CONSTITUTION OF THE REPUBLIC OF SINGAPORE (AMENDMENT) BILL

Order for Second Reading read. 2.04 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Constitutional Amendment Bill before the House contains three amendments. The first pertains to the tenure of members of the Council of Presidential Advisers, the second to the protection of net investment income earned from the past reserves of the Government, and the third to the tenure of the Auditor-General.

Tenure of Members of the Council of Presidential Advisers

Mr Speaker, Sir, I turn first to the amendment pertaining to the tenure of members of the Council of Presidential Advisers or CPA.

Under Article 37B(3), members of the CPA are currently appointed for a fixed term of 6 years and are eligible for re-appointments on a 6-year term.

The main reason for appointing CPA members to specified, fixed terms is to give them standing on their own once they are appointed. They are expected to exercise independent judgment on issues, rather than reflect the views of the person who advised the President to appoint them, be it the President himself, the Prime Minister, the Chairman of the PSC, or the Chief Justice. Hence, they have tenure in office, and cannot be removed at will by their nominators.

The President, however, has pointed out that 6 years for each term is a long time, especially if the CPA members are already in their 70s. Health considerations may not permit them to commit to serving the full 6-year appointment although they may still be able to make valuable contributions for a shorter term. The President suggested that the Government consider whether re-appointments could be for terms less than 6 years.

The Government has considered the President's suggestion. Article 37(B) of the Constitution will therefore be amended to provide for the appointment of a member of the CPA for a tenure of 6 years on his first appointment, and re-appointment for further terms of 4 years each.

Net Investment Income

Mr Speaker, Sir, I turn now to the amendment pertaining to the protection of net investment income (or NII) earned from past reserves.

Sir, in my Statement to the House on 17th August 1999, I said that the Government needed time to study how best to protect NII and this could lead to an amendment of the Constitution. The amendment before the House now is a result of the study.

Before I go into the amendment proper, let me quickly re-cap what is NII and what is its current Constitutional position.

NII is defined as the interest and dividend income earned from investing the Government's reserves, net of debt servicing and expenses on investment. It does not include any capital gains or losses arising from the disposal of investments.

Under the present Constitution, "reserves which were not accumulated by the Government during its current term of office" are protected and subjected to the President's second key. On the other hand, NII, whether derived from past or current reserves, is accumulated during the current term of office of the Government and is thus not protected under the present Constitution.

Although NII is thus clearly "current money" under the Constitution, the Government has carefully studied whether part of NII ought to be locked up, especially the NII that is derived from past reserves. This is a complex issue as we need to project the state of the economy and the Government's budget position over the long term, and strike a proper balance between restraining a profligate government on the one hand, and allowing a responsible government enough flexibility to operate on the other.

The future cannot be predicted with certainty. However, we do know that an ageing population will impose greater demands on health and social expenditures, and reduce the proportion of Singaporeans in full employment and paying taxes. At the same time, globalisation will make it more important for us to attract and retain talent, businesses and investments. This calls for competitive tax rates, and will put pressure on Government revenues. It is therefore likely that over time, expenditures will grow more rapidly than revenues. In the long term, we may therefore need to draw upon part of NII to supplement tax revenue, although we cannot know for sure how much of NII we will need.

It could be argued that so long as the Government's budget position is healthy and in surplus, all NII should be protected, since a responsible government could always seek the President's concurrence to draw on past reserves when the need arises. However, we have to bear in mind that such draws may be needed on a regular basis in future if all NII is protected. To seek the President's approval on a regular basis will undermine the foundation in the "second key" system as draws on past reserves should be called upon only in exceptional circumstances.

Nevertheless, we should not provide for too much flexibility. Our current budgetary discipline of keeping Government small and focused on basic public services is sound and should be continued. We cannot afford to emulate resource rich countries in which government's share of expenditures has risen as high as 40% of GDP. Such expenditures are unsustainable in the long term and will ultimately strangle the growth of the private sector and the economy.

The Government has therefore decided to protect, on an annual basis, at least 50% of the NII earned from the past reserves of the Government. NII earned from the current reserves will continue to accrue to the current reserves, in line with the principle that the government of the day should benefit from its work.

The protection of NII will apply only to the NII earned from Government's own reserves. It will not apply to the NII earned by statutory boards and Government-linked companies contained in the Fifth Schedule to the Constitution. Just as normal commercial companies have full access to the investment earnings from all its accumulated funds, statutory boards and Government-linked companies should also be given access to their NII as part and parcel of their normal income. Locking up their NII will take away their flexibility and responsiveness in making business and operating decisions.

The amendment to effect the protection of NII I have just described is set out in clause 3 of the Bill before the House.

Article 142 of the Constitution will be amended to provide for not less than 50% of the NII earned from past reserves in a financial year to be added to, and protected as, past reserves.

The exact amount, which cannot be less than 50%, will be specified in a certificate that the Minister for Finance shall present to the President after the close of the financial year. The protection will take effect from the date of the certificate and will be final. If a future Minister for Finance refuses to issue such a certificate for whatever reason, 50% of the NII earned from past reserves will nevertheless be protected when the Government Financial Statements are presented to the President.

The amendment also puts into the Constitution a new definition of NII. The definition will be expanded to cover more than what is currently defined as NII in the Budget Book. NII will now include interest earned from developmental loans given by Government, mainly to statutory boards. The interest on these loans was previously treated as Operating Revenue, because developmental loans were not classified as investments under the Financial Procedure Act.

Now that we will be protecting at least 50% of NII, excluding interest earned from developmental loans from NII would leave a potential loophole. Such interest earnings will therefore be included in future.

As the amendment concerns the protection of past reserves, albeit to tighten the protection, Government has briefed the President and the Council of Presidential Advisers, who agree with the amendment.

Tenure of the Auditor-General

Mr Speaker, Sir, I now turn to the third amendment. This pertains to the tenure of the Auditor-General.

Currently, Article 148F of the Constitution provides for the Auditor-General to hold office until he attains the age of 60 years, regardless of when he was appointed. Before reaching the retirement age, he can only be removed from office by the President if he is found to be unable to discharge the functions of his office whether for infirmity of body or mind, or for misbehaviour. His remuneration and other terms of service are also protected under the Constitution. In addition, he is not eligible for any other appointment as a public officer after stepping down as Auditor-General.

The underlying rationale of these provisions is to safeguard the powers and independence of the Auditor-General, so that he can carry out his duties firmly and fairly, without fear or favour.

These Constitutional provisions have worked so far. But moving forward in an environment of rapid change, they need to be fine-tuned. Appointment till retirement age creates rigidity in the talent management process. It does not allow for systematic renewal and rejuvenation of the office, which is always desirable, regardless of the abilities and performance of the incumbent. This is particularly so as we want to appoint able officers to the post of Auditor-General at a younger age, to inject new, fresh perspectives and update the office, rather than appoint individuals who are approaching retirement age.

Deputy Prime Minister Lee had informed the House of the need to have a healthy turnover of people in the public service, especially those holding top Public Service Leadership jobs. The public service needs to develop and stretch our younger officers, giving them larger and more challenging responsibilities earlier. Conversely, it also means that not all officers who assume leadership positions early can stay in those positions till retirement age. Systematic but judicious renewal is also desirable, as it will prevent the organisation from becoming too settled in its ways.

Permanent Secretaries and other officers holding Public Service Leadership jobs are now appointed on fixed terms. The same should apply to the office of the Auditor-General. We need to find and appoint good individuals to the post of Auditor-General and ensure that the office is regularly rejuvenated. "Permanency" of office and prolonged exposure to repetitive audit cycles could also lull an incumbent into complacency. In the private sector, it is considered good practice to regularly rotate auditing partners, if not the auditing firms, about once every five years. The same principle should apply in the audit of the Government and the public service.

Article 148F of the Constitution will therefore be amended to provide for the appointment of the Auditor-General for a fixed term of six years, with the possibility of re-appointments for further terms of six years each. As a corollary to appointing the Auditor-General on fixed terms which may end before he reaches retirement age, the prohibition of a person who has held the office of the Auditor-General from taking up any other appointments as a public officer after leaving office will be removed. There is no reason why we should prevent a good individual from re-joining the public service after he has finished his term as Auditor-General.

Having a fixed six-year term appointment, subject to renewal, should not adversely affect the organisational independence of the Auditor-General. The Auditor-General remains organisationally immune from any Executive interference and influence in his job. Firstly, he enjoys security of tenure during his fixed term, unlike ordinary public officers who hold office at the pleasure of the Executive. The Auditor-General can only be removed on grounds of misbehaviour or inability to discharge his functions, as determined by a high-level tribunal, and even then only with the concurrence of the President.

Secondly, once appointed, the Auditor-General's pensionable remuneration and other terms of service, including his pensionable status, cannot be altered to his disadvantage while he remains in office. This protection in the Constitution remains unchanged; and

Finally, the Auditor-General continues to report directly to the President and Parliament under the Audit Act.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee: Mr Speaker, Sir, the proposed amendments to the Constitution have two components. The first is the change to the tenure of the members of the Council of Presidential Advisers and the Auditor-General. The second is the new treatment proposed by the Government of the net investment income.

Sir, with regard to the first issue on the change of tenure of Presidential Advisers, I would like to voice my support that it is appropriate that members of the Presidential Council be appointed, firstly, on a six-year term and thereafter to be re-appointed for further terms of four years each. I agree with the shorter term of four years each for re-appointments. This will enable the suitability of these Advisers to be reviewed over a shorter period for future renewals, after the first initial appointment of six years. In fact, if we add the first six years to the further re-appointment term of four years, a re-appointed Adviser would have served for 10 years, and further renewal should, of course, be reviewed and for a shorter period. Therefore, I support this proposal.

Sir, on the second point about the re-appointment of the Auditor-General, the proposal is to first appoint him on a 6-year contract basis, and thereafter for renewal of another six years. This is quite fair as well. But I do have a small concern about the proposal to remove the requirement that after his retirement in future, the Auditor-General can now find other jobs, which, in some cases, may be deemed to be not so suitable for him, since he has already held an esteemed post of Auditor-General. This point may lower the high office of the Auditor-General, because he is supposed to hold a very independent view of Government's accounting policies. I would prefer that this office be preserved at the highest level. Therefore, if it can be advised that even after his retirement, the Auditor-General should only take up jobs that would seem to pose no conflict of interest to his earlier job. Therefore, on this basis, I also support the proposal to have contract appointment on a 6-year renewal basis for the Auditor-General.

Sir, the more important amendment is the second component with regard to the Government's proposal on the treatment of the net investment income (NII). One principle that can be adopted is the treatment of the NII from a purely accounting approach. Under this approach, interests, dividends and other investment incomes earned from the past capital or equity of a company (ie, in the case of the Government's account and this will be the reserves) are treated as current account items, which means that such incomes including interests earned from past capital will be treated as items in the Working Capital, Cash Flows and Profit & Loss accounts of a company, and in this case of the Government's accounts.

Under the same principle, a company that has borrowings from loans that were taken in the previous years, then the interest payable in the current year is also treated as a current account item, and netted off the yearly income. Sir, if this accounting principle were to be applied to the use of NII for Government accounts, then it is clear that NII which includes the interest from Government reserves should be added in total to the current year's income, and therefore 100% of the NII can be used by the new Government. On this basis, if the past Government has no reserves and has incurred debts for which interests are payable, then for the new Government, it could be faced with a negative or deficit income situation. The new Government would therefore have to bear 100% of this debt interest and fund the entire interest payable out of the present Government's current account of the year. On this purely accounting treatment basis, it can therefore be argued that 100% of the NII can be used by the present Government. However, we cannot conclude that the correct treatment of the NII from past reserves to be based purely on accounting principles. From the political point of view, it can also be argued that the entire NII earned from past reserves is income derived from the effort of past Governments and therefore any incomes earned from past reserves should form part of the past reserves. A new Government which did not accumulate the past reserves should therefore have no access to this NII.

Looking from these two points of views, I would agree that the proposal by the Government to impose a minimum of 50% to be put into the past reserves and the remaining 50% to be decided by the present Government is a very fair and reasonable proposal. It strikes a fine balance between NII earned from old reserves of which 50% can be retained and allow the remaining 50% to be used by the new Government. In some way, this helps to mitigate any undesirable effect that if there is a profligate new Government that takes over and recklessly spends money derived from the NII, they can only do so with 50% of the net income of the NII. At the same time, by having this rule of 50%, it will allow a new Government to have some facility to use 50% of the NII to help stimulate the economy during a recession or spend on some meaningful Government projects which are beneficial to the people. Therefore, I support this amendment.

Sir, allow me to use some examples to elaborate on this position. I think the NII issue starts when a new Government is formed after a general election. In the first year of the new Government, in case this Government inherited an economic situation that is in a recession, therefore to have 50% of the NII accessible by this new Government is beneficial, because the money can be used to stimulate the economy or, as I said, to spend on good projects. However, if the problem is that when the new Government is formed, it is elected on the basis that it promised to give a lot of give-aways and freebees out to the people. Therefore, it can easily use the NII to make a lot of unnecessary and reckless spending, and this can have a great detrimental and ill effect on the economy. So this proposal of 50% in a way will cap their ability to spend recklessly. However, in the second, third and fourth year onwards, the Government can still draw on the 50% of the NII. In this case, it might also be able to spend the money recklessly. In this sense, the 50% limit on NII is quite generous for new Governments that are not responsible. On this basis, I think the idea of the second key to be exercised by the President will be able to have some effect.

Sir, moving on to a secondary point which I wish to raise, is on the certification of the exact amount of the NII for the financial year to be deemed as part of the Government's past reserves. The amendment, as proposed in Article 142(3), states that the certification by the Minister for Finance "shall be final and conclusive evidence of the amount." I wish to point out that the amendment is not clear as to the process on how the Minister will define and certify the final amount. And if there are discrepancies or disagreement on the methodology of the computations, how would the differences be resolved? Since it has already been proposed that the certificate issued by the Minister for Finance shall be final and conclusive evidence of the amount, I would like to suggest that in the Government's procedures to be laid down on the process on the issue of this certificate, the Minister for Finance will allow for the Auditor-General, who is an independent party, to verify the financial statements before the Minister signs and issues this statement.

Mr Speaker, Sir, I wish to conclude by expressing my support for this Constitution of the Republic of Singapore (Amendment) Bill and to urge Members of this House to recognise that the proposed treatment of the NII is fair and reasonable, and therefore support it as well.

Mrs Lim Hwee Hua (Marine Parade): Mr Speaker, Sir, I rise in support of the proposed amendments, specifically, the amendment of Article 142 which represents another prudent attempt at protecting past reserves. However, I would like to seek the clarification of the Minister on two issues. Firstly, the role of the government of the day vis-a-vis the ownership of these past reserves and, secondly, the basis for determining the allocation of net investment income between current and past reserves.

Allow me to elaborate. Firstly, the role of government. Sir, I note that hitherto, the common thread running through the treatment of reserves and related income has been the concept of protection or preservation or safeguarding as opposed to growth or expansion. In this context, what comes to mind is the endowment fund model, ie, the government of the day will ensure the smooth running of the country with investment income earned on past reserves at its disposal. The principal is protected and that is possibly the only constraint. Hence, the government of the day is not really an agent but a steward and a protector. An agent in a typical agent/principal relationship would earn fees and perhaps even share in the profits, but this lack of ownership would be inconsistent with what an elected government is supposed to do. A good government will and can in fact add budget surpluses to past reserves and rightly stake a claim to ownership of part of these reserves. In many countries, as far as I understand, there are no such constraints at all, let alone self imposed constraints. Therefore, the proposed designation of at least 50% of net investment income to past reserves may unwittingly give rise to questions on the relationship between the government of the day and the owners of the past reserves or, essentially, the people of Singapore. Perhaps the Minister could enlighten the House on how Singaporeans should view this relationship.

Secondly, accretion of at least 50% of net investment income to past reserves. The Minister has explained in some detail the basis for determining the at-least-50% allocation rule. Although this is derived from an estimate of what future budget challenges of an aging population could look like, the application of numerous assumptions would mean that there could be an inherently huge variation to this figure. With each passing year or at least decade, presumably, the range of estimates could be narrowed. How does one ensure that future governments would not be tempted to modify this to their advantage? Conversely, if the present Government were to prudently specify an amount much higher than 50% to past reserves, future governments may find it a tall order to maintain the same even though the minimum is 50%. Ultimately, would we face an allegation that the basis is simply arbitrary?

Finally, Sir, allow me to round up with comments on other possible risks and implications. As we have observed, a whole spectrum of financial markets and instruments have sprung up over the last few years. This is especially so with hybrid products where the accounting or tax treatments can only evolve as quickly as these products appear. It is therefore likely that relevant parts of the Articles of the Constitution may have to be amended often enough to ensure that no loopholes are created by the innovative use of new financial products. At some point, the certification of what might be considered net investment income may be unwieldy, if not difficult. It is perhaps worthwhile over time to consider alternative definitions which would meet the same objective of preservation of reserves.

Dr Wang Kai Yuen: Mr Speaker, Sir, this Constitutional Amendment has the effect of focusing our mind on the net investment income (or NII), a topic which ordinarily does not attract too much debate in this House. In fact, today, it also does not attract too much debate in the House. The Minister has already given the technical definition of NII in his speech when moving the motion. Mrs Lim has also asked about the role of the Government in respect of our past reserves and the NII. At this point, Sir, I would like to share with the House what is a layman's definition of NII.

To the layman, NII is the investment income of our country's past budget surpluses. It is equivalent to a retiree receiving an endowment from the cash dividends of a principal sum managed by an investment bank. Only in this case, the Government is the custodian of these past surpluses which we all know have been locked away and could not be touched.

As Mrs Lim also questioned, who contributed to these past surpluses? They are accumulated from past budget surpluses and sales of Government assets, such as land and buildings. In one way or another, these reserves are derived from the sweat and labour of generations of working people in Singapore. Of course, we have a clean and efficient Government which manages the reserves very well, allowing it to grow and to be preserved over time.

Furthermore, when we look at the Annual Budget Statement, one would notice that the NII is below the budget line. In other words, the budget is presented in terms of, first, revenue, followed by expenditure, then followed by a statement saying what is the surplus or deficit of revenue over expenditure, then a statement giving us the NII. I would like to surmise that this presentation, Sir, is more than cosmetic. It reflects our Government's philosophy of managing our budget. NII is not used, it is hardly ever used, unless expenditure exceeds revenue, which rarely happens in Singapore. Therefore, this way of presentation has the effect of enforcing a discipline within the Government to strike for a balanced budget or a surplus where possible. The rationale of many of our policies is derived from this principle. In other words, the Minister for Finance will always try to push for a balanced budget or a surplus budget, where possible, before tapping on the NII.

Mr Speaker, Sir, I chaired a Feedback Unit Dialogue session on major concerns of Singaporeans on the evening of 4th January this year. This is the second of a series of sessions to be organised by the Feedback Unit. For the session I chaired, the subject matter was the concerns of the senior citizens in Singapore. 50-odd of these senior citizens participated in the session. Their major concerns are rising cost of living and medical cost, with medical cost being the principal area of concern.

The sentiment of the senior citizens on health care is that the Government could have done more for them. Medical costs are escalating and senior citizens are burdened with the brunt of it. Several expressed the opinion that this Government does not look after the senior citizens well because they are no longer productive members of the community. Others say that this Government only cares about "profit". Nonetheless, the general consensus is that senior citizens have been paying taxes all their working lives and contributing to building today's Singapore. Yet, when they are retired and when their need for medical care is the greatest, the Government is miserly in dishing out social services and health care. The participants called for greater and more generous support by the Government. After all, to most Singaporeans, the Government is considered rich and could afford it. At the Feedback Session, the senior citizens spoke with passion and strong emotion. Clearly, these issues are very close to their hearts.

One participant, Dr Jazmyn Chelliah, pointed out that one of the key reasons why the senior citizens are unhappy about health care is that the Government expenditure on health care is low, at around 1% of our GDP. At this level, it is comparable to the level expended by low-income countries and is not commensurate with the ranking of Singapore. In other words, if we use our per capita income, that ranking would put us among the top 10 countries in the world. But when it comes to public health care expenditure, we are being grouped together with one of the poorer countries. She went on to point out that the percentage spent on health care in the US is about 12%.

As I listened to these sentiments, arguments in support of Government policies popped into my head. It is inevitable, being a PAP member.

To the statement that senior citizens had contributed taxes all their lives, and therefore should have some benefits in their old age, my response would have been that the Government budget is cash based. Most of the taxes collected in the current year would have already been spent in the year collected. So the taxpayers in the past had already benefited from the Government's various programmes in the year they paid their taxes. So paying taxes is not like putting savings away for old age. Senior citizens could not look at the past reserves as their collective savings and as such could be tapped to fund social services for them when they are old. In any event, this is already a moot point because past reserves have already been locked up by Parliament.

To the statement that Government is rich and could afford it, my answer would be to highlight that again Government budget is based on annual revenue from taxes and expenditure. In order to pay for more benefits for the elders, we must raise taxes on the working adults, thereby increasing their burden. As the ratio of working adults versus retirees deteriorates over time, the burden would naturally increase. Now the ratio is roughly 10 to 1. In the future, say, year 2030, the ratio would have been 4 to 1. Adding more benefits would accelerate this and that would be unfair to the working adults.

So by themselves, Sir, these arguments are logical and rational. For a country with a balanced budget or even a deficit budget, it is true that to provide more for the aged means higher taxes for the working adults. After a while, the tax burden would be sky high as we could see in those Nordic countries. Yet, when I started thinking about this Constitutional Amendment Bill, it strikes me that perhaps if you look at the NII and the size of the NII, maybe the senior citizens' grouses are not entirely without basis.

The Minister has disclosed that in our last budget statement, NII is 3.5% of our GDP. To do a comparison to get a better feel of the magnitude of this number, let us look at the Defence budget which is pegged at 5% of GDP. In other words, while NII could not pay for everything MINDEF would need, it does pay for about 70%. On the other hand, the Ministry of Education's budget, the second largest in our annual Government expenditure, stands at 3.7% of GDP. Thus, NII alone could have paid for our total annual expenditure on education, paying everything for schools, universities, polytechnics, ITEs, teachers, lecturers, the whole works. Sir, we are indeed talking about serious money.

Mr Speaker, Sir, I think one could not deny entirely that our reserves have been built up over the past from contributions of our citizens in one way or another. And in my mind, I suggest that we could group these reserves into three buckets, according to the persons who have contributed as follows: the first bucket contributed by working adults (who are working adults today); the second bucket contributed by retirees during their working life, and the third bucket contributed by those - pardon my pun - who had kicked the bucket. So from each bucket, you look at, flows an annual NII. We do not need to argue what percentage of these reserves are in each bucket. Maybe the Minister for Finance could work it out. But I think of the money in the bucket that was contributed by retirees, the percentage is not zero. I do not know the number, but definitely it is not zero. We could argue that we should not touch the NII flowing from the first bucket, the bucket of the working adults. That belongs to the working adults, for their future use. We could argue that we should not touch the NII flowing from the third bucket as these should be considered our inheritance, heirloom for our future.

But is it beyond the realm of reasonableness if we use the investment income derived from the "retirees" bucket to defray the medical cost of the senior citizens who are living today, in particular those in the lower income group?

Consequently, Sir, if we do a mental exercise and say we earmark and use the NII from the second bucket to fund social programmes and health care programmes for the senior citizens, I would find it difficult to hew to the argument that to provide more for the old means higher taxes and heavier burden for the young.

Mr Speaker, Sir, I am glad that the Government is leaving no more than 50% of the NII as revenue in the Government budget, in case it is needed in the future. Part of it would be used to defray more extensive social programmes as our society ages. In my mind, there is much scope for better and more extensive medical services, in particular for senior citizens.

Let us revisit the health statistics mentioned by Dr Chelliah. I asked the Librarian to do a search which yielded the following data taken there from World Development Indicators 2000 [World Bank March 2000]. In the case of Singapore, the public expenditure on health care from the latest figures available was 1.1% of GDP and the private expenditure was 2%, giving a total expenditure of 3.2%. This puts us in the same bracket as those lower-income countries I have mentioned, whose numbers were 1.2% and 2% respectively. On the other hand, the middle income countries spent 3.1% and 2.6% respectively. The high-income countries incurred 6.2% and 3.7% respectively. In the case of USA, it spent 6.5% and 7.5%, giving a total of 13.9% of GDP. Dr Chelliah was not entirely right but I think she has a point. We as a people spent one-third of the amount spent by the middle-income countries and one-sixth of the amount spent by the high-income countries when it comes to public health care. While I am not advocating matching these percentages blindly, point by point, I think we could have done more in this particular area.

Mr Speaker, Sir, I understand that the social costs incurred by the Government will increase over time as our population ages even at the current level of services, thereby bringing us closer, as far as the percentage of GDP is concerned, to the norm of more developed countries. However, I think we could re-examine the basis of Government policies and perhaps, conceptually, tap part of the NII to better look after our senior citizens. If we earmark the use of NII for this purpose, we could rationalise greater expenditure without having to wait for the budget to go into deficit before tapping the NII. I would say that we should support our senior citizens better in their old age. After all, they are the people who have laid the foundation of everything we have today in Singapore.

Mr Speaker, Sir, I support the Bill.

Mr Low Thia Khiang: Mr Speaker, Sir, I am uncomfortable with the amendment to change the term of office of the Auditor-General. Neither am I convinced by the Minister for Finance's rationale on the need to make the change. I wonder what has prompted the Government to change the term of office of the Auditor-General. Is the Government saying that the office of the Auditor-General is facing a great problem? Or is it that there is no public officer who wishes to be the next Auditor-General because of the current term of office?

Sir, the office of Auditor-General is an important instrument in our system of Government to check on the Government accounts. I have been reading the reports of the Auditor-General quite regularly and I am convinced and satisfied that the office of the Auditor-General is independent and impartial. The tenure of the current Auditor-General is for life. I believe that life tenure of such an important position will allow the person to exercise his power without fear or favour. Whereas a fixed term appointment, as is proposed now before the House, may affect the person's independent judgement as the person who is appointed as Auditor-General may have to consider whether he will be reappointed again after his term of six years ends. Sir, I believe the change in the tenure of the Auditor-General to a fixed term would affect or even undermine public confidence in the office.

Sir, I would not support the amendment.

Mr Lim Hng Kiang: Mr Speaker, Sir, although the main topic today is on the NII, Dr Wang has raised healthcare issues. I will be very happy to respond to it in full when we debate this during the Budget session. But I would like to make some points since it is fresh and current. First, total healthcare expenditure. I think Dr Wang, in the end, did clarify that the number he used for many of the developed countries of 6% to 7% of GDP on total healthcare expenditure and for the US, 12% to 14% of GDP, should be compared like with like to Singapore's case, which is 3.2% of GDP, and not 1%. 1% represents the Government's component.

The second point is that healthcare should not be measured by the inputs. It does not really matter what you put in. The more important parameter should be the outcome of what you get for the money that you spend. Although we only spent 3.2% of our GDP on healthcare, the healthcare standard in Singapore is rated as good, if not better than many of the developed countries. And this is done not by us, but by the World Bank. The World Bank recently ranked the healthcare systems around the world and it will not surprise you to know that Singapore is ranked sixth, even though we have only spent 3% of our GDP on healthcare. The USA, despite spending 12% to 14% of GDP on healthcare, ranked quite far down, beyond 20. In the US, there are more than 45 million people who are insured. So even though they spent 12% to 14% of GDP on healthcare, not everybody has access to the same healthcare.

In Singapore, I have given the assurance many times that if any MP comes across any low income Singaporean, who has difficulty paying his bill, he can write to the medical social worker in the hospital, and 99% of all Medifund applications are approved. For the 1% which is not approved, please feel free to write to Mr Chan Soo Sen, or myself, and we will look into the case. So healthcare in Singapore is accessible to everybody in Singapore, and it is of the highest standard.

As for the particular comment about healthcare for the elderly, despite his analogy of the three buckets, we have indeed set aside part of our old reserves in the form of Medifund for helping low income people to pay for their healthcare fees. And the main users of Medifund are, in fact, the elderly. We have set aside $700 million in Medifund and the interest from Medifund, which is equivalent to your NII, is used to fund Medifund applications, and 99% of the applications are approved. Last year, we set up the Eldercare Fund which is specifically targeted at the elderly, ie, those who have to go to nursing homes. Part of the past reserves would be put into the Eldercare Fund which would look after the elderly.

The whole thrust of our healthcare system is largely aimed at the elderly because the younger population does not have healthcare problems. The bulk of the healthcare problems arise in the last five or ten years of your life. And in the last few years, we have put in the whole framework to look after the healthcare of our elderly. We started off with the community health screening. We subsidise it heavily and we encourage every elderly person to go for health screening. If the elderly are so concerned about their healthcare, I would urge them to go for healthcare screening. Instead, today, only 20% of those we have invited turned up for the health screening. Indeed, if they are so concerned, the first step that they should take, to be personally responsible for their health, is to turn up for their health screening. Second, we have put in place the whole package to help them manage their health condition. If they go to the polyclinics, they are subsidised 75% of the cost. They only pay 25% of the bill. This shows the very high level of support that the Government has put in place. We even allow them to go to the private sector GP, to make it more convenient for them, and they still enjoy the same subsidy. And every year the Government has a budget surplus, MPs in this House, including the Ministry of Health, will urge the Ministry of Finance to put in something for the elderly. As we all know, every time there is a budget surplus, the Minister for Finance will always put aside some top-ups in the Medisave for the elderly. This has happened on four occasions. And each time, we spent between $50 million and $250 million topping up the Medisave for the elderly.

In the last National Day Rally, the Prime Minister put in place a scheme to pay the premiums for the elderly if they have not been covered under MediShield. All they have to do is to send a piece of paper saying, "I want to qualify for these two years' premiums." And only 65% made the application, ie, only 65% bothered to return the piece of paper to qualify them for the two years' premiums, despite all our efforts to encourage them and their children to send in the piece of paper. So I must say that we have put in place an entire framework to look after the elderly. I would like to urge all elderly Singaporeans not just to be concerned about their health but to take the first few steps to actually look after their health.

The Senior Minister (Mr Lee Kuan Yew): Mr Speaker, Sir, I had anticipated in the 1980s that inevitably, sometime, somewhere, somebody is going to come up with compelling reason why we should use up our reserves. Singapore is very rich - I would not deny that. Who made us rich? The people of Singapore. Who led the people of Singapore? This government. Who will lead it to perdition? Those who abandon the principles that made Singapore. You can always present a sentimental approach to hard cases which will touch everybody's heartstrings, and then they will lose their sense of objectivity. Some child came from Nepal with some disease, and they raised half a million dollars because of the sympathy generated by the publicity. I do not deny that we should have sympathy and that we should demonstrate our compassion. But when we are talking about the future of Singapore and the future of the children and grandchildren of these old people, let us pause and think.

One position I have continued to hold, although I am not the Prime Minister, is that of Chairman of the Government Investment Corporation. The Prime Minister asked me to carry on because he had enough to concentrate on. Yes, we have over US$100 billion invested all over the world. The market knows that, and the market considers it carefully before they attack the Singapore dollar. We can be brought down to our knees if they feel that you are unable to defend it. Hong Kong was in peril in 1998 when they aggressively attacked the stock market, they had to prevent themselves from being brought down. They attacked the dollar and forced interest rates up. When the interest rate goes up, the stock market goes down. They sold the stock market short, and eventually they bring Hong Kong down. So the government bought aggressively to push the stock index up. They taught the speculators a lesson. That was a high risk exercise and they are still holding large amounts of shares.

Why did they not do that in Singapore? Because relative to our different position they know we have quite a lot of ammunition. And this guarantees that nobody's CPF will ever be brought low by depreciation of our currency.

Therefore, the Prime Minister decided to move this Constitutional Amendment. We have spent a long time arguing it in the 1980s; finally passed it after 1990, that we would not touch the reserves. And here comes an experienced PAP MP who says, "Let us have three buckets." I will tell you what will happen. We will all kick the bucket! Yes, to make the argument attractive he said it is 1% for health, 5% for defence. Defence just evaporates our resources. Health, look at the poor old people. I am one of them. My colleagues are among them and the frequency with which I meet them in the hospital, because orthopaedic problems and X-ray screening increase with age. It is inevitable. But argue it within the context of the present Budget. I would like to hear the Member argue why we should not spend 5% on defence and take away, say, 1 1/2% from defence to spend it on the old. If he can make that argument, that we should cut down on defence from 5% to 3 1/2%, and, with that extra 1 1/2%, as in the case of Florida between President-elect George W Bush and Vice-President Al Gore, we can argue about the most expensive drugs for the old.

As we get older, it gets more and more expensive. For cars, I am told, with the COE, there is an optimum point - probably about four or five years - at which you decide whether you sell the car while you can still get good value and change to a new car, or you carry on to the end, till 10 years, and write it off. Well, I decided to use my car and write it off. But can we write off human beings? We cannot. So, there comes a time when the bills become phenomenal. That is the problem that all developed countries are facing. If we were not developed, if we did not have this health service, we would not be facing this problem. The longevity, their lifespan, would be around 65, or, as in India, around 50. There is no old age problem. But we have a geriatric problem, and gerontology is going to be, increasingly, a large part of our medical practice. With cars, you can say, right, we will change the engine, change the axle, so we will just keep the chassis. Then you have dents, wrinkles, crumples, but a new engine. Can you do that with a human being? With each stage, it becomes prohibitive.

So we have put NII out of reach, out of bounds. The PAP may lose. Somebody may win the elections, some party which says, "Unlock it". Well, they will have to win two-thirds to change the Constitution or they will be in conflict with the President. I do not say it is foolproof. My old colleagues told me I was trying the impossible in locking up the reserves. So when an old experienced Member like Dr Wang Kai Yuen, says this, I am reminded of their advice to me. Maybe it is impossible, but I hope, because I have this chance to tell you why I think what I think and what made me think this way to you MPs, it would not happen.

It gives us enormous confidence. It gives us that flexibility to manage our economic affairs in a way we could not do if we did not have these reserves. Do you want to raid it? I can find even more compelling and more heart-rending reasons why we should spend it. But I suggest, no. At the end of the day, whom do we owe our deepest obligation to as a government? To the future. Not just to the present; certainly not to the past. If you want to talk about merits and what people deserve, then with every certificate or medal that we give, we ought to give a huge sum either in annuity or in a capital grant. That is what the British used to do. When Nelson won at the Battle of Trafalgar, he was made a Lord and a large piece of land was bequeathed on him. So you can go down the list of British history. That is one reason why they have all this trouble in Ireland. Every time the British won a battle, they distributed large chunks of land in Ireland, which was their colony, to the generals who fought these battles because, without those generals winning those battles, there would be no empire.

That is the way they did it. But do not mortgage the future. If you do, your children and your grandchildren will pay for it.

Assoc. Prof. Toh See Kiat: Mr Speaker, Sir, speaking after the Senior Minister is an anti-climax, but I do not rise to be anti anything. I wish to support the Bill.

Listening to the debate on the NII, I believe that, actually, it comes down to a question of balance. And the balance is, on the one hand, you have this argument that the NII comes from reserves that had been accumulated by past governments and the income from these past reserves should, therefore, be locked up accordingly. On the other hand, there can well be an argument that the NII that comes out from past reserves is actually managed by the current Government. How much we get out, as income from past reserves, is as much a question of the skill of the current Government as it is of the current Government earning money all by itself from new budget surpluses and so on. The Senior Minister has said that he is the Chairman of the GIC and, certainly, a lot of our NII would have come from the skills that he has exercised in the management of the GIC and the NII.

I would therefore say that, actually, the current Government has every right to spend every single cent of the NII. But it has exercised restraint. And it is a very commendable self-restraint that, in this case, instead of spending all of the NII, it is saying that up to 50% would be locked up. I therefore support this amendment.

Mr Low Thia Khiang has also raised another issue, which, I believe, again boils down to balance. On the one hand, you have this argument that a person who is appointed until he retires has security of tenure and, therefore, he will not be looking for re-appointment and doing things to get his re-appointment. On the other hand, I think the real question is how do we make this Auditor-General independent and, if he is independent, he would not be looking to the clock or to the new appointment he is hoping to get.

In our system now, the elected President is a person directly elected by the electorate and, therefore, if he does not act in the interests of the Singapore nation, he would not be elected. And under this system, the Auditor-General reports to the elected President, who is also independent of the parties in Parliament. I believe this is good enough as a check-and-balance, and I believe too that the Auditor-General, in reporting to Parliament, which is a House composed of ruling and opposition parties, would want to act independently and, in fact, would want to preserve his professional reputation as a neutral, dependable and credible Auditor-General.

I guess, in this case, the balance could well go either way, but perhaps six years may indeed be a little short. The term of a Parliament is five years and the term of an Elected President is six years. It could possibly be argued that perhaps six years may be too short, perhaps it should be 10 years, which is two terms of Parliament, or 15 years, which is three terms of Parliament. Fifteen years is also arguable because if an Auditor-General comes into his position, he would have had several years of experience and he would be round about 45 to 50 years. And add another 15 years to his term, he retires at a good old age anyway.

But, ultimately, Mr Speaker, Sir, it comes down to balance, and it is a judgement call. Six years, 10 years, 15 years, I believe the Government has made a judgement call and we can wait for our time to make the judgement whether this is a correct number or not.

With that, Sir, I support the Bill.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I would like to thank the Members who have supported the Amendment Bill although some have expressed reservations on particular issues which I will touch on.

Mr Leong Horn Kee generally supports the amendment to the Constitution, for which I thank him. However, he has raised the point that, in the proposed amendment, the Minister for Finance has the final say on the amount of NII that the Government would lock up and, if in the event the President does not agree with this, there might be an issue of conflict. I believe that this is unlikely to happen because the President has full access to the Government's accounts and these accounts are audited by the Auditor-General. And if he does not agree to the statements, including the NII projections, he can raise any issues with the Government at any time. In any case, our proposal is that we will agree with the President which items should be included as NII and incorporate these into the principles for the protection of reserves. So, on balance, it is unlikely that disputes would arise.

Mrs Lim Hwee Hua has raised several points, first of which is what is the role of Government and the public in the protection of reserves. I think the relationship is straightforward. Past reserves belong to the people, and the Government is merely a guardian and steward of these reserves. A good steward, in his role, is to protect the reserves and ensure that they are available for spending should the occasion arise. The reserves should also be efficiently managed so that the capital sum grows over time.

She has also asked whether the figure of 50% to be protected was arrived at arbitrarily, because she believes that it is difficult to make accurate projections of revenue and expenditure over the long term. And, if there should be inaccuracies to these estimates, the figure of 50% may need to be amended over time, which would not be very desirable. I agree with her that the figure of 50% should not be changed too frequently as each change would require an amendment to the Constitution, which is obviously undesirable. The figure of 50% was therefore chosen after very careful consideration of the Government's long-term revenue and expenditure estimates.

In the case of Singapore, on the revenue side, long-term forecasts of operating revenue have been fairly reliable. This is because we have a high degree of tax compliance in Singapore. Also, the Government's revenue income growth had shown consistent and strong correlation with GDP growth. This means that if the Singapore economy continues to grow at around 4% to 5% over the longer term, we can be certain that fairly reliable estimates of operating revenue growth would be possible.

On the expenditure side, long-term estimates of expenditure, especially development expenditures and, in particular, increases in health costs, are also subject to uncertainty. However, the balance of other spending requirements of Government is much more predictable as they are largely under Government control. On balance, therefore, we believe that the longer-term forecasts of operating budget balances should be fairly reliable.

Finally, reasonable forecasts of future NII flows are also fairly reliable based on GIC's experience in managing past reserves in the last 20 years. Overall, therefore, it is concluded that no more than 50% of NII should be needed to supplement operating revenues in order to finance forecast expenditures through the year 2010. In fact, if GDP growth rates should exceed forecasts, and prudent control continues to be exercised over expenditures, 50% of NII may even be sufficient to ensure balanced budgets through most of the second decade of this century. The need for making frequent changes to the 50% figure is therefore unlikely.

Mrs Lim is also concerned that future governments may, through the use of sophisticated financial instruments, manipulate the Government's accounts to maximise NII flows so that they would have a larger access to it. This is indeed possible, but the only way in which a profligate government can increase access to NII is to try to manipulate the investments so that you get a larger flow of interest and dividend income. If they try to do this, it will show up in the accounts available to the President and his Council of Presidential Advisers. Any large scale manipulation of our reserves to focus on buying huge amounts of, say, junk bonds with high interest rates will become very obvious. And when this comes to the attention of the President and his advisers, the President has an obligation to call the Government to account for these changes and if he is not satisfied with the answer, he can take the matter to the public and to Parliament. I think it is unlikely that any significant manipulation can be achieved without attracting the President's attention.

Dr Wang Kai Yuen has made some strong pleas for increased social and health spending for older citizens. The Minister for Health has addressed part of his concerns but I would like to just point out that the use of macro statistics on health expenditure is very dangerous because it depends on what you mean by "expenditure". I would rather, in looking at what we spend and what other countries spend, look at other types of statistics, such as life expectancy, percentage of life births, and other quality of life standards which we have achieved relative to other countries. That is probably a better measure of how well the money we have spent on health has achieved and, in most of these measures, I think we stand out quite well.

Therefore, although what we spend looks small relative to what other countries spend, what we do spend is spent wisely and efficiently. There is no doubt that spending on health and social costs will increase rapidly as our population ages. In fact, it is precisely for this reason that the Constitution is being amended to allow access to 50% of NII in order to meet increased future spending requirements, primarily on health care. The Minister for Health has also said that we have made a start in this direction as the Government has created several buckets of funds, ie, Medifund and the Eldercare Endowment Fund in which monies are placed in anticipation of future requirements for the elderly. In the case of the Eldercare Endowment Fund, the targeted amount is $2.5 billion, of which $400 million has already been placed. We will continue to add to this Endowment Fund in future from budget surpluses and also through the NII component. I think this covers largely the issues which have been raised.

Finally, I turn to the point raised by Mr Low Thia Khiang on the term of the Auditor-General. He says that he does not support the amendment because he believes that it is necessary for the Auditor-General to be appointed until retirement as this gives him independence. This is a matter of judgement. We believe that 6 years plus 6 years should provide him with sufficient independence and it is not an uncommon practice for other large countries to also limit the terms of the Auditor-General. For example, Australia has a 10-year non-renewable term; Canada also has a 10-year non-renewable term. Japan has a 7-year term. New Zealand also has a non-renewable 7-year term. In the case of the United States of America, it is a 15-year non-renewable term. So there is a wide range of options open and it depends on your judgment on the quality of the people you appoint, and also what is the objective of appointing people to these positions, whether you want them to stay effectively until retirement, which means you have to avoid appointing good people to these positions early which is, I think, undesirable. As I have explained in my speech, the reasons we have chosen to make these amendments are quite clear and I believe they are sound and correct.

Mr Speaker: The Question is, "That the Bill be now read a Second time."

A Division will be taken to ascertain that the Second Reading of the Bill is supported by the votes of not less than two-thirds of the total number of the elected Members of Parliament, which is 55 Members, pursuant to Article 5(2) of the Constitution. The Clerk will ring the Division Bells.

After three minutes ---

Mr Speaker: Before I proceed to start the electronic voting, Members are reminded that they are to press the button marked "Present" on their electronic voting unit located at their left armrest before indicating their vote. Do not activate this button till I have asked you to commence voting. Those who fail to press the "Present" button will not have their votes recorded. Voting will be open for 45 seconds from the time the words "Voting in Progress" are flashed on the display board. Members are reminded to check their names and vote indications posted on the display board after the close of voting. If a Member is of the opinion that his vote has been taken in error or has been recorded wrongly, he may rise and request the Chair to have his vote taken correctly provided that such a request is made before the Chair declares the result of the Division.

Question put, "That the Bill be now read a Second time."

Division taken: Ayes, 76; Noes, 2; Abstention, Nil. Ayes Ayes (cont.) Ahmad Mohd Magad Lee Kuan Yew Ang Mong Seng Lee Yock Suan Chan Soo Sen Leong Horn Kee Chay Wai Chuen Lew Syn Pau Chen, Bernard Lim Boon Heng Chen Koon Lap, Kenneth Lim Chun Leng, Michael Chen Seow Phun, John Lim Hng Kiang Chew Heng Ching Lim Hwee Hua Chin Tet Yung Lim Swee Say Chng Hee Kok Lim T. E., David Chong, Charles Loh Meng See Davinder Singh Low Seow Chay Goh Chee Wee Mah Bow Tan Goh Chok Tong Mohamad Maidin B P M Goh Choon Kang Neo, Lily Harun bin A. Ghani Ong Ah Heng Hawazi Daipi Ong Kian Min Ho Peng Kee Othman bin Haron Eusofe Ho Tat Kin Ow Chin Hock Hu Tsu Tau, Richard Peh Chin Hua Ibrahim bin Othman Ravindran, R. Inderjit Singh Seng Han Thong Iswaran, S. Shanmugam, K. Jayakumar, S. Sidek bin Saniff Ker Sin Tze Sin Boon Ann Koo Tsai Kee Sinnakaruppan, R. Lee Boon Yang Tan Boon Wan Lee Hsien Loong Ayes Ayes (cont.) Tan Cheng Bock Yap Giau Cheng, Eugene Tan Keng Yam, Tony Yatiman Yusof Tan Soo Khoon Yeo Cheow Tong Tang Guan Seng Yeo Guat Kwang Teo Chee Hean Yeo, George Yong-Boon Teo Ho Pin Yu-Foo Yee Shoon Toh See Kiat Zainul Abidin Rasheed Vasoo, S. Wan Soon Bee Noes Wang Kai Yuen Wong, Aline K. Chiam See Tong Wong Kan Seng Low Thia Khiang Yaacob Ibrahim Yao Chih, Matthias Abstention Nil

Mr Speaker: There are 76 Ayes, 2 Noes and no Abstention.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee.

[Mr Speaker in the Chair]

The Chairman: The citation year "2000" will be changed to "2001" as indicated in the Order Paper Supplement.

Clauses 1 to 5 inclusive ordered to stand part of the Bill.

Bill reported without amendment.

Third Reading

Mr Speaker: Third Reading, what day?

Dr Richard Hu Tsu Tau: Now, Sir. I beg to move, "That the Bill be now read a Third time."

Mr Speaker: The Question is, "That the Bill be now read a Third time."

A Division will be taken to ascertain that the Third Reading of the Bill is supported by the votes of not less than two-thirds of the total number of elected Members of Parliament, which is 55 Members, pursuant to Article 5(2) of the Constitution. Ring the Division Bells.

Question put, "That the Bill be now read a Third time."

Division taken: Ayes, 76; Noes, 2; Abstention, Nil. Ayes Ayes (cont.) Ahmad Mohd Magad Neo, Lily Ang Mong Seng Ong Ah Heng Chan Soo Sen Ong Kian Min Chay Wai Chuen Othman bin Haron Eusofe Chen, Bernard Ow Chin Hock Chen Koon Lap, Peh Chin Hua Kenneth Ravindran, R. Chen Seow Phun, Seng Han Thong John Shanmugam, K. Chew Heng Ching Sidek bin Saniff Chin Tet Yung Sin Boon Ann Chng Hee Kok Sinnakaruppan, R. Chong, Charles Tan Boon Wan Davinder Singh Tan Cheng Bock Goh Chee Wee Tan Keng Yam, Tony Goh Chok Tong Tan Soo Khoon Goh Choon Kang Tang Guan Seng Harun bin A. Ghani Teo Chee Hean Hawazi Daipi Teo Ho Pin Ho Peng Kee Toh See Kiat Ho Tat Kin Vasoo, S. Hu Tsu Tau, Richard Wan Soon Bee Ibrahim bin Othman Wang Kai Yuen Inderjit Singh Wong, Aline K. Iswaran, S. Wong Kan Seng Jayakumar, S. Yaacob Ibrahim Ker Sin Tze Yao Chih, Matthias Koo Tsai Kee Yap Giau Cheng, Eugene Lee Boon Yang Yatiman Yusof Lee Hsien Loong Yeo Cheow Tong Lee Kuan Yew Yeo Guat Kwang Lee Yock Suan Yeo, George Yong-Boon Leong Horn Kee Yu-Foo Yee Shoon Lew Syn Pau Zainul Abidin Rasheed Lim Boon Heng Lim Chun Leng, Noes Michael Lim Hng Kiang Chiam See Tong Lim Hwee Hua Low Thia Khiang Lim Swee Say Lim T. E., David Abstention Loh Meng See Low Seow Chay Nil Mah Bow Tan Mohamad Maidin B P M

Mr Speaker: There are 76 Ayes, 2 Noes and no Abstention.

Bill accordingly read a Third time and passed.