ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Mr Sin Boon Ann (Tampines): Mr Speaker, Sir, I want to thank you for allowing me to join in the debate at this juncture.

Sir, like many of my colleagues before me, I would like to focus on the Internet only because of the importance of the Internet in our lives today.

The Finance Minister in his Budget Statement touched on the significant way in which the Internet has transformed the global economy and the nature of the competition in the new millennium. I cannot agree more.

What we are seeing in the world today is a radical and fundamental shift in the economic underpinnings of our society. Mankind has moved from its hunter-gatherer beginnings to the industrial revolution of the 17th century, and now for the third time, into the new era of information technology. Some analysts call this the "Third Wave". This shift is most evident in advanced economies where over the last quarter of the century, services have displaced manufacturing as the basis of generating wealth. What it means, Sir, is that instead of working in a factory on a line production, the new age worker will find himself in a service-oriented line, such as process control, software writing, or financial services. Increasingly, instead of relying on pure sweat and physical labour, man is turning to mental endeavour as a means of sustenance. Production of goods and services, therefore, tends towards greater use of automation and information technology. In many ways, one sees this as a manifestation of the knowledge-based economy that we spoke about not too long ago.

This shift in the post-industrial society to a computer-driven knowledge-based economy has significant implications for us. At one level, the force of the Internet has made territorial boundaries and local jurisdictions almost meaningless statements in a way. The ability of the Internet to penetrate and reach, with little or no difficulty, any connected home or office located anywhere in the world suggests that any legislation to control or regulate its use is at best a token statement of acceptable conduct. As, indeed, while we have laws on pornography, the ease with which any child can have access to such materials on the Net is often seen as a mockery of what we try to do. In the cyberspace, space and time no longer present themselves as barriers to communication. As a result, the intensity and frequency with which people are engaged in communicating among themselves give rise to a sense of community founded on a global dimension. Sir, we have become a global community characterised by a free flow of information and exchange of ideas. Out of this exchange, e-commerce emerged. A whole new dimension and manner of doing business now exists, which was never before possible. Suddenly, the market became larger and the competition keener. The Internet has brought about a greater flow of information, goods and capital across boundaries.

Sir, a society that is organised around information technology places greater emphasis on the values of equality and freedom. At the workplace, a whole new office culture has evolved. People go to work in casual clothes, sport pony tails, call each other on a first name basis and also relate to each other more casually. On the Internet, the fact that one is able to assume a different identity through the faceless e-mail addresses means a greater freedom of expression. It is no surprise, therefore, that some of the most heated and candid expressions take place in cyberspace. This is a virtue that Net surfers value on the Internet. Any attempt to regulate the conduct of these chat rooms or even seek to pry behind the veneer of anonymity will be met with almost complete resentment.

Sir, because the Internet is borderless, we are faced with the issue of whether as a country we should go beyond our territorial boundaries to regulate the flow of information coming into Singapore. The challenge is pressing, indeed, if there are bigots out there sending all manner of misinformation which is calculated to undermine the racial and political harmony which exists in our country.

In the age of the Internet, we are confronted, at another level, with a global economy that has radically increased the intensity of competition. With the free flow of goods and services and even capital, no business in any part of the world, whether or not that business enjoys any state given monopoly rights, can be shielded from intense competition.

In a recent publication of the Economist, it was reported that what is truly revolutionary about the Internet is its ability to generate different pricing mechanisms and, in particular, to allow price and product comparisons to be made and various kinds of auctions and exchanges to take place. The Internet provides a perfect medium for aggregating buyers and sellers from all over the world, and also offers an excellent way of comparing prices and collecting information. Up until the revolution of the Internet, the process of aggregating product and price information would have been a rather tedious affair indeed.

And the technology in this area is moving fast. At the moment, there exists in the market software that would automatically inform the surfer of the best prices that are available elsewhere. For instance, with the software, if you are about to buy a book from Amazon.com, a box would pop up in your computer which tells you that you could get it cheaper elsewhere.

The competition that commercial firms face from Internet would mean that adaptation and change in the way in which businesses are carried out must take place if such firms are to stay relevant or, as some would put it, e-relevant, and perhaps even to survive. One immediate example would be the travel agents. Traditionally, to book a holiday, one would go down to the travel agent's office to sort out the airline ticketing, hotel accommodation, tours, and so on. The travel agent gets a middleman commission and that is the nature of his business. Today, it would be possible to do all of these things through the Internet without having to go to the travel agent. Does it mean that the travel agent will go the way of the dodo bird? Not necessarily. If travel agents could, and for many they have, get around the business of adding a dotcom capability to their businesses, they could well stay relevant and even profitable for the future. Increasingly, the line taken by many management consultants is that big businesses that fail to grapple with the consequences of e-commerce are putting their company at risk.

Sir, on the flip side, e-commerce on the Internet has tremendous opportunities to offer to businesses. In 1999, global e-commerce was worth a little over US$150 billion. Around 80% of the transactions was carried out between one form of business and another. Indeed, the B2B Web exchanges are expanding at a hectic pace. The Economist reported that in America, e-tailing revenues tripled last year; in Europe and Japan, they rose even faster. The most obvious and immediate advantage of e-commerce is that Singapore businesses need not necessarily confine themselves to the local market. With the Internet, the world is their market, and if astutely thought through, e-commerce as an alternative business model can radically expand their business horizon in more ways than they can imagine.

Sir, allow me to give an example. I recently had a conversation with an economist in a research and information agency. This is a local firm that provides information and analysis principally to financial institutions. The economist tells me that he is very excited about e-commerce on the Internet. It gives him a far wider audience than what Singapore has to offer. Quite naturally, his company has a dotcom spin. He tells me that if he can gather 1,000 subscribers on his Web page, he would break even, and anything beyond that would be pure profit for him. When the world is your market place, Sir, 1,000 subscribers seem like an insignificant figure indeed.

At yet another level, we must recognise and accept the way in which the Internet revolution is likely to cause social dislocation. Throughout history, any revolution, whether it has been brought about by technology or otherwise, often results in some form of adjustment and changes to society. When industrial revolution took place, people moved in a massive way from the farming communities to urban centres because of new techniques of industrial production that had enabled higher output and thus gave the people a better quality of life. New jobs were created and old jobs were made redundant. Those who could adapt to the changes were able to ride on the new wave of revolution.

Similarly, if we accept that the Internet represents the "Third Wave" of change to human kind, we should be prepared for some form of social dislocation within our society. As it stands, information technology allows for a higher level of automation. Smarter machines, such as robots, are increasingly able to replace human operators in the area of qualitative decision-making. Almost every aspect of human endeavour is capable of being replicated by machines. Additionally, as a country, we are faced with a population where a substantial number of adults above 40 do not possess educational qualification beyond Primary Six. It would appear that if there is any fundamental change to the structure of our economy, which must invariably come about, the people who are least qualified to handle such changes would be at a greater risk of losing their jobs. Some call this structural unemployment, that is, unemployment brought about when the economy restructures itself into a different plane of wealth creation. How should the Government take care of the well-being of these employees? Looking at the phenomenal rate at which e-commerce expanded in recent years, the prospect of massive structural unemployment hitting us in the near future is real indeed.

Sir, Francis Fukuyama in his book, "The Great Disruption", said that the social order once disrupted tends to get remade again. He explains that we can expect this to happen because human beings are essentially social creatures, whose most basic instinct and drives lead them to create moral values or rules that bind themselves together in communities. Human beings are also rational creatures whose rationality would lead them to find ways of cooperating with one another spontaneously.

Social order, as we know it, comes out of a centralised, rational, bureaucratic hierarchy that is very much associated with industrial revolution. Max Weber, in fact, has argued that the rational bureaucracy, with its structured rules and hierarchy, is the very essence of the modern life as we know it. However, with the revolution that is brought on by information technology, governments and authority should reconsider the way in which people are organised. Some have argued quite forcefully that in the new information technology age, it would be difficult for governments and corporations to rely exclusively on formal, bureaucratic rules to organise people over whom they have authority. Instead, governments and corporations will well have to decentralise and devolve power, and to rely on the people whom they have nominal authority to be self-organising. To be effective, self-regulation must depend on the internalising rules of conduct which are consistent with what the government or corporation is trying to achieve. It is therefore on the basis of such internalised informal norms that one expects to form the basis of social control for the future.

Sir, such changes of social order requires a paradigm shift in the minds of the policymakers. It did not come as a surprise to some that when SingNet recently allowed investigations to be carried out on account holders on the question of vulnerability of their computers to hacking, there was equally an outcry by members of the public that this was an unethical act by the Internet service provider. It was seen by many as an invasion of privacy. Therefore, any attempt to regulate conduct in a formal way is bound to be met with a fair measure of resistance on the part of the users.

Recently, Minister George Yeo was asked in a press interview on his views on censorship. Implicit in the question was how Government was able to reconcile between having laws that ban pornography and that which allows pornographic materials to be readily available on the Net, as a matter of practice. The Minister's reply, I thought, was practical. If I may paraphrase the Minister, the Minister said that essentially it is not possible for us to monitor and enforce pornographic laws against every incidence of breach. What the Government should do is to use laws to proscribe such action in the hope that Singaporeans would know that such form of conduct is unacceptable and should not be encouraged. Instinctively, it is hoped that Singaporeans will not engage in such forms of conduct because they know that it would be most embarrassing for them if they are found out. Such informal norms may be sufficient to exert its social control on individuals. In other words, if I read him correctly, Minister Yeo is saying that it may be better for such rules to be internalised rather than to seek to enforce it in a formal way.

Sir, I have taken the trouble to delve deeply into this subject matter as I feel that an event, such as the Internet explosion, which is going to affect us in the most significant way should play a major part in setting the tone for our debate in this budget. If we accept that the Internet in general, and e-commerce in particular, are going to revolutionise the society in a fundamental way, the way in which the society thinks and behaves, fundamental questions about the way we organise ourselves today and the way we are going to organise ourselves for the future should be asked. These questions may span across the entire spectrum of the subject matter of the Government. For instance, what kind of rules do we want to have and how should these rules be enforced in the information technology age? How do we begin to deal with technology whose process cannot be confined effectively within a territorial boundary and thus be subject to the jurisdiction of the relevant authority? Should Singapore actively promote international agencies to help regulate and police the conduct of e-commerce and the Internet? With the explosion of e-commerce, how can our Government play a more significant part in helping Internet start-up companies take on businesses elsewhere with a first mover advantage?

Sir, the American government has in fact given a big push to e-commerce in two ways. If I may just highlight them. Firstly, the government permits the patenting of business processes. Presently, e-commerce houses in the US with sound business models can look forward to some form of intellectual property protection. Such means of protection, no doubt, would greatly lend comfort to the young technopreneurs with bright ideas. Unfortunately, in Singapore, we have yet to extend our recognition to such processes as they do in the United States.

Secondly, the US government has helped by imposing a moratorium on new taxes on anything bought over the Internet. Web purchases are also generally exempt from sales tax. I am not sure whether we have made provisions for such exceptions. Looking at our Government's Budget Statement, while we note the potential competition that globalisation of the world economy is going to bring upon us, we have yet to adopt a cohesive and consistent approach to deal with the matter in a more comprehensive way. For instance, if we recognise that there is a likelihood of a substantial social dislocation to arise from the greater use of e-commerce, should we not do more to ensure that those at greatest risk are given more to prepare them for the changes ahead? Are the exhortations of training and retraining of workers sufficient to deal with these concerns? Or should we, as the Government, do more? Should we, for instance, allow older workers double deduction of tax relief if they are able to demonstrate they are taking up additional courses to prepare them for the new economy?

Sir, these are just some of the broad issues and I hope that the Minister will be able to take up these queries in the course of the debate.

Finally, Sir, I support the financial policy of the Government for the new financial year.

Mr Thomas Thomas (Nominated Member): Mr Speaker, Sir, I understand I am the last speaker on the row and during the break, quite a number of Members have expressed to me what their expectations of the last speaker are. I am not able to fulfill all their expectations, but I can fulfill their feelings and I will try to be brief. I would also be speaking on the feelings of a class of our population.

Mr Speaker, Sir, I will start off by first expressing the feeling of relief this budget has given to most Singaporeans in the sense that it has moved away from the sombre tone of last year's budget, and this year's budget is more optimistic. We all like optimistic tones. This relief is even greater because the economy had performed better than expected. Instead of a budget deficit for the last financial year, we saw a surplus of $3.2 billion. Instead of a negative growth of 1.4%, we saw a positive growth of 5.4%. Our neighbours are also doing well. All these are good news. There were external and internal factors for this turnaround and the year ahead looks good. The Government deserves some credit for it, and I give it to them for the better than expected performance of the economy and for managing to get a surplus.

Mr Speaker, Sir, one of the other factors for this turnaround had been the contributions and sacrifices of our workers. The Minister had acknowledged this group in his Budget speech. I thank him for doing that. The workers rallied behind the Government's call for austerity. I am glad that the Government has, in some way, recognised the contribution of the people sector by returning some of the surpluses to the people through $100 million into Medifund, $200 million into ElderCare Fund, $385 million into the CPF accounts of workers. Then there were other new measures for strengthening family cohesion and for meeting retirement needs. The $250 into each worker's CPF account is a good gesture and is much appreciated.

When I attend international trade union conferences and meetings, many of my union friends from overseas tell me that they actually envy we Singaporeans in the sense that we can get some money back from our Government surpluses by crediting into our CPF accounts and to the Edusave accounts of our children. In many countries, these are not possible. The taxes that their workers pay from their hard work is squandered into mega projects which boost egos of politicians but are not economically feasible, or to enrich some people, or it just disappears.

In Singapore, we also have to remember that our workers are also unique. I cannot think of any other place in the world where workers will agree to a pay cut without social unrest. In November 1998, when the NTUC passed a resolution supporting wage cut at its Delegates' conference, it was done without much debate. Union leaders had taken the effort to explain the problem to the rank and file. The ground understood the situation and there was some trust. Our workers must probably be the only workforce in the world that talks about employers' problems and try to help them in real ways. It is reflected in the economic performance. In 1999, our unit labour cost went down by 10%, unit business cost of manufacturing went down by 12% and productivity rose by 5.8%. The action of workers and their unions must have contributed to the confidence for investors to invest in this country and for the economic turnaround.

Last year, when CPF was cut by 10 percentage points and unions agreed to wage cuts to maintain the competitiveness of the economy, the Government also gave a package of reliefs to help citizens cope with the reduction in income. When the economy suffers, it is the working people that feel the pain first. Any reduction in demand for goods and services means a reduction in overtime pay and reduction less take-home pay at the very least, and loss of jobs at the other extreme. The restoration of wage cuts has not fully happened in the private sector, although the public sector had made full restoration. CPF restoration is expected to take some years. The National Wages Council has not come out with a recommendation this year. Workers are patient to wait for the better performance of the economy, as well as for Singapore's competitive position to improve before going for substantive pay rises. The Minister should have also exercised the same patience in maintaining the personal income tax rebate at 10%, and also the rebates on HDB service and conservancy and rental charges.

The $250 into the CPF accounts of every active account holder is a good gesture and has my full support. However, workers would have welcomed more assistance in helping the workforce overcome the sense of job insecurity. Business Times of 21st January this year, carried a report of a survey conducted by a firm of head-hunters that, although wages are expected to go up, workers are generally unhappy and are working longer hours.

Mr Speaker, Sir, labour flexibility has to be balanced with job security through increasing employability. I thank the Government for the commitment to make manpower training a key priority. I know about the many schemes about worker training, such as SRP. I know of the $25 million that would be spent to make our workers more IT savvy. I know there are incentives given to employers for the training of the workforce. Even when employers train, they are for firm specific functional training. It is most useful if workers could continue with the same employer, or another employer, in the same industry. For workers to move on to better jobs, they also need developmental training.

One of the lessons of the last recession is that workers cannot just depend on employers to provide job security. The whole employment relationship has changed. To illustrate my point, I would like to quote the Business Environment Risk Intelligence (BERI) who said in their 1996 Report:

"The general expectation before the 1990s was that hard work and respect for the company would result in job security and progress within the organisation. Ratings are being affected by a radical change in this viewpoint. Top executives seem to be communicating the principle that 'the company is offering no loyalty to employees, and employees are foolish to offer it to the company'."

No one can look after the Singapore worker better than the worker himself or herself. The core workforce of our companies is being reduced through out-sourcing and restructuring. And of the non-core workforce, there are two types. One is highly skilled, mobile and is able to look after himself. At the other end, the worker is not skilled enough or he is at risk of losing his or her present job, and if he loses it, he has difficulty in getting another job and even if he gets it, the pay may not be as high as his present job. By the Minister's own estimate, they number some 834,000, or 42%, of our workforce. A good many of them do not have CPF accounts. As more and more jobs are being outsourced, more workers are being employed on a contract for service, they are employed as part-timers on fixed term contracts and other atypical work arrangements. Workers without CPF accounts do not benefit from CPF top-ups. And most of the time, they are the ones who need them most. The Government should help workers to look after themselves better and give support to the unions to help these workers. On a previous occasion, I had asked the Minister for Manpower to include workers in atypical employment relationship under the definition of "workman" in the Trade Unions Act. And in this way, trade unions can also represent this group of workers.

Mr Speaker, Sir, there is a Chinese saying about giving a man a fish or teaching him to catch fish. Similarly, the advantages of having skills are overwhelming. It is better than charity. Our workers do not want charity. They want dignity and self pride that comes from having a stable, good paying job. The State will have to step in where employers will not do enough. The arguments for giving all citizens part of the budget surplus to educate and train are many. My union colleagues had suggested a "Skillsave" account to be part of CPF to be used for training as the worker finds it in his or her best interest. It would have been an appropriate gesture of recognition if the Government accepted this suggestion and transferred some of these budget surpluses into this account. I strongly urge the Government to consider this proposal seriously. It will not cost very much. Giving every worker $500 for training will only cost the Government less than $800 million, compared to the billions in our surplus.

Sir, Singapore's greatest asset is our people. Developing human capital had given us the competitive edge. I fully support what has been done in the schools and tertiary institutions. I recognise that a lot is being done for those in employment and out of a job. Many workers are anxious and very concerned with the new employment relationship and uncertainties it carries with it. We have to help them. Even more can be done for the people who have contributed to Singapore's success - the workers and their families. 4.32 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Sir, first, let me thank all the Members of the House who have spoken on the Budget yesterday and today. But in view of the time constraint, I can only focus on major issues raised and leave matters of detail to the Committee of Supply.

First, on tax cuts. Members such as Mr Ang Mong Seng, Mr Heng Chiang Meng, Mdm Claire Chiang, Mr Kenneth Chen and Mr Chiam See Tong have commented that the Government had been too quick to scale down the tax cuts given during the economic crisis. There is disappointment that the 10% corporate tax rebate will be discontinued, and that the personal tax rebate and the property tax rebate for commercial and industrial properties are cut back from 10% to 5% and from 55% to 25% respectively.

Sir, when I presented the FY99 Budget last year, the outlook for our economy was very uncertain, with GDP growth for the year 1999 forecasted at between -1 and 1%. The Government had taken decisive actions in introducing the $10.5 billion cost-cutting package in November, following a $2 billion off-Budget package in June 1998. We would have been prepared to do more if this was necessary. As events turned out, the timely restoration of our cost-competitiveness had kept businesses intact, while an improvement in external demand paved the way for a recovery which gained momentum and became broad-based in the second half of 1999. Most sectors, barring construction in particular, are out of the woods. Retrenchments have gone down drastically. In 1998, 29,100 workers were retrenched. This year, this fell sharply by 50% to 14,600 retrenched workers in 1999. Based on CPF records, the average monthly earnings of the workforce in fact grew by 2.7% in 1999, reflecting higher wage adjustments and overtime payments.

With the recession largely behind us, we have to focus our attention to repositioning our economy in response to the challenges of globalisation and technology, while easing our way out of the special cost-cutting measures. We must not forget that the cost-cutting packages were meant to be temporary measures to help companies and individuals during the economic crisis. They were not meant to be the norm.

The tax measures should not be seen in isolation. We have not totally withdrawn the cost-cutting package. Reductions in foreign worker levy have been left unchanged for another year, to the year 2000. Jurong Town Corporation and HDB will also maintain the rental concessions for another year to the end of this year. The property tax concession, which was already extended for one year earlier, continues for another year, though at a lower rate of 25% instead of 55%. Even at 25%, the rebate is still significant, amounting to an effective cut in the property tax rate by 3 percentage points. The GST offset for individuals and utilities rate revision offset for households continue. We will also continue with the assistance schemes under the HDB as well as the CPF bridging loan scheme and the use of CPF Special Account to help home buyers meet shortfalls in mortgage repayments caused by the CPF cut.

The 10% corporate tax rebate was meant to help companies during the crisis. There is no need to carry on with this crisis measure. However, we should position ourselves for strategic international competitiveness in tax. The corporate tax cut of 0.5% is a cautious next move to maintain this tax competitiveness.

The 10% personal income tax rebate last year was given as a measure of relief. The pressure for relief has diminished. The 5% personal tax rebate this year takes into account the modest FY2000 budget surplus of $2.5 billion, which is significantly less than the budget surpluses before the economic crisis.

Let me stress that the Government fully recognises that our workers had lived with the difficult years of 1998 and 1999, when some were retrenched and all have to take a CPF cut under the cost-cutting package. We are particularly grateful to the trade unions for their solidarity and supporting the CPF tax cut. The Special CPF top-up announced in the Budget does not make up for all that they had forgone in CPF contributions, but is a gesture of appreciation and recognition. This top-up will amount to $385 million. The unexpected FY99 budget surplus has made it possible for the Government to make this top-up. The Government will also make transfers of $100 million and $200 million into the Medifund and the ElderCare fund respectively to help the poor and the aged with their medical expenses. After taking into account the top-up and the transfer, the FY1999 budget surplus is expected to be $2.5 billion.

Sir, as the economy recovers, we should revert to a prudent fiscal stance. The Asian crisis has taught us an important lesson. Other countries can turn to their assured large domestic economic hinterland and natural resources for livelihood in times of hardship. Singapore only has its financial reserves to fall back upon. We need to build up our financial reserves when we can, to make sure that when hard times hit, we have the wherewithal to deal with and get ourselves out of the economic crisis quickly.

I will now proceed to address the other major issues raised.

Mr Chiam See Tong claimed that the budget surplus was not based on the total revenue received by Government and that the budget balance should include investment income and proceeds from land sales. Our budget surplus is indeed defined as operating revenue made up of operating and development expenditure and excludes specifically investment income and proceeds from land sales. The budget surplus is defined in this manner to ensure that Government lives within its means and does not live off the past. Trying to live off investment income and proceeds on land sales is both unwise and unsustainable. We have a limited amount of land in land scarce Singapore and investment income is needed to preserve the real value of our reserves. Using up all the investment income will, over time, result in a diminution of the value of our reserves. Reliance on land sales as a source of current revenue is a two-edged sword, as Hong Kong's experience has shown. To ensure the sustainability of Government's budget, Government's expenditure each year must be supported by the operating revenue collected, barring recessionary conditions. No amount of reserves would be enough to sustain a Government that perpetually lives off the past.

Dr Wang Kai Yuen, Mr Leong Horn Kee, Mr Iswaran, Mr Noris Ong and Mr Tay Beng Chuan had all asked why Government ended with a budget surplus in FY99. The FY99 Budget was originally planned based on the circumstances at the beginning of 1999. As I said earlier, the outlook then was quite pessimistic. The Government projected 1999 growth was within the range of -1 to 1% and we were not alone in expecting a weak growth at that time. The Asia Pacific Consensus Forecast, which polls GDP forecast from various private sector sources, had in January 1999 forecast a growth of -0.8% for Singapore for the year. Could we or should we have foreseen that the economy would register a steep V-shaped recovery by the second quarter of 1999? The simple answer has to be no, and neither did anybody else. If Members believe that they have a magic formula for forecasting economic recoveries, I hope that they will share with us. Sir, the Government did not set out to achieve a budget surplus and was prepared to spend much more when necessary to stimulate the economy. As I have said earlier, the Government introduced two off-Budget support packages in June and in November 1998 as our economy slipped into recession. The cost of the $2 billion package in June was entirely borne by the Government, while the $10.5 billion package in November contained substantial cuts in Government taxes and levies. At the same time, a contingency package of additional public sector expenditure was put together to provide support for the economy if conditions worsened in the course of 1999, and additional jobs had to be created to provide employment for retrenched workers. It was this combination of an anticipated low revenue collection in a low-growth economy, coupled with substantial tax and levy cuts and increased provisions for contingency spending which led to the forecast of a budget deficit.

However, as it turned out, our economy grew by a respectable 5.4% in 1999 due to the upturn in global electronics demand and the strong rebound of the regional economies. This was an increase of more than 5% in GDP growth over our FY99 Budget forecast. Our operating revenue, which is strongly correlated to the performance of the economy, turned out to be much higher than we originally expected. This, coupled with the lower tender prices for major development projects and the non-acceleration of some lower priority projects, led to the large swing in the budget position. No magic is involved.

Sir, the budget surplus outcome was something we could not have foreseen, but neither is it something that we need to be ashamed of. The budget surplus is a happy outcome as it is the result of the strong and speedy V-shaped recovery from the crisis. There was no reason for the Government to spend frivolously just to avoid showing this surplus. This would not be in the best interest of Singapore and Singaporeans.

On Government expenditure on Defence, Education and Training, Mr J B Jeyaretnam said that we are spending more and more on Defence. As I have explained to Mr Jeyaretnam last year, as Singapore's GDP increases over the years, in absolute dollars, we would then spend more on national defence naturally. The safety of our people and all that we have worked for and saved all these years will be at stake if we do not maintain a strong military defence capability. Mr Jeyaretnam also accused the Government of only training the workers when they are old, instead of when they are young. In FY2000, our Budget for the Ministry of Education and the Ministry of Manpower will increase by 70% and 68% respectively. And this is not lip service. This Government has recognised right from the beginning the importance of investing in our children. We have been advocating meritocracy from the very beginning since our independence so that no child will be deprived of the opportunity to go to school and to develop to his or her very best potential just because they come from poor families. We have long sounded the clarion call for our workers to train and retrain, and put in place a full range of supporting schemes.

Dr Wang Kai Yuen, Mr Simon Tay and Mr Tay Beng Chuan have urged that Government should bring forward construction projects to support the growth of the economy. Government had, at the beginning of FY99, set aside funds for new projects that may be needed to help stimulate the economy during the course of the year. Such projects involve building infrastructure earlier than they are needed. They would not have been considered under normal circumstances. However, once it became clear in the course of 1999 that the economy was recovering strongly, it did not make sense to implement these projects, as doing so will only incur costs for a marginal gain in the face of an economy which was already turning around. Members of this House may wish to note that for our economy, external demand makes up 75% of total demand. So, stimulating the domestic economy has quite a small effect on our GDP.

Dr Wang Kai Yuen again and Mr Lew Syn Pau have commented that the $979 million set aside for new projects in FY 2000 was unusual. I can assure them that there is nothing "unusual" about a provision for new projects. There was a similar provision of about $1 billion in the FY99 budget. I should explain what is meant by new projects. New projects are projects that are already on the drawing board, and for which some details have been drawn up. However, they have not yet been approved by the Development Planning Committee and are thus classified as new projects. When these projects are approved and initiated in the course of the year, funding has to be provided for them. Viewed in this perspective, the amount set aside for these new programmes is not large, as it constitutes less than 8% of the total development budget for the fiscal year.

Restoration of CPF cut and the special CPF top-up

Mr Low Thia Khiang has argued that the Government was benefiting at the expense of workers with their CPF cut, and hence Government policy had resulted in a win-win situation for the Government and a lose-lose situation for the people. Mr Speaker, Sir, I think Mr Low Thia Khiang has got the cause and effect all mixed up. The CPF rate was reduced during the crisis to lower our business costs, improve our competitiveness and help to save jobs. That was its primary objective. Every company that decides to relocate out of Singapore because other countries in the region have become significantly cheaper due to the weakening of their currencies relative to the Singapore dollar during the economic crisis, would represent a permanent loss of jobs for Singapore. The CPF cut was the single most important measure necessary to improve our cost competitiveness and to retain jobs. Without the CPF cut, more workers would have suffered as companies retrenched or closed down. The cost cutting package played a critical role in helping to get us out of the crisis quickly. The higher tax collection is the direct result of the strong economic rebound and the timely measures taken by the Government. The higher income tax collection could only come from higher profits and wages, generated by our people having real jobs, producing real goods and services which the world finds worth buying. It is therefore contorted and invidious logic to suggest that the CPF cut is an exercise aimed at transferring monies from the people to the Government's pocket. Ultimately, we should remember that the accumulated reserves belong to the people of Singapore and not to the Government.

Mr Ong Ah Heng, Mr Peh Chin Hua and Mr Chiam See Tong have urged that the CPF rate cut should be restored faster. The 10% CPF cut, which took effect from 1st January 1999, was originally planned to stay for two years. This period would allow the economy to regain its cost competitiveness. Once the economy had recovered, the cut will be progressively reduced. Given the faster than expected rebound, restoration of the CPF cut was brought forward to April 2000, instead of after two years. However, in order not to prematurely derail our business competitiveness and the economic recovery, the pace and quantum of the restoration have to be gradual. It took us five years and four months to restore the CPF cut in the 1985 recession, with the first step taken only after 28 months. We are now taking our first step this time after just 15 months.

Dr Teo Ho Pin and Mr Peh Chin Hua have asked why the CPF top-up could not have been made bigger. I should point out that the special CPF top-up is not meant to fully or significantly compensate for the CPF cut, as doing so would defeat the purpose of the cut in the first place. Instead, it is given to recognise the sacrifice of the workers in accepting CPF and wage cuts to help lift the economy out of the recession. The quantum of the top-up is in line with top-ups given by Government in earlier years.

Dr Vasoo has asked that retirees and retrenched workers should be given a grace period to make their one CPF contribution so as to receive the $250 special CPF top-up. I should point out that the special CPF top-up is targeted at those who had been directly affected by the wage and CPF cuts and by retrenchments. It is both reasonable and appropriate that the special CPF top-up should be extended to the Singaporeans who had worked, and therefore contributed to CPF, any time in the 1998 and 1999 period. This will cover those who had been retrenched or retired during this period. Allowing Singaporeans to top up their CPF accounts in order to qualify for the special CPF top-up will detract from the purpose of the exercise.

Civil service pay

Mr Simon Tay and Mr Low Thia Khiang have expressed concern over civil service pay. Mr Tay asked why, when the CPF cut has not yet been fully reinstated, the civil service should be reinstating its full pay cut. Mr Speaker, Sir, the civil service is only restoring the pay cut made on 1st January last year, when the civil service took the lead in implementing pay cuts. The CPF/pay cut for civil servants is still in place, just like all other Singaporean workers. I also want to point out that contrary to what Mr Tay believes, civil service pay has not been fully restored. The cut to the monthly salaries of civil servants made on 1st January 1999 up to 5% was restored on 1st January 2000. The total annual package has yet to be fully restored. This is because the annual variable component (AVC), which was cut from two months to 0.75 months in 1998, was only built up to one month in 1999. If we include the 0.25 month special bonus that was paid to civil servants last year, the total annual package (14.25 months including a one month annual wage supplement, a one month AVC and 0.25 month special bonus for 1998) is still 0.75 month less than the 15-month package paid in 1997.

The decision to restore civil service pay cuts took into account the recovery in the economy, the need to attract and retain talent and to maintain the high quality of public service and Government. Based on CPF records, the average monthly earnings of the entire workforce, including civil servants whose wages fell, grew by 2.7% in 1999, reflecting higher wage adjustments and overtime payments. In fact, in the last quarter of 1999, the average monthly earnings of the workforce was 5.9% higher than in the same period one year ago.

The increase in manpower expenditure for FY2000 appears large at 10.8%, because it is compared against a lower base of FY99, which included the CPF and salary cuts for civil servants and political appointments. The partial restoration of these cuts accounted for the bulk of the increase in manpower expenditure by more than 8 percentage points out of the 10.8% increase. Discounting the restoration, the increase in manpower expenditure is only 2%, which is lower than the projected GDP growth. This is mainly due to normal salary increments. Government is committed to keeping the civil service lean and trim and, over the years, has farmed out non-essential services to the private sector and harnessed IT to bring about added efficiencies. This will continue.

Corporate tax

Mr Tay Beng Chuan has asked why was the corporate tax cut of 0.5% not applied with effect from the Year of Assessment 2000, rather than from the Year of Assessment 2001. As I have explained earlier, the 0.5% corporate tax cut is not a replacement for the 10% corporate tax rebate granted during the crisis. The tax cut is intended to ensure that our tax rates remain competitive. A 1/2% tax cut will therefore take effect from the next Year of Assessment, which follows our normal practice when making adjustments to our tax rates.

As to whether we will be cutting our corporate tax rate further, I had announced in the FY93 budget debate that Government's medium term target rate for corporate tax is 25%. We are now very close to this target. But I cannot say how low our corporate tax rates will be in future, as it will also depend on what other countries do. What we do know is that we will have to do whatever is necessary to compete to attract investments and talent to locate and stay in Singapore.

Government's Role in the New Economy

Members have expressed disappointment that the Budget does not appear to address the transition to the new economy. Mr Speaker, Sir, I think this is a misperception. While there may not be many new initiatives announced in the Budget, this is because Government had recognised the need early and has already launched many initiatives. We have, over the past years, put in place and are continuing to support many programmes covering education, training, infrastructure and manpower development. These include the IT Master Plan in the schools, Thinking Schools, Learning Nation Vision, Manpower 21 and the Technopreneurship 21 initiatives.

Mr Chng Hee Kok has asked how Government intends to promote growth in the new economy. Mr Speaker, Sir, the new economy, as exemplified by the United States, is one in which productive investments, deregulation and the leveraging of technology raises productivity, and allows higher economic growth at low inflation. This is what our Government hopes to achieve by developing Singapore into a globally competitive knowledge economy. To this end, as mentioned in my Budget Statement, we will actively pursue the economic strategies mapped out by the Committee on Singapore's Competitiveness (CSC).

An important key to Singapore's success in the new economy is innovation and enterprise, creativity and entrepreneurism. What Government can and should do to promote innovation and enterprise is capability-building. This explains our heavy investments to educate and train our children and workers, and the continuous effort to fine-tune our education system and workers' training. This is so that they will have the ability and attitude to constantly learn and adapt in the new economy. We must never forget that the majority of our people will still be employees, and only a minority will strike out on their own as entrepreneurs. But, for Singapore to prosper, we need every Singaporean - not just entrepreneurs but employees as well - to be enterprising and innovative.

To encourage entrepreneurship, Government launched the Technopreneurship 21 or T21 initiative last year. Under T21, we aim to create a pro-enterprise environment, enhance venture investment and financing in Singapore, provide a conducive environment for talent to congregate, and infuse in the population a culture of innovation and enterprise. Thus far, we have, among others, introduced a Technopreneur Investment tax incentive and Qualified Employees Stock Options Scheme, allowed technopreneur home offices, set up a US$1 billion Technopreneurship Investment Fund (TIF) to draw more venture capital activities and talents into Singapore, and revised the Bankruptcy law. NSTB and partnering agencies are in the process of working on the next wave of T21 implementation, and a second set of changes in rules and regulations will be forthcoming.

Helping workers adapt to knowledge-based economy

Members, including Dr Tan Boon Wan, Dr Ong Chit Chung, Mr Hawazi Daipi, Mr Seng Han Thong and Mr Ong Ah Heng, have asked for more measures to help especially the less educated or older workers cope with the demands of the knowledge-based economy. Mr Speaker, Sir, the Government accords high priority and has already put in place many assistance schemes to encourage the training and retraining of our workers. For the upgrading of the technical skills of workers, the Initiative for New Technology (INTECH) programme under the Economic Development Assistance Scheme (EDAS) has a total of $800 million. As part of the Manpower 21 initiative, the Government has also launched a $200 million Manpower Development Assistance Scheme (MDAS) to promote skills upgrading for the lower-skilled workers. Under the MDAS, a budget of $110 million is allocated to Workforce Development Programme, comprising Skills Redevelopment Programme for unskilled and semi-skilled mid-career workers, and Strategic Manpower Conversion Programme for professionals. A budget of $40 million is earmarked for the development of the National Skills Recognition System to establish and train workers in clear standards of competency. The Government is also providing $50 million for MOM to develop learning infrastructure to assist and facilitate industries to build up their own capabilities to provide training for workers.

Given the abundance of schemes to help workers' training and retraining, there is no pressing need to give more tax incentives, such as double tax deduction, on training. A double tax deduction scheme will benefit primarily the profitable and bigger companies, and will provide only limited help to the loss-making and smaller companies. Larger companies, defined as those with more than 500 employees, currently spend about 6.3% of payroll on training, whereas the figure for smaller companies with less than 50 employees is 2.3%. Hence, the challenge is to encourage SMEs to intensify their workers' retraining efforts. For these companies, tax incentive is not the most appropriate remedy.

Mr Chew Heng Ching, Mr Ong Ah Heng and Mr Leong Horn Kee have suggested tax relief or co-payment grants to every Singaporean or family to enroll in an IT course or to buy a computer. The Government is well aware that as we move towards a knowledge-based economy and an information society, the risks of fault-lines developing between the IT-savvy and the non-IT savvy will increase. It is important that IT courses and PCs be made accessible to all Singaporeans. This is not a problem for the young, who are getting such exposure and access in schools and tertiary institutions. What we need is to address the needs of those who are not schooling and who have no access to PCs because they cannot afford them. For these people, the suggestion of tax relief or a co-payment scheme will not be the best solution. After all, 65% of taxpayers base currently do not pay taxes. A targeted effort will be more effective in helping Singaporeans who really need such assistance. IDA is setting aside $25 million over the next 3 years to work with self-help groups and grassroots organisations to offer used PCs bundled with free Internet access and basic training to some 30,000 low-income households. Free broadband access will be made available at community centres and clubs. Government also has in place various schemes to provide affordable IT training or to help defray part of the cost of IT courses. These include the ONE Learning Place, the IT Coach, the Critical IT Resource Programme, the Skills Development Fund and the Skills Redevelopment Programme.

Developing SMEs

Mr Inderjit Singh, Mr Kenneth Chen, Mr Gerard Ee and Mr Noris Ong have asked for more assistance, such as tax concessions, for SMEs to participate in the knowledge-based economy. I should point out there are limitations in using the tax route to help SMEs develop. This is because SMEs do not pay much tax in the first place. Based on 1998 tax collection, companies with assessed income of $100,000 or below accounted for only 1.7% of the net corporate tax assessed. The Government has therefore chosen to assist SMEs comprehensively via grants, loans and technical assistance schemes.

The Productivity and Standards Board released last year a 10-year strategic plan, SME21. Specifically, SME21 will groom innovative high-growth SMEs so that, over time, a steady stream of SMEs can reach world-class status. The aim is to treble the number of local SMEs with sales turnover of $10 million and above, from 2,000 to 6,000 by year 2010. Secondly, SME21 aims to upgrade the low-productivity SME sectors, such as the retail and other domestic service sectors. Thirdly, SME21 aims to create a knowledge-based, pro-enterprise environment. For instance, e-commerce, if embraced and harnessed by SMEs, will open up vast opportunities and remove the traditional barriers to SME growth. The aim is to quadruple the number of SMEs with e-commerce transactions from 8,000 to 32,000 by the year 2010.

If there are further schemes which can help SMEs enhance their competitiveness, the Ministry of Finance will be open to considering them. We will continue to create a pro-business environment for SMEs, and integrate them in overall economic development strategies. But, SMEs must want to help and upgrade themselves.

Tax treatment of foreign-sourced income

Mr Simon Tay has asked for tax incentives to lure back to Singapore interest income on the funds parked abroad by high net worth Singaporeans. Mr Speaker, Sir, in Singapore, tax is imposed on a territorial basis. In practice, this means that income arising from sources within Singapore will be subject to tax. Income arising from sources outside Singapore will not be taxed in Singapore, unless it is remitted back to Singapore. In contrast, a number of developed countries apply the worldwide basis of taxation, taxing both the domestic and foreign sources of income of its residents as income arises.

We are not in favour of exempting or taxing foreign income remittance at a lower rate while domestic income is taxed in full. Doing so will only create loopholes for residents to channel Singapore income offshore to low-tax countries or to tax havens, and to remit it later at a tax advantage. Singapore will risk being regarded as a tax haven, with the result that our foreign investors will be penalised with anti-tax avoidance measures. In any case, Singapore enjoys a comprehensive network of double tax treaties and also provides generous unilateral tax credit. Coupled with our low corporate tax rate of 26%, this means that most foreign income that had suffered taxes elsewhere will not have to suffer additional tax when remitted to Singapore.

There are also currently already tax incentive schemes available, such as the Operational Headquarters Incentive and the Overseas Enterprise Incentive which provide for exemption for certain types of foreign source income.

Group relief

Mr Noris Ong and Mr Leong Horn Kee have suggested allowing group offsetting of losses to help ease the cash flow of companies undertaking new ventures which are loss-making. There were also suggestions that we allow the losses of foreign subsidiaries to be offset against the profits of the parent company in Singapore.

A company sets up a subsidiary as a separate legal entity to carry out a particular activity because it wants to limit its liabilities and exposure arising from that activity. Since a subsidiary is a separate entity which can sue or be sued in its own right, there is no fundamental reason to treat it differently for tax purposes. Thus it is logically taxed separately from its parent company.

Allowing group relief represents a fundamental change to our corporate tax regime and can have significant revenue implications. If group relief were allowed, profitable companies within a group may end up not having to pay tax on their profits if losses incurred by other companies within the group were included. This may open up opportunities for tax planning. It will raise the cost of tax administration because complex tax rules will need to be drawn up to prevent abuse, and has invariably been the experience of countries which allow group relief.

One point which Members may not be aware of is that currently, we allow losses to be carried forward indefinitely. Hence, as long as a company can turn around, the earlier losses can be used to offset tax on the later profits.

As for foreign losses incurred by our companies setting up operations abroad, just as their foreign income is not taxed unless remitted to Singapore, likewise, their foreign losses should not be allowed for offset against domestic income. Otherwise, Government will end up subsidising foreign ventures from domestic tax revenue. As a concession, the Overseas Investment Incentive allows capital losses from the sale of shares in, or liquidation of, approved overseas investments to be set off against the company's Singapore-sourced income.

Members of this House may also wish to note that generally for countries which have group relief, overseas companies in the group are in fact excluded. Losses incurred by such companies cannot be consolidated for tax purposes.

Employee stock options

Members, including Mr Chew Heng Ching, Mr Iswaran, Mr Ahmad Magad and Mr Peh Chin Hua, have spoken on facilitating employee stock options (ESOPs). Assoc. Prof. Low Seow Chay has also said that it is not correct to subject gains from ESOP to tax. ESOP is a form of remuneration and gains made from exercising ESOP are hence a form of employment benefit that ought to be liable for tax. Nonetheless, as I have announced during the Budget Speech, an incentivised tax treatment of ESOPs for high-tech start-ups will be announced at the end of May this year. The intention is to take Members' comments into account in working out the scheme and we will be looking at feedback from the industries.

Supplementary Retirement Scheme

I would like to thank Members like Dr Wang Kai Yuen, Mr Chew Heng Ching, Mr Chay Wai Chuen and Mr Noris Ong for their various suggestions in relation to the Supplementary Retirement Scheme (SRS). I mentioned in my Budget Speech that the details of the SRS will take time to work out, and we hope to implement the scheme by next year. There will be extensive consultation with the private sector on the implementation details.

Preparing for Ageing

Several Members, including Assoc. Prof. Low Seow Chay, Mr Yeo Guat Kwang, and Mr Harun Ghani, have spoken on preparing for an ageing society. Government has endorsed in principle the recommendations of the Inter-Ministerial Committee on Ageing. Ministry of Finance is currently working with the IMC Secretariat and implementing agencies on the required budget based on cost effectiveness and financial sustainability of the recommendations.

Encouraging Families, Marriage and Procreation

Dr Jennifer Lee, Mr Harun Ghani, Dr Teo Ho Pin and Mdm Claire Chiang have called on the Government to do more for the family and youths. Mr Speaker, Sir, Government views family as a crucial institution in our society. One of the five key ideas of the Singapore 21 Vision is "Strong families - our Foundation and our Future".

To help promote and strengthen the family as an institution, as well as to fulfill the needs of the youths and the elderly, the Ministry of Community Development and Sports will get a substantial increase of 38% in its Fiscal Year 2000 budget. Despite this, Mdm Chiang has commented that Government has not committed enough for youth interests and dysfunctional families. These are complex issues that have to be addressed through the efforts of a variety of agencies, not all of which fall within the purview of MCDS. The budget for MCDS should therefore not be viewed in isolation. For example, tackling the issues of teenage delinquency is not the responsibility of MCDS alone. MOE and MHA both have substantial involvement on the preventive as well as rehabilitative aspects. Government's spending on social and community development should be looked at as a whole. This sector has consistently been allocated the largest share of the Government's expenditure budget.

HDB Upgrading

Dr Teo Ho Pin has asked whether MOF will make available more money for town councils and CDCs to improve connectivity within a community. Dr Teo and Dr Wang Kai Yuen have also asked for more funds for the Main and Interim Upgrading Programmes (MUP and IUP) this year. Mr Speaker, Sir, in Fiscal Year 2000, provision for the Community Improvement Projects Committee to improve accessibility within a community is $45 million, an increase of 25% over FY99. The Government has not cut back on the total budget allocated for the MUP and IUP programmes, and has no intention of doing so. The Ministry of National Development has been given a total budget of $5.5 billion to carry out the programmes. As construction costs have come down significantly, it means that more can now be undertaken with the same total budget. The question of how best to structure the budget allocated for the MUP and IUP programmes, and the pace at which these programmes are to be carried out is left to MND to decide.

Improving the Civil Service

Mr Peh Chin Hua, Mr Inderjit Singh and Mrs Lim Hwee Hua have spoken on the need to improve our civil service. This is a fair call. Our civil service must continually strive to be among the best in the world. But we must be mindful that Government is not like businesses and cannot be motivated or driven solely by profit and loss. A lot of the Government's work is monopolistic and is about creating social value, which cannot be easily measured against commercial benchmarks. The impact of what Government does is mostly non-economic in nature. I would be most concerned if individual civil servants are paid according to their financial achievement on their job.

We have adopted the paradigm of requiring the Ministries to get the most out of their allocated budgets, and to strive for organisational excellence and for sustainable performance. From this year, the desired outcomes of the Ministries are being published in the Budget book. Over the next couple of years, various resource management concepts and practices will be introduced for Ministries to better manage their resources to achieve even greater value for money.

As for organisational excellence, every Ministry and department is looking at achieving ISO9000 certification, the People Developer Award and the Singapore Quality Class leading on, hopefully, to the Singapore Quality Award. At the end of the day, performance of Government is really about how well we are able to achieve the outcomes in areas like international competitiveness, universal education, economic productivity, high standards of living, political and social stability, and national security. While there are often no direct measures for these, there are many international rankings, comparisons and assessments made.

Mrs Lim Hwee Hua is right in saying that further privatisation may be inevitable. Indeed, Government believes that all Government operations that can have bottomline and which provide services that are measurable could be corporatised, or at least converted to a statutory board. In fact, Government has just last year corporatised the Public Works Department. However, we must recognise that in the end, there will remain a core of Government relating to core regulatory functions and policy formulation which cannot be corporatised.

Conclusion

Mr Speaker, Sir, as my speech demonstrates, we need all three sectors - the public, private and people sectors - to be vigorous, robust and enterprising for Singapore to survive and succeed in this new age of global competition and accelerated change. We must constantly be willing to try out new ideas, nimble in exploiting new opportunities and quick in responding to changing demands. At the same time we must not forget certain fundamentals. We have to live within our means - no one owes us our existence or a living. Our families are important and are the backbone of our social fabric. We must adhere to meritocracy to allow the talents of our people to be developed and harnessed the best way possible. We have to continually look forward and invest in our future prosperity.

Mr Speaker, Sir, together, the people and the Government can make tomorrow a better one for Singapore if we are pragmatic in our approach and yet bold in our dreams. In this light, this year's Budget after the economic crisis represents an important milestone to meet the demands and challenges of the new economy. It is a budget in transition. If we change too slowly, we end up with the world passing us by. If we change too fast, we may end up going on the wrong path. We need wisdom, courage and a capacity for trial and error. I thank Members for all their contributions in this process. [Applause].

Mr Low Thia Khiang: Sir, may I have your permission to seek clarification from the Minister?

Mr Speaker: Yes.

Mr Low Thia Khiang: Thank you, Sir.

First clarification, Sir. Is it not true that there are many workers, especially those who are working in companies which have not recovered, who continue to draw a much lower salary compared to pre-crisis level? And yet is it morally right for the Government to restore civil service and Ministers' salary up to that level? I understand just now that for the Ministers, it does not seem to be sufficient. It is going to increase further.

Secondly, is it not true that while many Singaporeans suffer, and some are still suffering because of the economic downturn, the Government turns out to be the biggest winner in the economic downturn, with its coffers overflowing?

Third clarification, Sir. The Minister says that the Budget was prepared early January 1999, and he did not know there would be a recovery, and thereby there is over provision on the development expenditure. I would like to know when did the Government come to know that it does not need to spend the development expenditure.

Lastly, I would like to know from the Minister whether he foresees any possible asset inflation as had happened before, just before the financial crisis hit us, and which I think resulted in quite a lot of stress and pressure on the cost.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I did not say that the civil service wages have been fully restored. I did point out that it was not fully restored. And I recognise that there are sectors in the population who must be receiving less pay than they had before the recession. That is something which is a fact of life.

The second question was in this whole exercise, the Government ended up as the biggest winner. Who is the Government? The money in the reserves is yours. What is the Government? The Government represents the people. The Frontbench and the Ministers are just your agents holding the money safely so that ---

Mr Low Thia Khiang: Distribute the money!

Dr Richard Hu Tsu Tau: Distribute the money, that is quite a different thing altogether. I think you can do that when you take over the Government.

The third question was on development expenditure. As I mentioned in my response earlier on, a provision was made which could be used in case 1999 turned out to be a poor year. Maybe the year as a whole would be a recessionary year. So some of the money was set aside to be put into civil works, like they did in Japan, in case you needed to create jobs if the situation got worse. But the economy recovered from the second quarter onwards. Second, third and fourth quarter growth rates were all very rapid. It is the swing from the first quarter, which was still very weak, to a rapid improvement in the second, third and fourth quarters - which allowed us to see that a lot of the development expenditure provisions would not be necessary. And I did say that unless they are essential expenditures, we prefer not to spend them, if you do not need them to create new jobs. You will notice that in Japan, trillions of Yen have been put into public works to no effect in order to stimulate the economy. I also mentioned earlier that the structure of our economy is basically export dependent. Stimulating domestic economy through fiscal pump-priming does not produce very good results.

Lastly, the Member's question on whether asset inflation is a problem. It is indeed a problem. But the high asset inflation has not taken place here but in other countries, although we have seen some of it flowing through into our economy. But I do not think we have reached the point where we need to be overly concerned. My main worry is whether the US stock markets will continue to hold for a reasonable length of time and do not retreat to the point where it affects US domestic demand, and therefore impacts on our exports. For the time being, asset inflation is something which we keep an eye on. But I do not think in Singapore, it has reached a point where drastic action needs to be taken like, for example, we did in 1996.

Mr Low Thia Khiang: Mr Speaker, Sir, may I have your permission to seek further clarification. When I questioned the deficit budgetary position of the Government at the last budget debate, I pointed out that we might not end up with a deficit if development expenditure was not that much. The Minister knew then that there was a provision which might or might not be needed. Is it true?

Dr Richard Hu Tsu Tau: Yes. When you expect a recession, you make a provision to spend money to try and mitigate the effects of the recession. This was provided for in the FY1999 budget. We had quite a large provision for additional development expenditure which we thought might be needed in case, instead of a recovery, the economy continued to slide from a low first quarter into the remaining three quarters of last year. But events turned out that we did not need it.

Mr Low Thia Khiang: In other words, my suspicion, at the last year's Budget debate, that we might not really have a deficit budget is true. It is correct.

Dr Richard Hu Tsu Tau: I do not know what he means. If what you say is true is true.

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 2000 to 31st March, 2001.