Ministry of Defence will also play its part in promoting National Education amongst Singaporeans.

Sir, the SAF is more than an organisation. It is a national institution, dedicated to the task of defending the sovereignty and territorial integrity of this nation. Every able bodied male Singaporean who goes through national service should and must understand why he has to dedicate 2-2(r) years of his life in uniform and bearing arms in service to this nation. An appreciation of the reason why the NSman should do national service should not be just confined to the head, but also must come from the heart.

In this regard, I would like to know what plans the Ministry of Defence has in using the institution of the national service in Singapore to push through the objective of National Education amongst young Singaporeans.

Mr Matthias Yao Chih: Sir, first, on Mr J B Jeyaretnam's cut. I wish he was here to listen to Dr Ong Chit Chung's excellent speech and the Deputy Prime Minister's reply to the speech. Also, I wish he had read the Budget book carefully before he moved his cut.

He was not sure of his numbers. Let me read what it says in the Budget book for the FY97 budget for the Ministry of Defence:

`As a percentage of GDP, the Ministry's total allocation amounts to 4.17%. This is lower than FY96 of 4.23%.' In other words, MINDEF has made an attempt to be cost effective and efficient in our training programmes and manpower management.

Dr Ong Chit Chung has quoted an article from the journal, Parameters. This is an independent assessment by a specialist from the Pentagon in the US which concluded that Singapore's defence expenditure is efficiently and effectively spent. Therefore, I do not see why Mr J B Jeyaretnam should be worried about this aspect. However, I would still attempt to answer his question even though he is not here.

Singapore's approach to the defence budget is based on our defence philosophy of being prepared at all times for any eventuality. The security situation can change quickly. However, building a credible defence force takes many years of investment in hardware and software. Further, the defence business, like any other business, is subject to ongoing technological advancement as well. To ensure that our forces do not have yesterday's capabilities, constant investment in training of new skills and technologically advanced weapons is necessary.

Although defence is of paramount importance, we are also conscious that other national priorities like education and social programmes should not be crowded out. Hence, we have the policy that limits defence spending to 6% of GDP.

On the question of length of national service, our national service is based on the needs of our defence capability. The two and a half years of national service is barely enough to train the soldiers to operate in the missions that they have to perform. When they come in the first year, they are under training. They are not operationally ready. At the same time, the commanders have to go through various levels of command and leadership training to bring them up to the capability that is required for them to lead the soldiers. Therefore, the two and a half years is barely adequate for us to train them in the capability that we want. We are not able to shorten that period any more.

2.15 pm

Mr Hawazi asked about manpower policies. Sir, the SAF must be able to continue to recruit and retain quality people. There are constraints unique to the SAF which affect our ability to recruit and retain good people in the SAF. The job nature of the SAF officers, especially in the combat vocations, is particularly onerous, dangerous and demanding. For security reasons, the SAF recruits only Singaporeans. Furthermore, mid-career recruitment is not possible as the officers have to move through the lower levels of command before taking on senior appointments. The SAF career is also a relatively short one, about 25 years, compared with the normal 40 years in the private sector or in the civil service. Our "Keep SAF Young" policy means that most officers have to leave the organisation by about age 40 or 45.

To compensate for the above constraints, we have adopted the principle that the terms and conditions of employment for SAF officers should be more than competitive with the market. MINDEF engaged Towers Perrin, an established consultancy firm, to help us review the career structure and the overall compensation benefits for SAF officers. The key findings were these:

First, the existing pension and gratuity arrangements for SAF officers are losing their effectiveness as retention tools. About two-thirds of our young officers leave after their first six-year contract. Many do not want to stay on until the age of 40 or 45, as they expect the transition to a second career to be more difficult the longer they stay. The pensionable service scheme cannot adequately compensate them for the short career span in the SAF.

The second finding was that while pay for the SAF officers is very competitive with the private sector when compared on an age cohort basis, SAF officers' pay in the later stages of their career only keeps pace with the private sector salaries when compared on a job responsibility basis.

The third finding by the consultants was that non-cash benefits in the SAF are not fully understood and valued by the servicemen. The consultants recommended that the compensation and benefits package for SAF officers should be restructured so that our officers are adequately compensated during their relatively short career with the SAF so that they are fully taken care of when they leave the SAF at the age of 40 or 45 to begin a second career. To achieve this, the consultants made three recommendations.

First, extend the salary ranges for the Majors and Lieutenant-Colonels in the non-superscale grades. This will mean that high performing officers who have reached their terminal grades will continue to be paid according to job responsibilities. Increments will not be automatic but will depend on performance.

The second recommendation is to replace the current pension, CPF-plus and contract schemes by a Savings and Employee Retirement Plan (SAVER). This is a fundamental change. The SAVER scheme is designed to provide attractive benefits to those who stay on with the SAF after the first contract period and remain with us for 20 to 25 years more. The SAVER scheme will enable SAF officers to retire from the SAF at around age 40 to 45 in a financially secure position so that they can confidently take on a second career outside the SAF.

The third recommendation by Towers Perrin is for SAF to introduce a flexible benefit scheme to allow SAF officers a choice of benefits to meet their specific needs. Officers can choose to forgo those benefits which do not meet their needs in return for other benefits which they value more.

The consultants also found that non-pay issues had an important impact on the officer's decision to remain in the SAF. MINDEF will review the present career development and performance management scheme and communicate the changes to our officers.

MINDEF is in the midst of working out the details for the various recommendations. We believe that, when implemented, we would have put in place various schemes that can improve our recruitment and retention in the SAF. MINDEF expects to implement the various recommendations some time next year. The real impact of such a fundamental change in the remuneration system for SAF officers will only be evident in a few years' time and I hope to come back to this House to report on them in due course.

On National Education which was raised by Dr Ong Chit Chung and Mr Sin Boon Ann, MINDEF has long recognised the importance of National Education for our National Servicemen and, indeed, for all SAF personnel. We introduced a National Education programme in 1971. Our National Education efforts aim to inculcate in our SAF personnel the need for a strong commitment to Singapore's defence and an understanding of Singapore's special circumstances and the role of the SAF and Total Defence as the foundation for Singapore's continued security, survival and success.

Over the years, MINDEF has developed a comprehensive set of National Education programmes for different groups ranging from the new recruits undergoing basic training to trainees undergoing Infantry Specialist, Warrant Officer and Officer Cadet courses to mid-career officers. These are often conducted in a form of an S-Cube seminar (Security, Survival and Success). The programme highlights the importance of security as a critical foundation for Singapore's continued survival and success. Such programmes are also conducted for NS men who are officers and specialists, and also non-uniformed SAF personnel. These programmes are designed such that they complement one another, focusing on different aspects and different issues at various stages of the programme.

Now that the schools are going to conduct National Education programmes, MINDEF will review our own programmes to complement those in our schools so that all male Singaporeans will go through a comprehensive National Education programme from the time they are in school until the time they finish National Service. MINDEF has also been conducting National Education programmes for various groups outside of the SAF on request. We believe that it is very important that Singaporeans know our history and understand the issues which can affect our security, survival and success.

Mr Low Thia Khiang: Sir, may I seek a clarification from the Minister of State. He mentioned just now that Mr Jeyaretnam was wrong. He said that it was already cost-effective because the percentage of GDP is lower in terms of MINDEF's expenditure. But the fact is that the total expenditure of MINDEF has increased by $435.24 million or 7.7% over FY96, and the growth of GDP depends on the size of the economy and the growth rate. So is it correct to say that because the expenditure for MINDEF is lower in terms of the percentage of GDP, therefore, it is cost effective?

Mr Matthias Yao Chih: I also wish that Mr Low had listened to Mr J.B. Jeyaretnam when he was speaking. Mr Jeyaretnam said that the proportion of defence expenditure to GDP was more than 5%. My intention of pointing out that the figure is 4.17% is to correct his misconception and to point out that he did not read his Budget book before he came for the debate.

On the issue of cost-effectiveness and efficiency, an independent assessment by a specialist from the American Ministry of Defence has publicly stated that we have spent our money efficiently and effectively and there was no sign of any wastage in our expenditure.

Dr Ong Chit Chung: Sir, I very much regret that Mr J. B. Jeyaretnam was not here to listen to the points that he raised, which the Minister has kindly responded and it was left very much to Mr Low Thia Khiang to interpret what Mr Jeyaretnam said or did not say. I would very much like to ask Mr Jeyaretnam how he could lower defence expenditure without expecting to lower national defence. It would be a wonderful secret recipe which many other countries would love to have and cut down defence expenditure without affecting the resilience of the defence capability of a country.

Anyway, I want to take this opportunity to thank our Ministers for their comprehensive replies and beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

The sum of $5,703,242,900 for Head K ordered to stand part of the Main Estimates.

The sum of $418,000,000 for Head K ordered to stand part of the Development Estimates.

Head N -

The Chairman: Head N - Ministry of Finance. Amendment No. (1). Mr Lew is not here. Mr Choo Wee Khiang.

Mr Choo Wee Khiang (Jalan Besar): Sir, I beg to move,

That the total sum to be allocated for Head N of the Main Estimates be reduced by $100.

Sir, the Government has been encouraging people to go overseas and invest. However, the general feeling is that the Government has done very little to promote regionalisation to accelerate the tax reliefs and other related incentives.

Currently, there are a number of double tax reliefs available to dampen the impact of one's overall tax liabilities. Unfortunately, in the eyes of many businessmen such double tax reliefs are not good enough. Firstly, the double tax reliefs are there to offset and to avoid income or profit generated overseas and remitted back to Singapore being taxed twice. As far as businessmen are concerned, this is certainly not a form of encouragement nor promotion. Secondly, there are still many countries not covered by double tax treaties. Thirdly, going regional is often very risky, as in the case of Cambodia, and can be very tough. It may not be a rewarding exercise after all. Yes, I believe some businessmen in Singapore are fortunate enough to make big bucks overseas, but many do not. It would take many years for them to recover the capital invested and make a positive return. In short, those Singaporeans going overseas, in particular in this region, either to venture or work there, are subject to very high risks and sacrifices.

I should therefore be very grateful if the Minister for Finance will review the existing fiscal policies and to take a more proactive view and role in encouraging Singaporeans to venture overseas.

Mrs Lim Hwee Hua (Marine Parade): Sir, various measures and acquisitions within the global financial industry, including North America, have led to mega institutions being formed which are structured to offer a wider spectrum of financial services and which are backed by a bigger capital base. In the quest to ensure that Singapore remains a major financial centre in the region, the Government has proactively designed incentives to attract bigger players to locate in and operate from Singapore so as to form a critical mass of such institutions.

The Minister has assured the House yesterday that in handing out tax benefits to bigger financial institutions, the smaller operators have not been forgotten. Aside from granting equally attractive tax rates to our smaller operators, will the Minister also be adopting other non-tax measures to ensure that our home-grown institutions will continue to play a meaningful and important role in our financial and economic systems? This is particularly so in the light of implementing monetary policies and integrity preservation. Will the Minister help reduce the risk of smaller institutions being relegated to a second tier of operation by virtue of their smaller sizes? Will he also help to ensure that local institutions are developed at the same time so that they can participate effectively in the ever increasing scope of financial activity out of Singapore? 2.30 pm

Mr Ong Kian Min (Pasir Ris): Sir, let me first of all say that the anti-speculation measures introduced in May 1996 were timely and necessary to discourage speculation in the private residential property market. The measures were introduced during a period and against a backdrop of steep price increases. Since then, more than a year has passed and I feel that it is opportune to review one of these measures, and that is, the 80% financing limit on housing loans. The strict enforcement of this financing limit has adversely affected those Singaporeans who can afford the mortgage repayments for private property but are not able to come out with the initial 20% cash payment. The impact is even greater in the case of singles and families that have high household incomes as they do not qualify to apply for new HDB flats.

Under the present rules, most first-time purchasers would find it extremely difficult to accumulate the required cash payment on their own. With the high prices of private property, it will take many years before one could save 20% of the price of such properties. I fear that this may be so daunting a task that it deters many young successful Singaporeans from even trying to save up for the 20% downpayment. They may instead spend any surplus income they have on a lavish lifestyle such as buying a bigger and new car or taking expensive holidays abroad. I believe that in this respect, relaxing this limit will certainly make it easier for this group of Singaporeans to purchase and pay for their first private property. In the process, they will also learn to be responsible in their spending and to invest their surplus disposable income in a home which should be viewed as a form of compulsory saving.

The present rules favour those fortunate enough to have wealthy parents who can pay that amount on their behalf. For those who are not fortunate, they might have to purchase a new subsidised HDB flat with a view of resale for profit. However, this means having to wait many years to take possession and then five more years before they could sell on the open market.

Sir, I agree with the need for prudence in the housing loan activities of banks and financial institutions, and that it is desirable to safeguard the soundness of our financial system, ensure that banks and financial institutions are not overly exposed to property loans and protect people from over-stretching themselves. But for the reasons I mentioned, I would urge the Ministry to consider allowing banks and financial institutions to have the flexibility of relying on their own credit assessment to decide whether it is prudent to offer more than 80% financing in any particular case. I am not at this stage proposing that this limit be relaxed for all property purchases but for Singaporean citizens and Permanent Residents who are purchasing their first property for owner occupation. I believe this will make it easier, especially for young successful Singaporeans, to own private property and it may even lessen their desire of emigrating and setting up home elsewhere.

The Chairman: Mr Heng is not here. Mr Lew Syn Pau.

Mr Lew Syn Pau (Kreta Ayer-Tanglin): Sir, regarding the role of Government-linked companies in business, nobody disputes that there is a need for Government-linked companies (GLCs) in Singapore. However, the mission of the GLCs should be clearly defined. GLCs are needed for strategic industries, for example, national defence, for businesses that are at the cutting edge of technology that private enterprises do not have the management and technical expertise or financial resources to embark on and for businesses that require immense financial capital and judgment. When a GLC is diversified or goes onto the acquisition trail to expand, it should stay within its related fields, for example, SIA should stay in the airline or airline-related industries and not go into property development, except for its own needs.

Today, many of us are a bit concerned that GLCs are becoming less focused in their activities. They seem to be more driven by the profit element than their original mission. They stray into any new business that can make money. This problem is exacerbated by the fact that many GLCs set large reserves of cash that are earning only very modest returns in this low interest rate climate. In order to show a greater return on equity and assets, they attempt to move into other areas that local private enterprises seem to be making good money on. And the latest fad is property development. If the Government leaves the GLCs totally to their own devices, very soon every GLC will have a property division and a telecommunications licence. If we allow this to be pursued to its logical conclusion, every GLC will become very similar-looking corporate animals, very often looking for the same prey.

I would like to suggest that each GLC confine itself to its own unique mission for the following reasons. First of all, they will crowd out local entrepreneurs with an uneven playing field. GLCs have access to huge Government funds or capital and also the cheap POSB funds for borrowings. They have access to better information, perhaps even greater influence through the old boys' network and Government as their common shareholders and, in some cases, even directors. Many GLC directors, we all know, are also senior civil servants. Some cynics have even commented that at this rate, in the future, Singapore will become a nation of just employees. You either work for the MNCs, the Singapore Government, or the GLCs.

The second reason is that Singapore is very short of talent. The GLCs are hunting for talents for the same businesses, from the same hunting grounds. And this duplication, in my view, is a waste of resources.

To conclude, the GLCs should specialise and grow internationally in their own areas of expertise, for example, the acquisition of APL by NOL is a step in the right direction. They should pool their resources in order to compete more effectively overseas. They should also invite SMEs to join them in their overseas ventures. If the huge cash reserves do not earn enough return on equity or assets, they should return them to the Government. And when they have to borrow at market rates like true private enterprises, the decision-making process to embark or not to embark on new projects will become much more vigorous.

Sir, may I move on to the next few cuts?

The Chairman: Yes.

Mr Lew Syn Pau: Stamp duty brought in almost $1.9 billion in revenue last year. It is estimated to bring in $1.5 billion in FY 97. I am not about to ask for the stamp duty to be abolished totally as it will mean we have to raise tax revenue from other sources. I am just asking for some small value stamp duty items of between, say, $2 and $10, to be furthered reviewed and abolished.

I acknowledge we have made much progress in this area already. The stamp dutiable items have already been brought down from 47 items way back in 1980 to 34 last year. However, I am sure more can be eliminated without too much loss in revenue but with huge increases in efficiency and productivity.

Let me give you one illustration. Sometime earlier this year, I decided to apply for a maid's work permit on my own instead of going through an agent. To do this, as you know, after getting the initial letter of approval from the Ministry of Labour, I had to go to my bank to get a $5,000 security bond. This bond requires a stamp duty of $10. For this you have to either make a trip down to the post office or, I am told, actually the Ministry of Labour has sale of stamps, but they are usually sold out. So you have to go down again to the post office. And after that, you have to queue up again at the counter which takes extra time. So imagine the number of manhours wasted running out there from office to office, getting things like this done. Many of you may not have to do this personally but agents and office attendants out there have to run such errands. They add little value to the economy, except they contribute to the labour shortage of errand boys, and they also add to the traffic congestion.

The Government departments can also be more efficient and productive by eliminating one step from the application process. But this above illustration is just one example. I am sure similar increases in productivity for all can be obtained if we apply our minds to every item today that requires stamp duty. I hope the Minister will look into the matter.

Since I am on the area of tax, I would like to take the opportunity to talk about tax reliefs. Since the Government formally encourages companies to regionalise, it must be acknowledged that the Minister for Finance has come out with tax measures to promote regionalisation. I did some research and I found out that back in 1993 a total of seven incentives to promote the development of the external economy were proposed. These incentives for companies varied from unilateral tax credits for dividend income remitted from countries with whom we have no tax treaties yet to double tax deduction schemes for approved expenses incurred in the promotion of exports, as well as for those incurred in exploring and developing overseas investment opportunities, to tax exemption schemes for venture capital and regional funds to promote investments in the Asia-Pacific, and also the Overseas Enterprise Incentive (OEI), among many others.

On the personal side, back in 1993, a unilateral tax credit for overseas employment income and directors' fees was also introduced.

Then in 1994, there were further tax changes to encourage Singaporeans to venture overseas when the tax rates used to compute non-resident tax reliefs were reduced. Contributions by employers in respect of ordinary wages of employees posted overseas were also exempt from tax, up to the statutory limit for compulsory CPF contributions by employers.

Then in 1995, incentives were introduced which included the removal of constraints for onward payment of tax exempt dividends out of foreign income. There was also a waiver of 25% shareholding requirement for unilateral tax credits to be given on the underlying tax of foreign dividends, among two others.

Last year, there were no fresh tax incentives to promote regionalisation. This year, to further support regionalisation, the OEI scheme has been relaxed.

Having led the GPC for Finance, Trade and Industry to a few dialogue sessions with trade associations recently, and having heard some of the feedback made, one may get the impression that today, there are very little tax incentives to promote regionalisation. There is obviously an information gap between perception and reality. May I suggest that the Ministry of Finance do its bit of publicity by publishing comprehensive updated brochures of all its tax incentives that encourage our local companies to venture overseas. The misconception out there does not do it justice.

During the earlier debate on the Budget Statement, I had suggested allowing companies that venture overseas to group their losses for a period of time. The Minister has declined the suggestion with reasons given. So I shall not dwell further on this matter.

Local companies today are still bemoaning the difficulty in getting Singaporeans to work overseas. The main obstacles are their children's education and the loss of income by their spouses. When they return after their overseas stint, their overseas allowances stop, and then their spouses would have to pick up the career pieces again back home. This may take some time. In order to help such families resettle in Singapore financially, I would like to ask the Minister to consider allowing a higher wife relief of, say, $10,000 for the first year back in Singapore and to qualify, the wife must be economically active prior to relocating out of Singapore.

Let me move now to the next cut on the review of property tax and estate duty. Estate duty collects about $70 million annually. Again, I am not asking that this be abolished. I am asking for a review of the structure to make it a bit more equitable. Currently the exemption limits for estate duty are given for the first $9 million of all residential properties and the first $600,000 of all other movable assets, including CPF balances. And for CPF balances above $600,000, the whole of the CPF balances will be exempt from estate duty. My question to the Minister is: why should residential properties be given a high ceiling compared to other movable assets like shares, cars or cash? This will only encourage overweighting of investments in residential properties for use as a tax shelter. At a level of $9 million, we are not talking about just one property, owner-occupied, we are talking about perhaps a few properties. So you could conceivably have a situation where a rich private property owner pays less estate duty than, say, a HDB dweller, who keeps his life savings in shares and cash, when he passes away. So my question is: is this equitable? 2.45 pm

Today, it is not difficult to switch investments from properties to shares to cash. I propose that we do not differentiate between residential properties and other movable assets and set just one ceiling of, say, about $10 million for all assets, whether movable or immovable, to be exempt from estate duty. This will be more equitable as it will do away with the need for tax planning.

I would like to touch on another matter regarding the net annual value of an owner-occupied property. But not many people are aware that the net annual value of a property used for residential purposes is deemed to be profits arising from property and is liable for individual income tax unless specifically exempted. For owner-occupied properties, the exemption limit has been raised from $75,000 of net annual value to $150,000 last year. With this increase, I would like to ask the Minister for Finance how many properties are now affected. Way back in 1993 when I raised this issue, when the exemption limit was still $75,000, the Minister had said that only 390 out of 620,000 owner-occupied properties had net annual value of above $75,000. So with the increase last year, the number affected must be much smaller today. If so, my question is: is it still necessary to maintain this wealth tax? Not everyone who lives in a large bungalow has large earned income. Some retirees, I have been told, have suddenly found themselves liable for this tax simply because the net annual value of the bungalow in which they have occupied for the last 30-40 years has been revised upwards because of asset inflation in the last few years. So would the Minister consider abolishing this tax totally for owner-occupied property?

The Chairman: Mr Inderjit Singh. You may take your two topics together.

Mr Inderjit Singh (Ang Mo Kio): Sir, as the Minister rightly identified in his Budget speech, the prices of industrial land have escalated sharply in the past few years in line with the steep increases in residential properties. Office and industrial land rentals in Singapore are among the highest in the world, as many Members have pointed out in this House. Compared to Taiwan, we are almost two to three times as expensive as far as industrial land is concerned. If we compare ourselves to our close neighbours, we are definitely not competitive.

The key issue has been that we have failed to control asset price inflation and this, I believe, is the root cause of all our competitiveness problems affecting both cost of living as well as cost of doing business in Singapore. We should have learned from similar problems that happened in the USA in the late 1980s where it took them about 3-4 years to get out of the ballooning property prices problem, and from Japan, who are still not out of it after six years. Both of these countries face the consequences of steep asset price inflation. The question for us is whether Singapore, which is land scarce and a much smaller economy than the USA or Japan, can withstand the negative after-effects of asset price inflation. My question for the Minister is whether anything will be done to reverse the effects of the steep price increases. I would also like to ask the Minister whether he would consider implementing measures that would further restrict or control foreign ownership of private properties in Singapore. I believe we can learn from the control measures implemented in Malaysia or Australia, both of which have much more land than Singapore but are still putting in place such controls.

Sir, I will now talk about the strength of the Singapore dollar. Sir, the strengthening of the Singapore dollar has compounded the cost of doing business in Singapore, particularly the overall labour cost when we convert it to foreign currencies, especially in US dollar terms. Many multinational companies operating in Singapore have been under tremendous pressure from their HQs to pull out operations from Singapore and relocate to lower cost countries because they are continuing to see the strengthening of the Singapore dollar. When we compare our labour cost to that of our neighbours as well as other countries around the world, Singapore continues to look unattractive. Our problem is compounded by the shortage of workers, especially in the manufacturing sector.

In the last few days, there has been a general devaluation of currencies of our neighbouring countries while the impact on the Singapore dollar has been relatively small. This will further reduce the competitiveness of Singapore when we convert the total cost of doing business into US dollar terms. I would like to ask the Minister whether he is considering any measures with respect to the strength of the Singapore dollar that will soften or reverse the past trend that we have seen.

Mr Low Thia Khiang (Hougang) (In Mandarin): Sir, I discover that the information provided by the Ministry of Finance in the Budget Book is getting lesser and lesser. With effect from the 1994/95 Budget, Appendix D which used to show the key to salary codes of the civil servants was left out, and Appendix C became the salary codes. More importantly, the basic salaries of the Ministers, Ministers of State and Parliamentary Secretaries which used to be shown in Appendix C were replaced by just the salary codes. By the 1996/97 Budget, not only was Appendix C abolished, even the items of estimated expenditure under the recurrent expenses were omitted. For example, under public affairs, originally it included breakdown figures for expenditures such as entertainment, official visits, official celebrations, exhibitions and publicity campaigns, etc. Therefore, with effect from last year's Budget, we were unable to know the details of these expenditure items.

Sir, I raised this matter at previous years' Budget debates, and the reply from the Minister for Finance was that this information could be found in other documents. The Budget is an important document provided to Members of Parliament and the public to enable them to have a better understanding on how the Government spends the people's money. Information provided therein should be exhaustive and thorough, particularly information on the salaries of Ministers and civil servants. Spontaneously providing the detailed information of Government expenditures and the salaries of Government officials so that the people will know how the Government has been spending the taxpayers' money is something which a responsible Government should do. In my view, whether the information provided by a government in the Budget is thorough or not reflects the degree of transparency of the government.

Finally, I would like to ask the Minister where I can find information pertaining to pension in this year's Budget. Furthermore, there are lots of mistakes in the Contents page of this year's Budget. Has it been done hastily?

The Chairman: Order. I propose to take the tea break now.

Thereupon Mr Speaker left the Chair of the Committee and took the Chair of the House.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.25 pm.

Sitting accordingly suspended at 2.55 pm until 3.25 pm. Sitting resumed at 3.25 pm

[Mr Speaker in the Chair]

Debate in Committee of Supply resumed.

[Mr Speaker in the Chair]

Head N (cont.) -

The Minister for Finance (Dr Richard Hu Tsu Tau): Sir, both Mr Choo Wee Khiang and Mr Lew Syn Pau have asked questions concerning what help Government is providing Singapore companies to move into the region. They are concerned that the movement overseas is high cost and high risk and asked whether there are sufficient incentives to promote this movement.

I think I did mention yesterday in my round-up speech that there already exists a package of special incentives to promote regionalisation which includes the Overseas Enterprise Incentive scheme in which taxable income earned overseas can be repatriated to Singapore on a case-by-case basis for a period of 10 years on approved investments. Similarly, in the case of the Overseas Investment Incentive scheme, companies which incur losses due to liquidation of companies in which they have invested overseas can offset this against local income.

In addition, there are a series of other incentives which I think Members are aware of and which I would not repeat. Based on my latest figures for last year, there are over 3,600 Singapore companies now operating overseas as a result of our regionalisation programme, which is not an insignificant number.

Mr Choo was particularly worried that income earned overseas might be taxed twice when repatriated to Singapore. I would like to reassure him that this is most unlikely. Firstly, we have a territorial system of taxation in which income earned overseas is only taxed when repatriated to Singapore. Bearing in mind that our tax rates are amongst the lowest in the world, it is very unlikely that such income will be taxed if it comes back to Singapore, because most of the countries in which Singapore companies operate will have higher tax anyway.

Secondly, we have, as at last count, 34 treaties of double taxation avoidance with countries around the world, which would ensure that double taxation does not take place. Thirdly, for newer countries that companies are trading in, where avoidance of double tax treaties do not exist, we have provision to provide unilateral tax credit. With these three measures, it is most improbable that companies going overseas will be subject to double taxation.

Mr Lew Syn Pau has suggested that we have a series of incentives for regionalisation, but the problem may be that a lot of these incentives are not sufficiently well known that we should promote and publicise these incentives more. The Economic Development Board and the relevant agencies in Singapore already have various publications available. But we will nevertheless take up Mr Lew's idea of perhaps consolidating these publications in a form which is more accessible to the companies and publicising them more widely. We will take up the suggestion.

Mr Lew has also suggested that one of the problems involved in persuading companies to expand overseas is that they find difficulty in persuading Singaporeans to work overseas partly because of schooling problems, their wives being unable to work and the problems involved in returning to Singapore, and so forth. He has suggested that enhanced tax relief for the wife for a fixed period when they return might go some way to help relieve these problems. It is something we can look at but I do not think it would be welcomed by other wives in Singapore who do not go overseas and they would also like some form of comparable reliefs. But we would look at it and see whether it is practical or not.

Mrs Lim Hwee Hua is concerned that the Government's emphasis in providing incentives for the larger companies, particularly the home grown financial institutions, may lead to the classification of the smaller institutions as "second class citizens", so to speak, and would like to know what help Government can provide to ensure that our banks and financial institutions do not in fact fall back and can participate in the growth of the financial services industry.

I can assure the Member that the whole range of financial incentives for the financial sector is applicable equally to all financial institutions, including the Singapore-based banks. Where we have provided special incentives, as I have explained yesterday, it is simply to attract the really big institutions to come and locate and operate here because their presence here would have spill-over effects.

In the case of Singapore banks, we are providing an extra boost for them to build up their capital base by increasing the provision allowances from 2% to 3% which I announced in the FY97 Budget. This will help considerably in building up their capital base. For financial institutions to grow and expand, it is essential to have large capital bases on which they can build their asset bases.

In this connection, I think the Member need not worry that our banks are small in size compared to foreign banks. By and large, they are significant in size. For example, taking our big four banks, the largest one is DBS which has capital funds of nearly S$7 billion and a total asset size of about S$56 billion. This is not quite as big as some of the bigger multinationals. For example, Standard Chartered Bank has an asset size of nearly $100 billion compared to DBS Bank of $56 billion, although Standard Chartered Bank's capital base, in fact, is smaller than DBS's. This is mainly because Singapore banks are much better capitalised than many foreign banks. Therefore, they are much more secure banks in that respect. DBS ranks 91st in the world and OCBC is ranked 97th in terms of asset size. So they are not small banks by any means. They have the capacity to grow and benefit from the growth in the financial services industry and many of them have, in fact, branched overseas, into the region primarily.

The biggest constraint to their growth is not because they are unwilling to do so, because our banks have spent large amounts on the latest technology in IT and the telecommunications infrastructure. The biggest constraint is in fact the restrictive practices which are still prevalent for entry into countries in the region. This process will probably slowly erode over the years as the WTO agreements on financial services take effect.

Mr Ong Kian Min has asked for a revision of the policy on bank loans which is presently limited to 80% of the market value of the property which is to be financed. The imposition of this 80% loan quantum cap was part of a package of measures we introduced in May last year to stop the acceleration of asset inflation, particularly in the private residential sector. It has been about a year now since these measures were introduced. It is still too early to consider an upward revision of this loan cap. This is primarily because we do not want to go through the process which has been suffered by countries like Japan, Hong Kong and, more recently, Thailand in which asset price inflation, financed by huge bank loans, has led to the instability of the financial system. Of course, we will continue to keep this position under review and, at an appropriate time, if we consider it necessary, we will look at this quantum again. For example, in the case of Hong Kong, the loan quantum restrictions are even more severe. Currently, the housing loans can be financed only up to 70% of their value, and the Hong Kong authorities are considering lowering this to 60% because of the rapid escalation in private property prices taking place in Hong Hong.

Mr Lew Syn Pau has expressed concern in the way the GLCs seem to be branching out into all sectors of the industry and into many activities which have no bearing on their original intentions. He suggests that they should confine their activities to their particular areas of expertise so as not to encroach into the areas of the private sector companies.

By and large, I think the larger GLCs have in fact stayed within their original corporate guidelines. For example, Keppel would be mainly concerned with ship repair and ship maintenance. So is Sembawang, although they are moving into associated industry such as construction and so forth. But along the way, because they are publicly-listed companies, it would be very difficult for the Government to impose directions on them not to enter into what they consider to be profitable and desirable diversifications. If they were wholly-owned Government entities, perhaps guidance could be imposed. But once they are publicly listed with significant shareholdings from the private sector, we have to leave it to the judgment of management as to whether they should or should not go into areas such as property development. But just because they have large access to capital does not mean that all of them would be successful in any particular area, especially in property development. In fact, in the case of Singapore, the largest developers are not the GLCs but private companies, such as City Development and the Far East group, among others.

He has suggested that GLCs and multinational corporations should join with SMEs to develop and grow, both domestically and in the region. I think that is a good idea. It is something which the Government will encourage. But to impose restrictions on what they should or should not do would be overly restrictive. In any case, GLCs in which Government has a controlling share are overseen by Temasek Holdings, which is the holding company owned by Government, and I am sure that Mr Dhanabalan, the Chairman, will ensure that whatever areas they venture into should be areas where they have some expertise and not merely because they are glamorous or they want to intrude into other sectors of the economy.

Mr Lew has also suggested that we should consider the abolition of stamp duties on some of the smaller items in which much time and effort is spent in the collection without significant gains in revenue. I agree, and the whole list is being revised continuously. As he has noted, we have reduced them substantially already and we will look at whether we can further prune the list. In the particular example where he quoted his problems in obtaining a bond for his maid's security deposit, one way of by-passing this problem may be to facilitate the payment of such bonds through the automatic teller system rather than removing it altogether. A lot of stamp duties are imposed for revenue reasons. They are very efficient in collection because they cover a wide range of activities and often we want to retain them for administrative reasons. But where they impose obstacles in efficient use, we will try and amend them but not necessarily to remove them altogether.

Mr Lew has also raised a proposal to waive income tax on net annual value of a residential property. The introduction of an income tax on the net annual value of a residential property was meant to pre-empt the evasion of tax because of non-declaration of rental revenue and it applies only to very expensive pieces of residential property. Because of the rapid increase in the value of such properties over the last few years, the previous exemption was doubled last year to $150,000. So the net annual value tax residue will apply only to NAVs above $150,000. In other words, it has to be substantially over before you start paying tax on that residue component. For the time being, we are not considering the removal of this tax, although the number of cases where they apply has actually declined. In the Year of Assessment 1996, there were 127 cases. In Year of Assessment 1997, we expect a total of nine cases. Although the numbers are small, it is still a useful wealth tax which I am sure the property owners would not mind paying, considering that they own such valuable properties. 3.45 pm

He has also suggested that we should not have two different classifications for exemptions in estate duty. You will recall that we increased the tax exemption for movable properties from $500,000 to $600,000, but increased the exemption for all residential properties from $3 million to $9 million. This is in recognition of the very large increases in individual property prices over the last few years. On this basis, after exemptions, the tax rate is chargeable at 5% for the first $12 million of the principal value of the estate in excess of the exemption, and then at a dutiable rate of 10% for anything above the $12 million limit. We believe that these taxes are not punitive and it will be useful to retain them for wealth tax purposes and to tax somewhat the transfer of properties from one generation to the other.

We will review these levels periodically, of course, as property values change. But for the time being, there are no plans to change these rates.

Mr Inderjit Singh has expressed concern that asset price inflation is perhaps the root cause of rising business cost. As I mentioned yesterday in my round-up speech, statistics do not bear this out because the costs of renting industrial premises account for only 5% of total business cost. The bulk of business cost in Singapore in fact is wage-related, accounting for some 40% of total manufacturing or business cost. So that is an area we have to concentrate on, not on occupation cost. Although for land-intensive industries, such as high-tech chip business, the EDB has identified special areas for their development where cost of land is factored into their incentives.

Although asset inflation is not the main cause of business cost inflation, Government is concerned about the macro economic consequences of such asset inflation, and I have already given the reasons yesterday why this is so and what we are doing to correct it.

He has asked, in addition to the measures we introduced last year, what other means we might consider to control or restrict the rise of asset inflation. One suggestion is that we should consider restricting further foreign ownership of Singapore properties. Foreigners are now already subject to certain restrictions on purchase of Singapore properties, the main one being that they are not allowed to buy without official permission landed properties or properties in buildings lower than six storeys. They are free to buy condominiums, industrial and commercial properties without restrictions. For the time being, we think these restrictions are sufficient and, of course, we will continue to review the position.

He has suggested that we should look at what other countries are doing - Malaysia, Hong Kong, Australia. In the case of Malaysia, you will note that they imposed special premiums on purchase of foreign properties which they now find too restrictive and are considering removing them. So the solution is not a simple one, and I think we do not want to be too precipitate in making changes.

Mr Singh has also posed an interesting question on the strength of the Singapore dollar and its impact on Singapore's competitiveness. He is concerned about the strength of the Singapore dollar, especially against recent devaluations of the currencies in our neighbours by making it even more difficult for Singapore exporters.

First, I would like to point out that the Singapore dollar, unlike some of the currencies in the region, is not linked to the US dollar or to the currency of any other single country. It is monitored against a weighted basket of the currencies of our trading and investment partners. This weighted-basket currency approach has served us well in the past. Since we import and export to a large number of countries, a trade-weighted exchange rate has been more effective in keeping imported inflation low while safeguarding our export competitors. Moreover, managing the exchange rate on a trade-weighted basis has shielded Singapore successfully from the sharp currency misalignments that countries which peg their exchange rate to a single currency, like the US dollar, have experienced.

Secondly, we also manage our exchange rate flexibly so as to cater for market fluctuations. The Singapore dollar exchange rate is determined by market demand for our currency. In recent years, the Singapore dollar has been appreciating gradually on a trend basis, reflecting our sound fundamentals and investors' confidence in our economy. More recently, however, with the easing of inflationary pressures world-wide, the upward movement of the Singapore dollar has also moderated.

Mr Singh's concern about the competitiveness of our currency in the light of recent devaluations of the currencies of some of our ASEAN neighbours is misplaced. For example, compared to the beginning of 1997, our current position is that the Singapore dollar has appreciated against most of the European currencies and against the Australian dollar whilst it has depreciated against the US dollar, the Japanese yen and the pound sterling. As for the ASEAN currencies, despite their current weaknesses, the Singapore dollar has only appreciated by 3.5% against the Philippine peso and has in fact depreciated by 0.4% against the Malaysian ringgit. The Singapore dollar has appreciated substantially against the Thai baht by about 13.5% and to a lesser extent against the Indonesian rupiah by 6.9%. But the appreciation against these two currencies should not pose a significant threat to our competitiveness because the composition of our exports differs considerably from the export packages of Thailand and Indonesia.

Generally, Singapore's competitiveness should be viewed against a longer term perspective. That is what the Committee on Singapore's Competitiveness has been asked to do. Our exchange rate policy should not be guided by short-term expediency considerations. We always focus on managing the exchange rate of the Singapore dollar on a trade-weighted basis with a medium term perspective.

Mr Low Thia Khiang has raised several questions regarding the changes in the Budget book which he finds confusing. This is understandable because we have restructured the composition of the Budget book considerably over the past few years, and some of the items are no longer in locations where he used to look for. For example, he asks where he can find figures on the Singapore Pension Fund payments. Pension payments used to be listed as an item of Government expenditure. But since the formation of the Pension Fund, the payments no longer appear as a Government expenditure but as an item within the Pension Fund Statement. In FY96, for example, on page 73 of the Budget book, a sum of $564 million was paid out as pensions and gratuities in 1996.

He has also expressed concern that the Budget book does not show any information on salary details. Before I go into details on this, let me just explain in broad terms what the changes are which led to this situation. Starting in FY94 the Budget book no longer contains a list, previously known as Appendix D, of the basic salaries of all grades of the civil service. The reason for discontinuing with this listing is that it is no longer informative with the introduction of various types of allowances into their basic salaries. Salary scales are also different for officers in the same grade but who are on different medical schemes. Instead of including these details into the list, which will have to be considerably enlarged and modified, a salary manual with all the details was prepared instead. A copy of this manual is available in the Parliament Library for consultation by Members.

Starting in FY96, the listing of all grades in the civil service and their salary codes has also been excluded and this was previously known as Appendix C. The list does not serve any useful purpose as without Appendix D, it provides insufficient information. In addition, operating expenditure has been reclassified under two categories of running cost for day-to-day expenditures of Ministries, departments and Government-funded statutory boards and under "Transfers for subventions to public and other external organisations."

For anyone interested in details on each item of Government expenditure, there is a very comprehensive book called the "Budget Control Document" which is a huge document about this size [indicating] available in the Parliament Library. It is impractical obviously to distribute a copy to all Members.

I am sympathetic with the problems raised by Mr Low and I am prepared to conduct a special briefing for him on the intricacies of the new Budget book if he can spare the time, and I would also welcome other Members of this House to take advantage of this opportunity.

Mr Low Thia Khiang: Sir, I have a clarification with the Minister. Would the Minister refer to the contents of the Budget book? Would he explain why there are two "Appendices" here? Does the Minister have a Budget book?

Dr Richard Hu Tsu Tau: No.

Mr Low Thia Khiang: He does not have. But could he explain why there are two parts here [indicating]? There are two budget details by head of expenditure.

Dr Richard Hu Tsu Tau: I think rather than waste the House's time, we can do it outside afterwards.

Mr Low Thia Khiang: Sir, I think obviously there is an error here.

Dr Richard Hu Tsu Tau: What should it be?

Mr Low Thia Khiang: It is an error. And if it is an error, I think the Minister for Finance should have looked at the Budget book himself. If it is an error, say it is an error.

Dr Richard Hu Tsu Tau: Yes, of course. I would be glad to admit it is an error if it is an error.

Mr Lew Syn Pau: Sir, the Minister has not answered my question directly on the issue of estate duty. I am not asking actually for the ceiling or the limits to be raised. I am just asking that there should be no differentiation between the $9 million for residential properties and the $600,000 for other movable properties, because there is really no reason for it.

Dr Richard Hu Tsu Tau: There is a reason. The main reason is that for residential properties, prices have accelerated faster than the movable properties which essentially are stocks and bonds. Therefore, an increase in the value of the movable property component from $500,000 to $600,000 was considered adequate to cover this sector, whereas the same percentage increase would be totally inadequate for private residential properties which have gone up by several hundred percent. Hence the jump from $3 million to $9 million. So for these two categories, the price structure moves quite differently and independent of each other. If they should converge, we can consider a single classification. 4.00 pm

Mr Lew Syn Pau: Sir, I still do not quite understand because, as far as I understand it, the $9 million is actually not for one owner-occupied property. The $9 million actually allows you to group several residential properties together. So in fact the other properties are for investment purposes. There is no difference therefore investing in a second or third property, versus investing in shares or other cash instruments.

Dr Richard Hu Tsu Tau: This increase from $3 million to $9 million was in fact in response to appeals from many members of the public who own large properties bought many years ago at very low values, and would have caused severe hardship, if sold, to pay estate duties when the owner passes away. That was the main reason for such an increase and it is not basically to cater for this multiplicity of assets. It is to cater to a lot of families who live in very old bungalows, which are worth a lot of money nowadays, although they had probably acquired for a few hundred thousand dollars 20 or 40 years ago, and these are real hardship cases which we are taking into consideration.

Mr Lew Syn Pau: But today, since we allow the properties to be grouped together, why do we not just allow both assets to be grouped together for the purposes of estate duty?

Dr Richard Hu Tsu Tau: We could do so, but we are cautious in making any changes too quickly. I think the basic principle is whether you want to remove the estate duty altogether, or do you want to maintain some degree of progressivity in estate duty? If we do so, then I think there is a case for maintaining the present system. But of course, we can always review this from time to time.

Mr Choo Wee Khiang: May I have a clarification please? May I know, out of the few thousand companies investing abroad, how many are now enjoying the scheme, as mentioned by the Minister?

Dr Richard HuTsu Tau: I do not have the exact figures. I will supply Mr Choo with the details.

Mr Choo Wee Khiang: I thank the Minister and beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

The sum of $528,997,670 for Head N ordered to stand part of the Main Estimates.

The sum of $692,963,200 for Head N ordered to stand part of the Development Estimates.

Head W -

The Chairman: Head W - Ministry of Trade and Industry. Amendment No. (1), Mr Lew.

Mr Lew Syn Pau: Sir, I beg to move,

That the total sum to be allocated for Head W of the Main Estimates be reduced by $100.

During the recent visits of the GPC for Finance and Trade and Industry to trade business associations, the most common grouse among business people fed back to us was that the costs of doing business in Singapore have gone up, are still going up and are eroding our competitiveness. They are extremely anxious that the Government should address these cost issues before we fall into another recession of the same magnitude as that experienced between 1985 and 1987.

The question of rising business costs is not new. In fact, it has been raised over the years since we moved out of the recession way back in 1987. It has also been addressed by the Government in different ways. For example, in 1993, the Cost Review Committee devoted a whole chapter to business cost and competitiveness. The recent concerns raised have also led to the setting up of a committee to look into the long-term competitiveness of Singapore.

The point I am making here is that, to be really objective and fair, the Government does respond in different ways to feedback and suggestions on rising business costs. However, as different businesses are impacted by cost increases in different ways, action taken thus far may not be to the total satisfaction of all. The main components of costs which concern business people today are labour, rentals and transportation. These three items are perceived to be within the power of the Government to manage better, unlike imported materials and other stuff which are subject to world market prices.

The first item is on labour cost. Labour costs have gone up mainly because of the shortage of supply. The growth rate of indigenous labour is not high enough to sustain our economic growth. So we turn to foreign labour which is controlled today by the Government using both the dependency ratios in approved sectors and also Government decision to disallow in certain other sectors other non-traditional sources. In addition, businesses have to shoulder the workers levy which is quite substantial even when approval for such foreign labour is obtained. Furthermore, wage costs have been outstripping productivity growth for many years. And add to that, the difficulty in hiring staff because of a mismatch between demand and supply. In fact, our traditional sources are drying up because they are also growing and developing very fast and they also need labour.

The second component is rentals. This is a major concern for retailers. Manufacturing companies are also not spared as property prices have escalated in the last few years. Our rentals have gone up to three times that of our neighbouring countries.

The third component is transportation. The high cost of vehicles and COEs, coupled with the fact that the MRT today is still not too comprehensive and does not reach the suburban industrial estates, has made transportation cost an important element of business costs. Many companies today still provide door-to-door transportation for workers. Otherwise, they will have a tough time in getting enough workers to man their factories.

The above three items of cost I have used as an illustration come under the purview of three different Ministries. In the case of labour, the Ministry of Labour; rentals, the Ministry of Trade and Industry; and transportation, the Ministry of Communications. Is there someone coordinating and monitoring the different policy changes from different Ministries to determine the total impact on our business costs and our competitiveness? Different cost increases by different Government departments tend to be announced separately outside the Budget session. Its individual impact, taken singly, may not appear significant but, when added together for all departments, can become alarming. Would the Minister consider adopting an integrated approach towards the management of such business cost increases and have them presented during the Budget session every year instead? Will he also look into lowering the costs of doing business in Singapore, especially for the three main components of labour, rentals and transportation, which I have talked about earlier?

Mr Inderjit Singh: Sir, as I have mentioned in my speech in the Budget debate, many of us were surprised that the Minister for Finance did not give any concessions to the manufacturing sector which contributes about 25% of our GDP. For our local companies, especially the SMEs, the situation is even worse because they have nowhere to go even if we encourage them to regionalise. They still need a home base from where technology can be developed and transferred. They must be able to keep their home base competitive before they can regionalise. As the competition around us grows stronger, if you are not careful, the recovery from a downcycle we are seeing now may be long drawn and may be different from other cyclical effects that we have seen in the past.

I therefore would like to ask the Minister to consider implementing more measures that will help our manufacturing sector and other businesses pull through the next one to two years until full recovery can be achieved. Sir, may I ask the Minister the following questions? Can land and property costs be further reduced by allowing JTC to reduce rentals for the next two years by a larger quantum than what has already been announced? How can we improve the efficiency of land use? Are there any steps taken by the Ministry that can help in this area? Also, can the Government implement a strategic non-pricing policy where many companies can qualify for special rates when starting up new facilities in Singapore? I would like to ask if there is any policy in place at this moment. Given the good surpluses in our budget, can the Minister allow a one-off 10% tax rebate, just like what we have given to individuals, for companies?

Will the Minister review the Skills Development Fund guideline to allow more workers to qualify than the current group of workers? Can the Government also stop any Government charges and levy increases for the next two years so that the businesses can ride through the tough period that they are seeing right now?

Mr Choo Wee Khiang: Sir, I share the sentiments expressed by other MPs and colleagues in this House over the high business costs in Singapore. As mentioned by the Minister for Finance, a major component of the business costs in Singapore is indeed wages. My concern is that the high salary cost without the equally high level of productivity and quality of work has made some Singapore companies less competitive internationally. Worse still, I have been told by some of my businessman friends that many companies are increasingly losing their market shares even in our home ground. Although it is difficult and not wise for the Government to introduce any protectionist measures to stop competition, I think in the broader front, the Government should really look into ways and means to enhance the capability and skill levels of our workers in each industry to match the high wage level, as mentioned by many of us here.

Sir, my second concern pertaining to high business costs in Singapore is indeed the land cost or cost relating to the use of land. In my view, the Government should adopt a more pragmatic approach and a more sympathetic and flexible attitude when implementing its policies. I am of the view that Government policies have always been very carefully thought out and are usually very sound from the macro viewpoint. However, in implementing the policies, there should be more sympathy and compassion shown towards companies that are facing difficulties in meeting some of the policy requirements.

I have a case in my constituency where a company leased 100,000 square feet of land from JTC. The plot ratio was given as 2:1 and they were given five years to complete the whole building project. Due to a change of policy and direction, this particular company had to go overseas and they also allowed subcontractors to take up the main bulk of their business activities. As a result, they no longer needed a huge factory space and they asked JTC to help out. However, JTC was not very sympathetic and turned down their request. JTC in turn asked the company to complete the project by next year, 1998. As I said, the company no longer needed that huge space. As a result, the company acceded to the request by JTC and promised to complete the project by next year at a cost of $20 million. But the company requested JTC to allow it to sublet some of the unused land to sub-tenants. But stringent conditions were laid down by JTC. It was not helpful. The land, the open space and the space available within the building were made useless.

The third problem came about when JTC finally agreed upon some subletting exercise. JTC, in turn, asked for a subletting fee. The problem is that, regardless of the space sublet, the subletting fee is a fixed quantum and is not actually related to the space that is sublet. In this case, the company sublets a smaller space but yet has to pay a fixed sum of subletting fee to JTC. This shows that JTC has been rather inflexible. 4.15 pm

I am not trying to single out JTC, but I am using it as an example to illustrate some of our Government agencies, when implementing their policies, are not flexible and are too rigid. I hope that the Government would be sympathetic to the change of space requirement experienced by companies as a result of their business restructuring to go high tech and move upstream. And I hope the Government will not give the impression that it is only interested in ensuring, in a mechanical manner, that its macro planning parameters are met and is unwilling to make some minor adjustments to accommodate difficulties faced by companies at the micro level. I also hope that the Government will not give the impression that its only aim is to maximise its collection from the companies and is not concerned whether this will result in companies losing their overall competitiveness.

Sir, I hope the Minister for Trade and Industry will be able to enlighten the House on this.

Mr Inderjit Singh: Sir, over the last five years, the Government has done much to promote the regionalisation of our businesses. It is a very timely drive by the Government, given the rapidly opening Asian markets like China, Vietnam, Laos and others. It was also a realisation that we could not in the long term depend solely on the local based economy. Without regionalisation, Singapore's economy will eventually shrink, especially as multi-nationals relocate outside Singapore to more competitive countries.

As the momentum for regionalisation picks up and goes into higher gear, many of our local companies need a little more help from the Government. As such, many industry players who have regionalised or are planning to do so were a little disappointed that the Minister for Finance did not provide additional new incentives in this year's Budget.

I would like to ask the Ministry whether more help and incentives can be provided to further encourage regionalisation in the following areas. Can the Government share some of the costs related to regionalisation, like the cost of relocation of staff, training of staff to prepare them to go overseas and the cost of higher insurance in the host countries?

Secondly, whenever the Singapore Government-linked companies take on regional projects, can they consciously and, as a rule, bring along with them smaller local companies to handle the smaller sub-projects that they may undertake? This, I believe, is what the French and Korean governments practise. The GLCs have the means and the Government support to take on big and riskier projects in the region, while the smaller local companies cannot take advantage of the opportunities that easily.

Thirdly, can the Minister make it easier to remit overseas income for companies and individuals so that they are not motivated to keep their incomes outside Singapore?

Finally, for individuals, to grant special tax rebates in lieu of the higher cost of education for their children in international schools as they locate themselves in some of these countries.

Mr Sinnakaruppan: Sir, an increasing proportion of business activities in a modern economy is taken up with the training and re-tooling of managerial and technical personnel. It is estimated that if a business commits each employee to an average of seven working days per year for training and development, this will represent something like 3-4% of the company's activities. One estimate suggested that in the United States alone, the revenues generated by these activities reached US$8 billion in 1996. This has, in turn, led to a proliferation of specialist training companies and companies developing computer-aided training materials.

In our efforts to promote Singapore as a base for regional headquarters, our tendency has been to stress the quality of our infrastructure for regional procurement, treasury, servicing and other like operations. I think there is a strong case to add to this the possibility of a training park infrastructure.

Our Prime Minister, during his many working trips to many countries in Europe and elsewhere, has often floated the idea of using Singapore as a training hub for European companies, for instance, who have invested in Asian countries, as it will be more costly for them to send their Asian joint venture company employees to Europe for training.

The concept of a corporate training park is thus built around the present EDB programmes to encourage the location of corporate and business headquarters in Singapore. Indeed, one of the qualifying criteria for OHQ or BHQ status is regional training and human resource management. The idea of a training park will build institutional synergies between a number of organisations, by drawing on the academic capabilities of NTU and NUS business and engineering schools, the expertise of the PSB in training workers as well as that of the NCB for IT disciplines.

The development of training parks may have to begin as a Government initiative, just like the Science Park and the Business Park. Gradually, as the training function expands, this could be developed to a stage where parts of it could be farmed out to the private sector. But I think the Government must lead this concept right from the start.

There are three key benefits that will accrue to Singapore and Singapore-based companies:

First, the most direct benefit is the enhancement of Singapore's attraction as a location for regional headquarters and other regional operations. It would be more attractive for a company to locate specialist operational and service departments here because the staff in these departments would be available to train counterparts from other countries in the region.

Secondly, if global companies, who invest in the region or Asia-Pacific, train their staff in Singapore, it will provide Singaporeans tremendous opportunities for networking with these executives who come from all over the world, and this will become a great asset for Singaporeans and Singapore-based companies.

Thirdly, the existence of a corporate training park will also improve our formal training institutions and R&D establishments. Visiting instructors for these programmes will frequently be top-notch experts and it will not be difficult to imagine some joint projects between programmes in the training park and our universities and other institutes.

Sir, the concept of regional corporate training parks was conceived by the GPC for National Development. A concept paper has been developed with the main inputs from Mr Chow Kok Fong and Dr Ho Kong Chong, both of whom are resource panel members. The GPC Chairman for MND, Mr Leong Horn Kee, will elaborate further on this concept from the point of land use when the Committee of Supply examines MND's budget.

Sir, I would like to urge the Government to give serious thought to this important proposal.

Mr Lim Swee Say (Tanjong Pagar): Sir, manufacturing today is the largest sector in our economy. It accounts for more than 24% of our GDP and more than 23% of employment in 1996. It also contributes directly and indirectly to various services sectors, such as transportation, communications, logistics, warehousing, finance, banking and so on.

Sir, as we move forward to become a developed economy, I feel it is important that we continue to grow and to strengthen the manufacturing sector as a key pillar of our economy. However, because 75% of investments into manufacturing comes from foreign direct investment, I feel it is very important that we pay special attention to build new and better capabilities all the time in order to remain competitive. Sir, I would therefore like to ask the Minister how committed are we to sustain the growth of manufacturing in the Singapore economy, and what are our strategies to enhance our long term competitiveness in manufacturing.

Sir, I will move on to the topic of growth of local enterprises. There are 90,000 SMEs in our economy. They operate in a highly competitive and very challenging environment, because our domestic market is small, labour market is very tight, business cost is high and, at the same time, there are many international companies operating in our open market.

Sir, I feel that one of the best ways of helping our SMEs is to help them to grow bigger. For the promising ones, we should help them to grow into promising SMEs. For the promising SMEs, we should help them to grow into promising local enterprises. And then some of them eventually into Asian SMEs. I would therefore like to ask the Minister what is the current status of nurturing SMEs into promising SMEs and promising local enterprises. What are our near term targets? Is there any additional assistance the promising SMEs and the promising local enterprises can look forward to in the coming years?

As for the SMEs in general, I feel that one way of helping them is to restructure some of the domestic sectors to help enhance their overall productivity and performance. Therefore, besides helping individual companies to make incremental improvement at the company level, I feel that the Ministry may want to consider setting up an Economic Restructuring Assistance Scheme (ERAS) to help some of the domestic sectors to gain quantum improvement through business re-engineering and technology deployment at the sectoral level. I believe this is the best way of revitalising these domestic sectors for more sustainable growth in the future.

Mr Inderjit Singh: Sir, for the past 30 years, our economy has been fuelled mainly by foreign multi-national companies. During this period, many of our local professionals and workers have picked up useful skills that in effect allow a 100% local team to fully manage a company or an operation in Singapore and also in the region. Our people have the capability to start up and grow companies, especially in the high technology area which includes electronics, semiconductors, information technology and others.

Unfortunately, unlike the other newly industrialised economies or tigers like Hong Kong, Taiwan and South Korea, in Singapore, we do not have a significant number of entrepreneurs, especially technopreneurs. If you look at Taiwan, there are many such technopreneurs who have contributed very valuably to the growth of their industries and economy. The real issue is that we have not developed a conducive environment where technopreneurs are encouraged to come forward to embark on start-ups. Nor do we have a strong group of technology investors who are willing to take on high-risk projects.

I would like to ask the Minister if he would consider setting up a unit that would help develop and create an environment for technopreneurs and entrepreneurs to mushroom and perhaps assist such people with funds to start up companies. I also would like to ask the Minister if the Ministry would consider setting up a consortium of local-based multi-nationals who can develop strategies and technologies that can help them launch our local companies in the international arena. This should be funded partly by the Government and partly by the private sector. The model that exists for us is called Samatec, which exists in the USA, and Samatec has been very useful in allowing the American industry to regain the lead in a number of areas which they lost to the Japanese in the 1980s. 4.30 pm

Mr Lew Syn Pau: Today, too many of our workers work for multinational companies or foreign firms. I do not have the exact figures available, but I suspect it is a large proportion. Perhaps the Ministry may be able to give us the figures. We know today that the MNCs are in Singapore not because they love us, but because of the profit motive. When things turn sour in a crisis, for example, whether they will stay in Singapore is very debatable. The ones who will stay will probably be the SMEs because they are all Singaporeans. I touch upon the sentiments of the SMEs earlier when I talked about the role of GLCs in business. They feel the crowding-out effect by the GLCs when the latter diversify into all kinds of businesses that traditionally are their turf. They would also like to have more support from GLCs in their regionalisation drive. Perhaps, as mentioned earlier, the GLCs could invite some SMEs, not just large local companies like the Hong Leongs and the Thakrals, but also SMEs, when they look for joint ventures overseas.

I acknowledge that there are already incentives available at EDB to help SMEs. As more emphasis on creative thinking and entrepreneurship is given today, more and more Singaporeans desire to set up their own private enterprises. The Government should encourage such drive and nurture them as they can become the home-grown MNCs of the future, like what we have today, Creative Technology and IPC. Can the Minister review the incentive schemes for SMEs to help them to grow to become Singapore MNCs?

Mr Inderjit Singh: Sir, many of our local companies, especially the small and medium enterprises, were expecting some special help from the Government during this tough and rough period of our economy and, in particular, in the manufacturing and supporting industries. The signal that this important sector of our economy is getting is that they are being discouraged from continuing to do manufacturing in Singapore while the Government is focusing on large foreign multinationals. While there are a number of schemes already available to help local companies and SMEs, there are a number of problems that have yet to be resolved to aid such companies. I would like to ask the Minister the following questions:

Why is it very difficult for local companies, especially the SMEs, to process and get their applications for the various incentive schemes to be approved? It appears that the playing field is not level for local companies, especially SMEs, as compared to MNCs, which get their applications easily approved. Can the Ministry further simplify the procedures to make it easier to process applications for such companies? Can SMEs be allowed a special budget from the Skills Development Fund for staff training to upgrade their skill level and the value-added content of their industry? These include claims for management and the executives of these companies. Can the Government allocate a special soft loan fund from which SMEs can tap into to help them go regional? Could the Ministry also relook at the automation grants available for local companies to increase the quantum to make it more attractive for them to apply?

Mr K. Shanmugam (Sembawang): Sir, much has been said about the Budget and whether it is adequate to help businesses, in particular the SMEs, in the present economic environment. The Minister for Finance has reiterated his views. I would, however, ask that the MTI reconsider the situation closely. To be blunt, Sir, as we sometimes have to be, there is a growing feeling in the private sector that there is an ever-widening gulf between the policy makers and the private sector, a gulf between the effect of the policies and the needs of business.

Sir, when my GPC met with representatives of the business sector, we came away with the feeling that many in the businesses believed that it is extremely difficult to change policies which have been announced. In this context, it is important to remember a few things: (1) First, and ultimately, it is not the Government that creates wealth. The private sector does. We must not forget that. (2) A vibrant and successful private sector economy is the very cornerstone of our survival. (3) Therefore, it is the duty of the Government to make sure that the business environment is created in the best possible manner for the private sector to thrive. (4) The relationship between the private sector and the Government cannot be like that as between a supplicant and the granter of privileges. The Minister should be aware that regardless of his undoubted good intentions and that of his officials, many in the business sector feels that they are perceived like spoilt children asking for more. I have no doubt that that is not the impression that is intended to be given. It might, therefore, be useful if more steps are taken to give the true picture.

Sir, with these points in mind, let us turn to the business concerns that have been raised over the last few years. They have remained the same. Many MPs have spoken about them. Business itself has given feedback to the Government. What has the reaction been? I can pick any number of examples. Let me take one. We do not allow consolidation of accounts of group companies for tax purposes. MNCs can get by with various alternative accounting treatments. SMEs, however, will bear the brunt of this policy. In particular, SMEs which go regional, suffer because their regional subsidiaries and associate companies will usually, during the start-up stage, suffer losses while their Singapore companies will make money. This request has been made and rejected on the grounds that it could lead to abuse. With respect, Sir, that appears to be not a good enough reason. The issue should be whether the request was reasonable or unreasonable. I would suggest that it is an eminently reasonable request. Other countries allow such consolidation. If we accept that the request is reasonable, then the fact that allowing such consolidation could lead to abuse in some cases should not be a reason for rejecting the request altogether. Allowing such consolidation will help SMEs regionalise. The Government is here to find a way around the abuse. Government policies cannot be designed simply to prevent abuse. They must have a positive focus to help create the environment.

I raise this with the Minister for Trade and Industry only as an illustration and in the hope that his Competitiveness Committee will take a fresh, long and hard look at the issues that have been raised, bearing in mind the particular needs and vulnerabilities of SMEs. Any statement by him to that effect will undoubtedly greatly cheer the business community. When that review is being done, I also ask the Minister to bear in mind that our much wanted reputation for being business-friendly is now often questioned. When the review has been done, let us be frank with the business community. Every business sector wants more help, more foreign workers, reduction in Government-imposed costs and so on. If the Government decides that all or some of these demands cannot be met, because of other policy considerations and imperatives, then I ask that we take serious steps to try and reduce the gap between business expectation and reality. Give the business people a clear framework so that they can decide which will become sunset industries as a result of Government policies and when we do that, let us bear in mind that business people are usually much better placed than the Government in picking sunrise industries.

Mr Ahmad Mohd Magad (Pasir Ris): Sir, it is laudable to note that we have a host of assistance schemes and programmes that the Government has made available to SMEs, as clarified by the Finance Minister, Dr Richard Hu, during the Budget debate yesterday. However, based on feedback from industry associations and employer groups visited by the GPC for Finance and Trade and Industry, of which I am also a member, many SMEs appear to be still unaware of the existence of certain schemes that they can take advantage of.

Sir, in view of the large number of such schemes available for SMEs to tap and also in consideration of their lack of awareness of many such schemes, would the Government consider a re-launch of the public education programme in the media, preferably utilising the official languages, to educate SMEs of the various assistance programmes that they can benefit from? Would the Government also consider identifying and reaching out directly to promising SMEs and, for that matter, PLEs, to assist them in their business through the availability of such assistance schemes?

My next question is identical to what my colleague, Mr Inderjit Singh, has raised earlier on. I shall therefore not repeat it.

[Mr Deputy Speaker in the Chair]

4.42 pm

Mr Ahmad Mohd Magad (Pasir Ris): Sir, I now move on to the issue of manpower development. With Singapore now expecting to accelerate its restructuring momentum to move into the innovation- driven phase of our economic development, the economy will demand for greater qualitative improvements to come from the efficient and optimal use of labour and capital. To successfully manage the transition from a labour-driven and investment-driven economy to a full-blown innovation-driven phase, the issue of effective utilisation of labour, among several others, must be efficiently addressed.

Again, as several of my MP colleagues have raised during the Budget debate over the past two days, a major problem we have is the large pool of workers with less than secondary education. I am very concerned, Sir, that these workers face the prospect of being displaced from our economy as our restructuring momentum accelerates.

Sir, I would appreciate it if the Minister could enlighten us of the measures that are being taken or will be taken to adequately prepare our workforce in order to minimise and preferably prevent this from happening. Secondly, Sir, are there measures in place to ensure that the pace of our restructuring programme is in tandem with our workforce's ability to cope?

Mr Lim Swee Say: Sir, this morning on the way to work I was inspired by a song over the radio. It is a song by Electric Light Orchestra (ELO). The title of the song is "Hold on tight to your dream". At the end of the song, the DJ, Joo Kim's voice came over. She said, "I wish all of you out there will hold on tight to your dream and live your dream every day, and may today be the day that will bring you one day closer to your dream." Mr Deputy Speaker, Sir, please allow me to touch on one of the very important dreams of the labour MPs in this House, which is the life long employability of our workers.

Over the last two days, several MPs have spoken on the need to upgrade and update the skills of the workers, especially the mature and the under-educated workers. We were reassured by the Minister for Finance in his speech yesterday that the Government is already spending more on workers' training through new programmes such as the TCPT, SRP and back-to-work. Even so, I am still very concerned by the real possibility of structural unemployment happening in Singapore.

This is because, on the one hand, the pace of restructuring in our economy is moving very fast.

Last year, the rate of retrenchment had reached a 10-year high of almost 11,000 workers. And there is no sign at all that this pace of restructuring will slow down in the coming years. At the same time, new jobs that are being created in the economy now tend to be more technology-driven, skill-intensive and capital-intensive. Yet, on the other hand, we have a large number of workers who have less than secondary education and our workforce is aging. In addition to that, we have an abundant supply of unskilled workers in the region. The wage level of our unskilled workers in Singapore will be kept low. The only way for our workers to earn better wages in the future is for them to upgrade their skills so that they can take on higher value-added jobs and enjoy higher salaries.

I would therefore like to ask the Minister whether the Government will take another major step forward to increase our investment in the not-so-young workers to enhance their employability so that they can live a better life in the 21st century. As an idea, I hope the Minister will examine the need to set up a Skills Redevelopment Fund (SRF) to complement the existing Skills Development Fund (SDF). The SRF can be funded by the Government with the specific purpose of helping mature workers with less than NTC-2 qualification to gain post-secondary skills certification that is recognised at the national and industry levels. If we start with an initial fund of $200 million, I believe we will be able to support 40,000 to 50,000 workers and help them stay employable and live a better life in the 21st century.

Sir, I now move on to the topic on optimising the use of water and industrial land.

Water and industrial land are both scarce resources in Singapore. Industry uses account for a fairly sizeable portion of our daily consumption of water. I would like to ask the Minister what is the current level of water recycling in the industry. Has the Ministry set itself any target level for recycling in the industry? Would the Ministry consider introducing new incentives to encourage more water recycling in the industry, bearing in mind that the opportunity cost of not recycling water has gone up by eight times now that we intend to try out desalination soon.

Industrial land is of limited supply in Singapore. I would like to ask the Minister what proportion of the industrial land in Singapore has achieved a reasonably high plot ratio of, say, between 2 and 2.5. I believe the Ministry of National Development has introduced 50% discount in development charges to encourage more intensive development of industrial land. Would MTI consider exploring the possibility of offering 50% discount in differential premium as well with the Land Office, to encourage more intensive development of industrial land in Singapore?

Mr Goh Choon Kang (Marine Parade): Sir, there are good and sound arguments for upping the water tariffs and also water conservation tax. To cushion the impact of the lower income group, the Government has decided to grant rebates. However, I think there are also legitimate grouses and misgivings on the ground. Again, the Government has resorted to pricing mechanism to solve problems and maybe to drive home the point that water is precious and a strategic resource. It gives the impression that the educational approach has been discounted right from the beginning. I feel that a golden opportunity has been lost, and that is, the opportunity to embark on a national educational campaign before the pricing mechanism was used. But, Sir, better late than never. MTI can still work with MOE to start an educational campaign on the importance of water and the need to conserve water. Of course, campaigns alone would not be enough, and I think the subject of water should be made part of the National Education programme so that our students can fully appreciate our national limitation.

Dr Ho Tat Kin (Bishan-Toa Payoh): Sir, come 1st January 2000, all computers will be affected by what is commonly known as the "millennium bug" or the "Year 2000 Problem", as we call it in the IT industry. This problem, if not resolved, would create havoc on all our computer systems. This problem is caused by computer chips embedded in all computers, from mainframes to PCs, to all electronic equipment and devices which use chips to keep time.

In the old days when computer memory space was limited and expensive, programmers used only two digits to capture the year. 1997 is stored in the computer with two digits "97". The result is that in the first second of a new century, the computer will not be able to understand that the two digits "00" stand for the year 2000, but instead read it as "1900" and change all programs accordingly. The result will be chaos, especially in the banking and the financial markets. For example, Sir, a time-locked bank vault that has been pre-programmed to open only on Mondays, which is normally a working day, would open by itself on Saturday, 1st January 2000, when the bank is not working. This is because the computer would interpret that day as 1st January 1900, which was a Monday.

Sir, this "Year 2000 Problem" is not just an IT problem but also a business problem, a manufacturing problem and a consumer problem. It is the most serious technical and operational problem confronting business today and the solution has a deadline that cannot be extended. It is a time bomb waiting for midnight, 31st December 1999.

The "Year 2000 Problem" will be one of the most expensive problems in human history. In the United States, which is most advanced in dealing with this problem, it was estimated that the US organisations will spend US$71 billion to make the application Year 2000 compliant. In the United Kingdom, it was estimated only 10% of British companies have programs in place to tackle this problem. It was also estimated that the cost to defuse this bomb will come to an amount of o13 billion.

Recent surveys conducted in Singapore by the Singapore Federation of Computer Industry suggest that more than 60% of the respondents would be affected in the year 2000 conversion. We do not have to wait for the year 2000, Sir, to see the problem taking effect. Several cases have been reported. One of the British gas trading computer systems crashed when they tried to enter a customer's five-year payment plan as the system could not cope with any year beyond 1999. In another case, in Kansas, USA, a 104-year old lady was issued a computerised instruction to report for kindergarten.

Sir, while the National Computer Board has been doing a good job in leading the Government and statutory boards in solving this problem, the private sector needs a lot of help from the Government to solve this problem. I strongly urge the Government to set up a Year 2000 Task Force. There is a need to inform, to educate and to raise awareness of the problem and to assist computerised organisations to tackle this issue. The British Department of Trade and Industry has issued a six-volume guide advising business people and the computer professionals how to prepare for this crisis. I would like to ask the Minister what measures will be taken to help IT installations to solve this problem. I would also like to ask the Minister to provide grants and financial assistance to assist IT installations and set a deadline by which all computer software and hardware must be Year 2000 compliant.

Sir, the millennium time bomb is now a crisis. This problem has to be solved or software errors in financial, taxation, insurance, hospitals and aircraft operations will lead to some of the most expensive litigations in human history.

Mr Kenneth Chen Koon Lap (Hong Kah): Sir, as Singaporeans embark onto the age of information technology, the significance of the Internet is spreading rapidly. This powerful and fast growing arena is becoming as common as the media, TV or radio. At present, pornography as well as other undesirable and subversive materials are banned on TV and from the news-stands. Offensive and misleading advertisements on goods and services are being somewhat regulated. For example, the recent advertisement selling apparels using models which resemble drug addicts has been taken off from all publications. But the intrinsic nature of the Internet is that of self-expression. An infinite number of websites and even individual Home pages contain opportunity for self and for groups to express their own personal beliefs and philosophies. The same opportunity is open for unscrupulous dealers to peddle questionable goods freely. Even groups that are outlawed in Singapore such as religious cults, racist associations like the White Supremacists, product associations and other fanatics can, and do, possess their own websites. In their websites, they are able to announce and promote whatever views they like and attempt to sell anything they want.

The most obvious of these negative and harmful organisations are screened out by the relevant authorities. But the complexity of the Web is that it would be impossible to identify each and every single illegal site. I want to know to what extent can the Government prevent these groups from corrupting the moral well-being of our youth and our unsuspecting consumers. How do we avoid advertisements for banned goods like drugs, pornographic materials or even explosives on the Internet?

Overseas mail order is readily available and also gaining popularity in Singapore. What is to stop certain individuals from placing an order for a supply of drugs, for example, Ecstasy, or even banned medicine from dealers who supply them via the Internet? Finally, by what means can the Government shield the average Singaporean from unscrupulous sales persons who peddle bogus or defective wares and services through the Internet? Consumer awareness groups, such as CASE, guard Singaporeans against being taken advantage of by the local businesses. But what about Singaporeans who get swindled over the Internet by a dealer who operates outside our local jurisdiction? I hope to have the Minister's response.

The Minister for Trade and Industry (Mr Lee Yock Suan): Sir, I wish to thank all the Members who have spoken, for their views and feedback. May I first start by assuring all of them that my Ministry will give their views very careful consideration.

Several Members have raised concerns about rising business costs in Singapore and asked what the Government can do to help. The increase in business costs is essentially a reflection of Singapore's fundamental resource constraints and the fact that actual growth in recent years has been higher than our potential growth. Our medium-term growth potential is estimated to be 7% per annum. Actual growth between 1990 and 1996 was 8.3% per annum. The difference is showing up in rising costs.

As a general principle, we should not artificially suppress cost increases because these would have the effect of inducing even more demand and causing even greater pressure on limited resources. Pricing of factors of production is best left to the market as much as possible. However, the Government is fully aware of the need to ensure that the rate of increase in our business cost does not outpace improvements in our productivity and capability levels. Otherwise, our international competitiveness will be eroded over time. So while we adopt the general policy of market pricing, the Government closely monitors our business cost levels and will not hesitate to help moderate increases, where necessary.

Our businessmen are generally most concerned about cost increases in the two key areas of production, namely, labour and land. Where labour costs are concerned, the Government has relaxed the foreign worker policy since 1994 to allow employers in both the manufacturing and services sectors to bring in more foreign workers. On 1st June this year, the second tier foreign worker levy for manufacturing workers was reduced from $450 to $400 per month and the first tier dependency ceiling was raised from 35% to 40%.

The National Wages Council has recommended wage moderation in 1997 and the public sector wage increase was settled at a lower rate of 4.5% this year.

To ameliorate pressures on land cost Government has been releasing more industrial land for tender in recent years. This has moderated tender prices since last year. This month, JTC has again frozen or reduced posted land rentals by an average of 16%. The posted rents for standard factories, flatted factories, workshops and warehouses have also remained largely unchanged. 5.00 pm

To help businesses in general, the Government has reduced income tax and property tax significantly over the past five years. MTI will continue to monitor the situation closely and recommend further adjustments, if and when necessary. We should remember, however, that business costs are only half of the competitiveness equation and will continue to reflect Singapore's basic resource constraints. We will also need to focus on the capability factors and constantly upgrade the productivity of our workers and companies so as to sustain our economic competitiveness.

Let me now respond to some of the specific questions raised by various Members on this issue. Mr Lew Syn Pau has asked whether there is overall coordination of all these cost increases, rentals, and so forth. My Ministry is carefully monitoring all these areas. We have the Department of Statistics which measures the impact of all these increases on the cost of living, the Consumer Price Index, and so on. Of course, when different Ministries want to raise prices and fees, they have to get approval from the Cabinet. So there is overall coordination. My Ministry will continue to perform that role together with the Ministry of Finance.

Mr Inderjit Singh asked quite a few questions. He asked whether JTC can further reduce rentals. The answer is that we have to monitor and see. The recent release of trade figures shows that in fact, in June, the exports of non-oil products have gone up sharply by about 8.8%, if I remember correctly. So we think that there are indications that recovery is on the way. One of the reasons why the local businesses and other businesses are suffering is because of the slowdown in the electronics sector. We think the recovery in that sector has started but we can only be sure after a few more months.

Mr Singh also asked whether we can have strategic land pricing to enable companies to compete. This is something which we will have to study carefully. In fact, for certain industries which we are promoting actively, we have already gone out of our way to help them get land at competitive prices. Of course, for this area to be effective, we must be selective in the kind of companies and projects that we support.

Mr Singh also asked whether there can be a one-off tax rebate for companies, just like for individuals. This is an issue for the Ministry of Finance to consider. But I think the answer from the Minister for Finance will probably be no, because our tax rate is already very competitive.

Can the Government freeze levies and charges over the next two years? Again, we have to wait and see. If the economy recovers and in fact things are back to normal again, I am not sure whether we should take drastic action. The situation now is very different from the situation in 1985, when owing to a confluence of several factors, high wage policy, high CPF, over-emphasis on construction, and so on, the economy really slowed down and we lost our competitiveness.

The current situation is quite different. We are expecting a growth rate of 5%-7% this year and for an economy like Singapore, this is actually quite a good rate. Although for the manufacturing sector, because of the electronics slowdown and also because of the over-capacity in the retail sector, these are two areas where industries and businesses are feeling the impact of a slowdown. But if you look at the other sectors, financial services, the transportation sector, construction sector, they are all still doing all right. So there is no reason for us to take drastic measures at this point in time.

Of course, we should monitor and do what we need and this is what the Committee on Competitiveness which I am chairing will be looking at, how to ensure the long-term competitiveness of Singapore. The solution is not just to cut costs. That is a very easy thing to do. The solution is to move our economy up to a higher level and that is the tougher direction to take. It is very easy to reduce costs but then there will be more pressures again on our limited resources. It is unavoidable that we must restructure and move our economy upwards so that, in the process, we are able to create better paying jobs for Singaporeans.

Mr Choo Wee Khiang raised various issues concerning JTC. I will answer them later when I deal with the land issue.

Next, I would like to turn to the question of small and medium enterprises. Several Members have spoken on this issue and made impassioned pleas for the Government to do more to help the small and medium enterprises. Let me assure the House that MTI is fully aware of their importance to Singapore. I have asked PSB to pay particular attention to them. We should assist wherever possible and help the promising ones to grow into larger firms capable of venturing overseas or, to use the words that were bandied about just now, to identify the promising SMEs and make them into Promising Local Enterprises (PLEs). The PSB will be concentrating on the smaller companies. There are many of them, 92,000 of them. The EDB is looking at the larger firms and we are targeting to create more and more of these home-grown domestic enterprises so that they can compete internationally.

Just some statistics to show the extent of SMEs in Singapore. If we regard SMEs as those with $15 million or less in fixed assets, or employing 200 or fewer workers, then there are about 92,000 SMEs in Singapore. They employ about 53% of the workforce in commerce, services and manufacturing but produce only 35% of the overall value-added in these sectors. So you can see from these figures that there is considerable room for improvement and this is also an area where we have to do some restructuring and improvements.

Over the years, we have built up a host of assistance programmes to help SMEs upgrade and grow. The EDB, PSB and NCB as well as other relevant agencies offer more than 60 such programmes, some of which are specially tailored for SMEs. I believe the Clerk may have distributed the Tables to hon. Members. May I refer Members to the Table which shows what we have done to help our local small businesses? Table 1 (Cols. 805 - 808) shows that the largest item is actually under the Local Enterprise Finance Scheme where the loans given out have increased steadily over the years. And last year, we lent out $590 million to 1,813 companies. Table 1 - ANNUAL GRANTS AND LOANS FOR LOCAL ENTERPRISES HAVE INCREASED (Cols. 805 - 808)

The other big area is under the Local Enterprise Technical Assistance Scheme. Last year, the quantum of grant given out was $12 million to 1,065 companies to help them hire consultants, and so forth, so that they can upgrade their technical capabilities.

If you look at Table 2 (Cols. 807 - 808), this shows the cumulative impact of all these schemes. As at March this year, a total of $4.6 billion in loans and $163 million in grants have been approved for our SMEs. This works out to an average of $820,000 in loans and $41,000 in grants per SME. As you can see from the Tables, much has been done to help our SMEs. Of course, it is natural to want more help. But I think the SMEs should avail themselves of the schemes which are available. Table 2 - CUMULATIVE GRANTS AND LOANS EXTENDED TO LOCAL ENTERPRISES (Cols. 807 - 808)

A point has been made that some of them are unaware of the schemes. Again, as you can see from Table 4 (Cols. 809 - 810), PSB has been organising various seminars and we have tried our best to reach out to as many SMEs as possible. Recently, the PSB has produced this booklet [indicating] which explains all the different schemes which are available. So if MPs are interested, we can make copies available to them. We are making this available to SMEs so that they can see what are the schemes available to help them. This booklet is in English. We will be producing one in Chinese very soon. Table 4 - EXTENSIVE EDUCATIONAL ACTIVITIES ORGANISED FOR LOCAL COMPANIES (Cols. 809 - 810)

Mr Inderjit Singh said that it seems to be more difficult for our SMEs to get approval for their applications for assistance. In fact, PSB's data show that 90% of SMEs' applications for loans and grants were approved as compared to 85% approval rate for MNCs. I do not know whether the slower rate of approval, if it is true, is due to a lack of clarity in the forms, or whatever. But I agree fully that we should help the companies as much as possible by simplifying the forms and, if need be, even to help them fill up the forms so that they can qualify for the various types of assistance.

Since April last year, PSB has raised the eligibility criteria to allow more SMEs to qualify for loans under the Local Enterprise Finance Schemes (LEFS) and grants under the Local Enterprise Technical Assistance Scheme (LETAS). PSB now shares 70% of the risk under LEFS, up from 50% previously. The Technical Assistance Scheme grant quantum has also been raised from 30% to 70% for strategic activities, for example, for automation and use of IT. And the quantum has been raised from 50% to 90% for activities with industry-wide impact. An example of this is the Woodlands relocation exercise where we have to move a group of small industries in Woodlands to make way for our wafer fab factories. PSB and JTC took the opportunity to help the affected companies to plan their factory layout, organise their production lines, and so on. So this is an example of the efforts being put in by PSB to help companies on an industry-wide basis.

Mr Lim Swee Say has suggested that we have some kind of economic restructuring scheme to help SMEs. I think this is something which the Ministry will look into and if it is a good idea, we can perhaps consider it. But the PSB itself is already doing the best it can and is working closely with EDB, JTC and others. Another example of the help given is in the area of retail trade where PSB has assisted in the formation of 46 franchises. I think the retailers must organise themselves to display their goods more effectively, make better use of space and have more interesting product lines, and franchising is one way to do this. 5.15 pm

Another interesting event coming up in November is when PSB is going to organise what is known as the ASEAN-EU Partenariat. This is to bring together some 600 companies from ASEAN and the EU to facilitate linkages and to enable them to explore business and operational collaboration. So I hope our SMEs will take advantage of this opportunity where we bring in small enterprises from overseas, from Europe, UK, Germany and elsewhere to try and get them to work together with our SMEs, either locally or even overseas, in Vietnam, China and so forth. So I think it is completely untrue to say that the Government is not doing anything for SMEs. You can see from the Tables that we are doing our utmost. Personally, I would like to see our local industries grow because we are very dependent on MNCs which can move out if our costs become too high whereas our locals will have the loyalty to stay back and grow with us. To the extent that we can build them up, we want to do our best to do so.

Next, I would like to talk about SMEs and regionalisation. There is a common line of argument that we should help our SMEs to go overseas. While the Government will continue to facilitate companies' investments overseas, they have to assess the viability of each project themselves. Companies should not rush into overseas investment just because others are doing so. This is especially true for our SMEs. As the Minister for Finance has mentioned, we have a comprehensive range of incentives, not only to help companies regionalise but also in the other areas which are mentioned in this booklet here.

For those who are going overseas, we have several schemes. One is known as the Investment Study Grant Scheme. Another is the Double Deduction for Overseas Investment Development Expenditure. These are helpful at the exploratory stage of projects and will help to defray the cost of our businesses who have to go overseas to assess the business opportunities.

Mr Lew Syn Pau has asked whether we could provide more seed money for SMEs to enable them to grow. The Government already provides support for companies in this area. Firstly, the Regional Venture Fund incentives provide income tax exemption for fund companies that support Singapore companies which go regional. Secondly, for selective regional projects with strong linkages and economic spin-offs to the Singapore domestic economy, the Government is prepared to co-invest with companies through its Cluster Development Fund. So the approach the Government has taken is basically to promote the private sector, if need be with some involvement by the Government-linked companies and the Government itself to build up venture capital companies. We have given generous incentives to build up the venture capital fund industry, and these are the industries which assess the projects and the applications from the small businesses and from others who want to go overseas. I think this is probably the better approach, rather than for Government directly to assess and maybe overdo it. The main thing is that the investment should be viable and companies have to assess for themselves.

During the implementation stage, companies can also obtain various forms of Government support. Firstly, there is the Regionalisation Finance Scheme for loans to acquire fixed assets. Secondly, there is a programme called Intech Regional and another called the Regionalisation Training Scheme to help companies defray training cost for both foreign managers and workers. In fact, there are so many schemes that I have lost track of them. Maybe we should not have any more schemes from now on.

Singapore has recently joined the Multi-lateral Investment Guarantee Agency (MIGA), a subsidiary of the World Bank. MIGA provides political risk guarantees to companies from member countries for investments that could be adversely affected by non-commercial risks. 130 countries are now represented in MIGA. So this may be of interest to Members and also the public who feel that there should be a scheme to insure businesses against non-commercial risks.

Mr Inderjit Singh suggested that GLCs could consciously bring with them smaller local companies to handle smaller sub-projects. I agree fully with him and this is, in fact, the approach that has been taken. I believe it is beginning to happen on the ground. For example, Singapore Technologies (STIC) brought its core group of suppliers to Wuxi in China and paved the way for the small firms to form business tie-ups with the companies there. Very often, when the big firms move, whether they are MNCs or our own GLCs, they find it useful to bring along their supporting industries and so forth. So this is the approach we are taking.

Mr Inderjit Singh also suggested that the Government should make it easier for companies and individuals to remit overseas income back to Singapore. This is indeed the case. The EDB administers the Overseas Enterprise Incentive Scheme which provides 100% tax exemption on qualifying income from approved overseas investments. Double taxation relief is also given for the foreign tax paid on income remitted from the 34 countries that have concluded tax treaties with Singapore. For income from those countries without a tax agreement, companies can apply on a case-by-case basis for unilateral tax credits or for tax exemption under section 13(10) of the Income Tax Act.

Mr Singh also suggested tax rebates for families to defray the higher cost of education for their children overseas. This is something which I will refer to the Ministries of Finance and Education to consider.

Mr Shanmugam proposed in the debate on the Budget Statement and he repeated again today to strongly support the case for allowing companies going overseas to offset their losses from their overseas operations from the profits of a local operation. I think the Minister for Finance has already explained why he is not in favour. Although there are some countries which have taken this approach, there are also many other countries which are like ours and which do not have this approach. And it is a fact that the approach proposed by Mr Shanmugam does give rise to loopholes for abuse or tax planning. With our system of DTAs or incentives and so forth, we already have sufficient measures to help these companies.

In addition, if the companies fear that they may lose money overseas, there is also the scheme known as the Overseas Investment Incentive Scheme which enables the companies to apply to the EDB to offset the losses that arise from the liquidation of approved overseas investments against their domestic income. The point is that they must go in and they will, of course, incur losses in the initial years. This is normal for any business. They would then make profits if their calculations are right and the market turns out to be right. But if their forecast and expectations are not fulfilled and they do suffer losses, they can apply for this scheme to insure themselves in the event of having to wind up the operations.

I will next turn to the question of the manufacturing sector. I agree with Mr Lim Swee Say that manufacturing is a very important component of our economy, and we have no intention of doing anything to reduce its importance or its share in our GDP. Some people think that because Hong Kong has moved a lot of its labour-intensive operations to China such that manufacturing is now only about 9% of its GDP, therefore, we should move in the same way. But they forget that Hong Kong is servicing the huge Chinese market, in terms of transportation and services.

Singapore is different. We have developed differently. We have, over the years, built up an important industrial base and we are constantly upgrading this base. So what we should do is to go for high value-added activities, whether it is in manufacturing or in services. And very often, in fact, these two areas are interlinked. Successful manufacturing projects create a demand for transportation, insurance, finance, computer services and so on. So we should consciously try and promote high value-added activities in all the different areas.

Although the Budget does not have specific incentives for the manufacturing sector, as the Minister for Finance has explained, in fact, the schemes available are already very generous, I think amongst the most generous in the world, in terms of the kind of tax holidays we are able to offer, either as pioneer status or as development and expansion incentives, maybe going up to 20 years of tax holiday. We also have various forms of grants to support the R&D efforts, manpower training and so forth. We also have what is known as the Economic Development Assistance Scheme Fund where the total fund is now $1.3 billion in grants and $3.3 billion in loans. So we have enormous resources dedicated for the promotion of the manufacturing sector.

Members may also recall that we have set aside $4 billion to promote R&D. Here again, this is a big sum which we could tap over the next five years to promote R&D and build up our technical capabilities. I can run through many other schemes. We have the Innovation Development Scheme of $500 million to promote innovation. We have the Cluster Development Fund which has increased from $1 billion to $2 billion. As I said, we have so many schemes that it is strange to hear people say that we are not doing enough for our businesses. I think it is not without reason that regularly the international rating organisations worldwide have ranked Singapore as one of the best places to do business. Of course, we must watch our costs. The whole purpose of development is to have high wages, better profits. So costs will go up. But whether we can raise our productivity so that we can justify those costs, that is the question. The approach is not to cut costs. This is easy to do. But in the end, we will all be poorer.

Next, on the question of land. I would like to inform Members that JTC has drawn up a comprehensive plan to intensify land use. One of the items of this plan is the en bloc redevelopment scheme, which the Minister for Finance alluded to. This applies to areas which are under utilised, the older estates, where JTC will go in and negotiate with the lessees to buy back the land so that it can be redeveloped. And we will also help them to relocate to areas where land can be built up more intensively. For example, you may have noticed that now we even build standard factories on several levels, with ramps going up so that heavy vehicles can access the higher levels. So these are examples of land intensification.

On 5th August, I will be performing the ground breaking ceremony for JTC's new headquarters and I will be providing more details of the various schemes under the overall plan.

Mr Choo Wee Khiang mentioned the case of JTC and the problem of one company in terms of subletting. JTC does allow its lessees, who are currently under- utilising land, to redevelop their facilities to achieve higher plot ratios. In fact, under the new comprehensive plan, incentives will be provided, eg, in terms of allowing higher subletting and so on, to encourage companies which have big plots of land which are under-utilised to develop the land. Of course, if they do not need so much land, they could return some of the land back to Government as part of the exchange. What we do not want to see happen is for companies to speculate on Government industrial land. Our industrial land tends to be priced lower than market. So there is incentive for companies to ask for more land than they need, and then to sublet. JTC has, in fact, been very liberal with subletting. Of course, they must control. But the extent of subletting is, to my mind, a bit excessive in some areas. So we have to have a check and balance. The question is: how to optimise land use through allowing companies to redevelop, subletting and so on?

We have also allowed new uses like business parks to develop, where it is not only manufacturing but it can also be office services, training, R&D and so on. So mixed use areas have been designated in Jurong and Changi. Training can also be done in those areas.

Mr Lim Swee Say brought up the question about differential premium and development charge pertaining to land use and land development. I understand this issue has been raised before with the Ministries of Law and National Development. My Ministry supports the overall intent of maximising land utilisation and will work with the two Ministries to review Mr Lim's suggestion. 5.30 pm

Next, on the question of water. Lim Swee Say has asked what more can be done to encourage recycling and conservation of water. There is this Investment Allowance Scheme which currently allows up to 50% of the fixed investment to be offset against the company's taxable income. This is over and above the normal allowances. We will monitor the situation. If need be, we can allow a higher percentage. We also have various financing schemes to help them in the purchase of equipment for recycling. It is important for PUB and EDB to take a proactive approach in terms of conserving water. They should talk to the industrialists at the inception stage to see how to design the process to make more use of, for example, industrial water or sea water for cooling. Take, for example, the heavy industries like petroleum and petrochemicals which use a lot of water, several millions gallons per day, for cooling purposes for their processes. So where it is possible to substitute the water with, say, sea water, we should encourage them to do so. There are other cases like wafer fabrication where the companies need a lot of fresh water for cleaning purposes and so on. The question is whether we can recycle that water because water is very precious to us.

I agree with Mr Goh Choon Kang that we should not just use the price mechanism. We should also educate the public about the importance of water and this is in fact being done. The PUB has a comprehensive programme to work with the schools to teach the young children so that they will conserve water. I agree with him fully that the importance of water should be part of our National Education. I do not want to go into the details today about all the various PUB programmes. I have seen the list and I think PUB is really trying its best to reach out to the public to drive home the message of the importance of conserving water. But sometimes it is useful to also hit them in the pocket and they will take note and save water. In the past, whenever we have campaigns, they did not work very well. So if we raise the tariffs they will cut down water for a while, but they will go back again. This time round we have to do something really forceful and cost will go up by a factor of three, from something like 50 cents per cubic metre to $1.50 for the lower blocks. Whilst we need to help the lower income groups, we need also to have the tariff impact to make people realise that it will cost them to use water.

Mr Kenneth Chen has raised the issue of Internet commerce and its impact on public morale and so on. It is a very complicated and new field. In fact, it was a problem of where to put this cut because it covers so many Ministries, whether it should be under the Ministry of Information and the Arts or Ministry of Trade and Industry or Ministry of Law, because it involves legal matters. It ended up in my lap and I am asked to respond.

In terms of the commercial areas, NCB is working closely to look at the technical aspects to see how we can make transactions more secure. For example, with the recent launch of the digital signatures, digital certificates and so on, when you deal with somebody over the Net, you are sure that that person is a bona fide person. There is a committee comprising different Ministries to look into the overall question of Internet commerce. This Committee is known as the Electronic Commerce Policy Committee and is chaired by MAS involving EDB, NCB and many other people. There are also sub-committees to look into the legal aspects as well as the trade and commerce aspects. As far as MTI is concerned, a lot is being done.

As regards the other areas about censorship and so on, perhaps MITA can comment when it is their turn to reply. But I understand that they are taking the approach that where it impacts a large number of people, then MITA is more careful. But it is not practical to try and look into every web page. There is a certain amount of risk there. Singaporeans will have to learn and be selective on what they view.

Time is running out. So I do not want to take up too much time. I am asking my Senior Parliamentary Secretary to take some of the questions. If there are some questions unanswered, let me know and I will come back to them later.

The Senior Parliamentary Secretary to the Minister for Trade and Industry (Mr Tang Guan Seng): Sir, I will address other points made by Members. The issue of manpower and training has been brought up by Mr Inderjit Singh, Mr Ahmad Magad and Mr Lim Swee Say. I would like to reiterate that manpower training is high on the Government's agenda. With increasing competition, it is vital for our workers to continue to upgrade their skills and capabilities so as to meet the challenges ahead. If workers do not keep up with new technologies, they may lose their job one day.

Sir, we are investing more in the training of our workers. The SDF grants committed to training have grown to $68 million in 1996. The number of training places supported by SDF has increased to 480,000 in 1996. This works out to about one training place for every four workers. On the other hand, our companies' investment in training has increased from 2% of the payroll in 1992 to 3.6% in 1996. This is close to our target of 4% and compares well with other countries such as Japan and the United States. There are a number of programmes to upgrade our workers' skills. Let me give a few examples. In 1993, PSB launched the On-the-Job Training 2000 Plan. This is a structured and systematic programme to help workers acquire critical skills on-the-job. The number of workers trained under this programme has grown rapidly at an average rate of 80% per year since its launch. As at 31st March 1997, about 130,000 training places have been created in about 3,800 companies. This surpasses PSB's original target of reaching 100,000 places by the year 2000. Now PSB has set a new target of training half a million workers through this programme by the year 2005.

Mr Inderjit Singh asked if SDF's guidelines could be changed to allow more workers to be trained. This was in fact implemented last year with the amendment of the Skills Development Levy Act. It widened SDF beneficiaries to include the self-employed and re-entrants to the workforce such as housewives and retirees. This allows an additional one million Singaporeans, equivalent to more than half of our workforce, to apply for training support. They may apply through self-help groups such as CDAC, MENDAKI and other organisations such as the NTUC.

Several new training and upgrading programmes were also launched in 1996. These included the Back-to-Work Programme. This is jointly organised by the Ministry of Labour, PSB, NTUC and Singapore National Employers' Federation in September 1996. The aim is to prepare economically inactive persons to return to the workforce. 2,500 persons responded to the programme so far. Among them, 43% were married females in the 30-54 age group and 16% were retrenched workers. So far, about 550 jobs were matched.

The second programme is the Skills Redevelopment Programme. This was launched in December 1996 by NTUC to equip the lower educated workers with relevant skills to enhance their employability. EDB and PSB supported this $9 million training programme. To-date, 10 electronics companies have submitted plans to train 1,500 workers.

The third scheme is the Total Company Training Plan. This was initiated in October 1996 to encourage companies to adopt a total and systematic approach to train their staff. PSB has so far approved 54 training plans.

Mr Ahmad Magad and Mr Lim Swee Say have enquired about the training of older and less educated workers to avoid structural unemployment. SDF has made progress and is reaching out to older workers. Let me refer the House to Table 1 (Cols. 811 - 812) which was distributed just now. About 13% of the workers above 40 years old received SDF support in 1996, up from 6% in 1992. On the training of the lower educated workers with below secondary qualifications, please refer to Table 2 (Cols. 813 - 814). It shows that while the share of such workers trained through SDF has remained constant in the last two years, the number of training places supported by SDF has gone up by 10% to 162,000. Table 1 & 2 - WORKERS' TRAINING (Cols. 811 - 814)

Industrial restructuring is an inevitable process for the economy to progress. There is a risk of structural unemployment but this can be minimised in two ways. First, the Government will assist retrenched workers to get new jobs and to provide them with new skills. The Back-to-Work programme that I mentioned just now is one of such schemes. Second, and more importantly, we will sustain continuing education and training programmes for our workers in order to make them more adaptable to changing skills requirements. Besides the NTUC's Skills Redevelopment Programme, PSB has also been providing the Core Skills for Effectiveness and Changes Training Programme (COSEC) since 1986 to equip workers with knowledge in core areas such as communication, problem solving and IT. SDF also supports a wide range of skills training programmes for workers, including programmes such as BEST, WISE, MOST and FAST FORWARD to upgrade the educational level of our workers. I strongly urge our workers to take full advantage of these educational training programmes to upgrade themselves.

Sir, Mr Ahmad Magad asked if the pace of restructuring is in tandem with our workers' ability to cope. I believe it is. The fact that retrenched workers do not take long to find alternative employment proves this. PSB is currently doing a national manpower plan to project the economic manpower skills requirements in the next three years. The exercise will help estimate the skills that are needed in the economy and specific groups of workers that require training in such skills. PSB's target is to identify the critical skills requirements by early next year.

Mr Lim Swee Say has suggested the setting up of a Skills Redevelopment Fund. My Ministry welcomes any proposal to maximise our human resource. So we will look into his proposal, maybe together with the Ministry of Labour and the Ministry of Finance.

The Government will continue to promote and support workers' training. Our workers themselves must also see the need to train and retrain. Jobs are easily available in today's tight labour market. Many workers do not see the urgency and need for training. This is a wrong attitude to take as the situation in the job market can change rapidly. 5.45 pm

Mr Sinnakaruppan has proposed the setting up of a regional corporate training park to support training activities in Singapore. Sir, the Government encourages MNCs to conduct training in Singapore. As Mr Sinnakaruppan has pointed out, overseas training activities provided by the operational headquarters in Singapore are included as part of OHQ Incentive Scheme's qualifying activities. As MNCs' training is usually company specific, they typically conduct their training within their own company's premises or in hotel function rooms. This is one of the effective ways to conduct training.

In addition, industrial training can be conducted in areas zoned for Business Park use. This allows MNCs the additional convenience of being able to integrate various operations and ancillary activities such as marketing, training, technical and administration under one roof. To-date, there has been no indicative demand for a regional training park from companies. It seems that the present arrangements are adequate. However, should such a demand arise in the future, we shall consider the proposal.

Sir, Mr Inderjit Singh has also said that it is important to create an environment for the technopreneurs and entrepreneurs to mushroom. I agree with his view and, in fact, the Government has adopted a multi-pronged approach to help develop a favourable environment for technopreneurship and entrepreneurship in technology. This approach brings together the efforts of agencies like NSTB, EDB and PSB. Working in close coordination, these agencies are able to draw on each other's resources to assist the entrepreneurs. I think this is better than to have a special unit to help them.

Under the National Science and Technology Plan 2000, the encouragement of entrepreneurship or technopreneurship has been identified as a critical thrust to further Singapore's development. The NSTB, together with PSB and EDB, has set up an innovation support system that provides support to individuals and companies. This is in the form of provision of funding technical and resources support, information resources and networking opportunities. For funding, several funding schemes are available to assist technopreneurs and innovators. These include: first, the Innovators' Assistance Scheme. This scheme provides grant to assist inventors and innovators to translate their innovations into commercialisable products and processes. The scheme has supported 26 projects over the past three years. Second is the Patent Application Fund. This scheme provides financial assistance to help defray the cost of patent application. This encourages Singapore organisations and individuals to register their innovations and inventions in order to protect their intellectual property rights. The scheme has supported more than 50 applications since the beginning of 1995.

Sir, venture funds are also available through the $100 million Technology Commercialisation Fund. This scheme helps start-up companies develop and market innovative technologies by taking an equity stake in them.

Sir, the universities, the research institutes and centres and the polytechnics are also active in setting up high-tech start-up companies with assistance from the Commercialisation Grant Scheme. These start-up companies often attract co-investment from the private sector. The scheme has to-date helped spin out 24 start-up companies and joint venture companies with industrial participation.

As for the technical and resource support, NSTB's Technopreneurs Assistance Centre provides individuals and technology-based start-up companies with support in accounting, technical, legal and management consultancy services and networking services. The Centre helps translate their ideas into commercialisable products and subsequently into business ventures. The PSB also plays a part by administering the R&D Incubators Programme that offers laboratories space and access to technological expertise, equipment and services to budding local enterprises.

The Chairman: Order. Mr Tang, how much time do you want?

Mr Tang Guan Seng: May be 2 minutes.

The Chairman: All right, I will give you 1 minute.

Mr Tang Guan Seng: Dr Ho Tat Kin has touched on the issue of millennium timebomb. He has asked if there are measures to help computerised organisations to tackle this problem. I would like to inform the House that NCB launched a Year 2000 Conversion Campaign in November 1996. The aim is to raise awareness of the problem and to drive conversion of the Government's systems. With the assistance of NCB, all Government bodies have completed a comprehensive inventory, and impact analysis of the problem. The actual conversion process has already started. Many Government bodies are also taking the opportunity to review their systems. They may decide to replace or update their existing systems as it may be more economical to do so in the long run. The target is for all Government bodies to complete their conversion by the end of 1998.

As for the private sector, NCB has implemented a number of initiatives to increase their awareness of the Year 2000 problem. NCB held seminars for the benefit of the private sector. Other Government agencies have also helped prepare the private sector to tackle the Year 2000 problem. For example ---

The Chairman: Order. I think I have given enough time to reply. There are two more amendments to move.

Mr Lew Syn Pau: Sir, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr Chay Wai Chuen (Tanjong Pagar): Sir, I beg to move,

That the sum to be allocated for Head W of the Main Estimates be reduced by $10 in respect of Code WA 1500.

Sir, I would still like to touch on retraining because I feel that it is a very important topic and that somehow the matter has not really been adequately addressed.

If you look at the Table presented by the Senior Parliamentary Secretary just now, there are about 700,000 workers with PSLE and below. If you somehow separate PSLE and below into those with a PSLE standard and those maybe without education, you can see how serious the problem is. This group of 700,000 workers are the ones that we are talking about when we talk about retraining programmes. We are not referring to the skills development training part of it which goes for training a lot of people who have already got some kind of education.

The proposal given by one of the Members of Parliament, my colleague, Mr Lim Swee Say from Tanjong Pagar GRC, on skills certification, is a step in the right direction. But this is only one part of the whole process that we need to do for retraining.

The Senior Parliamentary Secretary just now mentioned about over $60 million for the Skills Development Fund. If you look at the Budget book for last year, the sum was actually about $25 million spent. So while there is a lot of commitment, the amount spent, if I interpret the book correctly, was actually $25 million. If you work it out, it is really very low in terms of the size of our GDP which is about $100 billion.

So I urge the Government to really take a hard and deep look into this retraining scheme and to think of ways and means. It is not necessarily just a way of spending money by addressing some causes. Because I think for the large part of these people, who are in this category of 700,000, as mentioned, the classroom-type of teaching may not necessarily be the solution because they may not be numerate or literate, but they have been doing jobs in the economy all their lives. I give an example. There was this ---

The Chairman: Order. Mr Chay, do you want to speak on your next amendment?

Mr Chay Wai Chuen: I do not want to speak on the next amendment. Give me some time on this.

The Chairman: All right.

Mr Chay Wai Chuen: On this question of crane operators in PSA's new cranes, with modern technology, actually you can replace the crane operator. There is no need to have a man sitting up there, driving the crane, and there is no need to have a high-rise loo, as came out in the pictures in the press. You can actually have a woman, who can be in a room, controlling the cranes by remote control. So, in fact, what we are saying is that someone more literate, with more skills, and operating computer panels and whatever, who can actually do the job of replacing this guy on the crane up there. In fact, I was told by senior officers in PSA that such a person, who can be a female, can actually control two cranes. So the productivity is actually raised by twice. But what happens to the poor crane operator who is being displaced? So the question therefore is very serious.

I give another example to relate how such a person could be retrained, and that is with reference to an example that I saw in the SIA catering kitchen. The people who are working in the warehouse, because they have gone into automated retrieval and so on, actually spent time to hand-hold the packers and so on who were used to the forklift pickers or used to operating such mechanical devices. They actually hand held them for a few months and retrained them to operate the control panels. To do that, the company is very enlightened but must have spent a lot of labour time and labour cost for the sake of productivity and so on to retrain and guide such people. But this means that the company is actually spending a lot of cost in terms of labour time, and I think the answer to this retraining programme must be in this direction.

Mr Tang Guan Seng: Sir, the training and retraining of our workers is a challenge because of our workforce with about 40 percent below primary education. So we have to try hard. But under this tight labour market, sometimes it is not easy for them to go for training. But, anyway, I think there are a number of things that we can do. We should increase their awareness so that they would come forward to train. Even though they cannot work overtime, if they go for training, the result is that this will increase their skills and also their income at the end of the day. I think we have made progress in this area and the Government is serious in putting in more resources in getting more workers to be trained. As I said just now, under SDF, we have widened and relaxed the guidelines for more workers to come in, including housewives and retirees. As for the lower-educated workers, I think through ITE, through BEST and WISE programmes, together with NTUC, we can do more in this aspect.

Mr Chay Wai Chuen: I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The sum of $317,070,580 for Head W ordered to stand part of the Main Estimates.

The sum of $3,714,032,000 for Head W ordered to stand part of the Development Estimates.

The Chairman: Order. It is 6.00 pm.

Thereupon Mr Deputy Speaker left the Chair of the Committee and took the Chair of the House.

Mr Lee Yock Suan: Mr Deputy Speaker, Sir, I beg to report that the Committee of Supply has made progress on the Main and Development Estimates for the financial year 1997/1998, and ask leave to sit again tomorrow.

Mr Deputy Speaker: So be it.