ANNUAL BUDGET STATEMENT

Order read for 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.

Mr Ong Ah Heng (Nee Soon Central): (In Mandarin): Mr Speaker, Sir, the Government responded to the regional economic crisis with two cost-cutting packages last year to boost the economy. One was a $2-billion off-budget package announced last June, and the other a $10.5-billion cost-cutting supplementary package announced last November.

In addition, this year's Budget has adequately and reasonably taken care of Singaporeans of different income groups. I am glad that the largest allocation of the Budget has gone to Defence - at 25% of total Government spending, followed by Education at 19%. National defence is one area that the Government has always emphasised. In times like this, Singapore is a small country and when there are social unrest and chaos in some other countries, we need to be even more prepared.

The emphasis on education is also appropriate. Singapore is a small country with no natural resources. Human resource is what we depend on most for our success. As economic competition intensifies in the region and in the world, it is necessary for Singapore to move into a knowledge-based economy in order to survive and continue to grow. The second largest spending on education therefore should help develop our human resources for this challenge. However, I urge the Government to also support training and retraining programmes for our semi-skilled and unskilled workers, because they will remain in the workforce for at least another 20 years.

One area that I want to give special attention to is the 10% personal income tax rebate that the Budget provides for this year, up from 5% given in the last financial year. Though only 35% of the taxpayers enjoy this 10% rebate, the remaining 65% of the population have also not been forgotten, as the Budget provides for rebates in rents and conservancy charges for those staying in rented and owner-occupied HDB flats. The amounts of these housing rebates range from two months' net rent and three months' net service and conservancy (S&C) charges for one-roomers to one month's net S&C charges for the 5-roomers. It is right that due emphasis and consideration be given to the lower and middle income groups. This approach certainly deserves our applause. It shows that the Government is able to present a budget for everyone during this crisis.

For many years, due to the prudent fiscal policies, Singapore is able to enjoy budget surpluses. This has helped to build up surplus funds that can be used during difficult times. From the Budget, one can see that the projected expenditure, which will lead to an operating deficit of $5.1 billion or 3.5% of GDP for FY99, is drawn from the accumulated surpluses. The Government has no need, at this moment in time, to use the country's reserves to help Singapore to tide over this crisis. This is another area that we, as Singaporeans, should appreciate.

I am confident that the Prime Minister and his team will be able to lead Singapore out of the regional financial crisis. But we should unite together to fully support the Government's efforts.

Mr Speaker, Sir, the 10% across-the-board income tax cut will help to cushion the impact of the CPF and wage cuts for workers. However, the workers would like to ask if it will be enough to carry them through this year if the economy registers a negative growth. If the economy goes into a recession, does it mean that workers will have to go through another round of CPF and wage cut? Besides, when will the workers know if they have to bite the bullet again to help the economy to pull out of the recession? When will these workers be able to know whether the cost-cutting measures announced last year are working?

The Budget Statement has yet to provide answers to these questions uppermost in the minds of the ordinary workers. It is time now for them to have a clearer picture of what is in store for them this year. It is only fair that they be warned early of the painful adjustments, as in the last year.

On this note, I support the Budget Statement.

Dr Lee Tsao Yuan (Nominated Member): Mr Speaker, Sir, after the major cost-cutting package announced last November, it was not expected that there would be anything spectacular about the Budget. True enough, the Budget contained few surprises. As expected, there was an income tax rebate and rebates on HDB rentals and S&C charges; and sector-specific fiscal incentives. I am glad that spending on education has increased to 19% of total Government spending or just under 4% of GDP. Preparing the young for their future is one of the most important challenges that we face.

The only aspect that I think is insufficiently covered is expenditure on the upgrading and retraining of workers. In my view, this is a task of some urgency. The transfer of $79 million for the Skills Redevelopment Programme in FY98 notwithstanding, surely more than $150 million could be allocated to the Ministry of Manpower this year for this purpose.

The projected deficit is $5.1 billion. The majority view expressed yesterday was that this deficit was appropriate, citing as a reason the increase in development expenditure. I share this view. I would also like to add that the deficit is well within the current Government's means. After taking into account the overall projected deficits in FY98 and FY99 - the technical term is net receipts in excess of outlays - there is still an estimated $2.6 billion left in Government reserves during this term of government. The actual budget surplus in FY97, the first year of this current government, was $5.25 billion, which is not sufficient to cover the combined budget deficit in FY98 and FY99 of $5.5 billion. However, the receipt in excess of outlays in FY97, which includes land sales, was $13.5 billion, which is $2.6 billion more than the net outlays in FY98 and FY99. Hence, in terms of the Government reserves, the Government would not be drawing down on past Government reserves. The $5.1 billion deficit therefore, in my view, is entirely appropriate in a time of crisis and, in short, I support the financial policy of the Government.

For the remainder of my speech, I would like to focus on one aspect of the economy that deserves particular attention. Compared to other countries in the region, Singapore has not been as badly affected by the financial crisis. This, in large part, has been due to the sound economic structure and capable economic governance, including the series of decisive cost cutting measures, the proactive drive towards building capabilities for the future, and the promotion of innovation and entrepreneurship, particularly technopreneurship. In short, during this period of crisis, the macro framework has been refined and updated in order to sustain economic growth, both in the immediate future as well as in the medium term.

Since the macro-economic aspects of economic governance are well in hand, I believe that it is now time to examine the micro-economic aspects of economic governance. What I have in mind is a comprehensive and systematic review of the regulatory environment in Singapore, to serve two objectives.

The first objective is cost. Regulations can, inadvertently or otherwise, contribute to cost. The second objective is to examine whether regulations inhibit the flexibility and freedom required for creativity and entrepreneurship.

There are three categories of regulations which I have in mind. The first category comprises regulations which, because they discourage competition, either do not allow prices to fall as much as they can, or do not provide sufficient incentives for suppliers to offer better quality products or services. What is needed, in this instance, is to examine whether deregulation or liberalisation will be beneficial to consumers, without affecting the financial viability of existing suppliers.

The second category of regulations comprises those which have been introduced for perfectly good reasons in the past, but which could be rendered outdated and obsolete today, because the reasons for which they were introduced may no longer be valid in today's changed environment. However, because these regulations are still in place, there is an added cost of compliance which may be an unnecessary burden on businesses and consumers.

The third category of regulations are what I call kiasu regulations. These are regulations which have the objective of protecting the consumer or general public, but because of the fact that they are overly protective, they may inadvertently hinder entrepreneurship.

The twin objectives of lowering cost and encouraging entrepreneurship should be readily accepted. In fact, regulatory reform is precisely what has been occurring in three sectors in Singapore today - finance, telecommunications and electricity.

In the financial sector, we are all aware of what is amounting to a paradigm shift where a wide-ranging series of liberalisation and promotional measures have already been announced, including the demutualisation of the stock exchange and SIMEX. These are designed to enhance Singapore's competitiveness and to further promote Singapore's positioning as a financial centre.

In the telecommunications sector, we have witnessed how the entry of additional suppliers in various telecommunications market has resulted in dramatic reductions in cost of service to the consumer. For example, the launch of the third Internet service provider, Cyberway, in 1996, led to the offering of attractive price packages by the three Internet service providers. Till this day, both SingNet and PacificNet continue to take full-page advertisements to advertise innovative offers to attract new customers. Similarly, in the mobile phone market, Mobile One and SingTel continue to engage in aggressive price competition, much to the satisfaction of mobile phone users. In the fixed line segment of the market, a second operator, Starhub, is due to start operations next year. I look forward to likely reductions in price when this occurs.

The lesson we learn from this is that in industries where there are few, or even one supplier, a monopoly situation, the entry of new operators will, by intensifying competition, result in more competitive prices and a wider range of products with a better quality. Consumers definitely benefit. Existing operators also seem to be energised by the enhanced competition. They have risen to the challenge and continue to be profitable. For example, PacificNet was even successfully listed on Nasdaq recently. This also goes to show that the Singapore market is not too small to support more than one or two suppliers.

Another industry which is in the midst of reform is electricity. It was only very recently that the Singapore Electricity Pool came into operation. This is a wholesale electricity market designed to facilitate competition. There are currently three supplies to the Pool - Power Senoko and Power Seraya - which are separate entities owned by Singapore Power as well as Tuas Power. I look forward to the awarding of the tender of majority ownership of Tuas Power in the near future, for it would be interesting to see if the change of ownership would result in lower prices of electricity which would benefit both businesses and the general public alike.

It is precisely this kind of liberalisation, which we have already seen in these three markets, which serves as useful examples. And we need to see if there are other industries which could benefit from liberalisation and the entry of additional operators. During the Committee of Supply, I will be speaking on certain areas where I believe that a regulatory review would be beneficial.

One might ask why the need for a regulatory review now, at this point in time. There are strong reasons to support this. First, Singapore is likely to encounter even more aggressive competition in the near future when the region recovers. Companies in the region will not only be leaner, trimmer, hungrier for business, but they will also have the initial advantage of a nominal depreciation vis-a-vis the Singapore dollar. Hence, it is important that costs in Singapore do not bounce back quickly to pre-crisis levels in the near future. In the light of this, a thorough examination of regulations which impact on costs would be timely.

Secondly, I believe that the crisis has accelerated the pace of Singapore's restructuring towards a knowledge-based economy, just as the previous crisis in 1985/86 accelerated the pace of restructuring towards a higher value added economy in Singapore. Hence, it is important to remove or modify regulations which hinder the move today towards a knowledge-based economy.

I would therefore like to propose that the Government initiate a systematic and comprehensive review of all regulations, to examine whether they inadvertently or otherwise contribute to costs or inhibit entrepreneurship in Singapore. This can be done by each and every Ministry, with feedback from the business sector which would know best which regulations are excessively irksome where cost and entrepreneurship are concerned. This applies not only to business costs but also to costs which impact directly on the consumer, and which would ultimately feed back into business cost through the demand for higher wages.

In conclusion, now that the macro framework has been settled, it is time to focus on the micro and, in particular, on modifying regulations, where necessary, in order to keep costs down and remove unnecessary constraints to entrepreneurship.

Mr Yeo Guat Kwang (Cheng San): Mr Speaker, Sir, I must say that given the prevailing economic conditions, the Minister for Finance's Budget is an appropriate one. It is a remarkable balancing act in ensuring that Singapore lives within its means, maintaining our ability to compete in the market place and looking after the needs and welfare of Singaporeans.

I am also very relieved that despite the relentless calls from various quarters, the Government has rightfully not dipped into our reserves. Singaporeans must realise that these reserves are built up painstakingly over many years. Hence, it must not be drawn at the first sign of trouble.

Mr Speaker, Sir, the ordinary Singaporeans are also not left out of the scheme of things. The service and conservancy charges, utilities and rental rebates for the HDB heartlanders amounted to a sum of $142 million. This is a big testimony that the Singapore Government is a caring one.

However, despite the effective measures put up by the CSC and the rebates from the Budget, there will still be some Singaporeans who need help. They have many worries. Jobs, school fees and daily expenses are nagging concerns. Meeting the medical expenses will be another challenge. In each financial year, from FY94 to FY97, the Government contributed $100 million to the capital sum of Medifund. I am pleased to note that for the year 1998 Medifund has paid out $13 million to patients from the lower-income families. As for my ward, Punggol South, about $50,000 was granted over the last six months. Therefore, I urge the Government to continue to make generous provisions for Medifund to ensure that the proceeds from its capital sum would be able to meet the increasing demand.

The Community Development Council (CDC) is slowly but surely providing its worth during this trying period. Its active role of helping the needy in our community with the various assistance schemes deserves the Government's continuous financial backing. In Punggol South, we see an increase in the number of applicants for our one-time interim financial assistance scheme for the unemployed. For the last three months, we have an average of 20 cases per month.

Sir, other entities that have seen a growing role for themselves are the Voluntary Welfare Organisations (VWOs). They are often very spontaneous in offering assistance to Singaporeans who need them. Thus, the Government can enhance the effectiveness and ability to help Singaporeans by providing more funds to the VWOs to computerise and to train their personnel in such areas like counselling management and care-giving skills. The better the trained VWO volunteers are the better equipped they are to offer help to Singaporeans.

Sir, another area of concern amongst Singaporeans is the rising bill each time they have to incur at their favourite eating outlets like the coffeeshops and food courts. Many of my residents have come to share with me that they are very puzzled about the price increases at the coffeeshops and wondered what these outlet proprietors have done with the rebates given by the Government. For instance, the 55% property tax rebate for a coffeeshop of about 4,000 sq ft means a saving of $12,000 to $15,000. NTUC FairPrice and NTUC Foodfare are often cited as good examples of how cost savings have been ploughed back for consumers' benefit. These residents have wanted to know whether the Government has any monitoring mechanism to ensure at least some justice is being done with regard to ploughing back cost savings from tax rebates and lower prices. I think their concerns are valid and their request reasonable.

Sir, I support the Budget Statement.

Mr Cyrille Tan (Nominated Member): Mr Speaker, Sir, recently I represented the NTUC at a conference of trade unions in Seoul. What struck me was the passion in which many fellow unionists in South Korea called for a move to bring the labour movement into the mainstream of activity. Obviously, they are very unhappy with the present lot. It is the Government and the major employer groups that are calling the shots. All the unions could do now is to react. They expressed their frustration by calling for massive demonstrations and even strikes. What the Korean trade unionists want is to influence events, and not just to respond to decisions already taken.

As the hall reverberated with slogans, I counted myself as fortunate that we have a system in Singapore where trade unions are a partner with Government and management in nation-building. How did we get to where we are today? It was because of a critical decision taken by political and trade union leaders in the 1960s. SM Lee Kuan Yew was then Prime Minister. The labour movement was headed by Mr C V Devan Nair. At that time, our labour movement was already linked in a symbiotic relationship with the PAP. But SM Lee felt that it was not enough that unions worked in harmony with Government. He wanted to see unions develop equally close relations with management.

Singapore's separation from Malaysia and the British withdrawal were events that made our union leaders sit up and realise that the old-fashioned confrontationist policies would be suicidal. And so the groundwork was laid for the kind of industrial harmony we enjoy today.

The trouble is that our style of industrial relations is often seen totally in a different light in some other countries. I read with amusement a report that people in high position in Hong Kong think that we have been able to cut wages in Singapore because our unions are under the control of the Government. Our unions do not dance to the tune of the Government or management. We play an active part in identifying problems, and in suggesting solutions.

We face daunting challenges. Our economy has been affected by the regional crisis. Close to 30,000 workers were retrenched in 1998. How many more will be laid off this year? Workers are concerned about job security. So our labour movement has initiated training programmes. And we are encouraged by workers' response to training and retraining. We are working with Government and management to find jobs for those who are retrenched. We know that some workers would have problems in paying for their children's textbooks and uniforms. So we provide education grants to them. Our cooperatives also help by lowering cost of basic items. Other traders followed suit. We also got the bus companies and the MRT to lower costs. Our aim is to get workers to acquire skills so that they can remain employable for life. Our workers must have the ability to operate in a knowledge economy. Of course, IT is what will drive the knowledge economy. We must find imaginative ways to tell our workers what a knowledge economy is all about. We need to make them feel comfortable. Not everyone can become computer literate. But this does not mean that they cannot access knowledge through computers. There are computer screens that operate on the touch system. There is no need to key in the secret codes.

People not familiar with the computer system should go to the URA Gallery. As you walk across the room, a big cinema screen comes alive. There is no need to touch anything. Then there are also computer screens where all you need is to touch. You point to what you want to see, and bingo, you get to see what you want to see!

The NTUC is working with a company to develop IT kiosks, with computer screens, operating also on the touch system. Soon, you will find the i-ONE kiosks all over Singapore, providing information about our labour movement, among other things.

In due course, many things which now seem so complicated will be made simpler. In a sense, it would be like the development of the telephone. Initially, the vast majority of Singaporeans did not have a telephone at home. Now there is hardly a home without a phone. Today, mobile phones are used by many Singaporeans.

Mr Speaker, Sir, the labour movement is committed to playing its part in moving Singapore into a knowledge economy. We will spare no effort to look after and enhance the interests of our workers. We believe that we can do this by working as a social partner with Government and employers. Together, we can create even better paying jobs in the economy so that we will have enough opportunities for all Singaporeans to pursue. Together, we can create new and better skills in our workforce so that every Singaporean can participate in a knowledge economy, and live a better life in the 21st century.

Mr Speaker, Sir, I support the motion in the name of the Minister for Finance.

Mr J. B. Jeyaretnam (Non-Constituency Member): Mr Speaker, Sir, last year when we were debating the budget that was presented by the Minister, the recession was still not on us. We had not gone into recession and we did not know what scars it may leave in our society. Indeed, the Minister and a number of others were indulging in some wishful thinking that perhaps we would not be hit hard and we would be all right, although there were warnings from the outside that the recession would be worse than the 1985 recession. But now, a year down the road, we can see what the recession has done. The evidence is all around us. We have 28,300 workers thrown out of employment just in one year. We do not have the figures for January and February of this year. I do not know why they are not available. I rang up the Ministry of Manpower and they said, "We only produce them every quarter." These 28,300 workers have swelled the unemployed in Singapore to 82,400 as at 31st December 1998.

Then we were also told sometime ago that there were 21,000 Singaporeans above the age of 55 who have no CPF savings at all to fall back on. Many of our workers have not just lost their employment, but almost all others have suffered wage cuts, and this is on top of the cuts in the CPF savings. And as the Minister said in his Budget Statement, it has badly affected those above 40 years of age. It is not just the workers, the businesses are down. We have been told of the drop in tourist arrivals and we know that several businesses have closed and bankruptcies are on the increase. So it is altogether a gloomy picture. As the Minister said, we do not know whether 1999 will be any better. He says it is still too uncertain to predict anything for 1999.

As a result of all these, the revenue is down by $3.1 billion. It is against this background that the Government has come to present its programme to the people. I say advisedly to the people, because let us not forget this is a programme of how the Government proposes to use our people's monies in planning for them through this difficult period and beyond.

I was quite interested to see Mr Ngiam, the Permanent Secretary to the Ministry of Finance, writing in the economic newsletter from the Department of Economics of the University, say that the one constant in every administration is the political imperative behind every economic decision. He says politics drives economics. I was glad to see that admission from Mr Ngiam. But, of course, it is not new, without being disrespectful to him. That was stated by Aristotle many centuries ago when he said that politics was the master science.

Sir, I am tempted to ask, and this does not appear in the Minister's Statement, what is this Government's political imperative in presenting the programme, not just for the period of the recession, the crisis, but beyond? Do the political imperatives include a concern for all our citizens, not just a particular section or sections, but for all our citizens and for their plight during the economic difficulties that they are facing? This is a political imperative because it is not just simply welfarism. It shows a concern for those who have contributed to Singapore's economy during the good days. Or is it the Government's political imperative that they have to get along as best as they can? We have got other matters to attend to, not that they are unimportant, to try and get the businesses moving and the economy revived, and we cannot be over-concerned with their plight. That would show a complete lack of concern for their situation and particularly, as I said, of the workers who have contributed to economic progress. And, of course, in the good days, we had tributes paid to them for their contribution to Singapore's economic progress.

The other imperative I wish to know, whether it is one of the Government's imperatives, is how does it plan to minimise the risk of further recessions down the road. How does the Government see this as possible? Is it by having a society where all our citizens are well-equipped, that means, having the necessary basic education to recognise the pitfalls in our society that contribute to any recession that may come our way? Or is the imperative a society where the majority is left out from making any contribution, and the contribution is left to foreign workers and foreign companies, and the decision-making on economic matters left to a small minority of our people? If we adopt the latter, then we are robbing ourselves of the talent in our community. We have got to make sure that we draw in all the talents that are available to us in Singapore, and not just rely on the talents of a few people and particularly just the foreigners. Of course, it goes without saying that if our citizens are to play this role in making their contribution to our economic welfare and progress, then they must be well informed - and this is openness - on all economic activities of the Government, and be allowed to comment and even criticise anything that the Government proposes to do. So the question is: is the Budget preparing us for such a society or are we going to continue in the same way as we have continued from one recession to another?

Speaking in last year's budget, Mr Speaker, Sir, I said that the Budget was disappointing. I am afraid I have the word again for it this year. It is not only disappointing but it is imbalanced in the allocations made to the various Ministries. Why is it disappointing? A writer in the Straits Times, the Government media, reporting on the Budget said it was a Budget for the man-in-the-street. I do not know how he came to that conclusion, and he also called it a "Singapore vintage". Again, I was puzzled by this. It looked to me it was certainly a PAP vintage Budget but hardly a Singapore vintage Budget, in the sense that Singaporeans would all be very happy and overjoyed with the Budget. He perhaps called it a Budget for the man-in-the-street because of what the Straits Times in another article hailed as the "goodies" for the heartlanders, the people who dwell in HDB apartments. I should not look at a gift horse in the mouth. My Party, of course, welcomes the relief that is being given and we would like to say `thank you'. But may I say that even that might appear to be given grudgingly because the Minister says they would not get the benefit of the 10% income tax rebate that 35% of the population will be receiving. But, as I have said, let us not be stinting in thanking the Government for this. But, Mr Speaker, Sir, may I say it is small fare. The rebates on utilities are offset by the increase in the water-borne fees and the conservation tax to take effect from 1st July. So the Government would appear to be taking away with one hand what it gives with the other hand.

In last year's debate, my Party called for a suspension of the water conservation tax. Clearly, that has not merited any consideration with the Government. We also called for a suspension of the GST, or at least an exemption for the basic necessities. That, again, has fallen on deaf ears. But may I ask the Government how does it think these 82,400 people, who were unemployed as at 31st December, are going to pay for their food, their children's education and healthcare. Talking about healthcare, I see that the revenue for the Ministry has gone up by $2,066,000 whilst running costs have come down by almost $18 million and the other operating costs have come down by $25 million. But the charges made to our citizens for attending outpatient centres and clinics and cost of medicines would appear to remain the same. Should they not be given some relief from the high costs of healthcare?

There is also the children's education. I know there are various funds. But we have called for free education for children of low income families, at least at the primary and secondary levels. Why is that not possible if our aim is to create a knowledge-based economy? If that is the purpose, then we should be spending money on providing education for all. We should be aiming for an egalitarian society, not a society where there are few elitists and the rest are left out. How are they going to pay for their transport costs and public transport is not cheap? The Minister says that the duration of unemployment in 1998 was about 8.9 weeks. How long have they been unemployed now? We were told some time ago that they had savings only to last them for about three months and for some, up to six months.

This Budget, like the previous Budgets, does very little for our citizens who will suffer most in this economic crisis. Yet it is those people who have been contributing to our economic progress. We seem to take no account of that when it comes to a crisis.

The Minister says that we must not succumb to the lure of welfarism because, once we succumb, it will be impossible to reverse it. May I assure the Minister, and I am sure the Government knows, that Singaporeans are not asking for welfarism. I do not think Singaporeans want welfarism in the sense that it has been understood as paying them for nothing. But these people have been thrown out of jobs through no fault of their own. It has been forced on them. They have been forced to take pay cuts, again, through no fault of theirs. So is it welfarism to see that they are helped? Is it welfarism to see that their children's education does not suffer? We keep talking about our only resource, our people. And is not education the best investment in that resource, if it is our only resource?

So I say, Mr Speaker, Sir, that it is not welfarism that we are asking for, but a recognition of the contribution made by our workers and adequate caring for them in their times of trouble. May I propose that the Government consider very seriously giving a cash allowance to families who are in need during the period of the crisis? We called for this cash allowance to families in need a long time ago but nothing has been done.

I must move on, Mr Speaker, Sir. I said it is also an imbalanced Budget. Although the revenue has gone down by 11.4%, I see the operating expenditure has gone up by 2% over 1998. And I recall that the Minister, speaking last year in this House, said that the Government intended to keep a tight lid on expenditure, and this year, he again speaks about the aim of keeping the public sector lean and trim whilst maintaining a high quality of public service. I do not want to run down the public service. It is good. But I am not sure that every Singaporean will agree that our public service is of a very high quality. The running costs, we were told, amount to about $14 billion and 92% of this goes to the running costs of the Ministries. The manpower expenses, we are told, amount to $3 billion. That leaves about $11 billion for other expenditures. We do not know what these running costs are. Should we not have some breakdown of the running costs of the Government?

Mr Speaker, Sir, we are a population of three million, or is it that we are approaching four million? Do we need to spend $14 billion, in running costs, in governing ourselves? I have, in the past, and I was here in 1981 to 1986, called several times for a committee to examine the running costs of governing us. But, again, it has fallen on deaf ears.

But the imbalance is seen sharply, Mr Speaker, Sir, in the disproportionate allocations made to the Ministries. Of course, I go straight to defence. I may be the only speaker in this House who queries this expenditure on defence year in and year out. But may I assure the Minister that there are a great many people outside who want to know why we are spending so much on defence. Should we not be told clearly in simple terms instead of just general language about the need to be ready, why we need to spend 25% of our monies on defence? If you add to that the cost of policing us and the civil defence, it comes to almost 1/3 of our monies.

Last year, Mr Speaker, Sir, I informed the House of the spending in various countries. I said that out of a total of 167 countries, only about 24 or 25 were spending more on defence expressed as a percentage in terms of their GDP. That was for 1996. I have not got any figures after that. The Minister for Defence, replying partly to my call last year, spoke of the need for high technology and the need to spend the money on providing high technology. Well and good. But the question still remains unanswered. What is the threat that we are facing? Where is the threat coming from? And what form will the threat take that we need to spend 25% of our monies on defence? Is it that we wish or that we intend to impose a mentality in our citizens that they are under siege, that they are besieged by enemies outside and therefore we have to be prepared? That may have been the position years ago, in the 1950s or 1960s, but does that still continue that we are being besieged or surrounded by hostile neighbours? After all, we are members of several defence pacts under which the members are obliged to come to the defence of any country if it is attacked.

There seems to be a paranoia about being attacked from outside. In the same way, I suppose, the Government and the PAP suffer from opposition parties. There is a paranoia about allowing opposition parties to function and perform their role in the society. I think one speaker in last year's debate asked the House to look at what happened to Kuwait. What happened to Kuwait? When Kuwait was attacked, the international community moved in. So we have the United Nations now and we should be backing the United Nations to see that they provide some security for the small countries. But most important is we have got to make a calculation on our spending and see whether it is cost effective. That is the most important thing. And again, I have been calling for a committee to study our defence needs and how much we need to spend on it. There has not been enough thought given to all this. All this is decided for us and we are told, "You, be careful, we are going to be attacked. So, we have got to be ready."

Secondly is the amount proposed to be spent on education. That is only less than a quarter of our monies. And health, which is another important factor, takes up only about 1/25 of our monies, whereas defence and security take up a third. The Committee on Singapore's Competitiveness rightly stresses the role of education in our economic progress and it is not just the retraining of our workers, important as it is, ---

Mr Speaker: Order. Mr Jeyaretnam, you have used up your time.

Mr Peh Chin Hua (Jalan Besar): (In Mandarin): Mr Speaker, Sir, I support the Budget Statement by the Finance Minister, Dr Richard Hu.

On the surface, this budget would appear to be uneventful. Some people commented that it is like drinking plain water. Yet, it is a budget which is popularly supported by the people amidst this South-east Asian financial crisis.

The budget deficit in 1999 has been increased from $470 million in 1998 to $5.05 billion this year, or 3.5% of our GDP which is the highest deficit in recent years. The increase in the budget deficit is mainly due to the increase in Development Estimates which is as high as S$13.94 billion, accounting for 48% of our total expenditure or 9.8% of our GDP which is again one of the highest figures in the recent history of Singapore.

According to the Finance Minister, this is to be treated as an investment for our long-term development of our educational and economic infrastructure. For the education budget, it receives S$5.7 billion, which is 4% of our GDP and is much higher than the 3% in 1997 or 3.4% in 1998. On the Development Expenditure for the Ministry of Education, it has also increased by 31% or S$2.2 billion, out of which S$1 billion will be used for the construction of schools and the other S$315 million will be used on IT facilities. I am very glad that our Government would be able to spend so much money on education despite the economic crisis we are facing. I hope that the Ministry of Education would build more schools so that they could implement the full-day school programme as soon as possible, and that more computers would be purchased to facilitate our students with IT skills.

On tax reduction, there is no big change in this budget, except for a 10% rebate for corporate and personal income tax only. However, provisions are made to help our lower income families tide over these difficult times, unlike what the NCMP had said just now. I welcome the rebates given to the HDB dwellers in terms of rentals, utilities and S&C charges. I hope that the Government could also provide some form of assistance to those who are retrenched or unemployed because of the economic downturn, as their families are suffering because of their loss of income.

I personally feel that after the off-budget measures and the $10.5 billion cost-cutting package announced by the Government last year, if the Government again gives some cost-cutting provisions in this budget, it would send the wrong message to foreign investors and local businessmen that our economy is getting worse. Therefore, I feel that although this Budget is very cautiously tabled and seemingly uneventful, like plain water, it is nevertheless a confidence-boosting budget. I believe that foreign investors will continue to come here to invest and local businessmen would also make a comeback to recapture lost ground, thereby helping to resolve our present unemployment problems.

In short, to look beyond the economic crisis and put our focus on the strategic industrial development after recovery from the crisis is the correct thing to do. Our Government has been cautious in avoiding over-reacting to the present crisis, particularly at this time where there are signs of recovery for the economies in the region. I think this budget would give people more confidence and would alleviate their worries about our economic future.

Mr Speaker, Sir, since its inception in July 1997, the Asian financial crisis has been sustained for more than 11/2 years. Although the crisis has quite seriously impacted on us, our sound financial system and solid economic fundamentals have stood us well in withstanding this financial turmoil. Now, with some signs of recovery in the Asia-Pacific region, I feel that the Government and our people should not be too pessimistic about our future. We should see how we could seize this opportunity and move one step higher. The Government should also consider creating an environment which is conducive to foreign investors and local businessmen to invest here. This will help them to build up their business and, at the same time, bring out the entrepreneurship among our Singaporeans.

Mr Speaker, Sir, on the first day of Chinese New Year this year, when community leaders, friends and relatives came to greet me, at first, I would avoid using the traditional Chinese greeting of "Gong Xi Fa Cai" because with this financial crisis and all the troubles in this region, no one will believe that we can fa cai or strike a fortune this year. So I just said very plainly, "Good Luck, Good Health". But then by the sixth day of Chinese New Year, my feelings changed because on the fourth day of the Chinese New Year, ie, on 19th February, the Japanese Parliament approved an unprecedented huge budget of S$1,211.5 billion to rescue the Japanese economy with the hope that in the new financial year starting on 1st April, it would be able to rescue Japan from its economic recession which had been troubling them over the last eight days. I have full confidence in this rescue package of the Japanese Government.

Then on the sixth day of Chinese New Year, ie, on 21st February, the Government of the People's Republic of China decided that it would expand its domestic demand and strive for 7% economic growth this year and they also stated categorically that the RMB would not be devalued. With all my years of experience investing in China, I feel that this is not an impossible task for the Chinese government. And then on 19th February, the Finance Minister of Taiwan also announced that Taiwan's five main financial reform measures were receiving immediate positive results. Therefore, from the sixth day of the Chinese New Year, I began to say "Gong Xi Fa Cai" again because I was no longer pessimistic about our future.

After the Chinese New Year this year, there are a lot of changes in the economic situation in Asia-Pacific. Apart from India and Indonesia, there are many countries which are beginning to see light of recovery at the end of the tunnel. For some countries, they see hope of getting out of the present financial crisis. Apparently, the launch of the Euro and Brazil's financial turbulence have also caused some upheavals to the stock markets in this region. However, the financial market was able to recover its tranquility in a relatively short time. Apart from the attempt to stimulate its economic recovery by the passing of a S$1,211.5 billion budget, the Japanese Government also adjusted its currency policy to lower the Japanese yen exchange rate to its lowest in three months. The margin of depreciation of the currencies of the other countries in this region remains quite normal. There was no particular upheaval in the forex market. On the contrary, I have observed that the exchange rates of the currencies of these countries have rebounded by about 5% to 30% vis-a-vis last year's values. In the stock market and real estate market, there have been no more slips and there seems to be a tendency of stable climb. All these changes are very encouraging.

Furthermore, many countries in the Asia-Pacific have also increased their budget to stimulate their country's economy and to increase the need for their imports. According to a report, in January, Korea has increased 15.4% in their imports and Thailand has increased by about 1.6%.

In a speech delivered at a function of the New York Foreign Policies Association, the Managing Director of IMF, Mr Camdessus said, "Apparently, the economy of the Asia Pacific region is in the process of recovery, and for the world's economy, the worst seems to be over already." He admitted that, of late, the mistake of IMF was to be over-pessimistic about the economic prospects. He also felt that the economic reform plans adopted by the Asia-Pacific region were already beginning to prove effective, and that Korea and Thailand have apparently stepped out of their economic crisis.

I would like to point out that there are already some silver linings appearing from the black clouds overhanging the Asia-Pacific's economy. The financial situation is stabilised, foreign trade is gradually improving and foreign reserves are increased. This year, the Philippines issued international bonds to secure more financing from international financial houses and to buy in US dollars from the foreign exchange market, thus substantially increasing the foreign reserves of the Philippines. Malaysia has also increased its foreign reserves by 40%, attaining a high of US$28 billion in a short period of time. The Philippines' foreign reserves reached US$12 billion in February this year, back to the level before the currency crisis. As for Thailand and Korea, their foreign reserves have risen to US$29 billion and US$52.2 respectively. All these increases in foreign reserves will help the countries' debt repayment and import capabilities, and indirectly stabilise the exchange rates. More importantly, the five countries and territories which have the highest foreign reserves in the world, namely, Japan, China, Hong Kong, Taiwan and Singapore are all in the Asia-Pacific region. This shows that the resilience and ability to rebound in the Asia Pacific's economy is very strong.

In addition, the world's semi-conductor industry is also showing signs of recovery with expected growth of 8% this year. This will in turn bring about more exports of electronic products such as personal computers, mobile telephones, etc. and this will be beneficial to South-East Asian countries whose main exports are electronic products.

On this basis, I would say that there are already signs of recovery in the Asia Pacific's economy. I hope that the Government and our people will not be overly pessimistic about the Asia Pacific's economy. We must be properly prepared. Apart from consolidating our domestic economy so that we would have more and more good years of economic prosperity ahead, the Government should also do more to create an environment conducive to investment by foreign and local entrepreneurs, by providing financing facilities and simplified procedures. This will not only help our business people to tide over the crisis, but also prepare them properly so that they would be able to seize good opportunities when the Asia Pacific's economy recovers, and make a comeback to better contribute to our country's economy.

Of course, our local businessmen must also seize the opportunities that may be available to them with the recovery of the Asia Pacific's economy. In general, we must encourage our local businesses and MNCs to venture into the Asia Pacific region this year. Be the "early bird that catches the worm" and pick the right opportunities to invest and develop their business for good returns. I hope that the financial institutions in Singapore will quickly and resolutely take this kind of economic recovery into consideration, and be daring in providing financing facilities to the more reliable promising local businesses so as to help them to seize such opportunities as they come along. This will be helpful to our economic development.

Furthermore, a survey by MasterCard International revealed that there has been significant increase in the consumer confidence index. As a businessman, my feeling for the economy and the market is more direct and sensitive. In view of this whole bunch of good news, I believe that the new year ahead will indeed be a good year for us to gong xi fa cai. Let us work hand in hand to prepare ourselves to receive gong xi fa cai .

Sir, I support the motion.

Mr Zulkifli bin Baharudin (Nominated Member): Mr Speaker, Sir, I rise in support of the Budget.

I would describe this as a strategic budget, one for the long term and one that would allow us to take advantage of the opportunities when the region recovers. Because we can expect some intense competition from neighbours when and should their restructuring efforts succeed in making them more competitive and efficient. It is a predictable budget but, in this case, it is good because it demonstrates that we are not distracted by short-term challenges and remain focused on fundamental principles that have proven to be successful.

I would like, however, to highlight five main areas which I think deserve more attention from the Minister: (1) strengthening our commitment and presence in the region; (2) enhancing the capacity and capability of our SMEs; (3) assisting the retrenched and unemployed; (4) encouraging and motivating positive attitudes towards conservation; and (5) developing social cohesion.

Strengthening our commitment and presence in the region

Despite great efforts in regionalisation, we still face many problems. We hear of many failures than success. What has happened to our Growth Triangle? Our investments in China continue to throw up many surprises. But such is the nature and risk of investment despite the fact that we are most familiar with the region. One of the problems we have today is the inability to reconcile the dichotomy between political and economic relationships, that when political relationship goes through a bad patch, it seems to discourage many companies from committing themselves or investing in the country. Should this be so? Can businesses and economic relationships not be based on mutually rewarding principles continue to survive the occasional and, of course, of late, a little bit more frequent, political challenges? Like it or not, we cannot change our geography. The region will continue to be our major market for our products and hinterland to expand our industrial base. It is still the region we know best where our relations are still strong, where our best hopes lie.

Our forefathers brought prosperity to this country as middlemen. With only goodwill and friendship with neigbours as tools of trade, now, more than ever before, we need to re-establish this goodwill between our people and our businesses to be strong enough to withstand the occasional political hiccups. We need to strengthen and deepen this relationship with our neighbours beyond political relationships, which can be uncertain, but between businesses and between people. We should send a strong signal to encourage and motivate companies to develop and reinforce this relationship. We should not let failures to discourage us from continued commitment to this region. The financial policies and budget allocation can reflect this by making the necessary provision to assist these companies to establish their presence and infrastructure in the region. The economy in the region may be bad, but there are still good companies out there. We can help local companies to develop strategic relations through mergers and acquisitions, as this may be the right time to forge such relationship.

On the humanitarian front, we can do more to help and assist our neighbours, through food aid and other social projects. We can create long-term goodwill, for example, by increasing the number of students under the ASEAN scholarship programme, or perhaps offer training and scholarships not only in educational institutions but to broaden the scope of this programme, eg, to train other professionals in the region. Government institutions, eg, hospitals and social agencies, can all participate in this effort to strengthen relationships and reinforce ties with our friends in the region.

Enhancing the capacity and capability of SMEs

A large number of SMEs are traders and distributors. They have strong entrepreneurial skills, but many do not own their own unique product of service. Most of them are suppliers to MNCs. We need to do more to help our SMEs. They must be nurtured to be a strong base of our economy, very much like in Taiwan, because an economy that is too dependent on MNCs can be vulnerable. If these companies decide to withdraw from the region to support their local industries back home, our economy can be severely affected. While the Local Enterprise Finance Scheme has been expanded, it is still primarily to finance plant and machinery and for investment in Singapore. What is needed is to help SMEs to strengthen their presence and operation in the region, and to support initiatives to explore new markets in other regions. We need to do more to encourage SMEs to merge and form bigger companies and be better able to withstand increasing competition. GLCs can take the lead by forming strategic alliances and partnerships with local SMEs. This may be a difficult task but one that we cannot run away from, because it is extremely important that our SMEs are strong and large enough to be regional or perhaps global players. I hope to see a more focused and determined effort to nurture and financially motivate SMEs so that they can enhance their capacity and capability to be truly regional players.

Assisting the retrenched and unemployed

The retrenched or unemployed are not just unskilled or poorly skilled workers. It affects also the skilled managers and executives. Even good and hardworking staff can be retrenched. For most of these people, the need for help is urgent and immediate. Not many have enough savings to help them cope with long periods of unemployment. With depreciating asset values, selling off their homes and cars may no longer be a viable option. They cannot think of retraining or other long-term solutions. To them, the most pressing need is to get a job and ease the pain of their financial burden. The subsidies for rental, utilities and S&C charges are timely. But I hope the Minister would be more generous in allocating funds for welfare, bursaries and scholarships and to make them more accessible. We should do more to help their children and families.

The Government can also help lessen the burden in other ways by being more understanding in the collection of various Government and statutory board charges and fees. We must ensure that deficit spending does result in either job creation for Singaporeans or helping them ease the burden. Deficit spending does not necessarily translate to higher GDP growth because of the large import content of our spending. But as long as it creates jobs or helps them pay their bills, it would improve the welfare of Singaporeans.

While the Manpower Ministry and NTUC have done quite a lot to help retrenched workers, we can do more to help a higher level of managers and executives. Why not make the Ministry of Manpower a first-stop placement agency and help search or find another job for all types of employees?

Why not training for managers and executives too? They too need to be retrained, retooled and reskilled. Where can they turn to? Can the civil service and statutory boards, for example, take in more part-time or outsource most of their work to these self-employed professionals, not only to support these people in times of economic crisis but perhaps to make Government lean and, hopefully, develop a whole new industry of self-employed people? This is becoming increasingly common in some countries like the US, but I suspect will be more significant in Singapore too in the future.

Encouraging positive attitudes towards conservation

Recently, the issue of water supply has brought about greater consciousness amongst Singaporeans about the need for conservation. I would therefore like to see, in fact, in the Budget, a more specific attempt to motivate and incentivise, eg, property developers and industrialists to invest in energy conservation programmes and equipment as part of our consistent and long-term effort to make energy conservation a way of life. However, in reality, some of these equipment tend to be more expensive than conventional ones and, until and unless we help develop a local market that is large enough to support conservation efforts, energy conservation will continue to remain expensive and inconvenient.

Developing social cohesion

We have seen recent attempts to test social cohesion and multi-racial understanding of our people. Fortunately, Singaporeans are determined not to let foreigners interfere with our social issues or agenda. However, we cannot take this for granted. The recent debate on discrimination faced by job seekers, if not well managed, can lead to problematic race relations. We have agencies like the CDCs that are now tasked to forge community bonding amongst our people. Perhaps we can have programmes where self-help groups are encouraged to come together; all this for the purpose of exposing our people, especially our children, to have more contact with friends of other races, religions and economic backgrounds.

Mr R. Sinnakaruppan (Kreta Ayer-Tanglin): Mr Speaker, Sir, I rise in support of the motion standing in the name of the Minister for Finance.

The Budget Statement this year, though cautious, is a prudent one against a backdrop of the regional crisis and the two off-budget measures last year. The most significant highlight in this year's Budget is perhaps the unprecedented budget deficit projected at $5.1 billion. The projected budget deficit is mainly a result of reduced revenues than increased expenditures. In fact, the expenditure is rising only by $1.5 billion or about 6% compared to the past year. While the reduced revenues resulting from tax concessions are indeed welcomed by all, there are those who feel that there could have been a greater balance in the range of growth sectors which should have benefited from these fiscal measures. For example, the financial services sector is very pleased with the measures to develop the bond market. However, with the Government's stated intention to make Singapore a knowledge-based economy, more fiscal measures could have been introduced in this year's Budget.

Sir, I would like to mention three of these possibilities based on feedback from the public and media. First, there is a need to introduce tax deduction for the purchase of home computers. Presently, there is a heavy emphasis to equip our schools with computers on a ratio of two students to one computer within the next few years. But school students and working adults alike would find that having a home computer in the age of the Internet and e-commerce is very essential. Already more than 40% of homes in Singapore have a computer. I feel that to help the remaining homes own a computer through the deduction of the hardware cost against the personal income tax or through a grant for HDB dwellers who may not be in the tax bracket, will go a long way in enhancing our nation's computer literacy. This will also help level the playing field for the younger generation.

Second, there is a need to lower the cost of information and knowledge acquisition. One of the key ways in which new knowledge and information are tapped is through licensing. It is common now to exploit licensed knowledge and information in the reseller markets where licensed technology is repackaged for sale, either as products or services.

The cost of licensing is the royalty or licence fee payable. Typically, there is a withholding tax cost, which the licensee is required to bear.

With our knowledge infrastructure getting in place, Singapore is well positioned to become a reseller hub. Reducing the withholding tax costs would certainly help boost this development.

Purchase of information and knowledge outright requires capital investment. I understand that presently our tax laws consider the acquiring of patents, know-how knowledge and information as capital in nature. Unless it qualifies as approved patents or know-how, no deduction is given for the investment cost incurred. From an economic standpoint, these intellectual properties and rights are the very things that help create the final outputs, be it goods or services.

Assets used in a business are given wear and tear allowances only if they qualify as plant and machinery. But this concept is somewhat dated. In this information age, we need to completely review this if Singapore is to become a knowledge based economy.

Intellectual properties and rights, whether purchased or created in-house, are like plants and machinery in a knowledge-based economy. These are the tools with which businesses are done and carried out. Such costs should be given tax deductions, just like plants and machinery.

Third, there is a need to encourage employee share options especially as we try to attract foreign talent to build our knowledge-based economy. In the US, many IT firms have succeeded in attracting and retaining IT professionals because of their very attractive employee stock options. The US tax laws also facilitate this use of employee stock options.

In Singapore, tax is imposed at the time the options are exercised. The taxable amount is based on the excess of market value at the time of the exercise over the cost of acquisition. This does not necessarily encourage employee share options because share options are exercised when the market values are higher than the option price but the full amount is taxed in the year of exercise. As the values of quoted shares move up and down over time, the tendency is to sell at least some of the shares immediately to fund the tax payment and to lock in the reward.

The current tax code does not encourage employees to hold on to their shares, and there is a need to make fundamental changes in this regard. The present system could be adopted in a number of ways to encourage share ownership and long-term employee commitment.

Sir, I do hope that the Finance Minister would consider these three tax change suggestions to develop and grow our human capital as we move towards a knowledge-based economy.

Dr Ker Sin Tze (Aljunied): Mr Speaker, Sir, I rise to support the Budget Statement.

Sir, the Finance Minister has attributed to, as one of the main factors contributing to Singapore's economic slowdown, the sharp contraction in regional demand. The economies of Indonesia, Thailand, Malaysia, Korea and Hong Kong, have all suffered recessions. The financial crisis has brought with it damage to economies, decimation of wealth, job loss and, in certain instances, political fall outs. As a relatively unaffected country amidst the regional turmoil, Singapore has been facing increasing pressure to provide financial assistance as a favour to aid its fellow ASEAN members. One may also argue that such monetary transfers may be the necessary stimulant to revive and reinstate the much needed regional demand so vital to our own economic well-being. The Budget, however, is silent on this.

The validity of such claims needs to be assessed using two yardsticks: firstly, does Singapore have the capacity to provide such forms of foreign aid and, secondly, is foreign monetary aid the best solution to the problems that cause chaos in such countries?

There is no doubt that the Singapore economy grew very rapidly in the past, but the size of our national income, measured in monetary terms, is much smaller than the potential income of our neighbours. A suitable analogy is that Singapore is akin to a rabbit and our neighbours are the equivalent of elephants. As a small state without natural resources, Singapore bears no illusions about its inherent capabilities, with its GNP at only around 1% that of the United States, a major provider of foreign aid. As such, we are in no position to make available, in unconditional terms, monetary assistance to the magnitude that major developed countries are capable of. Nevertheless, we have consistently tried to assist Indonesia within our limited means since the start of the crisis. Examples include the proposed US$5 billion trade-financing credit facility, and our commitment to extend S$12 million worth of rice and supplies as humanitarian aid to Indonesia.

Singapore has, however, come under criticism for stipulating tough conditions for the usage of the trade-financing credit facility. The real problem lies in the divergence of views on how Singapore can or should help countries which are suffering from the current crisis. There is a general belief that the rich should help the poor, that the haves should assist the have-nots. Moreover, the interdependent nature of regional trade and investment has led to assertions that Singapore's prosperity has, to an extent, been achieved using the resources of its regional neighbours. As such, we are now expected to give generously and without conditions. It must be reiterated that the proposed trade financing package serves, essentially, an enabling function: the main impetus is to aid Indonesia along the path to recovery by allowing normal economic functions, like trade, which have been hampered by the crisis, to continue. The folly of advancing financial transfers alone without ensuring its effective usage is well illustrated in academic studies on the efficacy of foreign aid. Let me elaborate.

It has been extensively documented that cash transfers alone are unable to foster economic growth and recovery if the money was deployed poorly. In many instances, economic and political difficulties are concoctions of specific and particularistic circumstances prevailing within countries, and few of such problems are amenable to external intervention or assistance. Sound domestic policies remain the key solution in the generation of economic recovery and growth, such as reforms in the financial sectors, the adoption of appropriate fiscal and monetary policies and the nurturing of a solid political foundation and a firm social fabric. Countries suffering from economic difficulties should try to help themselves by restoring social stability which is necessary for growth and development. Once stability is restored, foreign investors, including Singaporeans, will start to trade and invest again. This is the correct way to generate badly needed economic recovery and social stability. This is also a more dignified way for such countries to emerge from the economic chaos, continue growing at their own momentum and realise their inherent potential.

Sir, the offering of aid need not be manifested in cash transfers. Singapore has provided assistance in other concrete forms. We have been a strong advocate that ASEAN moves ahead with the ASEAN Free Trade Area initiative. Such policies precipitate positive externalities which benefit all ASEAN members.

Singapore has also set aside S$12 million under the Singapore Cooperation Programme to provide about 30 undergraduate scholarships a year for ASEAN students over the next three to four years for study in Singapore. Upon the completion of their studies, these students will return to serve and contribute to their own countries.

Sir, Singapore's fortunes and ASEAN's are intertwined. Singapore cannot afford to let other countries falter. I believe that within our means we have done our best to assist, and hope that they do not falter. In this regard, I support the approach taken by the Government in offering assistance packages to countries in the region.

Sir, I support the Budget tabled by the Minister for Finance.

Mr Simon S C Tay (Nominated Member): Mr Speaker, thank you for allowing me to join in this debate on the motion.

I would like to raise some comments on Finance policy that I hope the Minister might respond to and clarify.

There are some who think that this Budget is a "non-event". To the contrary, I think that there are people who are watching what Singapore does in the face of this crisis. What we do or do not do has significance, not just for individual pockets and corporate coffers in Singapore, but also in the region and the international context.

Sir, in the recent past, economists and politicians alike believed, "We are all Keynesians now", as the late US President Richard Nixon said. What this means is that when faced with a financial or economic downturn, the answer lies with a greater government role. Government has to tax and spend, or if they cannot tax, then it should go into deficit and spend. Government spending and Government's role was the central key to continued economic good times. Government, in this view, was not only the regulator but also the active manager and big player in the economy. State-owned enterprises, subsidies and the welfare state were outgrowths of this thinking. This is especially in Europe, but also in many parts of the developing world.

Things have changed since then. Internationally, in almost every continent, we have seen a movement away from the Government to the market as an arbiter of the economy. Singapore has not been left out of this movement. Indeed, we have been one of the first countries to move away from socialism towards the world market emphasising investment and international trade. As a marker of this, some observers have applauded our economy as the "freest economy" in Asia, ahead of Hong Kong. This movement and accolade are largely welcome. But an emphasis on the market is not an absolute blessing.

Countries that have moved to the market have lesser ability to participate in their economies and less ability to control their economies. In good times, this may not matter. In bad times, however, there may be fewer tools and policies available for the Government to intervene. If the Government intervenes to bail out bad companies, or to establish welfare services that are beyond the ability of its budget, then the international market will rate their economic potential for the future accordingly and they will go elsewhere.

This is, therefore, the first limitation to what our Government can do for our economy and our people. In a world that is moving towards the market, it would prejudice the confidence of the international community if we pull back. Yet, we cannot stand idly by as our economy and our citizens are hit by the crisis. It therefore becomes a question of making the right interventions that are helpful for the present and for the longer term, and which are acceptable to our people and to the international community.

It is not a question that Government can do everything or, on the other hand, that we should rely only on the markets. Rather, it becomes a question of governing the market, as the political economist, Robert Wade, suggests. That is to say, we require government action and policy that are in line with market forces, but allied to achieving public and social good.

Again, we are not alone in this. In many developed countries, there is a wish to continue and restore growth through economic globalisation, but also a wish to soften the sometimes harsh consequences of the market on ordinary people. There has been as such, talk of looking for a "Third Way", especially in the UK and USA.

Against this background, when we consider this deficit budget and the financial policy of this Government, it is not the size per se of the deficit that should concern us. We should instead consider two basic questions: (1) Are we spending money in the right way? (2) Are our policies in taxation sending the right incentives and signals to our people?

Let me turn, first, to the money we are spending. The Government has emphasised the need to continue development expenditure in key areas such as education and defence. I agree that we must think of the long term and use our reserves to develop areas that will advantage us in the future.

On education, I welcome the continued expenditure. But in this light, in planning for the future, I would call for Government's assistance in two areas of more immediate concern.

The first is of children and education. Schooling is not compulsory by law in Singapore. In good times everyone knows and most can afford to emphasise education for their children, for their future. My concern is that this calculation changes in this time of crisis. I urge the Government to monitor the number of drop-outs where this may result from changed economic circumstances. Sufficient and more generous bursaries may be necessary. These should support not just the direct costs of schooling a child but the opportunity cost of the family as a whole.

The second immediate concern regarding education is of self-improvement by our citizens. As we tool up for the knowledge-based economy (KBE), we should try to make sure that all Singaporeans have a chance and the incentive for self-improvement. Government has generously funded schemes as the main plank, but individuals may also wish to invest in their own self-improvement. And where they choose to do so, Government should support those decisions with the right incentives. In this regard, the Budget proposes an exemption of $2,500, an increase of $500. But perhaps this may be insufficient, and I would urge the Minister to consider a higher tax exemption. In this sense, I am arguing that we need to link the long-term view of investing in education to the short-term realities in these difficult times.

Let me turn next to defence expenditure. Like many other speakers, I see the need for good defence force as a factor of stability in these troubled times. Peace and security are the bedrock for our democracy. I would, however, raise two more specific questions.

First, I note that it is not only the development expenditure that has increased, but also the operating expenditure, by some $160 million. The difference between development and expenditure is a bit like between investment and consumption. May I ask the Minister or his colleague, the Minister for Defence, to clarify the need for increases in consumption, in this sense, in this time of crisis? More, generally, I would like to ask the Government if there are ways of benchmarking efficiency and sufficiency in the Armed Forces. I ask this particularly in light of the recent second report of the Public Accounts Committee of November 1998 that reports some lapses in MINDEF's accounting practices.

Second, on defence. Our expenditure has remained quite constant, if not increased, and this is a stark comparison with reductions among many of our neighbours in this time of crisis. Of course, we should be well defended, and I am not encouraging us to downgrade our expenditure according to our neighbours. We should not beggar ourselves because they are poor. But my concern is that our defence spending should not by itself be a source of misunderstanding and concern in the region. I would encourage dialogue and transparency to allay any suspicion that we are taking an aggressive posture and not simply an investment in a sound defence.

Let me turn next to another area of expenditure - social assistance. There have been many calls to assist Singaporeans in this time of crisis. I do not wish to add to the various wish lists. This crisis should not see the overnight creation of a welfare state in Singapore. I do however wish to call on the Government to consider ways of innovating the ways in which it will spend money. We too should, between a suffocating welfare state and often harsh local marketplace, look for a "third way".

One clear area for innovation is to specifically target those who have lost their jobs. The Budget has given a 10% rebate to all individuals. Some may consider this insufficient. But I understand that Government cannot help everyone all that more, given the current deficit already. But there should be special targeting in Government assistance. I think in particular of those who have lost their jobs and have been unable to find employment again for extended periods. For these people, I hope the Government will consider temporary measures to assist them further. Areas such as housing, the cost of their children's education, re-training and the creation and match-making to casual or part-time work should be considered.

A second area is in jobs and discrimination. This is an issue that has arisen recently, especially as regards private sector hiring. If this is not addressed, the economic crisis will test our social cohesion. The Government has responded to that by saying that it will discourage discrimination and encourage meritocracy. I support this. I would also call on the Government to monitor the situation closely and continue to set a moral leadership in its own hiring. We sometimes take meritocracy and rights against discrimination for granted when times are good. But especially in these bad times, meritocracy and human rights must be a shield to protect our citizens.

A third way in which I think we should innovate in our spending is to encourage giving among the citizens themselves. Our Government has moved away from a welfare state, dependent on the Government and its spending, to a policy of many helping hands. This requires private sector help and giving. In this time of crisis, there is a pressure on these private hands. When companies are showing bad results or losses, it becomes very difficult to sustain the giving to charities and other good causes. If companies, families and individuals still give, I think they should receive greater support from Government. I call on the Government to double tax exemptions for companies and individuals who continue to give to charities, arts groups and other causes, and to give tax incentives to families who support their own members who are dependants or who have lost their jobs. This approach does not, I want to emphasise, create a dependency on the State. Rather, I call on the State to encourage members of our community to help each other. This will increase our social cohesion and grow our heartware.

Let me turn finally to Singapore and the region. The Budget reacts to the regional economic crisis. For it is the crisis, and not our own internal factors, that is affecting our performance. Conversely, I believe that we must consider and respond to the crisis. In so doing, our foreign and our foreign economic policy is not a distraction from the economic situation but an important task that is linked to possible routes to recovery.

The region's financial crisis has led to social and political changes in our region, among our neighbours. There is a sense of autarky and a narrow nationalism rising in the countries around us. There are inclinations to close borders to foreign capital. There are great social dislocations, especially among the poor, the young and the women. A UNICEF report has warned of a lost generation in our region - children who drop out of school with little or no education. Neither of these developments - the autarky or this lost generation - would be in Singapore's interest, or our neighbours'. What can we do?

Our role in this may be very difficult. There have been unwarranted and unfounded criticisms of us by our neighbours. These may anger our own citizens. But we should not over-react. People will say things in desperate times that they would not normally. We should look to the longer term. We should re-emphasise the win-win nature of cooperation in the region to seek engagement with those who welcome it to provide useful forms of assistance to those who most need it. We should offer cooperation and assistance to our neighbours in ASEAN. I agree with the previous speaker, the Member of Parliament, Dr Ker, that this need not be in terms of dollar aid only but our assistance should be tangible and sufficient. Additionally, we should offer cooperation and engagement to others outside our region, such as the USA and international agencies, whose help and attention can assist the region's recovery and, therefore, our own.

Asia has been struck by a contagion. But because we have kept ourselves fiscally, not physically, fit over these years, we are less affected. Among the stricken economies, therefore, we should be among those assisting in the process of recovery. I shall propose specific policies in the cuts in the Committee of Supply. I hope the Minister will respond to my comments and suggestions.

Mr S. Iswaran (West Coast): Thank you, Mr Speaker, Sir, for allowing me to join in the debate. Sir, the most striking feature of Budget 99 is clearly the $5.1 billion deficit. Over the past decade, there has been a recurrent constant refrain in this House and outside for the Government to reduce its budget surplus and redistribute funds to individuals and corporates. Our current circumstances, in my view, amply demonstrate the value of the Government's stated approach. It has got prudence in years of plenty and preparation for the years when we have difficulties.

In particular, I would like to congratulate the Minister and the Government for not flinching at a time like this in incurring a substantial budget deficit. I trust this would clear the doubts of many of its detractors. I also hope that the Government will remain steadfast in its commitment to continue with such largesse if the need arises in future with continued economic downturn.

Sir, much has been said in the course of this debate on various aspects pertaining to the business and economy. I wish to confine my comments to the social dimension. One significant implication of this economic downturn has been the stiff challenge it has posed to our resilience and unity as a nation. Our social cohesion has been tested and continued to be tested by external as well as internal forces. Some manifestations of this are, firstly, the more negative attitude one detects towards the infusion of foreign talent; secondly, in a more pronounced socio-economic divide and consciousness as those with less skills lose their livelihood first; and, thirdly, in the more recent debate, which is the revival of something that has been lying low for a while, in terms of discrimination in the job market on the basis of age, sex or ethnicity.

Clearly, Sir, as the pie shrinks, the instinct for self-preservation is heightened. So we need to be vigilant and guard against such divisive forces if our social fabric is not to fray. The question then is how the financial policy in Budget 99 supports this objective - the need to maintain and strengthen our social cohesion.

Indeed, Sir, there is much that has been done in the form of S&C rebates, GST-related offsets, personal tax rebates, etc, and a quick back-on-the-envelope calculation suggested something to the tune of $500 million has been set aside by the Government, in terms of direct support for individual Singaporeans, particularly those who may need help.

Sir, in my view, the question is not whether the Government has been generous, but whether it has been too generic in its efforts to help Singaporeans. More specifically, can we be sharper in the way we structure financial policy to help those who need help? Allow me to illustrate. If we have two neighbours in adjacent 4-room flats in the same block, their experiences pertaining to this economic downturn could be vastly different. It would depend on whether they bought their flat directly from HDB or on the resale market, when they bought their flat, the number of children they have in the family, the employment situation, whether anyone has been retrenched, etc. Some would have two properties, others would be servicing their first mortgage. Some may drive cars and others would rely on public transport. Yet the structure of the financial benefits which uses HDB flat size as a proxy for socio-economic status or, more importantly, their financial need begs the question whether it is appropriate as an indicator of where Government funding should be channelled.

In my view, Sir, using HDB flat size on its own is a less than perfect indicator and it is one that the Government should re-examine closely. In particular, I think the system can be improved and the Government could be more targeted and layered in its approach. For example, whilst we could have a base layer of S&C rebates and other grants which are distributed along this line of flat size, there could be additional layers, especially those that emerge in these times, which can be more specifically targeted at those who need help. For example, instead of having an across-the-board town council S&C grant, we could have instead taken this money, put it into a fund, and say, "OK, let's target this at those individuals who specifically have difficulty and can go through CDCs, self-help groups and other voluntary welfare organisations to apply for such assistance." These organisations are already in close contact with the ground. They know the needs. They know the individuals in many instances and they would bring about a better matching between the Government's intent, in terms of setting up such schemes, and how it takes effect on the ground.

Using voluntary welfare organisations, CDCs and self-help groups is one method. Even if it is to be done centrally, perhaps by referring to CPF accounts and whether they are multiple property owners or single property owners, or perhaps by reference to their property ownership in particular, we may be able to distinguish those who truly need help. My point, Sir, is not to deny Singaporeans in need of their dues. Rather, it is to state the point that Government has set aside substantial sums to help those in need. It is equally important that these sums be directed at those who truly need it.

With that, Sir, I support the motion. 2.35 pm

Mr Heng Chiang Meng (Cheng San): Thank you, Sir, for allowing me to join in the debate. Some might say that this is a very appropriate Budget for the times that we are in. It is indeed a good Budget! After last year's off-Budget measures and after what the Government has come up in terms of the various programmes, this year's budgetary response is very appropriate to the times that we are in. And as the Minister has said, the Budget was carefully calibrated to respond to the regional crisis.

Sir, I take heart in the use of the term "calibrated" because it denotes a sense of exact measure, not more, not less, but just right. It also means that the response would change accordingly depending on how the regional crisis develops. Indeed, Sir, it is a very pragmatic strategy in these changing and troubled times.

In this House, a number of MPs have called on the Government to take care of our own people in these difficult times and that we should be more careful in giving PRs, employment pass and/or work permits to foreigners. Sir, I too support this call. In fact, I have had the same comments from my own ground. But, Sir, in the larger scheme of things, I would like to caution the Government to be very careful on this issue. There is a need to have a very fine balance of helping our people and making sure that we do not reject the foreign talents that will be very necessary to our economy. Sir, we cannot afford to be a closed economy. We should not over react, close ranks and help our people to the long-term detriment of our economy and, ultimately, our nation.

Sir, closing ranks and rejecting foreign talents is not the way to compete. We have in fact only one resource, a point often mentioned in this House; our human resource. The only way that we should compete is to provide the means to make our people, entrepreneurs and companies stronger and better than the foreign competitors. In this respect, I am not disappointed because the Government has provided ample resources for these goals.

But, Sir, in the larger sense, I must still admit that I am disappointed, not because of this Budget, but because the Minister did not make long-term changes to our tax system; changes necessary to promote Singapore as a total business centre, not only for the region, but for the world. This Budget and the past Budgets have done much to promote Singapore as a premier financial centre. But I ask, despite my own background in the financial area, why only the financial centre? Why do we stop there? We want to be a first world economy competing not on low cost but on high productivity. We want to be an industrialised country, not just only a centre for financial services. We want to attract top-notch MNCs to set up headquarters in Singapore, whether world headquarters or regional headquarters. We want our home-grown companies to be world beaters, both in Singapore and abroad.

Sir, if we want these and more, it is time for us to have a comprehensive review of our tax system. We need to have a tax system compatible with these goals and not one which provides obstacles. For example, take the issue of group income. Other Members have spoken on group income in relation to single purpose or single property companies. Here, I am thinking of group income on a very much wider basis because our overall tax system still treats companies within the group as individual tax entities. Not only is it wrong but it is out of step with the rest of the advanced economies in the world. The United States, European countries and even Australia have some form of group income taxation. I am not asking the Minister to have group taxation in Singapore just because these countries are doing it. But I would like to ask the Minister why these countries have group taxation. If you look at it, the answer is simple. Because a group of companies, related to each other, through ownership and management, constitutes a single economic unit for the purpose of strategic management and financial planning.

Sir, there is a very important phrase here. These companies within a group should not be considered as different entities, but as a single economic unit. Our current tax system ignores this economic reality and thus helps to create economic and business distortions. I suppose it provides good business for tax planners and tax consultants. But on the negative side, it uses up a lot of management time, wastes resources and distorts strategic planning in trying to achieve the tax plans to beat the irrational system.

Sir, the point is that group taxation recognises this. Thus, it helps the single economic unit, that is, the group, to maximise its potential. Sir, this is not a new issue. I am sure the Minister is well aware of the pros and cons of group taxation as well as the way to move towards such a system with minimum dislocation, cost and loss of the tax base, if only he is willing to consider this. In fact, while I do not wish to go into any detailed argument on this, there is ample literature on this. For example, in 1994, the South African Government commissioned the Katz Commission to study this whole issue, amongst other issues. If Members are interested in this report, I can make it available to them.

There are compelling reasons why, in a modern economy, group taxation should be adopted. It is not because others are doing it, but because it is a very rational thing to do. There are more issues, such as tax on remitted income and capital gains tax. Our tax system is based on a territorial principle. However, today, the world is one big marketplace. There is globalisation. There is freedom of capital and funds flow. There are WTO regulations and a host of other liberalisation measures which have made the world into one big marketplace, and our companies are competing in that marketplace. Our territorial principle of taxation compounded by the absence of group taxation really hampers our companies not only from competing in Singapore compared to the rest, but also in other countries.

Again, financial innovations have made nonsense of what constitutes capital gains and income. Therefore, to preserve the integrity of our tax base, the IRAS has come out with all sorts of interpretations to remove what they deem as tax loopholes. But in doing so, they distort the very basic fundamentals of our tax system.

Sir, let me give some over-simplified examples. If a company in Singapore were to have income overseas, such income, as long as it is not remitted to Singapore, will not be taxed in Singapore. It will be considered as income earned outside Singapore, not derived from Singapore and not remitted to Singapore. On the other hand, if this company were to use these funds to pay for the expenses of one of its subsidiaries overseas, then IRAS, under present interpretation, will most probably deem this as remitted income to Singapore, although the funds do not actually come to Singapore. This is what they call constructive remittance. Sir, this is a new interpretation. They have put this in place some two or three years ago. But it is causing a lot of difficulties for companies.

Recently, for example, we allow companies to buy back their own shares. One would think this is a simple issue from the tax angle. These companies are returning back the capital to its shareholders, ie, capital which they feel they cannot use to the best of their ability. Again, IRAS is saying that if these funds do not come from contributed capital, that means capital that was contributed in the first place, then these funds which are being used in a buy-back scheme would also have to be taxed. How do these funds arrive in the first place? These funds arose because companies are able to generate some capital gains and therefore they put these funds into some form of capital reserve. It is part of the company's capital formation. These funds are therefore returned back to the shareholders in a buy-back scheme. But they are not contributed capital, having arisen out of capital gains. If they are taxed, then it is actually equivalent to IRAS taxing on capital gains. Again, it is causing problems and distortions.

My main point is that these tax matters are knee-jerk reactions. Because the world has changed, because there are financial innovations, because the way businesses are done all over the world has changed, and the taxman is so worried about the tax base, they come up now with all these ad-hoc interpretations which in essence, as I have said earlier, distort the way business is being done and it does not help our companies when they compete with other companies in the international global marketplace. The reason is very simple - shareholders want after-tax returns, not before-tax returns.

If we look at our tax system, it came into being when Singapore was a colony, when the world consisted of many closed economies, when we were limited by our shores and our vision by Whitehall. Now, we have changed. More significantly, the world has changed. So it is time for us to have a comprehensive review of our tax system to support Singapore's dream in the next millennium.

I support the Budget with the hope that the Minister could be persuaded to initiate a comprehensive review of our tax system so as to maximise the potential competitiveness of our companies on the world stage.

Mr Inderjit Singh (Ang Mo Kio): Mr Speaker, Sir, I support the motion proposed by the Minister for Finance.

Sir, while there were no surprises in this year's Budget, the Minister could have done more than just focus on the financial sector if we are really serious about the next phase of growth of our economy that has to be driven by more than just being a financial hub.

So far, through a series of budget and off-budget measures, the Government has addressed mainly short-term cost-cutting measures in some of the sectors of our economy and I feel that it is about time that we started focusing on long-term strategic issues.

The Budget has failed to introduce new initiatives that are badly needed for the next phase of growth for the manufacturing sector, the knowledge-based economy and in encouraging the emergence of a more vibrant small and medium enterprise sector. So I feel the Government needs to start doing something now because we have the unique opportunity to widen our competitive edge against our neighbours and we will be far ahead when the region recovers from the crisis if we start now.

Sir, since many Members have commented on the details of the budget, I plan to touch on a few long-term issues in my speech today. Firstly, I would like to touch on the lessons the Government can learn from the experience of the last few years, and second, I would like to share my views on the areas we should focus on for the long-term growth of our economy.

I have observed a few areas of weaknesses in the way the Government has executed the role for the planning of our economy in the last few years. While the Government has done an excellent job in many areas, there are always opportunities to be even better and I would like to suggest that there are three lessons that we can learn from the way we have managed our planning process for the past three years.

Lesson No. 1: The Accuracy of Economic Indices Used by the Government

I would like to highlight that as far back as in early 1997, even before the regional economic crisis hit us, the private sector saw signs of our economy starting to slow down in a few sectors, including the manufacturing and service sectors. Then again in early 1998, the business community projected a rapid decline in our economy, while in his Budget speech in 1998, the Minister for Finance talked about recovery and growth, including the recovery of the electronics and manufacturing sectors in 1998. However, many industry players, including some MPs in this House, expected a decline in these same sectors and predicted that Singapore will go into a recession in 1998, while the Government maintained a 2.5% to 4.5% growth rate. Results showed that instead of a growth in the electronics and manufacturing sectors, we saw a decline since the second quarter of 1998 and going into negative territory in the third and fourth quarters.

Sir, the consistent pattern I have observed is that there is a gap between what the business community sees and what the Government agencies are able to measure. I also see that the planning agencies may not have a good feel of the real pulse of the ground and I also see a significant time lag for the information gathered by the various Government agencies to be used to measure the state of the economy.

Since the information gathered and the measurement indices are used for economic planning and policy making, any inaccuracy or time lag could lead to policies that may not be optimal.

So the first thing that needs to be seriously addressed is the type of indices and how these should be collected so that we can do a better job in predicting our economy. New mechanisms and indices need to be introduced if we want to do a better job.

Lesson No. 2: The Inefficiencies of Small Incremental Measures

We can also learn a lot about this from the mistakes that Japan has made in the last few years in trying to recover after its bubble economy burst. In Japan, the government of the day for the last few years had attempted to recover from their recession by taking small step-by-step measures and the impact on their economy has been insignificant, despite draining tremendous resources. We in Singapore also attempted to take a similar route by trying to make small piecemeal changes by announcing a conservative 1998 Budget and tried to follow up with a small $2 billion off-budget expenditure. However, we failed to create an impact and finally we decided to take a bold step by introducing the $10.5 billion off-budget measures at the end of last year. The second issue that needs to be seriously addressed is therefore our willingness to take bold steps in trying to influence changes to our economy.

Lesson No. 3: Timing of Changes

Sir, in this area, I would like to say that the Government has a mixed track record. We have shown that we are willing to come out with off-budget measures when needed and not wait for the regular budget cycle to make changes. Similarly, we have been prepared to make other non-fiscal changes if the need arises. On the other hand, we were at least one year late in implementing the May 1996 property market measures to address the growing asset price bubble. Therefore, the third area we need to address is the speed at which we are willing to make changes because sometimes, even a slight delay could result in a disaster as we can learn from Indonesia's delay in implementing the IMF measures which caused the rupiah to be drastically devalued.

Sir, I would like now to focus on the long-term strategies that I feel the Government should focus on if we want to ensure another 30 years of economic prosperity. I feel that it is about time we looked at three key areas:

a) how to ensure growth and new markets, including globalisation - not just regionalisation;

b) putting in place new capabilities, technologies and mechanisms to plug into the knowledge-based economy and encourage technopreneurship;

c) to change the direction and to re-orientate Singapore's economy to include a vibrant SME sector to encourage more technology intensive companies and to avoid over reliance on an asset-based economy, as we have done in the past.

Sir, these are the areas that the Budget for 1999-2000 has failed to address. However, I still have hope that the much bigger development expenditure set aside this year will focus on these areas. I urge the Government not to over spend in fixed assets, unless these directly support the above three new areas.

I will now touch on these three areas that we should be focusing on. First, on globalisation and exploring new growth markets. In addition to being cost competitive, it is about time we explored new markets, farther afield and go to new areas not explored before. In this respect, I believe the Budget could have been more proactive to accelerate growth and to take advantage of the opportunities available in the region as well as around the world. Because Singapore has been relatively unhurt by the crisis, we are in an excellent position to be the first to take off and find the best opportunities and markets as compared to our neighbours. So some tax changes to accelerate globalisation and in encouraging mergers and acquisitions could have been helpful. I strongly believe we need to restructure the current tax system, as some of the Members in this House have spoken about, to be more future oriented so that businesses will be prepared to invest early for future returns.

Second, on technopreneurship and encouraging the entrepreneurial spirit. In my opinion, technopreneurship and entrepreneurial spirit are the most important areas we need to address for the future growth of the Singapore economy, and this is where I find the current Budget has a serious shortcoming.

Sir, our success in building a flawless infrastructure through a strong civil service and our education system that inculcates benefits of stable professions and the glamour of working in multi-nationals is now causing our failure to encourage more entrepreneurs to emerge. We have to seriously address these mindsets among our young which, as I have said, are the results of our style of governance for the past 30 years.

In Japan, after a decade of government led growth, the country is now looking at entrepreneurs to lead the economy to its next stage of growth.

Taiwan's success is also attributable to its quest to encourage technopreneurship. From 1988 to 1998, the contributions made by science and technology-based companies in Taiwan to the economy has grown from 26.3% to almost 40% in a short span of 10 years. Sir, we too have to now shift our focus and I suggest the following four areas to be looked into.

Firstly, our education system, from one that is vocation based to one that is knowledge based. In Singapore, we are still relying on old methods of teaching which were designed to train people to fit into the various jobs for the industries planned for our economic growth. While I can see some changes, I think we have to accelerate these changes if we are very serious about growing this part of our economy. In the 9th November 1998 Newsweek report on 'Silicon Valley' aspirant cities, it was reported that analysts felt Singapore's education system depends on "out-dated teaching methods and learning by rote with little chances of independent thinking". This together with the reward system that focuses on academic excellence and on a scholar system are becoming an obstacle in our drive towards nurturing more people who are willing to take the path of entrepreneurship that entails taking risk in more cases. We need to develop a reward system that recognises creativity and encourages doing things differently. The streaming in schools, the labels we place on our children and the fear of failing to make it to the best schools and the fear of failing to make it to the best streams, all add to this problem of discouraging creativity.

I would like to quote our Senior Minister Mr Lee Kuan Yew. In an interview published in the Straits Times on 3rd February this year, he said "many of the entrepreneurs are innately bright people. It takes more than paper qualifications to be a good entrepreneur". That is, we need a good combination of both street smart as well as academic smart people to be successful.

Second, tolerance to failure. The way we define and punish failures has a big impact on creating an environment that encourages entrepreneurship. We, as a society, have a low threshold to failure. The way we measure success is narrowly defined along the lines of academic excellence and material gains. We need to give second chances to people who have tried but failed. Sir, failure should be treated as just an event in a long process, and not to be treated as an end. Our people must be able to handle failure.

In a reply to a question on how many times he failed in his efforts to invent the light bulb, Thomas Edison said, "I was successful in knowing 1,800 ways of how not to make a light bulb." Sir, we need to encourage such positive thinking about failure in Singapore.

Thirdly, the availability of funds. This is one area where Singapore has a long way to go if we are serious about becoming the Silicon Valley of the east. In my opinion and from my experience, while we have a number of Government-linked venture capitalists, the decision makers are very conservative and bureaucratic and behave more like administrators. What we really need is a big pool of entrepreneur-led or managed venture capital funds, where decision makers too think in the same wave length as the entrepreneurs they hope to support.

Sir, in Taiwan, small funds were introduced in the early 1980s and the government participated, not directly, but through equity in technology-oriented private venture capital companies. Today, I believe there are more than 100 such venture capital funds managing a total of about US$2 billion, which means each company manages an average of US$20 million, making them very nimble and able to move fast and to make decisions fast.

It is also a well-known fact that in Taiwan, venture capitalists will commit to investments if they see even a 30% chance of success for a project, while the feeling is that in Singapore, venture capitalists will need to see at least a 90% chance of success before participating. Furthermore, the saying goes that in Taiwan, there are 100 venture capital funds chasing after one project, while in Singapore there are 100 projects chasing after one venture capital fund.

Sir, there is an urgent need to encourage more Taiwan or Silicon Valley type venture capital funds to be set up in Singapore. Perhaps some Government funds could be used as seed money for technology savvy venture capitalists willing to set up base in Singapore. For example, Temasek Holdings could allow some private sector entrepreneurs to manage a certain proportion of its funds.

Fourthly, the role of the Government. Sir, in my opinion, Government direct involvement should be as minimal as possible; otherwise, they risk crowding out private sector entrepreneurs, as our GLCs have done in the past The most important role the Government can play is to create an environment that allows entrepreneurship to flourish. One useful role for the Government is to fine-tune rules and regulations that are obstacles and stifle a creative environment. Rules like our bankruptcy laws, initial public offering rules for technological start-ups, restrictions in fund raising for small venture capitalists and taxation of stock options are examples of rules that need to be revised.

However, I do feel that until we can have a vibrant environment developed, the Government can play the role of a match maker, especially in the area of making funds available and in revising some of the incentive schemes that require upfront spending before a company can collect the incentives. We also need a new EDB-type one-stop organisation to support technopreneurs who now have to go to multiple agencies for help. Once we have a natural environment, the Government should take a step back and play a purely supporting role and let the private sector flourish on its own.

Sir, in my opinion, the people responsible for administering the many schemes and in setting policies all come from the same mould, because of the hiring and the promotion practices of the Government. I suggest it is time the Government considered a system where we have a good mix of street-smart as well as academic-smart people at the helm. Sir, ultimately, the "dare to dream" attitude must come from within and it cannot be Government driven.

The third area that I think we should be focusing on for the long-term growth of our economy is a thriving small and medium enterprise sector. In the past 30 years, we have focused on attracting foreign multi-national companies to locate in Singapore. Our lower cost, our hardworking and educated workforce and stable Government were the attractions for the foreign multi-national companies. However, as we have recently learnt, our cost is no longer competitive, our neighbours also have a good workforce. They may still lack in good governance, but they will soon catch up. Singapore may no longer be a preferred choice for many foreign investments. And while we should still try to bring in such companies, especially in the area of high technology, we need to make a significant shift in our policies to pay more attention to building a vibrant small and medium enterprise sector with high emphasis on technology intensive companies.

One of the reasons I feel why the Taiwan's economy has not been badly hit by the economic crisis this time round is because of its heavy dependence on SMEs who are engaged in technology intensive activities. On the other hand, South Korea was one of the first to be hit by the crisis and they built their success based on big conglomerates.

Sir, the EDB's Industry 21 programme and its recent announcements to co-invest in local companies to help them grow is indeed a good move. I do see a shift of focus towards SMEs and I hope all of us will develop a positive attitude towards them as being key players needed to bring our economy to the next stage of growth. However, I feel a lot more can be done to reach out to even a small fraction of the 100,000 or so SMEs present in Singapore today. I hope we, in Singapore, can try to emulate what happens in the USA where one new company is started every 3.5 seconds!

Sir, I would like to conclude by once again emphasising that while we have done an excellent job in addressing the cost component of the equation in the last few budget sessions, it is about time we started preparing for the future by working on the other parts of the equation that focus on the long-term strategies of growth. I will be giving detailed suggestions on how we can achieve this during the Committee of Supply discussions.

Sir, I support the motion.

Dr Tan Boon Wan (Ang Mo Kio): Mr Speaker, Sir, capable hands crafted this Budget to meet the exigencies of the time. The nation and the market received the Budget with confidence. I commend the Minister for an excellent effort and extend my strong support for the Budget.

The relative appreciation of the Singapore dollar to the currencies of the competing economies is one among several factors that has eroded our national competitiveness. The Government resisted the temptation of relying on the depreciation of the Singapore dollar as a means to restore competitiveness. Instead, we embarked on the more difficult option of cutting costs. Our people and businesses support this option. Investors too have reacted positively.

Cutting workers' pay is key to this option. That we have been able to do so, credit must go to our people, our workers, our unions and the Government. When the Government realised that cutting workers' pay could be necessary, it took great efforts to prepare the ground for it. The Government worked hard to explain the issues to the people, the labour union leaders and the workers. The union leaders, on understanding the issue, worked hard to help their members to understand them. The people and the workers, on understanding the issues, made a free and informed choice to sacrifice for the nation. There was thus a lot of hard work, a lot of learning and sharing, a willingness to choose the better solution for the country. Hence, contrary to the mistaken belief, Singapore was able to cut workers' pay not because the Government had dictated it. Singapore was able to cut workers' pay because the Government worked with our people to help them understand that this was the better way. And Singaporeans gave their support, even though it was painful. Thus, let not others belittle the noble sacrifices of our people and workers. This is our competitive strength and I am proud of it.

I am particularly happy that the Minister has now agreed that it is important, necessary and possible to seek out new markets overseas. In June last year, when the Minister presented his first off-budget measures, I had asked the Minister about expanding into new markets overseas and the Minister was not very positive in his response. I am therefore glad that the prospects of new markets overseas have improved in the meantime. This is timely. During trying times, there are more incentives to experiment and explore. Our companies will be motivated to find new markets for their goods and services. I am encouraged at the speed with which efforts have been made to tap into new markets. A comprehensive programme has been put in place and implemented with generous support. The Minister is also right to remind our companies not to forsake our existing markets while we look for new ones. We must nurture our existing markets while we foray into new ones, developing both together.

This confidence in overseas markets is also timely to counteract the disillusionment felt by our businessmen about venturing overseas as a result of an increase in the number of overseas ventures that have floundered because of the crisis. Business has its risks. We cannot just withdraw to and isolate ourselves in Singapore. We must continue to engage the world, for this is our destiny.

I support the spending on our security. The relevance of security becomes sharper in times of crisis. Our past decisions to build up our security capability have proven right. Being a small nation, we become an easy and convenient scapegoat for things that have gone awry elsewhere. There are others who may want to cow us, to alter the status quo of our relationship. With a strong security capability we can respond with calm and composure to such provocation. But national security is not just about money and infrastructure. It is about love of country, about a spirit of and willingness to sacrifice, about commitment to defend and to protect what one holds dear. We must therefore be steadfast in our resolve and action to show the world that we are prepared to defend our national sovereignty and protect our right to live as equals among nations. Developing our security capability is a long-term process, and we should not slacken just because of a temporary glitch.

The development and harnessing of our human capital is important. We cannot afford to miss developing our young, even in a crisis, for to do so is to lose an entire generation, which being less educated and skilled has impact on future generations. As we move into the knowledge-based era, the development of our human capital becomes even more important. Besides educating our young, we must also help our workers to advance with technology if we want to avoid structural unemployment, which can become a permanent societal problem. I commend the trade unions for recognising the problem and undertaking the difficult task to encourage and help our workers to upgrade, retool and re-skill. The Government responded by setting up several training initiatives and generously funding them. Now it is up to our people and workers to seize the opportunities made available. I realise that it is not easy for our older workers to learn new skills and knowledge, but we must persevere to encourage, convince and support them. Skills obsolescence can also occur among executives and professionals. I am therefore glad that the Minister also supports the upgrading of our executives and professionals. I would in fact ask the Minister to do more to help them to upgrade. With the lengthening of our working life, there will be much wastage of our manpower resources if we fail to upgrade our older workers. This can lead to other problems, which will be costly for society.

There are lessons that our people, especially our young, can learn from the current crisis. First, we must appreciate the vicissitudes of the market. When we rejoice in good times, we must not assume that it will last forever. During good times, we should prepare and set aside something for difficult times. The Government has shown that this approach works.

Second, our people must understand the growing intensity of global competition. In the long term, our competitive edge will depend on our productivity and our ability to function in a knowledge-based world. This means that we have to become a better educated and a more creative and innovative society, and to work even harder. Let us not look for an easier life, but a balanced and fulfilling one. A Singapore that can compete with the world but does not need to work hard is an illusion. Let us aim for a life where we need to work hard, but where there are sufficient time and opportunities for relaxation and enjoyment.

Third, our people must take this opportunity to appreciate the importance of good government. There are many reasons why we are doing better than many other economies during this crisis, but the most important is good government. To ensure a good future for our children and us, we must demand good government. There is no better insurance than this.

The current crisis has also exposed the danger to organisations of straying from their areas of core competence. It is clear that organisations must consider more carefully before diversifying from their areas of core competence. This is most clearly illustrated by organisations that rushed into property developments for quick gains during better times. Not only does it sap limited management talents, but the market is capricious and what seemed like a pot of gold at the end of the rainbow quickly becomes an albatross around the neck when there are not enough management talents to handle the changing circumstances.

An organisation must also use its manpower resources, especially its expensive expertise, appropriately. For example, we should avoid using professional manpower for administration. Not only is this misuse of manpower resources costly, but it can demoralise administration staff who find their career paths blocked. This does not mean that there can be no cross-over of talents, but such cross-overs must be done through an explicit re-designation of post and duties. While the concern applies also to organisations in the private sector, I am addressing this concern in particular to our Government and statutory board organisations.

Mr Speaker, Sir, the individual and family felt left out in the two off-budget exercises last year. The Minister had taken this opportunity to rectify this neglect. The Minister had taken a step further to spread the benefits. To the better off, he increased the tax rebates. To the less well off, he gave generous rebates and grants on HDB flat rental, service and conservancy charges and public utilities bills, calibrated to give more benefits to those who needed them more. In this trying time, the benefits are most helpful. The Minister also recognised that this economic crisis has bitten deeper into society when he extended service and conservancy rebates to the 5-room flats. I thank the Minister for this extension. I had asked for it last November when this House debated the report of the Committee on Singapore's Competitiveness.

Unfortunately, most people will not see the money given to them. The transactions will be carried out electronically. It is, however, important that our people know, understand and feel for what the Government has provided.

The Budget does not fully describe the care and concern that the Government has for the people. Government has set up and generously funded many grassroots organisations such as the CDCs, CCCs, CCMCs, RCs, NCs and NGWOs to reach out to and care for the people. Last year, as in years past, these organisations have done a good job in bonding the community and giving help and hope to many people in need. Many Singaporeans from all walks of life have volunteered their time to serve and some have even contributed resources. They are the unsung heroes.

We cannot and must not take our national unity and cohesion for granted. We must strive to maintain and strengthen the ties among our people, especially during difficult times. We can see in the neighbouring countries how quickly social order and stability can unravel and how devastating the effects can be.

Sir, as long as Singaporeans continue to stand together, we will be able to face the storms and emerge intact from them. Let me conclude by saying that I share the Minister's confidence that Singaporeans will rise to the occasion, and we will emerge from the crisis stronger and leaner.

Mdm Claire Chiang See Ngoh (Nominated Member): Mr Speaker, Sir, I rise to support the motion.

Against the backdrop of worsening economic and political conditions in the region with Singapore showing in 1998 its first spending shortfall in 10 years and a forecast deficit of S$5.1 billion in 1999, a no-frills Budget containing no radical moves is a prudent and measured approach.

Indeed, we have to appraise the Budget within the context of having had two other off-Budget measures in June and November 1998, which had benefitted the business community in more ways than one. This time more individual relief is given.

As a citizen, I am grateful that we have accumulated funds to fall back on to cushion our spending shortfalls. We are still able to fork out large sums of money to enhance the competitiveness and employability of our workforce through retraining programmes and IT in education. And now, we all stand behind this country to ensure its continued competitiveness and viability, in preparation for making that quantum leap when the economy recovers in the millennium.

This steadfast, resilient and committed "Singapore Spirit", Sir, is what I would like to highlight and give credit to. The Government has done a good job, so have the people of Singapore. In the recent parliamentary visit to Hong Kong led by MP Dr Wang Kai Yuen, I had the opportunity to meet up with some of my old professors in Hong Kong University as well as some old friends. One common reflection from them was: "You Singaporeans are `One heart in cohesion' (yak tiu sam). No way can we push through a cost cutting package in Hong Kong the way your Government has done. And without violent protests from the people too! And you are making all the critical investments now to prepare for the future. It is truly an enviable spirit that Hong Kong should learn to emulate and nurture." I could not fail to note the strains of envy, frustration and helpless anxiety among my Hong Kong friends. I felt proud as a Singaporean.

I remember in my four years stay in Hong Kong in the late 70s, the perception of Singaporeans was "they talk, eat, walk, think and act far too slowly and too cautiously." I used to be rather defensive about these comments but now, on hindsight, maybe these attributes which have characterised Singaporean over-prudence and excessive cautiousness have stood us in good stead in the past two decades. They reflect our underlying anxiety about survival and a tested conviction that things can always get worse but as long as we steadily chip our way through the odds to make the best of the situation, in measured prudence, we will see the light at the end of the tunnel.

I have observed similar prudent financial and lifestyle management in many Singaporean households today. Parents, with growing children whose needs are never ending, are careful about how they spend their dollar. Instead of buying three sets of new clothes for the children for Chinese New Year, they bought two sets, maybe only one; and one pair of good shoes to last two years instead of several fashionable ones which last less than a year and in total cost more.

Some families I know have adjusted their meals to include less meat - which is healthy anyway - and have cut back on eating in restaurants. Some have sold their flats and moved to a smaller home in order to save the profits as contingency reserves. Others have sold their cars and travel only by bus and MRT. In some cases, I have been offered cats and special breed dogs, even goldfish! In other cases, children have stopped taking tuition classes, and foreign maids have been dismissed.

Singaporeans are scaling down their expectations and re-adjusting their lifestyles in order to cut costs at a personal and household level. They are willing to do this because they know they have in previous years enjoyed the prosperity and had reserves to fall back on. They also know that we are not a welfare state and personal financial prudence is the key to survival.

Sir, if or when the crunch comes and their personal reserves become depleted, they will hold the Government to the promise that no Singaporean will be out on the streets without a shelter and no Singaporean will be uncared for if he or she falls sick and is unable to pay the medical bills, and no child will be forced to leave school because of the inability to pay school fees.

But if this recession persists, and even if we are to achieve only stagnant and very slow and low rates of growth for the next few years, the number of Singaporeans who can be considered the marginal poor will increase. They may not be the totally destitute and homeless, or denied hospital care, but many heads of households, particularly the older, lower-skilled workers, may be unemployed for a long time, and the household may be in dire need of some financial assistance.

I know we have a number of assistance schemes already available in different Ministries and at grassroots levels that respond to those in need. Whether the assistance is sufficient and how we can better meet the needs of the less fortunate - as we make this difficult transition to a knowledge based economy in the midst of a recession - I hope will be a policy focus following the debate and suggestions proposed by MPs during the last two days and in the following days.

This policy must adopt a policy perspective beyond welfarism. Beyond the economic fundamentals, what resources we allocate for strengthening the social service components within our society to nourish the hearts and souls of Singaporeans are critical in securing our cohesion. Could we in extraordinary times adopt more flexible and responsive policies to meet the needs of families in distress? Have we done enough? Could we, instead of cynically viewing such moves as falling prey to the "lure of welfarism", see enhanced assistance schemes as strategic investments in reinforcing the social contract between our people and Government?

For example, in concrete terms, could we allow Singaporeans in the older age groups after 40 to draw upon their Medisave account for medical needs such as annual screening tests which do not classify as "treatment"? This is consistent with our call for a healthy lifestyle through early detection of diseases. Could we allow family members to draw on their Medisave account to pay for their parents' medical bills? Could we increase medical and living subsidies for the needy elderly after 60 according to age categories? Could we consider allowing single mothers with a stable job and children to buy first-hand two-room HDB flats in designated residential zones, since we allow single mothers to do so under joint ownership scheme? This is consistent with our policy of family protection.

Sir, these are just some examples which I hope to illustrate my call for the Government to allocate our resources using a multi-tiered and multi-faceted approach to flexibly benefit needy families, instead of applying one policy for all which may err on the side of being over restrictive and rigid.

While guarding carefully against irresponsible welfarism, we should also not neglect principles of reasonable distribution of social security benefits for the vulnerable. We need a fresh perspective to focus the family as a primary unit for policy formulation. This perspective may require a critical review of defining who are the vulnerable and the potentially vulnerable. We can easily spot the destitute and the disabled and the Government has been prompt to assist them. But we may need to define the less obviously needy, what I call the marginalised segment of our society. And these are people, I would call, the dis-enabled, the dis-advantaged and the dis-empowered. They are like what MP Sin Boon Ann described yesterday - not poor and not paying tax, and now unemployed.

I was heartened by PM's call for "family care" during the weekend when he opened the 3-in-1 FSC in Tampines. Indeed family members should do their utmost to care for their families, but I also hope that the spirit of giving, as exemplified by PAP Members handing out $200 "ang-pows" to residents in Potong Pasir will be adopted as a broad principle of "family care" by the Government. Sir, there are many women-run single parent families who are facing difficulties in meeting basic necessities, like food, transport, rent and utilities.

In other cases, due to working adults not being able to find or pay for home help, they left their elderly parents alone in their homes, all locked up because they suffered from dementia. Such unintentional or cannot-be-helped neglect could be dangerous if the flat caught fire and the elderly was trapped inside. If family members are working, who supplies the food for the elderly? Sir, "family care" or filial piety is not simply a matter of the heart or culture, it is a function of how much children can shoulder the real burden of caring. When there is no job, carers have no money to care. The rich should help the poor, we heard many MPs said today. But they, too, facing business downturn, feel "less rich" to be generous. It takes months to organise fund-raising events and needy families cannot wait.

Sir, we do not have adequate information on the families. I propose the setting up of a multi-disciplinary FAMILY 21 Working Committee to identify new policy changes for strengthening the families. I would also propose that the CDCs carry out a comprehensive crisis monitoring survey to find out the impact of the crisis on families. And together, they will explore what has to be done to ease the misery in the community. If the finding shows that I have exaggerated the misery picture, then it is good news. If the finding shows that problems are mounting, then we can plan on what we must do as a community to set things right.

At this point, may I add that I am curious why, after so many calls from this House during last year's debate for more allocation of funds for MCD, the development expenditure for the MCD in 1999 is even less than last year, from 0.38% to 0.34% of the GDP? If we compare with the various Ministries, MCD's total expenditure estimates for 1999 show a decrease by 10.5%, representing the second lowest after MTI in estimated total expenditure over 1998. MTI's decrease was due to the acceleration of development expenditure in 1998 to boost the economy. In the same year, a number of projects, like the Girls' Home and the extension of Kwong Wai Shiu Old Age Home, had to be shelved due to shortage of funds.

During current difficult times one would expect an increase in overall allocation for MCD, in particular development expenditure, due to increasing demand for services to cope with needy families and rising social problems. Not only had MCD's revised FY98 development expenditure showed 2.9% lower than the actual FY97 sum, the development expenditure for 1999 is budgeted with a further decrease by 15.4%. Has the development budget been axed to this low level by the Minister for Finance or is it because the Ministry of Community Development did not ask for more? And if MCD did not ask for more, why not?

I seek clarification, Sir. For whatever reasons, this is sending the message that either community development needs are not a high priority, or that we have already arrived at such a near Utopian state that we do not actually need to spend more on community services. Yet, we can allocate for development expenditure 318% more than last year for MOM, 28% more for education - all of which I agree with, incidentally. Surely the Ministry of Community Development has many community projects in the pipeline which should be financed. I propose that the Minister take a longer view and build the institutions that the community will in time need. I also propose that we consider easing the financial burden of VWOs by increasing Government funding from 50% to 80% of total operating costs so that social workers can concentrate on delivering quality service.

If money is scarce, and we do not think it is prudent to dip into our reserves, then I propose we seriously adopt cost-cutting measures at the operation level at all Ministries and donate the "savings" to worthy and needy community causes. Just like in the private sector, some companies did not send greeting cards for Christmas and New Year in 1997, 1998 and 1999 and instead donated money to needy community causes. We should look for innovative ways of saving money and giving it back to the community.

I simply wish to reiterate here that while Singaporeans at all levels are mustering their mettle to uphold the "Singapore Spirit" to help our country ride through these difficult times, those in the job of governance must also make sure that we do not bend, distort and stretch this Spirit already malnourished without extending timely and appropriate help.

Our long-term competitiveness, Sir, apart from the focus on the manufacturing and service sectors, which we all support, must include the nurturing of this positive Singapore Spirit, through concrete help, not only by persuasion or in words.

Sir, allow me to recap. This is a prudent Budget. I applaud the Singapore Spirit among Singaporeans who have adjusted to the crisis by scaling down their expectations. We need to nevertheless identify the potentially poor, adopt a policy perspective beyond welfarism, by focusing the family as the primary unit for policy formulation. I propose the setting up of FAMILY 21 and call for more resources for strengthening the community, including the family, and the Singapore Spirit.