COMMITTEE ON SINGAPORE'S COMPETITIVENESS

[Mr Speaker in the Chair]

Debate resumed.

The Minister of State for Foreign Affairs (Dr Ow Chin Hock): (In Mandarin): Mr Speaker, Sir, I support the motion in the name of the Minister for Trade and Industry.

On 31st August 1985, Mr Lim Boon Heng and I moved a motion in this House to discuss and debate the state of the economy at that time. 13 years later, we are once again debating the same kind of issues. This should serve as a reminder to Singaporeans that economic development and prosperity should not be taken for granted.

First, let me speak generally on short-term measures and long-term strategies. In this region, the present economic crisis was sparked off by a financial turmoil. It is quite natural that everyone is concerned with how to manage, regulate and supervise over the short term capital flows. But in nature and concept, capital flows and trade flows are different. Measures on capital flows, especially on speculative short-term capital flows, should not derail long-term objectives of trade liberalisation. The plan for a free trade area, whether it is in the Asia-Pacific or in ASEAN, must be persistently pushed forward for implementation as planned.

Similarly, in Singapore, the Committee on Singapore's Competitiveness (CSC) Report also covered both short-term measures and long-term strategies. But the two types of measures should not be confused and mixed together. The Straits Times editorial on 13th November mentioned that the long-term and short-term recommendations taken together may confuse the public. This is totally unnecessary. The Committee was established in May 1997 to review Singapore's economic competitiveness over the next 10 years. But two months later, in July 1997, the region was taken by surprise by a financial turmoil which turned into an economic crisis. Therefore, the CSC had to recommend short-term measures to deal with the impact of this crisis on Singapore's economy. To put it simply, even without the present regional economic crisis, we should also study and take stock of our economic achievements in the last 12 years, and understand our strengths and weaknesses so as to formulate our economic development strategy for the future. We should understand and realise that even before this crisis, the relative unit labour cost (RULC) has been rising, and we are gradually losing our competitive edge.

On the short-term measures, we must first reflect on the problems, cope with the changes in order to tide over the crisis ( ). Economic competitiveness is decided by a number of factors, including (1) cost; (2) productivity; and (3) the exchange rate of the Singapore dollar against other currencies.

Here, let me raise three issues: first, productivity and exchange rate. The Committee recommends cost-cutting and also emphasises on the need to develop human and intellectual capital, and leverage on science, technology and innovation. All these measures expand our capacity building and improve our productivity so as to strengthen our long-term competitiveness. However, the Committee has not clearly analysed and explained why the S$ depreciation is not a viable option to deal with the current economic crisis. Some academicians, businessmen and others still believe that S$ depreciation is the easiest way out. With depreciation of S$ currency, we may be able to avoid wage cut and other painful market adjustments. But we must also realise and face the consequences of S$ depreciation, for example, prices of imported goods and services from equipment, spare parts to food will increase; the value of our CPF savings and other assets in S$ terms will decline, and our position as a financial hub will also be adversely impacted. I am glad that the Minister for Trade and Industry had just mentioned this point in his speech. But when we talk to the community leaders, trade unionists and the people, we must reiterate the explanation of this issue on S$ depreciation.

The second point is cost-cutting. In general, the unions have already accepted the recommendations of the Committee to cut wage cost. We should all remember that this is not the first time that the CPF is cut; and this is also not the first time that the employees suffer a pay-cut. The CSC has also recommended that the Government should cut down non-wage costs such as rentals, service charges on electricity and communication, and port charges. The private sector must take similar measures to cut cost. They should cut their rentals, interests, transport charges and other non-wage costs. In terms of wage cost, for companies which are not doing well, the management should make downward adjustment of the directors fees, and the pay and allowances of management staff. On the other hand, for companies which are doing well, they should continue to give their employees what they deserve. In this area, we should consider two concrete measures: (1) when we can cut down the variable component of wage and salary, the magnitude of the cut for the lower-income employees should be less than that of the managerial and executive staff; and (2) the Government should consider giving assistance package to the lower-income group, eg, in the form of rental, S&C charges, utilities rebates, etc.

If the unions, business community, Government and Parliament unanimously accept these cost-cutting measures, this resolute decision will send a strong signal to the market and boost investors' confidence on Singapore. This will have a very positive and decisive effect on our economic recovery. Looking around the world, very few governments can propose reduction in wages and welfare benefits of the employees without causing a boycott and protest from the trade unions, or even causing a political turmoil. Our people of Singapore, especially the union members, understand the whole macro-economic situation of Singapore and the long term implications of our economy, and they have gallantly agreed to make the necessary adjustments and sacrifices. The union members should be commended.

The current economic crisis has given rise to a sense of anxiety ( ), a sense of crisis, and the expectation of good Government leadership. If we can overcome the present difficulties within a short time, the cohesion among the people will be strengthened and the bond between the people and the Government will be further consolidated. A few years later, when we look back at the current economic crisis, we will say that when it comes to the crunch, we the common people have made the necessary adjustments and painful sacrifices, thereby enabling our economy to recover, and that our Government has once again led us out of the valley of economic recession.

The third issue is tax cuts. The CSC has also recommended that the Government reduce tax rates or give rebates on the personal income tax, company tax and foreign worker levy. Tax cuts take place after economic returns and are below the bottom line, while cost cuts take place before economic returns and are above the bottom line. Tax cuts will help stimulate investments, encourage hard work and strengthen the propensity to save. Strictly speaking, tax cuts are not cost cutting measures. In tax cuts, some people, including Mr Chiam See Tong, seem to focus their attention on the GST ( ). They proposed that the Government should abolish GST or reduce the GST rate. In fact, GST is not part of business cost (apart from some administrative costs). Businessmen are only tax collection agents for the Government, and if their annual business turnover is less than $1 million, businesses need not collect GST, unless they volunteer to register as GST collection agents. Those who think that GST will add to business costs are wrong.

The discussion on how GST would affect consumption expenditure is more relevant. But here, we must pay attention to a few points:

Firstly, the import linkages, that is to say, most of our consumer goods from food to electrical home appliances are imported. Secondly, our domestic market is very small. Private consumption expenditure accounted for only 40% of total expenditure, whereas the Government consumption expenditure was only 9%. Mr Leong Horn Kee said that the proposed CPF and wage cuts of $7 billion would lead to a loss of $7 billion in consumption expenditure is incorrect. Further, the GST rate is only 3%. In Europe, the rate is between 13% and 25%. In Asian countries like Japan, Korea and Taiwan, their consumption tax rates are much higher than that of Singapore. The other point is that when GST was first introduced in 1994, the Government had cut income tax and property tax, and gave rebates on rentals, S&C charges for the lower-income families. The difference between GST revenue and revenue loss by the Government from the tax cuts and expenditure on the package of rebates is pretty narrow. In other words, GST is revenue-neutral or even negative. Based on these reasons, from the macro-economic perspective, the stimulative effect from a cut in GST on our consumption expenditure cannot be substantial.

Mr Speaker, Sir, more attention must be given to our long-term economic strategies. The strategies should be to develop our full potential so as to launch into the next phase ( ). If we cannot maintain our competitiveness, and if we cannot catch up and deal with the market and technological changes, then the world will forge ahead and leave us behind. The CSC has recommended a twin-engine growth, ie, to develop our manufacturing and service industries together at the same time. It is a good and sound strategy.

At the same time, we must also develop our own MNCs. We must help our promising SMEs. We must face one harsh reality that our economy is gradually transforming into a knowledge-based economy. The labour intensive, low-value added industries and activities will eventually be phased out. Jobs that are related to such industries and activities will also be lost in due course. Therefore, our employers, entrepreneurs, employees and indeed all Singaporeans must prepare to face this unavoidable economic restructuring.

Mr Speaker, Sir, because of our economic structure, two-thirds of our demands are from external sector. The sharp fall in external demand is the main cause of our current economic recession. We must develop overseas markets, strengthen our regionalisation, and look out for new markets and new commercial opportunities to stimulate demand and diversify the demand. These measures are crucial and must be implemented. On the supply side, education, training, technology and innovation would expand and build up our capacity and upgrade our capability. I agree with the CSC's view that we should treasure our limited resources, especially land and talents, and ensure that they are put to optimum use.

Finally, the Committee has also referred to the role of the Government. The Government should review its role in the production domain, whether the Government should only be a facilitator or should participate directly in production through the Government-linked companies (GLCs). The crucial point here is whether the GLCs or private enterprises can all withstand the test of the market by making profits and getting the targetted returns. As to who owns these companies, it is of secondary importance.

I would like to side-track to comment on Mr Chiam See Tong's point made just now that the PAP has dominated virtually every field in Singapore so that people cannot think independently and cannot develop themselves. He was hinting that this could be one reason why we are not able to develop our entrepreneurs. This reminds me of two points. Firstly, let me point out to him that the CSC members, apart from two Ministers and one Minister of State, the others are not linked to the Government. Secondly, in Hong Kong, a very popular tabloid "Apple Daily" carried a report with a big headline on 13th November 1998: "Singapore is unable to produce a Li Ka Shing". However, the newspaper was at least fair in pointing out that Singapore and Hong Kong have their own advantages and weaknesses.

Mr Speaker, Sir, whatever strategy we may select to develop our economy, our people, unions, business community and the Government should always stay together and move ahead in one heart ( ). As the Minister for Finance once mentioned, our collective organisational ability is our competitive edge. In this increasingly competitive world that we are living in, if we can maintain this competitive edge and keep one step ahead of our competitors, then our economy will continue to grow steadily, and our people will be able to enjoy a rising standard of living.

Mr Peh Chin Hua (Jalan Besar): (In Mandarin): Mr Speaker, Sir, I support the motion.

In June this year, the Government introduced a $2 billion off-Budget package to stimulate Singapore's economy. Now, the Committee of Singapore's Competitiveness (CSC) has again introduced a cost-reduction package with the hope that business costs in Singapore can be reduced by S$10 billion in the next year. In other words, since June this year, the Government has introduced altogether packages worth S$12 billion to help the businesses to deal with the imminent predicament they are facing, and to minimise further job losses. I personally feel that the CSC should be commended for being so resolute in making this recommendation to reduce our business cost so that we could have a proper direction for our economic development over the next 10 years and for giving us a series of strategies for our long-term development. The Committee does not recommend devaluation of the Singapore dollar to solve the problem. This is indeed a very wise decision.

Mr Speaker, Sir, just now I heard Mr Chiam See Tong saying that despite the economic crisis, no resident in his constituency came to his meet-the-people session for assistance in getting a job. I believe in the present economic crisis, there is no lack of people who have lost their jobs, but they do not go to Mr Chiam See Tong because they do not believe Mr Chiam could help them to secure jobs. They would rather go straight to the Ministry of Manpower for help. This is a more practical thing for them to do.

Just now Mr Chiam See Tong mentioned that the Government should not reduce the employer's CPF contribution. I do not agree with him. In his view, so long as we reduce Government taxes, our economic problem can be resolved. The problem is not that simple. If our workers do not take a cut in their CPF and wages, then it will give the foreigners the impression that our workers do not support the Government's effort to help the economy, and they will have no confidence in us. They will not come here to invest.

The Government and the people should be united in one heart during this economic crisis and to send the correct signal to our foreign investors. So I believe what Mr Chiam said just now is not correct. It may be just a political stunt to please his Potong Pasir voters. Just now he said that there should be an economic alliance between Singapore and Malaysia. I do not think this is feasible because no matter how we unite with Malaysia, it would not be as effective as the larger regional forum such as APEC. I support the CSC Report but I have a few suggestions for the Government to consider.

First of all, we should try to reduce more non-wage costs. The CSC has recommended reduction in some non-wage costs such as rentals, utilities, telephone bills and taxes, etc. But I hope that the Government departments and the private sector should try their best to reduce more non-wage costs including items which are not mentioned in the Report.

When I received this Report from the CSC, the first thing I noticed was that the book was very beautifully printed and the paper quality is excellent. On the one hand, the Government is advocating reduction in business costs. On the other hand, they seem to have forgotten that they should also try to save cost in its operations. You may notice that for this 186-page Report, a thick paper of not less than 120 gm was used, with two-colour and four-colour printing and large font size, which are superior to the textbooks used by our secondary students. In my opinion, the production cost of this book can be easily reduced by at least 50%. Therefore, I feel that Government departments and the private enterprises should not spend so much money in producing fanciful annual reports. They should be made simple and extravagant high profile presentation should be avoided as it will increase their business cost.

I would also suggest that when senior officers from the public and private sectors go on official trips abroad, they should travel by economy class instead of first class or business class. As for entertainment, I agree with Prof. Tommy Koh's view that the number of courses in our Chinese dinners should be reduced from eight dishes to six dishes. This will save cost.

The whole package introduced by the CSC has been weighted towards helping the manufacturing and the retailing industries to reduce their business costs. However, there is one thing that I think the CSC has neglected, ie, the advertising cost. Many manufacturers and retailers have been using the television or newspapers to advertise their products and services. According to a survey conducted by the Temasek Polytechnic recently, more than 32% of male Singaporeans learnt of news about new products or services through advertisements in the newspapers and about 26% of female Singaporeans learnt about sales and special offers through newspapers. This clearly shows that it is very important for the manufacturers and retailers to advertise their products and services. I suggest that TCS and the newspapers should also reduce their advertising fees during these difficult times to help businesses cut their costs. When the businessmen calculate their costs, they naturally include the advertising cost into their business costs, and eventually it will be the consumers who are paying for it. Therefore, I suggest that for advertisements on sundry goods and essential daily goods by, say, NTUC FairPrice and other supermarkets, a discount shall be given in the advertising fees. The advertisers can then pass on their savings from the advertising cost to the consumers by offering these essential goods at cheaper prices. This will help to bring down the cost of living.

Secondly, we should not cut the salaries or CPF contributions of the employees from the lower income group. The CSC suggests that the total wage cost be reduced by 15%, ie, 10% from employer's CPF contribution and 5-8% from wages. I feel that for the low-income employees, the reduction should be less. And for the executive and senior officers, their salaries can be reduced by a larger margin. For those who are living in 1- and 2-room flats, their average combined family income is only about S$800 per month. So if we are having an across-the-board percentage deduction in salary, these low-income families will suffer.

The lower income ordinary citizens may not be able to enjoy some of the rebates on property tax, foreign worker levy, stamp duty for share transfers and petrol tax, etc, because these items do not involve them in the first place. Most of them do not pay any income tax anyway. I think for those families whose combined income is less than S$800, we should not reduce their CPF contribution.

Thirdly, I propose that retrenched workers from the lower income families should be allowed to withdraw part of their CPF savings to tide over the difficult times. I think maybe we should consider allowing retrenched workers from families with combined income of less than $800 per month to withdraw, say, S$150 per month from their CPF account for a period of 12 months. In other words, the maximum they could withdraw is only S$1,800 but to them this may be the straw they can hold on to tide over the difficult times.

Fourthly, we should reschedule the instalment payments of shopowners and hawker stallholders. Many existing tenants bought over their shops or stalls under the "Shop For Everyone" Scheme introduced by HDB some years ago. With business so bad now, they are having problems serving their loan instalments. I hope that the HDB would reschedule the loan repayment or maybe suspend their payment for one year so that they could continue to pay after the crisis is over.

Many hawkers are also having the same predicament. I think the Government should also help them. I also suggest that the Government should consider reducing the rentals for the shops and hawker stalls in the HDB estates.

Fifthly, we should provide capital assistance to our promising local enterprises which have the potential to go regional. The CSC has recommended eight major strategies. I am in particular agreement with three of them, ie, to strengthen the external wing, to build world-class local companies and to strengthen our base of small and medium local enterprises. From the perspective of long-term development, using foreign economies to supplement the growth of the domestic economy is a practical strategy. At the same time, while strengthening the local enterprises, it will also provide the Singapore economy with a new impetus for growth.

I suggest that the Government consider granting some loans or financial assistance to local enterprises which have the potential to go regional. For example, we may allow them to use their company's shares as collateral for mortgage loans. Promising local enterprises may have the potential to go regional, but they may not be able to secure bank loans during this economic crisis. Many banks which have previously granted loans to companies or enterprises to invest in Malaysia and Indonesia are having problems recovering their loans. Once bitten twice shy. The banks are having this phobia whenever they hear that the companies are going regional. Nowadays, when you talk to the banks about regionalisation, they are simply not interested. So if the Government could give these companies a helping hand, it will help them to go regional earlier and faster, and will go a long way in building these local enterprises into world class companies.

Sixthly, more business information should be provided to the businesses in Singapore at this time where prompt international business information is of utmost importance. I think MTI should be able to provide more ready information to our businesses. This is more effective than conducting overseas tours for our trade delegations.

Finally, we should start to plan a second package to save our economy from future crisis. Some people are of the impression that the present package of $12 billion to help our local enterprises may not be enough to save our economy. However, if the international economic situation deteriorates rapidly, the future will be most unpredictable. If we wait for the worst to happen before planning for a second package to save our economy, it will be too late. I think we should prepare well in advance. I believe the CSC took more than a year to come out with this Report. Therefore, we should start now to plan a second package as a contingency plan against any future crisis.