ANNUAL BUDGET STATEMENT

Resumption of Debate on Question (26th February, 1999). "That Parliament approves the financial policy of the Government for the financial year 1st April, 1999 to 31st March, 2000.". - [Minister for Finance].

Question again proposed. 12.34 pm

Mr Lim Swee Say (Tanjong Pagar): Mr Speaker, Sir, I rise to support the motion standing in the name of Dr Richard Hu, Minister for Finance.

Sir, the economic crisis we are going through today is the worst the world has seen in 50 years. Every economy is being put to a real test and they will come out with different responses. Take, for example, Hong Kong and Singapore. Even though both of us are among the world's freest economies, yet we come out with very different responses. Just last week, the Hong Kong Secretary for Trade and Industry explained the different responses between Singapore and Hong Kong by saying that it was because the Singapore Government controls the people, the trade unions, and so on, whereas the Hong Kong people are more creative, more innovative. I have a different explanation. I think the core issue is that for the last 100 years, Hong Kong has been busy building a competitive economy, whereas in the case of Singapore, in the last 33 years, we have been busy building a nation.

There is a big difference between building an economy and building a nation. In the case of Hong Kong, the focus is purely on competitiveness. In the case of Singapore, we adopt a balanced approach between competitiveness and cohesion. Because of this equal emphasis on competitiveness and cohesion, we are able to achieve unity in purpose, have a cohesive people and one united people. That is why we are able to move together in one force. Sir, there is a saying that people do not care how much the government knows until they know how much the government cares. If you were to look at the two off-Budget measures announced by the Minister and the Budget announced this year, if you look at the three Budgets in totality, it is quite clear that, firstly, this Government does know how to run the economy and the kind of difficulties the business community is facing. Hence these various cost-cutting measures. But more importantly, it also clearly demonstrated that the Government does care for the people knowing the kind of pain the people are going through as a result of wage reductions and so on. Therefore, the Government has introduced a total rebate amounting to about $485 million. It is a clear concrete action on the part of the Government to demonstrate that it knows how to run the economy and it cares for the people.

Speaking as a labour MP, I fully support the financial policy announced by the Minister. Sir, this Budget 1999-2000 is a very significant one for two reasons, at least. Firstly, this will be the first time that we are going to run into a significant operating deficit. Secondly, this is the Budget that will take us into the next century. I feel it is very important that we make full use of this Budget to spur Singaporeans to embrace a new mindset in preparation for the new millennium. To transform the mindset of the population, I think it is very much like trying to change the shape of a block of solid ice. One way to do it is, firstly, "de-freeze" the ice, because a solid block of ice is very hard to reshape. But if you can de-freeze the ice and reshape the water and then re-freeze the water, we can end up with a new mindset, like a new block of ice with a new shape, without losing too much water. Looking at the mindset of Singaporeans, over the last 33 years, we do form a certain mindset after all these years. And now this mindset of Singaporeans is de-freezing under the heat of the regional crisis. In a way, I think our challenge is to capitalise on this opportunity now to reshape the mindset of Singaporeans before this mindset is being re-frozen again. The next two to three years is really a window of opportunity for us to do so. Even though the cyclical recovery of the Singapore economy is likely to happen, maybe over the next six months to a year, structural recovery is not likely to take place until after a period of a few years of concerted effort by all parties. Therefore, it is very important that over this period of two to three years, we make full use of the financial policies to spur all Singaporeans, business community, civil servants towards a new mindset, so that we can move together in one force, in one united direction.

In this regard, Sir, I feel that there are three areas we can do with more emphasis in the implementation of the financial policy this coming year. These three areas are the public sector, the private sector and the people sector. Firstly, in the public sector, I feel that 1999-2000 is a good time for us to forge a new mindset in the public sector among the civil servants. In the past, we have always looked at unspent budget as something bad because it adds further to budget surplus. But this year is different. We are going to have a budget deficit, which means any Ministry that is able to save on the annual budget is, in fact, going to help us to reduce the budget deficit. So any unspent budget should be viewed as something good rather than bad. In fact, if the civil service can improve spending or achieve a saving of 1% alone, it will amount to about $292 million. It is a lot of money. If we are able to achieve a 5% improvement in cost optimisation, the total saving will come to $1.5 billion, which is about 30% of the budget deficit.

Sir, my main point here is this. I am actually very comfortable with the $5.1 billion budget deficit, but my point is that I am not convinced that every civil servant is putting every dollar to the best use. We are putting the money to good use but not necessarily to the best use. My suggestion is why not send a clear message to all civil servants to take this year as a beginning of the new year to challenge ourselves on how we can, as a public sector, achieve better outcomes with lesser resources. And here I have two suggestions on how this can be done. Firstly, send a clear guideline to all Ministries to cut down on the "nice-to-have" spending on hardware facilities. Because I feel that over time, our hardware facilities, like the schools, hospitals, including bus stops, are getting better-looking year after year. There is a danger that we may have gone over board. Choosing between a public institution of a 5-star hardware facility and a 3-star software capability versus one with 5-star software capability and 3-star hardware facility, I think any time I will go for the one that is able to offer 5-star software capability because this software capability is what will make a difference in the quality of public services to the members of the public. By making a constant check on cost control on hardware spending, hopefully, we would be able to reduce the cost of public services to the members of the public.

My suggestion is that as far as the hardware design and hardware spending are concerned, let us remind ourselves that we must continue to focus on functionality, buildability, maintainability, and so on. Better still, why not set cost standards and challenge the Ministries to try to achieve saving over the next few years? At the same time, we have to challenge the Ministries to set clear targets on how they can improve on software capability. Today we already have the Budgeting For Results system in place. Why not we require all Ministries now to clearly spell out exactly what kind of software capability targets they are going to achieve over the next few years. Hopefully, by re-orientating our focus on software capability, making a check on hardware spending, we would be able to offer better public services at lower cost.

My second suggestion is that in the coming years, can we not do something to encourage inter-Ministry collaboration and innovation in the public sector? We are going to face many new economic and social challenges in the coming years and many of them will be very different from the kind of challenges we had faced in the past. Take, for example, from an economic angle, our challenge to move towards a knowledge-based economy. So many Ministries will have to be involved, whether it is MTI, MOM, Education, and so on and so forth.

On the social front, our challenge is to overcome such issues as aging population and the emergence of an information society. Again, many Ministries will have to be involved in order to make sure that the social need, economic issues and so on of an aging population are addressed. The Inter-Ministry Committee on the Aged is a step in the right direction. We have to do likewise for the information society.

From the nation-building point of view, we also have new challenges, like the one being addressed by the Singapore 21 Committee, chaired by RAdm Teo Chee Hean, regarding the strengthening of the heartware of Singaporeans. Again, many Ministries have to be involved if we want to truly make a quantum leap in strengthening the heartware in the population.

Sir, my point here is that be it knowledge-based economy or information society or aged population or strengthening the heartware of Singaporeans, all these are multi-dimensional issues requiring inter-Ministry collaboration, over a sustained period of time. If we want to really achieve the kind of outcome we are looking for, we will need to set clear targets, assign clear responsibility and support them with adequate resources. In other words, we may have to look into ways of creating a separate budget for such inter-Ministry projects and, hopefully, this new budget will not be created at the expense of increasing our budget deficit. My suggestion is to reduce all Ministries' budget by 10%. With that, we will be able to create a fund of about $3 billion. Put this fund under the direct charge of the Ministry of Finance and use it to support inter-Ministry projects and collaboration so that, over time, the issue of knowledge economy, information society, and so on, can really be addressed in a concerted effort by all Ministries and all civil servants.

Secondly, I feel that there is also a need to strengthen the new mindset in the private sector. Up till now, we have often heard the business community complaining that the cost of doing business in Singapore is too high and that we need to lower cost. But how low can we go? At the end of the day, what is the purpose of economic progress if we keep on talking about cost cutting, wage cutting, and so on? Over time, I am not too sure how we can sustain our competitiveness through cost cutting. It is quite clear that innovation and adaptability are really the key if we want to sustain our growth in a knowledge-based economy. But we have to recognise that process towards a knowledge-based economy is going to be an evolutionary approach and the process will take time. The change management expert will tell us that any change process would go through at least five stages. We start with the pioneers, the early adopters, the early majority, followed by the late majority and then the laggard.

The challenge for Singapore is not to try to achieve the change overnight but rather how we can speed up this evolutionary approach. How can we help the early adopters and pioneers to succeed in setting the pace so that, hopefully, they will give encouragement to many more others to come along? In this regard, I feel that the off-Budget measures last year and the Budget this year have sent a very clear message only to the financial community. The feedback from the business community is that they are not hearing the same strong message being sent to all the other sectors, whether it is manufacturing or retail or communication, and so on. So my suggestion is this. Why not revise all the incentive packages managed by all the economic agencies to encourage companies to move towards knowledge-based companies?

In this regard, I have two suggestions. For companies to be knowledge-based companies, firstly, they must be able to develop total capabilities, hopefully base their operations in Singapore. We have to encourage them to deepen their capabilities in individual areas, whether it is technology development, market development, innovation development, organisation development or mass customisation. In each of these areas, obviously we have to encourage them to deepen their capabilities. But what is even more important is to encourage them to nurture their capabilities in all these five areas so that they will be able to function truly as knowledge-based companies to be able to respond quickly to market changes and conditions.

Sir, I feel that the existing incentive schemes in Singapore today are basically targeted at individual capabilities. Maybe it is about time that the Ministry of Finance reviewed the need on whether we should repackage all these incentive schemes so that, while on the one hand, we achieve the deepening of capability objective but, at the same time, we achieve the broadening capability objective. Maybe we should also look into whether there is a need to reorganise the duties and responsibilities of various economic agencies because it is no longer possible for each of the economic agencies to promote their own areas of interest in isolation. Take, for example, for any company which wants to be a knowledge-based company, henceforth, when they want to deepen their R&D capability, they talk to NSTB. When they want to enhance their innovation capability, they talk to NCB and EDB. When they want to go into mass customisation, they talk to EDB and JTC. When they want to go to market development, they talk to TDB. When they want to go to organisation development, they talk to MOM. Over time, if we continue to let this develop, we are going to lose our capability in offering one-stop service to these leading investors of the world, whether they are MNCs or local enterprises. So I hope that this is something that the Government would think about.

The second area, in promoting the change of mindset in the private sector is that, for knowledge-based companies to succeed, for them to have this total capability, obviously they have to invest more in manpower development. If I were to be objective about this, today, there are three ways at least a knowledge-based company can develop their manpower. The first is by retraining their existing workforce. The second is by getting rid of those who cannot fit in and recruit young Singaporeans who are better educated. The third is to recruit foreign talents. I think all three approaches are equally relevant. But my point is that, from the company's point of view, the cost of redeveloping the existing workforce is most time-consuming and, in fact, can be most expensive. Therefore, it is very important that we do something to help them to balance the cost equation so that it will make business sense for companies to reinvest in manpower rather than to displace them with younger or foreign talents.

Sir, I feel that what we have to do is to set up a manpower development assistance scheme. When we decided to promote R&D, we have the Research Development Assistance Scheme (RDAS). When we promote innovation, we have the Information Development Scheme (IDS). When we want to promote market development, we have the Market Development Assistance Scheme (MDAS). Today, we want to promote manpower development, why not set up a Manpower Development Assistance Scheme so that all companies will find it to their commercial interest to invest in manpower development. Hopefully, over time, the training and development of knowledge workers will become a joint responsibility of not just the Government and the union but all companies as well.

Sir, let me move on to the third area, which is the people sector. Likewise, we need to find ways to inculcate a new mindset in the people sector as well. We are going to face a lot of new challenges in the area of social cohesion as we move ahead. In the past, when we talked about social cohesion, we focused on areas like, for example, racial harmony, wealth sharing, and so on. But, in future, there will be new issues that would challenge us in terms of social cohesion. Take, for example, the potential widening of social gap between the young and the old; the widening of wage gap between the knowledge workers and the unskilled workers; and the widening of communication gap between the connected and the unconnected in the population. The greater inflow of foreign talents and the increasing number of structurally unemployable Singaporeans will add to social tension as well.

Sir, the question is: what can we do to further strengthen this greater sense of caring and sharing in the age of globalisation and technology? I remember that in the past, when we wanted to change the mindset of Singaporeans towards family planning, when we wanted them to go beyond two, to go for three or four if they could afford it, what did we do? We offered them a whole host of incentives like priority in school registration. We even offered them tax rebate amounting to $20,000. In fact, many people said that you could actually start a bigger family to enjoy pioneer status for four to five years, and so on. Now the question is: at a time like this, when we are going to encounter many more social challenges, why not consider to provide some kind of incentives to encourage and reinforce some of these social values which will help us to strengthen our social cohesion in the future? Take, for example, this year, we are going to give a 10% tax rebate to all taxpayers. My question is: why not just give 5% rebate to everyone? For the other 5% equivalent, we can return it to the taxpayer, for example, in the form of higher tax relief for parents and dependants. So, hopefully, this will help to send across the message that the family is a very important building block of society.

Another example. We want to encourage people to continue to contribute to charity and community projects. Why not give them tax allowance just like the way we give investment allowance to companies who invest in capital equipment? The difference between a company investing in capital equipment versus somebody who gives money to charity is, in my view, that one is investing for economic return, whereas when giving to charity, we are investing for social return, ie, social cohesion. I think both are worth supporting.

Sir, these are just some of the suggestions. My point basically is that we can think about how to use all these taxation incentives, rebates, and so on, to also help reshape the mindset of Singaporeans so that they will be more aware of the need to take on a greater sense of social responsibility as we move ahead.

Sir, in conclusion, 1999 is a golden opportunity for us to inculcate a new mindset in all the three "P" sectors - the Public sector, the People sector and the Private sector. We need to inculcate this new mindset because, for Singapore to succeed, we need to have many more new change agents in the Government, the business community and the people sector, so that the pace of change will be faster. It is my hope that, in the implementation of this year's financial policy, we will send a very clear signal to all Singaporeans and the business community that only by constantly reinventing our economy, our society and our civil service, can we become even more competitive as a knowledge economy, more cohesive as an information society and more united as a developed nation in the 21st century.

Mrs Lim Hwee Hua (Marine Parade): Mr Speaker, Sir, for those of us who have visited New York City, we may have come across the display of "The National Debt Clock" on a wall near 42nd Street in midtown. Amongst other things, it tells the American people how big the country's interest burden is. Apparently, this clock serves as a stern warning against wasteful Government spending.

Over here in Singapore, the Government is expecting to record a budget deficit of some $5 billion for the financial year beginning 1st April 1999 which is almost 11 times the projected deficit of $466 million for the current financial year.

The last time Singapore recorded a budget deficit was during the downturn in the mid-80s. Since then, we have booked in a surplus averaging more than $4 billion a year, reaping the full benefits of the boom cycle between 1994 and 1996. This has enabled us to take a definitive step forward towards further development of capabilities.

Sir, the two successive years of budget deficits should not be taken lightly. And we note that they are not the result of wasteful Government spending. Neither are they the result of a bailing out of the corporate or banking sector but of carefully planned expenditure to help position Singapore for further growth beyond the crisis.

Investors and Singaporeans alike would have noted that the cumulative deficits for FY98 and FY99 will draw down the bulk of the FY97 reserves, which have provided adequate cushion for pushing ahead with long-term plans on the one hand and extending short-term assistance during this crisis on the other. As a result, I do not think investors are asking how we are going to fund these deficits.

The planned 10% jump in development expenditure to $13.9 billion is the strongest demonstration of a commitment towards building economic capabilities in spite of the current regional crisis. In the context of a depressed economic region, this is quite a luxury.

Sir, this crisis has triggered many structural changes within the region, not least within Singapore, and within the financial sector. Many big corporations have undertaken massive restructuring towards becoming leaner and meaner organisations. In the process, many have no choice but to divest non-core businesses or write off substantial sums.

Deserving businesses caught in a credit crunch have been acquired by investors frequently of foreign origin. There is a quest towards streamlining operations for better economies of scale or towards strengthening capitalisation to better position for a fast-changing economic landscape. These have inspired several mergers of corporations.

The Monetary Authority of Singapore is spearheading a bold, but necessary, blueprint for changes to the financial sector in Singapore. We aim ultimately to be a financial hub that involves major players offering a whole gamut of financial services. This has already spurred the merging of several banks. There is no doubt that the ensuing consolidation of strength will facilitate the capturing of a bigger role in domestic and regional banking.

Sir, I would now like to focus on the implications of some of these changes, particularly for the small and medium enterprises (or SMEs) in the short-term, and entrepreneurship in the longer term.

As banks consolidate and streamline efficiencies, in the current climate, there may be a tendency to move in favour of servicing the bigger customers. No doubt, some banks have actually defined the middle market as a niche segment but it is highly conceivable that smaller companies may wind up being under-served or poorly-served by the restructured banking system.

Currently, the SMEs are already feeling the heat of a cashflow squeeze brought about by a credit crunch. Many are lamenting the tight, if not fast disappearing, credit terms. Whilst we can logically expect banks to exercise prudence at this time, so as to minimise the level of non-performing loans, many SMEs are concerned that given the massive restructuring, their traditional bankers may have abandoned them altogether.

Sir, perhaps some of these fears may be exaggerated but this raises an important question. Is it time to revisit the need to provide some form of development financing, similar to the role played by the Development Bank of Singapore in our formative years of growth? Although various assistance schemes exist, they tend to cater mainly to manufacturing of electronics or technology.

Entrepreneurship frequently gets tripped up by a lack of funds. Beyond exploring the question of a sustenance of the traditional bank credit or availability of development and financing, more needs to be done.

Sir, in Singapore, multi-national corporations have hitherto been a substantial employer, often offering challenging jobs on attractive terms. This has reinforced the tendency amongst Singaporeans towards being an employee rather than an entrepreneur or a shareholder. If this trend is allowed to persist over a prolonged period of time, the paucity of home-grown entrepreneurship can only be more pronounced.

To nurture entrepreneurship, I believe that the Government should drive the following initiatives:

(a) to define and promote the role of venture capital among the SMEs; help educate the owners and facilitate the matching process;

(b) enlarge the investor base beyond the Economic Development Board (EDB), and beyond electronics. This may entail working with parties in the private sector; and

(c) to design incentives for such investments, such as tax concessions.

On that note, Sir, I support the financial policy of the Minister.

Dr Tan Cheng Bock (Ayer Rajah): Mr Speaker, Sir, Singapore is going through a very difficult and momentous period of our history. Today, we face two issues: (1) economic; and (2) geo-political.

In the economic front, we are in recession while on the geo-political front, we are facing regional political uncertainties. This budget is packaged in the midst of this economic recession and political uncertainties of the region. If the problem is pure economics as in 1985, it is easier, because we can find answers to economic problems. But today, because it is mixed with politics, there are too many imponderables and uncertainties. Thus, it was only until recently that we were able to move in and out of Indonesia, Malaysia and Thailand without giving it a second thought to safety and cost. But today, we see a different Malaysia, a different Indonesia, and we no longer visit their countries so frequently, as we would like to. It is sad and worrying too because we now see a change in attitude in Indonesia and some of their leaders are saying things about us which were never said before. I would not want to repeat what was said because it serves no good purpose. However, the Straits Times Editorial of 3rd March 1999, headlined "Indonesia Tests Singapore", reflects the feelings of many Singaporeans. I would like to quote one of the paragraphs in the text:

"Indonesia and Singapore remain friends. It is to their mutual interest that this be the case. But friendship must not be construed as weakness. Singapore does no more than state a fact of international life when it reiterates the inherent equality that must continue to underpin relations between the two countries. Indonesians must understand that this is non-negotiable for Singaporeans".

As political events unfold in Indonesia, we are seeing more attitudinal changes towards us, most of it so far not in our favour. We must therefore be alert, remain calm and react rationally and cautiously. The sad part of it all will be the slowing of trade, the curtailing of investments into this region, the reduction in tourism and the breakdown of business links. This is a sad time for ASEAN, also Singapore. Having said that, we want to wish Indonesia well so that we can avoid further social unrest and turmoil and enjoy peace. Peace leads to economic prosperity for all. Malaysia's closure of Clob has affected many Singaporean investors. Many Singaporeans lost money. Capital control, the Anwar trial and a changing Malaysian political scene will bring problems for our businessmen. We hope that capital control measures will not prevent tourism between the two countries, let alone doing business there. For the coming elections in Indonesia and Malaysia, we can expect more uncertainties.

With the uncertain geo-political scene as the background, we have now to take care of our recession. For the second consecutive year, we have a budget deficit and the deficit is growing from $466 million last year to $5 billion this year. A budget deficit would mean having to draw on our reserves which fortunately is not a problem. Last year, we have come up with off-budget measures costing $10.5 billion. Taken together, we can see that it is the Government's intention to tackle the recession through a combination of managing costs, upgrading skills and infrastructure, facilitate access to capital and promote investment, especially knowledge driven industries. To bring relief to companies and individuals, this budget offers some short-term relief to companies and individuals with a 10% tax rebate granted to both categories of taxpayers. There are, included in the budget, tax changes to further stimulate the bond market and fund management industry. These, together with the tax exemption on global OHQs, are part of the continuing drive to reinforce Singapore's competitive position as a centre for financial services and to attract more MNCs into Singapore.

With unemployment on the rise and cut in workers' CPF, and salaries in some cases, the 10% rebate on personal income tax and rebates for S&C charges for HDB dwellers as well as the rebates for utilities would be most welcomed by the taxpayers and non-taxpayers. This budget, to many Singaporean businessmen, is a non event and it was reported as such by one of the business writers in the Business Times. As expected, there were not much goodies left for the businessmen. But it is a cautious budget, not too little or not too much. And as the Second Minister for Finance said in an interview given to the press, the Government, if need be, if the recession gets worse, will take more measures. I think this is wise - to err on the side of caution. However, as I said earlier, this budget should be taken together with the earlier measures given, that is, the $10.5 billion package. It will be more balanced.

Singaporeans from all walks of life have in a way been affected by the downturn in the economies of the region and Singaporeans are beginning to feel and to face this economic crunch beginning this January because January this year, they see their take-home pay reduced, their CPF contribution cut, and their HDB mortgage loans harder to service. Then there is the prospect of some having to lose their jobs. For most non-HDB dwellers, they worry about their obligations to pay for their house loans, car loans, children's university education fees, hospital bills and for the small businessmen hit by the recession, their bank overdrafts, their workers' salaries and rental for their premises.

As a Government, we have to try to respond to their fears and concerns. We cannot solve each and every individual case. However, at the local ground level, most CDCs must have their own recession package to help out and, as far as Bukit Timah CDC is concerned, we are beginning to see more and more such cases of people who cannot pay their utilities bills, kindergarten school fees, flat rentals and of course job requests. I am sure many of us are faced with requests for assistance at our own meet-the-people sessions.

Having said that, I now come to a frequently discussed sensitive subject - recruitment of foreign talent. Mr Speaker, Sir, in good times, people are more rational, they do not have unemployment, pay cut or CPF cut to cloud their minds and, therefore, they are more prepared to accept our reasons to take in foreigners to increase our talent pool. But today, we need to be more sensitive on the issue. In fact, we must tone down the message. Instead, our emphasis as a Government is to reassure them how we take care of them. Our message to Singaporeans must be clear and loud. We will help Singaporeans to get back the lost jobs. We will take care of their basic needs. We will give support to their children's education by increasing bursaries and scholarships. We will have schemes for our citizens to upgrade their skills training and education and they will get priority over others including PRs. This is a more important priority call than foreign talent. I can understand the rationale and need to inject such talents to our society. I accept and I support this. But many still do not, and especially in this time, such calls make them feel threatened. Bearing in mind that a good number of jobs lost are from the middle management level, I feel that at this juncture, this call for foreign talent might be a bit misplaced. Let us think Singaporeans first.

Mr Speaker, Sir, the management of this recession does not mean dishing out rebates but also includes the management of our people's psyche, their fears, their doubts. We must give Singaporeans no quarters as to where our priority lies. We need to give them a sense of security and keep their morale high in order that they will work with us to overcome this crisis. We should not take them for granted.

For example, we have to emphasise to our people, as we have been doing, why we put so much money on education and skills training during a recession. Education's total expenditure is $5.72 billion, up 13.6%. Many are still not keen on upgrading and improving their skills. We want them to feel with us. We want them to understand why we do this. We must impress on these Singaporeans that this is to prepare them when the upturn comes. This is good forward planning and I support strongly.

We will have to impress on those reluctant Singaporeans that if we prepare well, we will overtake others fast and whatever losses we have suffered during this crisis, we more than make up during a recovery. We must not wait till the recession ends. And not many countries in the world can exploit an economic downturn in this manner. We can because we have the means, the know-how and, most important, the political will. Many years of careful economic policies and strategies can allow us to be in this position, to use the economic downturn as a breather for consolidating and re-examining our economic strategies. We did the same in 1985. We took a critical look at our economic competitiveness and reformed our wage structure and because of this, we find easier acceptance this time when we do our cost cutting measures.

We have made many strategic moves in the past. We switched from an entrepot trade to a financial and industrial centre when we found that the entrepot trade which we acted as middlemen cannot sustain. Then we went regional. We wanted an external wing. We were not that successful but never mind, failure is part of life in doing business. Now we may have to go beyond our neighbouring shores, into Europe, America, China, India, etc. We will surely find more markets in these areas as we are not moving into unfamiliar grounds.

Finally, Mr Speaker, Sir, our two hinterlands - Malaysia and Indonesia - are having both economic and political problems. They are amongst our biggest trading partners but today, trade between them and us has trickled to a low level. It is beyond us to change the outcome of events arising from our neighbours, but whatever happens in both countries affects us. Singaporeans must take an interest in what is happening in Indonesia and Malaysia. A good grasp of their political scenarios would better prepare ourselves to handle the regional situation as it comes. There have been times when our leaders were put to the test, and there will be times when our leaders will again be put to the test. So long as we have been fair in our conduct of regional affairs, we will be able to enjoy respect and honour. We must stand behind our leaders during such times.

Sir, I support the Budget.

Mr Ong Kian Min (Pasir Ris): Mr Speaker, Sir, I rise to speak in support of the Budget Statement presented by the Minister for Finance.

Last year this time, when we debated the 1998 Budget, the economic climate was very uncertain. Unfortunately, since then, many momentous and sweeping events have occurred all around the world and especially in some countries in this region. These events had affected us adversely and will continue to have a major bearing on how things will develop in the near and medium term. Our economic outlook is therefore still not any clearer.

But the situation is certainly better than even six months ago. Many are saying that the worst may be over. I sense that there are quite a number of Singaporeans in certain quarters who are cautiously and quietly happy. They are still drawing a decent income, in a secure job, in a stable or growing industry with little risk of retrenchment. Interest rates and hence debt servicing costs are low; property prices and car prices are substantially lower than a couple of years back; the stock market has recovered somewhat from its lowest; and airfares are at an affordable level. So, for those who are still employed and getting paid a decent and steady income, things are beginning to look brighter again.

However, before we get carried away and celebrate, we must bear in mind Minister Richard Hu's reminder in his Budget Statement that there are still many uncertainties in our external environment - volatility in the global financial market, the health of the US economy, the prospects of an economic recovery in Japan and the socio-political developments in this region. Any one of these can unfold very suddenly and unexpectedly with severe repercussions for those who are not prepared.

Sir, in addition to the factors cited by the Minister in his Budget Statement, another concern is China's economic situation. I understand that exports from China are slowing. There is massive unemployment in the country, mainly as a result of structural reforms to the state economy. The budget deficit is soaring. There are concerns about deflation as consumers become more careful and tighten their purse strings. Some fear a devaluation of the renminbi leading to yet another round of competitive devaluations by other developing countries. Many investors are jittery over this issue and have held back their investment commitments in China or have reacted negatively on any hint of a devaluation.

Although Premier Zhu Rongji has again reaffirmed China's commitment not to devalue and few are predicting instability in the renminbi exchange rate in the course of this year, I believe we cannot ignore the developments in China. Could the Minister give us his assessment of the Chinese situation and the likely impact of the developments there on Singapore?

Sir, against this uncertain backdrop, I fully support the need to focus on the long-term development of our infrastructure and capabilities, while at the same time render some relief and assistance to those who have been severely affected by this crisis.

Sir, this year's Budget has been described as one with no-frills and even dull. From post-Budget feedback, I found the perennial calls for more goodies to be quite muted this time. This is quite different from last year when a $2.7 billion surplus was first announced. There were accusations that the Government was not doing enough. This year, people are more realistic in the face of a $5.1 billion budget deficit. They appreciate the increase in the personal tax rebate to 10%, and the rebates and grants for service and conservancy charges and utilities. They are also conscious of the external influences on our economic well-being, and understand the impact the economic slowdown and the previously-announced cost-cutting measures have on Government revenues.

Sir, what else can or should we do for the individual? I would like to offer my views on three issues. First, HDB's subsidised loan rates. This is on the amount of interest HDB home-owners are paying on their HDB subsidised loans. I mentioned earlier that interest rates and therefore debt servicing costs are substantially lower now, even when compared to just a few months ago. Most home-owners are happy as the lower debt servicing cost has somewhat softened the impact of the reduction in their CPF contribution, ie, most home-owners, except the vast majority of HDB home-owners who have HDB-subsidised loans. According to a 5th March article in the Straits Times, they are currently paying up to $90 more than under the non-subsidised rates for every $100,000 of loan.

Various suggestions have been offered on how the HDB can solve this problem. But I think the issue goes further than the HDB. It is a financial issue relating to how interest for Central Provident Fund deposits is calculated. The funds needed for HDB subsidised loans are derived from CPF deposits with a margin of 0.1 percentage point. So, the HDB loan rates have to be pegged to the CPF deposit interest rate; otherwise there would be a mismatch. And any revision to how the HDB subsidised loan interest rate is calculated should originate from revisions to the determination of the CPF interest rate.

Sir, I believe the principle of pegging the HDB rate to the CPF interest rate is fundamentally sound, but the determination of the interest rate can be further fine-tuned. Many of us will remember that a few months ago, millions if not billions of dollars were withdrawn by CPF account holders to take advantage of the higher deposit rates offered by commercial banks. Now, of course, there is a reverse flow of funds back to the CPF to earn the higher interest on CPF deposits. What this means is that these CPF depositors are benefiting at the expense of HDB home-owners who have mortgage loans. This situation is undesirable and I hope the Minister would consider measures to address this problem.

Mr Speaker, Sir, another area which affects the finances of the individual and should be reviewed to lessen the individual's financial burden is stored value cards. Presently, there are many stored value cards issued by a multitude of agencies for various purposes - MRT fare card for daily transport, cash card for ERP payments, coupons for parking, phone cards, etc. This requires a person to put aside a fairly large sum of money to be stored in the different cards. A few dollars here and there add up to a lot of money for the average family. And if a card is lost, he has lost cash. I would like to ask whether some form of coordinated national plan could be implemented to streamline the different card systems and reduce the number of cards which the consumer needs to carry.

Sir, my third point on the individual relates to the need to take time and effort to acquire the requisite skills so as to remain relevant in our fast-changing world. Residents have approached me during my meet-the-people sessions to ask for assistance on employment opportunities. Very often, I find that if the resident is a female, she would ask for a stall, not just any stall but a tuckshop stall in a school because there is a captive market, and not any tuckshop stall but a drinks stall because the margins are higher and there is less work and skills required in preparing drinks. If the resident is male, he would often times ask for a taxi driver's licence because if he already has a driver's licence to drive a private car, it is not difficult to drive a taxi for a living.

Sir, we cannot be a nation of tuckshop operators or taxi drivers. Our workers must be encouraged not to take the easy and short-sighted solution to their immediate financial problems, but to invest time and energy to upgrade and acquire valuable new skills that would stand them in good stead in the economy of the future. I believe we need to find out the reasons why some people are reluctant to go for retraining and skills upgrading, and see if steps can be taken to address these problems specifically.

Sir, I would now like to turn to the concerns of businesses. Notwithstanding the introduction of the cost reduction package and the benefits arising from the cost cutting measures, employers are suffering and saddled with concerns about the survival of their businesses. If their business revenues continue to decline, cutting expenses alone will not be able to turn it around. I therefore welcome the various announcements to help businesses to seek out new markets and expand, examples of which are the Local Enterprise Financing Scheme and recently, the Economic Development Board's $100 million Promising Local Enterprises Investment Fund.

Sir, I would like to raise three points on which we can or should do for local businesses. One area of assistance for businesses which I hope the Minister would consider is allowing losses incurred by one subsidiary of the group to be offset against profits made by another subsidiary. Following the Government's initiative, many companies have diversified into other businesses and expanded into other countries. Some of these business units are still profitable while others are loss making. At present, our tax regulations treat these subsidiaries within the same group as separate taxable entities and losses in one cannot be used to reduce the profits in another. The corporate tax rate of 26% on the profitable subsidiaries is a heavy burden on the whole group, as these subsidiaries will have less ability and resources to help the other non-profitable companies within the same group. This would increase the pressure to shut down unprofitable operations even though they have good long-term prospects. Could the Minister consider allowing companies to file consolidated returns as is done in the UK and the United States? Even a temporary relief would be most helpful to these companies.

Secondly, I would like to touch on our high-tech ventures. In the arena of new technological developments, no one can predict with certainty how things will turn out in future and which technology will succeed. Out of the many technopreneurs "born" every day, only some of them will hit the big time and be winners. We should therefore promote even more entrepreneurs to start up companies and the Government should exercise more flexibility in assisting and incentivising them.

In this area, the Government has established a number of technology and venture funds, the latest initiative being the $100 million fund for Promising Local Enterprises. However, my fear is that while the objectives of these programmes are noble, their success depends, firstly, on the people who administer these funds and, secondly, on the other efforts which are required to bring the product to the market.

Whether an investment is made or a grant is approved depends on the people who evaluate the project and administer the programme. They should not simply focus on the product under development and pass judgment on whether it will be a success in the future or not. Such a top-down, inflexible and highly prescriptive approach is inappropriate and potentially harmful.

In high-tech, it is not merely investing in the technology per se, but more importantly, in the people behind the technology because even if the present intention does not take off and fails, the true entrepreneur will pick himself up, and try again and again until he succeeds. The administrators of the programme must therefore have the ability to identify entrepreneurs who have ideas, creativity, imagination, integrity and the determination and drive to make it big.

In a sense, the people who administer these funds must themselves possess some of these attributes. Alternatively, these funds should be used to seed a broad range of budding start-up companies and hope that some of them will succeed.

Thirdly, the success of a product does not depend merely on how good it is but also on its promotion, marketing and distribution. The 3M Post-it Notes, first conceived by Art Fry, did not become an instant success but took many years of hard work before it gained popular acceptance. When I was pursuing my Physics undergraduate degree in the United Kingdom about 20 years ago, my professor told me that although the British were good scientists and researchers, it was the Americans who were better at realising innovations for commercial applications.

Sir, great innovations do not sell by themselves. In addition to financing to promote innovation, we must also fund and assist the commercial exploitation of these innovations and develop them into great products.

My fourth point on businesses relates to some of our traditional industries. Although I am advocating more assistance to be given to entrepreneurs to start up more ventures in technological development, I believe a different approach should be taken to restructure and consolidate some of our low-tech businesses.

One common complaint among businessmen is that everybody is undercutting and lowering prices even to the extent of losing money on specific projects just to keep its workers occupied and stay in business. The question is how long can this go on. Besides, undercutting is not necessarily good for the consumers. It does not mean that cheaper means better value for money; undercutting of prices may bring about a decline in quality standards and a greater risk of default and non-performance.

In many sectors, for example, construction and retail, the local turf is over-crowded and over-saturated. There are simply too many local players fighting among themselves for a piece of the local market. Malaysia, Indonesia and Thailand, the traditional overseas markets for these small and medium enterprises have been badly affected and these companies have no choice but to beat a hasty retreat to Singapore.

In the present market environment, if left to the natural course of the economic cycle and pure market forces alone, there will be a blood-bath and a lot of suffering and lost opportunities before the survivors eventually emerge. More may be out of business resulting in a greater loss of jobs. Everyone will end up the loser, either dead, half-dead or dying. Even hitherto strong companies, after fighting among themselves, will be depleted of vital energy. They will have less strength to face foreign competition and future competition.

The Government should therefore facilitate the restructuring and consolidation in some of these industries, not by force, but by good sense accompanied by the strong persuasive powers of grants and incentives. Bosses, being bosses, will be reluctant to be taken over to merge or to form joint ventures. They must be encouraged to cooperate with others for shared resources, for synergy and for economies of scale. The worldwide trend is towards bigger, leaner and stronger companies to compete effectively, if not globally, then at least regionally. Only then can we have the critical strength to compete successfully in the face of changing classic business and economic paradigms.

There are lots of opportunities out there for grabs. This is an opportune time to capitalise on our strengths and build world-class multi-nationals. Other small countries have succeeded. The Swiss control major international pharmaceutical companies. The Netherlands has oil giant Shell and Philips; Finland has Nokia; Sweden, Ericsson. We can build our own true multi-nationals.

Sir, I support the financial policy presented by the Minister.

Mr Chiam See Tong (Potong Pasir): Sir, the Budget this year has been described by the press as a non-event. I think the press looks to it as a non-event because of the lack of measures that were needed to give a stimulus to the economy. That has been done in the two cost-cutting measures. The first was the $2 billion package announced by the Minister in June 1998, and the second was introduced in November that year when a $10.5 billion package was presented in Parliament by DPM Lee. Those cost-cutting measures and the measures announced in the Budget are not expected to give a boost to the economy to any significant recovery. The prediction is that GDP for FY99 shall either have a growth of only plus one percent or a shrinkage of minus one percent. The situation of the economic downturn is not expected to improve markedly because the problem is not internal but external. Internally, Singapore is said to have done whatever it needs to be done.

In the 1985 recession, what Singapore needed to turn the economy around was simply to cut down costs and the following year and subsequent years saw business picking up. Foreign investments also started to flow back to Singapore. But this time round the recession is not due to our lack of competitiveness but due to external factors, one of which is the collapse of the economy of the countries in the region. Even should Indonesia be able to get its economic infrastructure in order, business may not pick up because of the serious social and political problems there.

Indonesia is supposed to hold its general election in June this year, but it may be postponed. Civil unrest is still rife in that country. Every country in this region hopes that the June election will be held as planned and goes on smoothly. Then a legitimate Government can be elected with a mandate to carry out the measures to restore the economy. We in Singapore wish Indonesia and its people well. We all hope that Indonesia can get its politics in order and that peace is once again restored to that country and its people be given an opportunity to rebuild its economy.

The stark reality of this recession is that it has taught Singaporeans a valuable lesson, ie, relying only on traditional methods of overcoming the recession do not work. Cost-cutting to make Singapore more competitive and pump-priming in the past were able to get Singapore out of the recession. But this time round those methods alone are not able to solve the problem.

This recession also saw the drastic drop in value of the East-Asian currencies against the American dollar. Goods and services appeared to be oversupplied. However, it is observed that despite these problems, Taiwan's economy is not affected to the extent as other East-Asian economies are affected. The difference between Taiwan and the other East-Asian countries is that Taiwan has embarked on a programme of giving its people more democracy and more freedom. That, I believe, is the key to its resilience against this round of recession. That country is able to show a high level of creativity, innovativeness and initiative. Taiwan is able to produce the goods that despite the competitive market is able to sell those goods in America. Its business people are also dynamic. The people there have leadership qualities and are able to build a network and break into the American market and push the sale of their goods.

Whereas in Singapore, our business people, though through long years of paternalistic Government, are like lumbering dinosaurs waiting for the Government organisations like the EDB, TDB and other trade bodies to get things done for them. Our business people lack the individual courage, drive and initiative on their own to push and seek out markets for themselves. They appear to be waiting for the Prime Minister, the Senior Minister or DPM Lee to show the way for them through their visits overseas. In normal times, our style of doing business seems all right. But as the world gets more competitive, and at times like this when the recession sets in, it is the extra quality that our business people should have but are lacking which will make the difference.

What I want to advocate to the Government again is that the political style of governing Singapore needs to be changed. The people must be given more political space to develop. The people must be given more freedom to develop their leadership and entrepreneurship qualities and need to be given a bigger say. For a start, the Government should consciously tell Ministers and Members of Parliament not to take part or lead in any public committees, for example, the cost-cutting committee. Allow the business people to deliberate on their own and make their own recommendations without Ministers or Members of Parliament overseeing them. Business people and their Chambers of Commerce should be given lots of leeway to take the lead in identifying the problems affecting the economy of the country and be allowed to form public committees to deliberate entirely on their own and to put forward recommendations rather than, like the present time, the Government appears to be the only one who is taking the lead and business people meekly agreeing and following what the Government has recommended. I know Ministers will definitely rebut what I say but the fact is that whatever participation business people in Singapore seems to be involved in, the Government always has full control of the proceedings of whatever public committees and has the final say.

Allow me to touch on another area. The Government, in every Budget Statement, does not fail to preach against welfarism. The Budget Statement this year specifically states "We must resist the temptation to allow ourselves to succumb to the lure of welfarism." On the one hand, the Government warns us against succumbing to practices of welfarism but, on the other hand, at the constituency level it is doing the opposite. At Potong Pasir, Mr Andy Gan, the prospective PAP candidate goes from house to house handing out sums of $200 to each family in cases where the head of the family is out of job for at least one month. He also hands out $5 vouchers to families to purchase grocery. Mr Andy Gan is acting like a Father Christmas, going from household to household, handing out public funds. He says that the funds are from the Potong Pasir Community Development Council (CDC). I presume that it must be either taxpayers' money or money contributed by the public. In any event, what I am saying is that the official position is that the Government does not encourage welfarism but, in reality, it is practising welfarism in its most raw form, that is, giving away money freely, of course, where it is politically advantageous to the Government.

Also, I see the disbursements of money to the HDB flat dwellers in the so-called rebates on the Town Councils' service and conservancy charges and the HDB monthly rentals as outright practices of welfarism. The only difference in the welfarism that is practised in Singapore and those practised in the West is that in Singapore's case, the money given away by the Government is targeted for vote catching, but those in the West are done as a matter of right if one meets the criteria. As regards the amount of rebates given to HDB flat dwellers, I would say that the Government should be more generous. They should, in fact, double it, because I am to a certain extent for welfarism, because you must have compassion for the people. There were about 28,000 of our workers, as reported, who were retrenched last year. I believe it is a further 20,000 this year who will be retrenched.

This is my 15th year in Parliament. Year after year, the Government budget shows ever-increasing surpluses. I have spoken out against the policy of ever accumulating more money for the Government which only means that the people shall have less money and consequently less savings. But this year, I see that there is a budget deficit of $5.1 billion in the development account. I do not think that the Government needs to be apologetic or be ashamed of it. Hong Kong, I see this year, also has a deficit account. I believe this is the second year of budget deficit in Hong Kong. In Singapore's case, our Government has accumulated surpluses in its term of office and probably it has nothing to worry. In fact, I say that although the Government's stand is not to overdraw on surpluses, it shall, as I say, do so when the necessity arises. Just like its pronouncement on refusing to cut workers' CPF which eventually it did.

Mr Lew Syn Pau (Kreta Ayer-Tanglin): Mr Speaker, Sir, I rise to support the motion in the name of the Finance Minister.

This year's Budget is almost a non-event, as described by many. This is because of the two off-Budget measures in June and November last year when packages of $2 billion and $10.5 billion worth of cost-cutting measures were announced. Some of these measures announced will only be effective from this fiscal year. It is understandable, therefore, that we must give time to these measures to work its way through the system before deciding on whether we need new measures, and if so, in what form, and for what purpose. Nevertheless, I would like to ask the Minister what kind of time-frame would be necessary for us to see whether these measures work.

In a sense, this Budget in March is more like a routine one to approve the expenditures for the Government Ministries and departments to function smoothly. There are not many major tax policy changes, except for some for the financial services sector to encourage and promote the bond market, dealing in Government securities, syndicated facilities and boutique fund management. There are also a few tax incentives for global OHQs, contract manufacturers and traders, and exhibition and conference organisers.

Although some companies and businesses as well as individuals are in financial hardship during this economic downturn, in many ways, I feel this period of testing is good for us and holds many valuable lessons. The last recession between 1985 and 1987 was rather short and many people, especially the young, have either forgotten or not even known what a recession is. There was so much of euphoria in the last 10 years that many have taken economic growth and good government for granted. Many have now learnt painfully that asset prices that go up can also come down. This must also apply to what we see in the US markets today, which is why we are a bit nervous about the consequences of a downturn on Asia. Before this recession, there was so much job hopping during the days when the labour market was very tight that many workers never bothered to upgrade themselves or stay long enough in one job to master their craft or trade well. Such workers are most affected in this recession. This economic crisis in the region has also shown us how important the political and economic stability and prosperity of our neighbours are to our very own economic prosperity. It has also highlighted to us how fragile our markets are, and how important it is for us to venture further afield to new markets so as to broaden our market base and enhance our economic stability.

The stage is now set for economic recovery this year and the next. It is important, indeed critical, that our policies and systems should provide the foundation for the next phase of economic growth. In this respect, I am pleased to note that the Government has identified correctly the main crucial issues, namely, to maintain the framework for continued economic activity; secondly, to help companies tide over the crisis and minimise unemployment and enhance capabilities and competitiveness for future growth.

I would like to dwell a little bit more on helping companies survive this downturn. Many local companies have been hard hit by the sudden and drastic decline in demand for their goods and services from the region. Many of these companies are not new and small ones. Some of the ones I know of have been operating for more than 10 years. Nevertheless, they are still in trouble and under grave pressure, especially from the banks that have reduced their credit lines. Worse still, some banks have even withdrawn those very bank lines vital to their survival. Although the Government has said that they would like to leave credit assessment totally to the private sector financial institutions, we must remember that these are extraordinary times, probably the worst since our independence, and hence we may need extraordinary measures to help these local companies from folding under. Many jobs are at stake. Our objective of strengthening the base of local enterprises would also be set back by quite a few years if the Government does not extend a helping hand. I know the EDB has the Local Enterprise Finance Scheme (LEFS) as well as a scheme to co-invest in promising local enterprises to help them enhance their capabilities and growth. However, the schemes are limited in scope as not many of these companies in trouble can make use of them. Given the current situation, I would like to ask the Minister whether any new measures can be introduced to help troubled local companies that currently do not qualify for either one of these two schemes.

FY 1999 will yield a budget deficit of $5.1 billion. Given the severity of this current economic downturn, this deficit is not really alarming. This deficit is only the size of our budget surplus in a fairly good year. In fact, I would say it is commendable that at a time like this, there is still no need for this Government to draw upon the reserves of the past Government. The Government's budgeting has always been very prudent, yielding substantial surpluses and reserves in good years. At a time like this, Singaporeans begin to understand and appreciate our prudence much better, although I have not changed my stand that in good years, we still have to be careful not to suck too much money out of our system.

Let me now comment on some specific tax issues in greater detail.

Corporate Tax

Some years ago, the Government stated that its long-term target corporate tax rate is 25%. We are now still at 26%. I would like to ask the Minister whether we still maintain this long-term target rate of 25%, and if so, when do we plan to achieve this long-term target rate. Would this year not be a good year to do this in order to help investors achieve a better return on their investments?

Tax Incentives for Businesses Going Abroad

Given the current decline in demand for goods and services from the region, because of this economic crisis, companies have been asked to venture further afield to tap new markets. As we all know, marketing can be expensive, especially in faraway markets. I would like to ask the Minister to consider giving more tax incentives for companies to go marketing overseas.

Tax Grouping for Property Developers

I have raised this issue of allowing property developers, who are now required by law, to set up a new company for every new project, to allow them to group profits and losses for the purpose of tax reporting. It seems a bit unfair that tax has to be accounted for on a project by project basis. Other companies not compelled by law to set up new companies for every line of business can do so now, irrespective of the size of each business. I believe there is some anomaly here that should be addressed. I hope the Minister will look again into this matter.

Waiver of Stamp Duty for Property Transactions

I am pleased to note that the property market seems to have stabilised. However, one impediment to a smooth and efficient market is the stamp duty for property transactions. I would like to ask the Minister to consider waiving the stamp duty until further notice in order to help the property market recover further. In the November 1998 cost-cutting package, the stamp duty on contract notes for share transactions was suspended and will now be extended by another year. I believe the rationale for such suspension is similar for the property market.

Property Tax Rebate.

Currently, the 55% property tax rebate is only extended to commercial and industrial properties. Is there any reason why it should not be extended also to residential properties? Owners of such residential properties have also been hard hit by a very soft market for rentals that have come down substantially. A rebate will help such owners tide over this difficult period and survive the downturn.

Goods and services tax

The retail and tourism sectors have been very hard hit by this economic downturn. In fact, the retail sector has been very weak for a number of years. Our retailers are not competitive, not only because of the high rentals and wages, but also partly because of the Goods and Services Tax. I would like to ask the Minister to consider lowering the GST at this time to 2%. It is important to keep the GST mechanism in place. A cut of 1% would not impact the revenue collection too much, but would go a long way in helping restore confidence in the retail sector.

Personal Income Tax Reliefs

With the onset of this economic crisis, unemployment is rising. The Government is encouraging more workers to go for skills upgrading and redevelopment. To give further emphasis to the importance of lifelong learning and skills upgrading, the Government has decided to raise the tax deduction for actual expenses incurred by individuals for such upgrading from $2,000 to $2,500, an increase of $500. While the gesture is much appreciated, I must point out that very few courses qualify for such tax deduction. I would like to ask the Minister to relax the criteria on the type of academic and professional courses that would qualify for such tax deduction. For many of us, upgrading may not be by formal courses that will lead to diplomas, certificates or any other professional qualification. In this IT age, many of us would like to upgrade ourselves in the IT area through more informal courses, but such expenses do not qualify for tax deduction.

Personal Tax Rate

In line with my call for the Government to consider adopting the long-term corporate tax rate of 25%, I would like to ask the Minister to do likewise for the long-term maximum personal tax rate of 25%. We are still 2% away from this target. This would make us more competitive vis-a-vis Hong Kong and help us to position ourselves as a more attractive centre for finance and other commercial activities.

With these comments, I support the motion.

Mr Shriniwas Rai: Mr Speaker, Sir, I am obliged to you for giving me this opportunity to speak in the debate.

Sir, even in times of a buoyant economy, it is not an easy task for the Minister for Finance to present a balanced Budget. The task is more difficult in times of recession. Nevertheless, the Minister has presented a very pragmatic Budget. There is a deficit of $5.1 billion and, as Mr Chiam has pointed out earlier, I do not think the Government has to be apologetic about it. Its prudent policy in having surplus has to be changed. This is the time when the country needs the $5.1 billion, and I think the Government has done the right thing.

Sir, we must credit the political leadership for presenting this Budget. But there is another institution which I would like to pay tribute to and that is the civil service. An honest civil service has made Singapore proud. It is very important for us to maintain this integrity because the political leadership cannot survive unless we have a very strong and honest civil service.

Sir, we have rightly not cut our expenditure on defence, education and social service. Without a good defence, we will have no security and, without security and political stability, we will not have foreign investments. We are fortunate in this because, looking at our neighbours, investors know where to choose. Similarly, in order to create the manpower for the next century, we must spend our money wisely on education. It is a life-long learning process and we must strive not to stinge in this area. I am glad that the Government has been very generous and it should be.

Sir, we as a people can take pride that, despite job retrenchments, loss of business and a not very favourable economic condition, we have maintained our social cohesiveness. It is times like this that we can test the people's will, and we can pride ourselves, and we hope that even in a worse situation, we can take the same stand.

Sir, there is a likelihood that more jobs will be lost this year. I appeal to the Government to take care of those who will be losing their jobs. We must see that the families do not suffer because the breadwinner has no job, the children do not miss school and that they have textbooks and the amenities of life to keep them going. It is the responsibility of the community and the people as well to help those who are going through this difficult period. But, eventually, the Government must take the leadership. Once the Government takes the leadership, the people themselves will follow through.

Sir, as my earlier colleague, Dr Tan Cheng Bock, has pointed out, the situation in Indonesia is difficult. The Indonesian people are going through a difficult period. We hope things will change for the better after the election. Singapore wishes Indonesia well because a buoyant economy in Indonesia will help us and we have every reason to see that Indonesia comes through the difficult period.

Sir, another area I am a little worried is the economy in China. I do not know what is going to be in store in the future. Perhaps, the Minister may be in a position to enlighten this House. Should the situation change for the worse in China, what would be the repercussion on the Singapore economy?

Sir, the other area which I would like to share my concern is the property sector. Sir, so much of our citizens' money is tied in the property market and it is worrying that property market values are going down month by month. Most people who buy properties in this country have borrowed from the banks and we have yet to see what is the exposure of the banks should the property market go down any further. In certain areas, the property market is going at half price. May I plead to the Government to study the market and to plan in such a way that the property market does not collapse. I am not asking the Government to bail out those who have speculated. But there are citizens who have genuinely bought property for their own occupation, while some may have bought for investment. It is only fair that the Government intervenes when the property goes up and when the property goes down, it should see that it does not go down to such a state that it will affect the economy.

Sir, we are proud of the Government's record that it has built houses through the Housing and Development Board. But there are certain sectors of the community that need private houses and their need has to be planned and looked after as well.

Sir, because of the economic recession, people are very cautious as to how they are going to spend. Even those who have the money tend to be very cautious and this can be very counterproductive. If there is not enough money in the economy, it will be self-defeating because it is important, especially for the retail sector, to have money in the economy. We have to see how we can pump some money into the economy so that the retail sector will not be affected because many people tell me that some of them are having such a hard and difficult time. They find it very difficult to keep their business going.

Sir, our tourist sector is also affected. It is very important for us to see how this area is not affected any further. Our hotels and restaurants are all tied up with this sector. It is very important for us because tourists are not going to our neighbouring countries. As a result of that, we are also affected.

Sir, in conclusion, I would like to repeat that, if there should be a need in future, the Government should be prepared to draw on its reserves. I am not asking that we withdraw everything that we have kept. If there is a necessity, we should be prepared to draw on the reserves and help our people.

Mr Kenneth Chen Koon Lap (Hong Kah): Mr Speaker, Sir, I rise to support the motion.

First, I would like to say a few words on Mr Chiam's comments. Hong Kong is as free a market as one can get. If what Mr Chiam said that economic progress solely depends on the so-called democratic system is true, then Hong Kong should do much better than Taiwan. I do not want to comment on how Hong Kong is doing. Even Mr Chiam can see it. Mr Chiam is being too simplistic and naive in generalising such a complex subject of economics in such a shallow manner.

Sir, many have described the Finance Minister's Budget Statement as a non-event, as expected, or even boring. But notably, hardly anyone has expressed disappointment. Unlike Mr Chiam, it is because everyone has come to expect the Government to take a prudent and long-term view when faced with a crisis and therefore share a sense of confidence towards this year's Budget Statement. Most Singaporeans agree that this is not the time to over-react, but rather to act sensibly and purposely. In the end, the right policies, carried out with determination, would ensure that perseverance will prevail.

However, while the population is comfortable with the macro and long-term strategies, there is a feeling of deep concern at the more micro and individual levels. Many are faced with short-term financial problems. For individuals, the possibility of retrenchment looms over most employees. Company-wise, many are struggling to stay afloat. Although the off-Budget measures have to a great extent helped, 1999 would be a real test. While 1998's performance was not good, many businesses are still buffeted by the spillover businesses of the better years of 1996 and 1997 and are managing to survive on the reserves accumulated. By now, they would have depleted this reserve and even if the economy should turn around, as generally predicted, many may not be able to ride through the next two rough years of 1999 and 2000 to enjoy the recovery. Therefore, the Government, having put in place all the strategies and points to take advantage of the economic upturn when it comes, should address the short-term difficulties these individuals as well as the companies are facing.

There is no quick fix to these problems and it is not expected of the Government to guarantee every company's survival and find a job for each and every individual. The cost cutting package and, significantly, the introduction of the Local Enterprise Finance Scheme have to a certain extent given hope to many SMEs and local companies to survive. But the Government can still do more to assist those who are affected to tide them over this difficult period.

The Government can ease the pressure of competition from many GLCs on the local enterprises. I am not suggesting that GLCs should give concession to local businesses. But many of these GLCs, whose original objective is to mainly compete in overseas markets and to spearhead the building of the second wing, somehow became very aggressive and competitive in the local market. Although we have always been assured that they compete on a level playing field, somehow the perception is that because they have such superior strength, in terms of human as well as financial resources, they can kill off any private company they choose to compete with, especially during these trying times. The decision by JTC to suspend most of their industrial building projects in the next few years so as to ease the over supply situation in the industrial property market is a move in the right direction. This will give some breathing space to the private developers.

At the beginning of the recession, the Ministry of National Development has indicated that as a result of accelerating education programmes, many new schools would have to be built and that they will be farmed out to the private consultancy firms to do. Sir, I want to declare myself as a practising architect. But to-date, I was informed that few, if any, of the firms have received such commission even though the economic situation has deteriorated rapidly. Perhaps, the Ministry should speed up the process instead of holding back. All these decisions will help towards easing the difficult situation somewhat.

As for the individual, the projected unemployment figure is not encouraging. Last year, there were a total of 28,300 retrenchments and this year's figure is projected at, at least, 20,000 and that the unemployment figure will be higher because this does not take into account the new entries to the workforce each year. Although there are many avenues where financial assistance can be obtained - from MCD, CDCs and various grassroots organisations, of course, from Andy Gan - however, more can be done. For example, HDB has been very amicable in restructuring mortgage payments, some from 15 to 20 years longer. In most cases, HDB also allows the owners to pay instalments for the arrears they owe. However, if the sole breadwinner is retrenched, he or she would have no income and therefore the above concession would not solve their problem. Perhaps, in such cases, HDB can consider suspending payment for a period of time until these flat owners can meet their obligation after they have been re-employed.

The retrenchment problem is not confined to the lower middle income group. Many of those retrenched are professionals or executives. They are likely to have a sizeable account well above the Minimum Sum in the CPF and because of their temporary setback, they may not be able to meet their mortgage obligation on their homes or their children's education. I would ask whether the Government will consider for this period only, and on a case-by-case basis, whether a portion of their CPF can be withdrawn for these two particular purposes so that they would not inadvertently lose their own properties or having to terminate their children's education, especially those who have children studying overseas.

I would like to conclude by moving away from the economic aspect of the Budget Statement. For decades now, Singaporeans have spent much energy and placed much emphasis on economic progress. Even with the crisis, Singapore is one of the leading examples of how a nation can achieve economic success and bring a better life to her people under most challenging circumstances. But in doing so, we have lagged behind somewhat in the development of our culture, the arts and other intellectual pursuits such as music and literature. Understandably so, perhaps this period of slow growth will give us an opportunity to catch up in this area of our national development.

Most western countries, especially in Europe, have gone through periods of economic recession and even depression. But somehow, the population spirit and morale have never been severely hampered. I think it is because during times of adversity, they can turn their attention to other less materialistic aspects of their life and derive much enjoyment and inspiration in the arts, music and literature. Of course, in the field of arts, with all the great masters like Michelangelo da Vinci, Picasso, and in music they have Beethoven, Wagner, Strauss. They also have great poets and writers like Shakespeare, Keats, Tennyson. The list goes on. These countries have thousands of years of history, culture and tradition behind them and that enabled them to find fulfilment in the intellectual and spiritual fields even in the face of severe economic hardships.

Therefore, we should seek this opportunity of the slowdown to intensify the promotion of the arts, stimulate our awareness of the richness in the less materialistic aspects of our life. Our Government, especially the Ministry of Information and the Arts, should intensify its programmes to promote our cultural pursuit, organise more art activities, concerts and dramas to stimulate the intellectual inspiration in us. We should promote our local artists and writers.

We are usually overwhelmed by the pace of our economic progress. Perhaps, it is timely for us to turn our focus on cultivating a more gracious society, something we have always been aiming to achieve, instead of always being branded as too rigid and materialistic. More importantly, when confronted with such economic adversity, we could have something else to focus on, to draw inspiration from. Otherwise, our whole world will just collapse around us if we only live for our material possessions.

The recent news from our neighbouring countries is not encouraging, especially in Indonesia. The cautious optimistic prediction of our economic crisis being bottomed out may not materialise. The volatile situation can explode suddenly and Singapore may inadvertently be right in the middle of it. The comforting sign is that we have weathered this crisis well as a nation and that there is no reason for us not to be confident even if things get worse that our Government would be able to lead us through the crisis.

Mr Chiam See Tong: Mr Chen has accused me of having a shallow thinking. I would like to ask Mr Chen whether or not he thinks that Singapore needs a qualitative change to give its people more political space, more freedom to develop qualities of creativeness, initiative and leadership.

Mr Kenneth Chen Koon Lap: Sir, I do not want to enter into a lengthy debate with Mr Chiam. I was simply saying that since he said the pre-requisite of economic progress is a democratic system, I have just proven him wrong.

Mr Chiam See Tong: Sir, I did not say that. I was saying that conditions have changed and the situation has changed now, and we need to change at the same time. I gave the example of Taiwan. Taiwan has changed to more democracy and more freedom, and that is probably why it is so resilient now. It has managed to make things more innovatively that can be sold in America in competition with the other low-wage countries. I am saying that Singapore should also need a qualitative change. Does he agree with me?

Mr Kenneth Chen Koon Lap: Sir, I have given the example of Hong Kong. If he wants another example, it is Russia.

Mr Chay Wai Chuen (Tanjong Pagar): Mr Speaker, Sir, thank you for giving me this opportunity to speak. To answer Mr Chiam, perhaps he has not lived through the days of the Great Depression in the United States where the greatest democracy of the world was having great unemployment and hunger and people queuing up for food. So does it mean that because you have great democracy, therefore your economic situation will necessarily be the better?

I must first proceed to address the motion by the Minister for Finance. I welcome the caution of the Minister for Finance in his Budget speech. Such a caution, delivered with a $5.1 billion deficit, is to be welcomed after so many years of surpluses that the Minister had delivered in this House. And it is quite likely that with a CPF cut of 10% and a $10.5 billion injection into the economy through competitive cuts in November 1998 which, it is estimated, can add to about $2 billion into our economy this year, there is good chance for the economy to move around. The cut in the CPF of 10% can mean an injection of about 5-6% to the economy. Why do I say that? Wages constitute about 60% of the GDP. If you have a 10% cut of the wage all round, there is likelihood that there can be a 5-6% injection in the economy. Add to the $2 billion competitive cost cuts that we have and last year's $10.5 billion, a turnaround therefore can be expected. But as the Minister said, barring unforeseen regional or international disturbances.

Sir, there is a famous Economist Herbert Stein, who was one time advisor to the US President, and he said, "What cannot go on forever must stop." And I have just noted that our Prime Minister just mentioned in Australia about the great bubble that is going on in the United States. Perhaps, Mr Chiam should wait his time to see what will happen. There are great unforeseen international and regional disturbances that can really affect whatever plans we have, even now that we are moving towards steering our economic towards a turnaround. Even the necessary conditions in our own domestic economy, we must make sure that whatever effects we are introducing in the economy must be filtered down so that everybody down the line in the economy gets a part of the share in this cost-cutting. If the Government cuts statutory costs and only the landlord makes a gain by saving the cost but not filtering it down to the sub-tenants, the economy is going to face a lot of difficulties because down the line small businesses will continue to face such difficulties. To make sure that such cost-cutting measures that we do filter down the line is very important. How to do so is something I believe the Government should try as best as possible to monitor what are the implications of many of these statutory costs on the businesses down the line and to see what kind of redress they can have.

Secondly, we must also ensure that whatever cost and price cut that we have must boost consumer and investor confidence. Whenever there is a price-cut or saving in wages, there is also, on the other side of the coin, a tendency towards a recessionary spiral. So we must balance the two. It is like a fine edge that we must balance and Government must somehow manage this task. Consumer and investor confidence must be ensured so that at the end of the day, our export competitiveness will also go hand in hand with this consumer and investor confidence to build back the growth in the economy.

Thirdly, I would like to address this topic on our foreign exchange rate which is an important policy instrument. I can understand the Minister for Finance in his responses in Parliament at various times to be quite ambivalent or vague about this foreign exchange rate policy instrument. It is quite acceptable for the Minister for Finance to say that we do not manage our exchange rates because we are an open economy. But I would say that even in spite of this, the fact that our economy is very open and that there is a great need for import and export, there is possibly some scope for some foreign exchange leeway rate movement. A cheaper Singapore dollar can attract capital, a capital account in the balance of payments through people coming in to buy up assets. A lower Singapore dollar can also operate through our goods and services sector where export competitiveness can be built up and the whole impact of all this will be essentially on affecting our money supply which at the time of potential recessionary spiral is something that we should not forget to look at. So, while we are reducing costs and reducing income, we must also drive exports and spending. I see that this exchange rate variable therefore is an important factor, and it should not be left only to the market.

The $5.1 billion deficit in this current Budget should not be viewed as too alarming. After all, we have had many years of surpluses and reserves have been built up and a considerable part of this deficit spending is in the area of development expenditure. Yet, I must point out that the growth rate of our development expenditure over the last three years from FY 1997 to FY 1999 is actually slowing down. We should also be aware that the leakage component of our development spending can be quite high because of the open nature of our economy. Hence, the multiplier effect of our Government budgetary stimulus is much smaller than what these figures are wont to show. So, we also have to be aware of the limitations of fiscal spending. Therefore, I see this role of trying to balance fiscal spending with our foreign exchange rate policy quite important.

Due to the regional financial difficulties, our private sector has seen a significant part of its assets diminish through stock and property collapse or business failures. While companies are struggling to repair their balance sheets, there is a significant reduction in the wealth effect of our private sector in the economy. This reduction in the wealth component of our economy can lead essentially to a down-turn in spending. I think this is an important element that we must look specifically. We can see now the diminished demand for restaurant services, for boutiques, for cars and in the property market. So we need to give back as much as possible to drive the private economy to repair back its spur and to create back the wealth that has diminished.

Singaporeans today are poorer than they were 1-2 years ago. So we welcome the various schemes that the Minister has highlighted of efforts by the Government to redress, through upgrading of various skills training programmes for our people in the workplace in order for them to get on to higher skilled jobs to earn the income that they require. Various training and grant programmes exist today, the skills development training centres, for example, run by the ITE and other skills training centres. I would urge that a skills training scheme or programme that can attract more private sector effort be studied.

Various grants or voucher payment schemes can be devised for modular training programmes that can be run by the private companies which can use their facilities and their plants for various modules of the training programme. The Government body can then concentrate more on administering these programmes, their certification and tests. With this more flexible system, we can train the kind of people that we need for the private sector economy, so that it could be more dynamic by engaging the right type of people. With a more flexible private sector oriented training scheme which I hope can be developed soon, we can expedite this important need for training and development in our economy.

Sir, I support the Minister in his motion.

Mr Chiam See Tong: Sir, the hon. Member has taken a pot shot at me. He said that America had a deep recession. That was in 1929-1933. I think we all know about that. Taking the year 1933, it was 66 years ago, and I believe America, being a country where there is freedom, people make studies and come out with all kinds of theories. I think now they understand why there was a recession.

With due respect to the Prime Minister, he made a prediction that the bubble will burst. But soon after he made that prediction, the Dow went up 200-over points and now it is in its 92nd month of its uptrend. Of course, anything that goes up will come down. This is easy to say. But the point is that it is still holding strong. And the reason why it can reach that point is because America is so great and because it has creativity. It makes a film and it earns US$500 million. Can Singapore earn that kind of money?

Mr Chay Wai Chuen: Sir, the point that we really want to address out of Mr Chiam's statement is: does it mean that democracy will bring more economic growth? I think this is the big issue that we have to look at. I just pointed out about the depression that happened in the US economy. They were a democracy. But why then did this thing happen? So we have got to look at the issue more in depth and not just say because it is Hong Kong or Taiwan with more democracy, therefore the economy is resilient and we are not resilient. I think there is something to it that we must challenge.

Mr Chiam See Tong: Sir, speaking in Singapore's context, I believe Singapore has reached a stage where the people are already educated enough. We have reached a high level of per capita income and I think it is time for us to make a quantum leap to get us to a higher level of development, producing value added goods that are involved with IT, goods that are involved with knowledge and Singapore can then be as rich as one of the western nations, and not competing with Indonesia and the rest of the region.

Mr Low Thia Khiang (Hougang): (In Mandarin): Mr Speaker, Sir, the effects of the economic crisis and financial turmoil in this region are reaching into the economic field. The economy of Singapore is no longer enjoying more and more good years as said by the PAP in the last elections. This year's Budget will have more than $5 billion in deficit. Actually, this $5 billion is not a true deficit, because our estimated revenue is $24.1 billion and operating expenditure is $15.2 billion. So if we do not include the development expenditure, there will be no deficit of $5.1 billion as played up by the media. There is a deficit because of the increase in the development expenditure. If we maintain the development expenditure to the 1997 level of $9 billion, there is no need to touch our accumulated reserves. However, from the macro economic point of view and the future development of our country, we should make use of the time of the downturn to prepare for a better take off in the future. Also, at the same time, we can help the people to tide over the difficult situation. From the economic policy point of view, the PAP Government has all the time, whether the economy is good or bad, even when people are suffering from unemployment and the economy is in recession, not been prepared to use fiscal measures to lighten the burden of the people. Regrettably, the economy is now facing great problems and people are facing great pressure and the Government is not lowering the charges but is continuing to increase water tariffs, refusing to repeal the GST and do not care about the people's survival and they continue to tax the people.

The so-called rebates on HDB rentals and S&C charges and so on are to alleviate and to cushion the hardship caused by the GST. Rebates on utilities bills are to offset the impact of the increases in water tariff. The "Special SC/CC rebates" which will last for a year and announced at the budget this year is only a symbolic concern shown by the Government to the livelihood of the people affected by this economic crisis. This is only in real terms $2-$6 compared to the cost cutting measure implemented by the Government. The workers' wages have been reduced by more than 10% and their incomes have been reduced by more than $2-$6. Now, when there are more and more people becoming unemployed, with $2-$6 to help people, is it not ridiculous? Can I ask: what can this $2-$6 rebate do for such people?

From the present economic crisis and the difficulties faced by the people, I am reminded of the year 1997 when the PAP brought up the platform to say with confidence that it would be able to achieve 5-7% growth every year and to create more wealth, and this was the main plank in the platform of the PAP for the elections. Generally speaking, the people do not have more wealth. Instead, because of the downturn in the property market and the share market, their assets will not appreciate but they have also lost a lot of money. And the so-called subsidised loan obtained by the people have to pay higher interest than the commercial banks. The share ownership scheme has become a share losership scheme. Worst still, the unemployed people and the business losers are facing bankruptcy and are in a helpless state. The PAP should apologise to the people.

Sir, in this Budget, to help the business community, I think the Government is unfair. They pay special attention to look after the financial community and big companies, and to provide money making companies a lot of rebates and special tax tariffs, tax concession and so on and so forth and to be exempted from certain taxes like GST. But to the small and medium sized enterprises, the Government has not given any specific measures to help them tide over the present difficulties.

Finally, what we must pay attention to is that there is a special feature in the Budget that the Government wants to provide for $125 million to provide for some new programmes. I feel, in principle, that all kinds of provisions must be clearly stated for their objectives. And without the specific objectives and it wants Parliament to give the provision, I think it should be debated in this House before it is approved. I want to ask the Government how we are going to use this money, what kind of services will it be spent on. Otherwise, this is amounting to giving them an open cheque of $125 million from the Government. This is not prudent and is against the spirit and principle of Parliament scrutinising and debating the budget before it is approved.

On the whole, we must look at the people's difficulties from this present situation. In the good times, the Government continues to tax the people and to accumulate surpluses. But when times are bad, the Government continues to tax the people but to help the people it is only giving $2-$6. On the other hand, the media is playing up to say that it is alleviating the burden of the people. I can say that, to use the Teochew phrase, it is good looking but it is useless. All that glitters do not shine!

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.10 pm.

Sitting accordingly suspended at 2.45 pm until 3.10 pm. Sitting resumed at 3.10 pm