ANNUAL BUDGET STATEMENT

Debate resumed.

Dr Ker Sin Tze (Aljunied): (In Mandarin): Mr Speaker, Sir, the Budget presented by the Finance Minister this year is undoubtedly a widely welcomed Budget. The main focus of this Budget is on the cuts or exemptions on corporate and personal income tax and property tax. Tax cuts and exemption are means in the use of fiscal policy to stimulate economic expansion. In the next one or two years, we will be facing economic uncertainty. This move will positively support our economic activities so that our economy will not turn from substantive growth to recession.

To the middle and higher income people, reduction of personal income tax rates is like "adding a flower to the brocade". Their incomes are already in the middle and high brackets. Now, with this tax cut, they will have even more after-tax disposable income. To the lower income people, the tax cut is of not much help. Some may even receive no benefit at all. The lower income people are faced with escalating cost of living such as the rising utility rates, high medical cost, increasing education cost, etc. We should also think of a hardship-relieving way to approach the issue like "sending burning charcoal in a snowy weather". Of course, the $250 to $350 utilities rebate, exemption or reduction in the payment of service and conservancy charges and HDB rents is a form of help. But this is trying to "put out a big fire on a cart-load of firewood with a small cup of water". It could at most wet your throat but hardly enough to quench your thirst. Compared to the benefits enjoyed by the middle and higher income people, these benefits to the lower income people are just pittance.

The reduction of corporate tax rate from 25.5% to 24.5% will attract more foreign investments to Singapore. In addition, the small companies with a profit of less than $10,000 enjoy tax relief on 75% of their chargeable income, and 50% of the subsequent $90,000. This will help the start-up companies to have more capital for further development. These are conducive to Singapore's strive to become an investment, commercial and trading centre, enhancing our competitiveness in attracting foreign investments. However, to those small businesses which are slumped into predicament because of the regional economies and economic restructure, the cut in corporate tax does not benefit them nor help them to solve their problems at all. Many SMEs have no business or are finding it difficult to operate their business. Many of them are running their business at a loss. If the companies do not make any profit, income tax cut or exemption is simply irrelevant to them.

Among the struggling businesses are the retailers in the HDB estates. Because of their outdated mode of operation, they are unable to attract the younger consumers. Moreover, with the modern shopping complexes luring away the customers, these poor neighbourhood shops have been keeping their business going by painstaking efforts without much success. To these retailers in the HDB estates, this year's Budget does not bring any benefit. The benefit of tax reduction does not apply to them. There is no reduction in their rent. For those who have bought over the shop premises, the monthly instalment remains a heavy burden. There is no utilities subsidy for them. But, fortunately, the Minister for Finance has already announced that the Minister for National Development will introduce a series of measures to help them to tide over the difficult period.

As a matter of fact, hardship cases are not confined to the retailers in HDB estates. Even the many shops in modern shopping complexes are having a hard time, with high rentals, high overhead expenses and low sales volume. Although the retail sector is said to have picked up last year, many small and middle retailers are moaning and groaning. Apart from retailers, many other sectors are similarly affected by poor business. Property sector aside, the related sectors such as the renovation contractors and the general traditional industries are also facing the problem of very poor business. In fact, apart from electronics and telecommunications sectors, all the other sectors are not doing well. Business may be poor but the cost of doing business remains on the high side with no sign of going down. Electricity tariffs are rising all the time. CPF contribution rates have been adjusted up by 4%. Petrol prices have also shot up. Although in this year's Budget, property tax will be reduced from 12% to 10% in July this year, the property tax rebate which was granted earlier would be revoked. As a result, property tax has in fact increased from 9% to 10%. It would appear that this year's Budget does not help to reduce the operating cost of those businesses which are not doing well, nor does it assist in solving their problem. If we want to effectively assist them, I think the Minister for Finance should consider lowering all the charges relating to the industrial and commercial sectors, for example, property tax should be reduced to 9%, and there should be some form of restraint on the raising of utilities tariffs. The Government should also exempt or lower the various charges levied on the small and middle enterprises.

The Minister for Finance has used the tax-cutting measures to stimulate our economy and to bring about economic expansion and growth. This is a timely measure. However, if the fiscal policies can be coordinated with the monetary policies, the effect will surely be better. At the moment, there are signs of the US economy declining. President Bush has already announced tax cuts and Mr Greenspan of the Federal Reserves Bureau has also taken steps to lower the interest rates. Such coordination between the fiscal policy and the monetary policy will surely achieve better results in supporting the US economy.

In this year's Budget, I do not see any sign of the monetary policies being deployed. In the next couple of years, if the regional economies do not recover and the US economy heads for a decline, Singapore's situation may not be too optimistic. Lowering of interest rates to encourage investments and stimulate consumption can be very useful in sustaining the economic growth. Although it is said that interest rates are determined by the commercial banks according to market situation, the Minister for Finance can make some adjustments to the discount rates and bank capital reserve ratio through the Monetary Authority of Singapore, to avail the banks of more liquidity and cause the whole interest rate structure to be adjusted downwards, thereby lowering the cost of borrowing of the individuals and corporations. On the one hand, it will stimulate personal consumption, and on the other hand, it can lower the operational cost of businesses. In this way, both consumption and investment can flourish, and economic growth can be sustained.

This year's Budget can be said to be a Budget which "adds a flower to the brocade". The higher your income, the greater tax reduction benefits you will enjoy. I hope that it would simultaneously be a Budget which "sends burning charcoal in a snowy weather". Reduce or exempt levies and the various charges, lower the cost of borrowing, and cut down business cost to help the suffering businesses pull through these difficult times.

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

Assoc. Prof. Low Seow Chay (Chua Chu Kang): Mr Speaker, Sir, year 2001 to 2002 budget is a generous one. First, huge funds were given away in the form of year 2001 tax rebates, utilities, rentals and SC&CC charges rebates, CPF top-up and the Government's contributions to the various endowment funds. All this will cost the Government billions of dollars. This could only be possible because the previous year's budget had a surplus of $4.4 billion due to the exceptionally and unexpectedly good economic growth that led to $6.5 billion in additional tax revenue, as reported by Parliament's Estimates Committee. We have to thank the Government for its generosity in sharing the surplus and the fruits of economic success with the people. On the other hand, it is also what the people deserve for their sacrifices and contributions in turning the economy around from the Asian economic crisis. It has also established a good precedence by sharing the budgetary surplus with the people. I hope the Finance Minister will adopt sharing the budgetary surplus with the people as a standard feature for future budgets.

Second, the new tax scheme for personal income tax for Year of Assessment 2002 offers as much as 30% tax reduction for an annual earned income less than $35,000 and a saving of 25% for an annual earned income of $50,000. For the high income earners, they will pay 22% less. The huge cut in personal income tax is very much more than the usual 10% tax rebate given out when there was a comfortable budget surplus in the past. To do a quick calculation, a typical family with an income of $1,500 per month, living in a four-room purchase flat, could save up to $730 from the goodies and the tax announced for Year of Assessment 2002. If the minimum $500 of CPF top-up is taken into consideration, the family will benefit $1,230. Sir, in a practical way, it is an amount good enough for the family to buy a low-end Pentium III computer. In this case, the household does not need to pay any income tax, and $1,230 is a direct contribution as income to the family. It is indeed a very generous move by the Government in looking after the people in the low-income group.

Paying low income tax would mean that the people would have more disposable income. It would also help, in a small way, to boost the small retail and service industries which were not doing well in the past few years. Year 2000 economic performance was not uniform for all sectors. The construction industry and the small retail and service industries have still not picked up. The domestic industry involves quite a lot of people. In good times, the construction industry has a share of about 10% of our GDP. One could easily imagine that more than 10% of our people work in the construction industry because it is a labour-intensive industry.

In this Budget, other than what has been mentioned about the possible upturn of the construction industry and the reduction of property tax by 2% from the original 12%, nothing great is being mentioned about how one could help in the recovery of the construction industry. In fact, the property tax reduction, as mentioned by my colleague, Dr Ker, was made after adjustment of the property tax rebate. This means that for Year of Assessment 2002, a land owner, property owner or developer will pay more tax in the form of property tax for Year of Assessment 2002, as compared with the previous year. I hope the Finance Minister will look into this again and see whether there is any error in the Budget announcement.

Sir, the construction industry has been depressed for many years. Some of the big construction companies might be facing financial troubles. The consequence would be that we might weaken our construction industry which we had taken years to build up to the current stage. In future, if the demand should surge, we might find a similar competitive element, exercised in the past, which would not be there any more and the big foreign construction firms might dominate the market in the future.

To help the industry create the construction volume is the only solution. On the one hand, we could consider increasing the public sector projects and, on the other hand, we could remove certain constraints that had artificially suppressed the demand. Sir, many of the anti-speculation policies in the property market were introduced in good times. In the post-Asian economic crisis, all these policies will go against us and suppress demand. We should either lift some of these unfavourable policies or take action to quickly let the property prices reflect its true values at the bottom of the V-shape curve and recover subsequently. The demand will continue to stay low if property prices do not bottom out. I would like to see more proactive measures by the Government to help the construction industry in its recovery.

I am glad to note that there is a PSB Retail 21 10-year plan which is aimed at helping the retail industry in training, upgrading and modernisation. The retail business in the traditional HDB estates is lagging behind the modern shopping centres and is facing strong competition. The assistance from the Government comes at the right time. I hope PSB Retail 21 will help the small retail business to identify and overcome their weaknesses, reorganise the small retailers and strengthen their competitive edge to meet the challenges from the modern retail business in the future.

I note that the Budget pays particular attention to the restructuring of our economy. The fund for the second 5-year Plan allocated to NSTB was doubled to $4 billion and an additional $7 billion Science and Technology Plan for the R&D activities for the next five years. In the case of life sciences, another $1 billion for R&D and $1 billion for the start-up fund were allocated. The size of the funds shows a strong commitment by the Government in restructuring our economy by moving upwards in the value-added chain. The success of Singapore's manufacturing sector must depend on the continuous innovation of new products and development of capabilities at the pinnacle of science and technology. The success will help to place Singapore ahead of other countries in the region of growth and high value-added areas. It gives Singapore a chance of success in certain areas while competing with the products from the developed countries.

While emphasising so much on the development of new areas, like life sciences, we should also not forget other niche areas, like the micro-electronics and environmental engineering. They should continue to receive their assistance like before, to continuously sharpen their competitive edge. From my experience, our fellow Singaporeans always shy away from the technical and scientific R&D activities. Allocated with such a large sum of $12 billion for the next five years for R&D, I am concerned that if we did not pay sufficient attention, it might become an area overwhelmingly dominated by Asian expatriates. We should take sufficient action to encourage more of our young people to take part in this significant R&D programme which will have a very strong impact on the manufacturing sector in future.

We might have to change our people's perception in the career development, reward system and the social status of R&D personnel. Generally, people may have problems in recognising that there is a career in R&D in Singapore. There are no obvious scientific and technological research posts in the public and private sectors. This is particularly true for the positions of top scientists and research engineers. The people who are employed for research and development work either call themselves as "engineer" or "scientist". And it is time that we should generously use the job title of research or development engineer or research scientist. This will help to establish in the people's mind that scientific research work is a very specific career that one could pursue. The present reward system of offering scholarships in the university could only attract students from the PRC and India. It has almost completely failed to attract Singaporeans to do research work. If we see university research training as the entry point into the chain of research manpower development, we must study how we could attract Singapore researchers. The aggressive science and technology plan given in this Budget could only be considered to be a complete success if we could mobilise and attract more young scientists and engineers to take part and contribute in this programme.

Sir, I support the motion. 4.00 pm

Mr Thomas Thomas (Nominated Member): Mr Speaker, Sir, I am pleased with this Budget Statement. It has been described as a generous Budget.

In the past, budgets used to be described as "painless", and when they were painless budgets, we were very happy. And, most of the time, the painless Budget was painless but, after the Budget, there would be off-budget measures where the pain comes in the form of other taxes. But, now, in this generous Budget, we can still hope to listen to the Prime Minister in his National Day Rally and hope for more generosity. If some people describe this as a pre-election Budget, I am very happy. And since the elections need not be held until August 2002, I hope we can have another pre-election budget and, then, it would be even more generous. As Singaporeans, we are, of course, always generous in helping people in need, and we also enjoy receiving generosity from the Government.

Let me state why I am quite pleased with this Budget. Firstly, I think the contributions of the workers were recognised. The workers took a huge sacrifice during the recession, they took the pain and, now, when there are surpluses, I think it is right for these to be returned to them. Particularly, the tax exemptions for wage earners and small-time businessmen are most welcome. The service and conservancy charges, utility rates and rental rebates are good gestures to the HDB heartlanders for the difficulties they had to face during the last economic crisis.

I think one of the brilliant pieces is the company stock options scheme, which rules that there must be a requirement of at least 50% of the staff. This requirement of at least 50% of the staff would ensure that there is a fair distribution of gains. With many staff, at least more than 50% owning a stake in the company, they can only work to increase the shareholder value in the longer term, and this is definitely good.

But we also need to look at other things. I ask the Minister why we need to reduce corporate tax by 1%. The argument about tax, whether Singapore would be declared a tax haven, was raised, and also whether the Government is locking itself in to a lower tax rate. In the past, there was the idea of giving rebates and, just in the case of personal income tax, could rebates have been a more useful tool? As trade unionists, as workers, we believe that it is very important to make companies profitable, and we actually took a lot of cuts in the past to ensure that companies remained profitable. But we also believe that when companies are making money, when they are highly profitable, they should not be unhappy to pay taxes. Paying taxes is actually paying a return to society for giving them the environment to make profits. And taxes are also useful because part of these could be used to help the less-advantaged people in our society.

The other point of concern to the ground is the question of GST. They say that since personal income tax is reduced, corporate tax is reduced, can they have an assurance that GST would either stay the same or, if our surpluses are good enough, it can drop a little and it would be most welcome.

Another point that I would like to raise is this: the Budget could do a little bit more for the old and sick. The pension revisions were far too little - $10 more. We could do more for pensioners and we could do more at more frequent intervals. I think that we should also revisit our thinking although we have endowment funds for the aged, for medical care, that we should revisit ourselves to see how best we could help the old in Singapore.

Before I conclude, I would just like to reply to one hon. Member, who, in talking about Government-linked companies, linked NTUC Fairprice in the list of Government-linked companies. As a trade unionist, I think NTUC Fairprice is definitely not a Government-linked company. It is owned by more than 200,000 individual trade union members who own very small shares - $20, $50 or $1,000 - and a number of trade unions. So it is not a Government-linked company. It is just a workers' cooperative that is well-run and well done. And, if workers can run enterprises well, they should be applauded and given incentives to do a better job, and not be described as a Government-linked company.

Finally, I would just like to describe this Budget as generous. But if only CPF had been fully restored, then I would be much happier. I think workers would be much happier and we would have described this Budget as very generous. So we look forward to a very generous Budget in future.

Mr Inderjit Singh (Ang Mo Kio): Sir, this year's Budget is indeed a generous one, with something for everyone. This time, the Minister has given special attention in developing the knowledge economy. It was indeed good to note that, for the first time in a very long time, something special has been done for the small and medium enterprises and start-ups. This will go a long way in helping us to grow local enterprises. I personally call this a Knowledge Economy Transition budget for the following reasons:

First of all, the tax concessions for start-ups and SMEs as well as for the self-employed and entrepreneurs;

Secondly, the tax incentives for software and intellectual property operation and maintenance;

Thirdly, a learning fund for everyone who wants to upgrade himself or herself;

Fourthly, stock options tax reliefs for big and small companies; and

Fifthly, higher rebates for everyone to soften the impact of a recession or a digital divide should we see problems during this transition.

Today, I would like to address a few key issues, which I believe were not adequately covered by the budget proposals but are important enough to get some attention if we want to transform Singapore's economy to be a truly first-world economy.

First of all, the state of the economy. In my speech during the Budget debate in 1999, I spoke about the accuracy of the indices the Ministry uses to measure and predict the state of the economy and, hence, how policies are set for the budget. As I recall, in 1998, many private sector industry leaders projected declines in certain sectors of the Singapore economy, while the ministry projected growth in the same sectors. A year later, the results showed that the private sector's reading of the state of the economy was right while the Government's projections were wrong. This shows obvious gaps between how the private sector reads the economy versus how the Government reads it. This time around, I am afraid, we may be seeing the same pattern.

Here is my take on the state of the economy and how many others are seeing it:

Since the middle of December last year, there was a sudden drop in demand, as if someone pulled the plug on the growing economy. Comments like "someone switched off the lights in December" or "things fell off the cliff in the second week of December" were quite common. In my opinion, this is happening because of the expectation, of course, of a weaker US economy this year and the loss of confidence in a sustained growth in the key sectors of our economy. While I heard that Dr Ker talked about growth in electronics and telecommunications, unfortunately, I think what we are seeing is that sectors like electronics, semi-conductors, mobile and wireless communications equipment - and some of these that were high growth areas - are actually starting to see declines right now. While we started hearing of negative announcements by companies in terms of drops in revenues and profits and lowering of forecasted growth rates since July last year, the general expectation at that time was that it was a period of correction and that these were mainly company-specific problems and not a general industry problem.

Now, we have seen three quarters of such negative news, with companies that did very well last year also sounding cautious about the economic growth and outlook. This now translates to a belief that we will be seeing a sustained downturn resulting in not-so-soft a landing of the US economy. Coupled with the woes in Japan, confidence levels have dropped in many parts of the world, including Singapore. In my opinion, we will, without doubt, see a slowdown for now, and it may last for the next two to three quarters. What is not so obvious is whether we will see recovery after that. And there are two possible scenarios that I would like to share.

The first scenario is that the downturn is a short one and the US economy goes for a soft landing and confidence comes back, with consumers going back to purchase more. In my opinion, there has been too much of pessimism and, like always, consumers and companies have over-reacted due to the loss of confidence. This over-reaction is causing companies to drastically lower their forecasts of demand, to the point that they are now over conservative. These days, most companies do not keep very large volumes of inventories anyway, and they will see a depletion of inventory levels which have been built up in the last two quarters due to the sudden drop of demand, while production levels remained high at that time. With the depletion of inventories, we will see a quick turn-on of production when consumer demand returns. If and when this happens, we will see growth going back to sustainable levels and we can see a quick recovery. There is also the Asia demand factor, especially the demand for goods and services in China and Japan, especially if Japan reforms effectively. And this Asian demand may, to a certain extent, make up for the loss of US demand.

Sir, the second scenario is not so nice. We may see a downturn lasting two to three years, and this will occur if the US goes into a recession and if they fail to get out of it fast and, especially, if the Japanese economy continues to drag. Consumer confidence would continue to be dragged down further and, if the stock markets remain depressed, people would become more conservative in spending. This will result in a continued decline of companies' performances. This, in my opinion, would lead to spiral effects of loss of confidence, where expectations of slowing sales and profits in companies would lead to worries about job cuts, which would lead to consumers slowing down spending, and which would further erode profits, which would in turn further weaken consumer confidence. Up to the end of last year, corporations were holding back making drastic structural changes to their companies, including people actions, and this was because the expectation was that there was a quick turnaround around the corner, and they wanted to be ready for a quick upturn when it comes and, therefore, they did not do the major restructuring. Given that the turnaround did not come, companies would now be seriously considering structural changes in their organisations and this scenario means a recession and tough times ahead for all of us.

As to which of the two scenarios will prevail, I would say that we need a little more time to analyse and predict. We have to at least see how the first quarter goes. It is only after the dust has settled and the current confusion clears up due to the "over-pessimism" that we have seen starting December can we tell which direction the economy is heading. While I personally subscribe to the first scenario of a quick turnaround, we really need about three to four months to be a little surer.

I therefore feel that the forecast of 5% to 7% is too optimistic, given the many changes that have happened, starting from the middle of December last year. I believe the indicators that the Government uses to measure the state of the economy are not sensitive enough to gauge the true situation of the economy, as the private sector has already reacted to the sudden slowdown while the Government indicators are not ringing any alarm bells.

The other issue is that, in the past two years, economic recovery has been unequal, post Asian crisis. Certain sectors still lag behind and have not seen any recovery while a few did recover strongly, eg, the semi-conductors and the electronics industry. This time round, if a downturn comes quickly, we may risk wiping out some of these companies which will be hit by a double whammy because they would be hit again before they had a chance to recover from the last fall. More, therefore, should have been done in this budget, in anticipation of a deteriorating economy. We should be proactive and not reactive as we have been in the past.

The second thing I would like to talk about is the cost of business and the future of the manufacturing sector in Singapore. While this year's budget was positive for businesses in two areas, first, the lowering of corporate taxes by 1% and, second, the lowering of property tax, I feel that the Minister could have taken the opportunity to review and implement changes which could further make Singapore an attractive hub and a centre for high value-added manufacturing activities. My concerns are in a few areas:

Firstly, the cost increases. In the last one year or so, the cost of doing business in Singapore has increased. Costs have gone up in a number of areas, including Government rates, utilities, JTC rentals as well as CPF rates. The reversal of the cost-cutting measures occurred too fast at the first sign of economic recovery last year. The Government should hold off any more increases, in my opinion for now, and should a downturn come fast, the Government must be ready to react equally fast to address the cost competitiveness issues. The cost of doing business in Singapore will soon become a big issue again if we are not vigilant and let costs go back to the pre-Asian crisis levels. The Government should have a longer-term view of how the economy should be managed, especially when it involves the cost of doing business in Singapore. We got into trouble before and we can get into trouble again. I urge the Minister to convene a committee to start planning for a possible downturn and identify proactive measures. This will allow us to react decisively, should a downturn hit us again.

The second thing on the manufacturing sector is that we all realise the importance of further strengthening the manufacturing sector as well as to establish a stronger base of SMEs which can transform into world-class companies. We have done an excellent job in attracting new investments in technology and manufacturing companies. The type of incentives, like the pioneer status, investment allowances, grants and subsidies, worked well in the past. Moving forward, I believe we need to devise new strategies and, therefore, new sets of incentives that will further strengthen the manufacturing sector as a key sector of our economy. Some of the things that we can do include giving incentives or tax breaks for companies which make productivity improvements. If a certain productivity standard can be developed and the Government can issue special tax incentives for companies that put in the resources to become more productive, this will be good for all of us. With a perpetual shortage of manpower, we have no choice but to be among the most productive in any activities that we carry out if we compare ourselves to any other countries in the world.

Many of our incentive schemes also require investments to be made physically in Singapore. In doing so, we encourage companies to continue to add assets and resources in Singapore even though it may make sense to place such assets in more suitable countries. I therefore suggest that incentives to encourage outsourcing of activities to outside Singapore so that companies will restructure and focus on keeping only high value-added activities in Singapore. In a globalised knowledge economy, we should break up the whole value and supply chain of activities of manufacturing and service businesses and place the components of the value chain in countries best suited to carry out these activities productively and efficiently.

Globalisation is also an urgent issue especially since regionalisation is not viable when the region is in turmoil. The Government should therefore take the opportunity to introduce new measures to give globalisation a boost, to encourage companies to move out of Singapore and beyond the region. It is about time we created more home-grown multinational companies which can compete effectively outside our shores and which can take advantage of the opportunities immediately available today as the whole market makes its transition to the new economy.

On the whole, while we have done well with Government assistance and incentive schemes, I feel that we need to restructure the schemes to be more market-driven and move away from incentives that create a subsidy mentality. A subsidy driven scheme just hides weaknesses and does not give the opportunity for us to develop fundamentally strong companies able to compete in the world arena. It is time we reviewed and restructured the 60-plus incentive schemes existing today and to create a few effective ones.

Sir, the third area which I would like to talk about is the promotion of entrepreneurship in the knowledge economy. The last two years had been excellent for us in encouraging Singaporeans to become more entrepreneurial. Many companies were set up and many of our young took the plunge to become entrepreneurs. The technopreneurial excitement was, however, short-lived for Singapore, but this, in my opinion, was for the better because a long drawn period of boom based on hypes and fundamentally weak business strategies could have damaged our economy more and would have damaged the confidence of would-be entrepreneurs even more.

After the dot.com bust, there has been a big loss of confidence among entrepreneurs and investors. There are many lessons to be learnt from the last two years of experiences. For example, our budding entrepreneurs have learnt about the need for proper business models, the need to think of a global market place and not Singapore as a market, the need to avoid "me too" ventures where we just follow what someone else is doing without understanding the true strategies, and the need for fundamental business strategies to be worked out. From my personal experience, we had many fundamentally weak companies that sprouted out in the last two years and many could not have lasted anyway, even if the dot.com bust did not come. The bust did come and many experienced failures. I hope that this failure will become the basis of a better chance of success in the future.

There is now over-pessimism among investors and VCs. Many are not willing to fund even viable companies. Unless something is done fast to help such companies, we will see a sad situation of potentially good companies seeing a premature end. At the end of last year, the Technopreneurship 21 Private Sector Committee, of which I am a member, requested the Government to set aside a special fund which we called a "Lifeline Fund" to help struggling start-ups that still have fundamentals but are facing cash squeeze that hinders their progress. Many face immediate collapse if not helped soon. I will elaborate on this "Lifeline Fund" during the Committee of Supply discussions. It is, however, really urgent and we must do something before we destroy the good environment that we have created in promoting technopreneurship in the last two years. We need to help some companies that are in trouble right now.

Sir, the final point I would like to touch on is the privatisation of Government-linked companies and this is a topic that many Members have spoken about. The reason I am bringing this up again is to suggest that while we have seemingly good GLCs, if we consider how they perform in the local market, the truth of the matter is that they may develop weak fundamentals which would become serious setbacks when such companies compete with global companies outside Singapore. We have seen many examples of how some of these GLCs have failed to compete externally. If we look at the many GLCs in Singapore, the ones that are doing well are the ones that are truly privatised and hence subjected to true market discipline like any private sector company. I therefore hope that the pace of privatisation will be speeded up. While it will take time for privatisation to take place for all GLCs, in the meantime, there should also be greater transparency of how GLCs are managed. Policies and incentives for such companies should be market-driven. The Government should avoid giving undue subsidies which I feel may just hide weaknesses of such companies. We end up doing a disservice to the GLCs because in the long term, they would face problems when competing in the real world, where there is true market competition when in fact the GLCs have been used to an "easier than market" governance approach that we have created for them.

I would like to end by once again expressing that we are heading in the right direction of transforming Singapore to a knowledge economy. The Budget announced by the Minister for Finance supports the transition to the new economy. I hope the Minister will seriously consider the suggestions I have made earlier to further strengthen Singapore's position as we compete with the world's best economies.

With this, Sir, I support the motion.

Mr Low Thia Khiang (Hougang): (In Mandarin): Mr Speaker, Sir, in his speech, the Finance Minister said that this Budget is the "best ever" and "most generous". I was somewhat surprised because, by right, during the last two years, when the region was facing the financial crisis, and the people were desperately waiting for the Government to dish out more, the Government should be more generous in its Budget, yet it chose not to be so. In the past, even when the Government had a lot of budget surplus, it did not appear to be so generous. Why is it that the Government decides to be so generous this year?

Now, let us look at just how generous this Budget is.

First, in the reduction of personal income tax rates, the Finance Minister said that "an individual with an annual income of $35,000 would pay approximately 30% less tax and an individual whose annual income is $100,000 would save approximately 20% in income tax." As such, the lower and middle income taxpayers will benefit most. However, from my own calculations, under the new tax structure, an individual with a $35,000 annual income would save only $230, while one who earns $100,000 would save $2,230. How can we say that people in the lower-income group will benefit most?

Secondly, the tax exemption on the first $7,500 chargeable income and the 10% tax rebate that came with the implementation of GST would benefit the higher income people most. To the lower-income group, the rebate and tax reduction mean nothing to them because if their income is low, they pay no tax at all. This is the true colour of the Government's generosity. You must first be able to earn money and the Government reduces its taxes on your earnings and it is then deemed to be mercifully generous to you. But please do not forget that even the lower-income people have to pay GST!

This Budget also introduces a so-called "benefit-sharing" package, and the most attractive part is the CPF top-up scheme. However, under this scheme, in order to be entitled to the Government's top-up, there must first be some money deposited into the CPF account. It is like what the Hokkien people say, "Money fears loneliness". Only if you have money can you earn money. Then, you can earn some money from the Government and have more money. The Government is happy to spend some money and show generosity, at the expense of the people, with the hope of achieving what was described by an associate professor of NTU that "The ordinary people are overwhelmed by an unexpected favour to the extent of wanting to be thankful and be whole-heartedly grateful to the great leaders."

I believe the people of Singapore will face three major problems in the next few years: first, a weaker US economy; secondly, with the economic reform, the older people with low educational level will not be able to cope and may lose their jobs or suffer a reduction in income; and, thirdly, the rising cost of living.

The Finance Minister said that the Government would help those people who were affected by the economic reform to pull through. Yet, in this Budget, I do not see how the Government is going to help these lower-income people to pull through.

The most worrying part is that if the regional situation worsens, and if the US economy heads for a hard-landing, many companies will close down or retrench their workers. The people in the lower and middle-income group will be affected most severely. Then, how are they going to survive?

As regards the cost of living, in last year's Budget, the water-borne fees were raised substantially. Electricity charges were also increased considerably. If the charges for the various basic services continue to be adjusted upwards, then the burden of the people will become heavier and heavier. Although this Budget provides for a Utilities Save scheme whereby rebates are given (and rebates can please the people and show that the Government is able and generous), it is not a long-term solution. The rebates can be reduced or even revoked at any time.

I feel that what the Government should do is to ensure that the cost of living will not keep on going up, and to alleviate the burden of the people through some budgetary measures. The various rebates can only temporarily relieve the pressure in the daily lives of the people. It is unable to resolve the problem of the escalating cost of living and the heavier and heavier burden of the ordinary citizens.

Therefore, Mr Speaker, I am disappointed with this Budget which appears to be spectacular and extremely generous superficially, but which in substance fails to alleviate the burden on the people.

Mr Chay Wai Chuen (Tanjong Pagar): Sir, I wish to speak in support of this motion.

If I have to describe the characteristic and impact of this Budget, in the history of Budgets presented in Singapore, I would say this is the big one.

[Mr Deputy Speaker in the Chair]

4.27 pm

Mr Chay Wai Chuen (Tanjong Pagar): Firstly, it turned out a budget surplus of $3.54 billion, after providing for 50% of the Net Investment Income contribution to the reserve without entering the budget's operating revenue stream (this amount is $1.55 billion) then providing for $1.84 billion in special transfers to the various top-ups to CPF, Lifelong Learning Endowment Fund, ElderCare Fund, MediShield Scheme for the Elderly, Senior Pensioners Grant Scheme, etc. This out-turn of $3.54 billion is arrived at after transferring almost $2 billion to the telcos in the course of the year's decision to accelerate telecommunication sector liberalisation. Even if we were to add back these figures, the figure is a staggering $8.9 billion. Out of a total budget of $28 billion in 2000, the surplus is almost one-third of the total expenditure budgeted. In the same breath, the economy turned in a 9.9% growth. The explanation for all these phenomena is not as discussed just now, to be found in the year for the general election, but I believe to be found in nowhere except in Chinese mythology. It is called the Year of the Dragon.

The Minister is quick this year to give a $2 billion tax cut across almost all sectors in reduced personal and corporate tax. This is naturally welcome and needed. It is also necessary, I think.

I am not against budget surplus, but excessive budget surplus out-turns at one-third of the projected expenditure for the year can mean unnecessary deflationary pull on the private sector economy through taxes and statutory costs and fees. This $2 billion tax break is almost universally welcome by people from all walks of life.

A freer tax burden, including lower fees and statutory costs, can lead to a more dynamic, entrepreneurial economy with lesser debt burden.

Despite this high growth budget surplus result, many people are asking: where is the growth coming from? They do not feel the growth in their sector, especially among the SMEs, the construction sector, which almost absorbs half of the capital formation and the financial services sector.

More than 100,000 new jobs were created last year and the total external trade hit a record with exports growing by 22% last year.

There are three areas in the economic data profile which I would like to express some concern for clarification by the Minister.

The first is that overall productivity figures did not show comparable achievement, being at just over 5.2%, which was lower than the previous year's 6.2%. Sectoral productivity in the financial services, business services and construction services sectors declined. Overall and sectoral labour productivity figures can vary from year to year, because of many data reasons, but the sectoral productivity figures give me cause for concern, as a large proportion of the economy is languishing.

Some of these sectors are undergoing re-engineering. So I would expect some adjustment in their output and input figures. Others are already making significant growth and development, especially in manufacturing, wholesale/retail trade and transport and communications.

Our worst performing industrial sector continues to be construction where we have almost 50% of our gross capital formation - more than $23 billion out of $46 billion. The construction sector, which has contributed to about 6.8% of our GDP at constant dollars, has been showing negative labour productivity growth since 1995.

Also, both the financial services sector and the business services sector which contribute about $31 billion out of a constant dollar GDP of $140 billion, ie, about 22% of the economy, are also experiencing negative growth in productivity. Therefore, almost 30% of the economy is languishing in declining productivity compared to the previous year. This is something of note while we congratulate the Minister for his Budget and economic growth. These may perhaps explain the often time gasp, "where is this growth coming from?"

I urge the Minister not to let up on fiscal measures to give incentives and penalties for the errant construction sector to buck up and improve the construction sector's productivity. Unfortunately, we put half of our domestic capital formation in this basket.

The lagging financial services and business services sectors also should be given some doses of incentives for responsiveness, as they have also been in negative labour productivity growth in these few years. They somehow have not quite recovered from the financial crisis since 1997.

Apart from the productivity figures, however, an important feature is that a significant number of 100,000 jobs were created, more than our annual addition to the working population by the natural cohort of 50,000. It also shows that there is considerable success in re-channelling our workers who have been dislocated in one job to seek other employment by training and retraining programmes. I believe we are on the right track with the Ministry of Manpower's redoubtable Manpower 21 programme and the NTUC's Skill Retraining effort.

The second area I wish to express concern is that somehow the growth of 9.9% in the economy did not quite reflect its lustrous performance in the monetary aggregates of M1 and M3, narrow money and broad money. M1 only grew by 7%, while broad money, M3, had been declining since 1998, and since August 2000, M2 has actually been shrinking. This is an unusual phenomenon, as strong economic growth usually correlates with growth in the money supply.

I hazard a guess that domestic money is seeking refuge in foreign money for better returns, either as deposits or as foreign equity or assets. Last year, in the balance of payments figures, the Net Financial Account Deficit was $19.7 billion, quite sizable, although reduced from the previous year. Since 1996, on the balance of payments Capital and Financial Account Balance, there has been a net private sector financial outflow of funds on the capital accounts. These figures and the general perception of "where is this growth coming from?", coupled with this deflationary pull of a huge budget surplus, underline my concern on the state of the economy.

The third area concerns deregulation in this new era economy, especially in telecommunications, utilities and Government statutory boards. Deregulation and liberalisation are important for introducing competition and customer-oriented development for efficiency. But by themselves, they are no panacea. Just like the hype about the new economy where at one time, it was even touted that the more chaotic and fuzzy the thinking, the better the prospect and potential for the new economy valuation, deregulation and liberalisation of the New Zealand economy, for example, one of the world's first pioneer in government sector liberalisation and deregulation, did not quite make for efficiency and customer satisfaction.

Today, consumers there are not benefitting from the liberalisation programme. While the Government would like to liberalise or deregulate certain sectors or privatise certain businesses, it must not do so on the sacred cow, forsaking convenience and customer service, and for the small guy and the people at large. The example of DBS and POSBank, and Singapore Power come to mind.

At the end of the day, I hope we should remember that good old economic value analysis still applies, whether in the old or new economy. Capital has its price, and business is about serving customers.

We are transferring billions of dollars from the revenue stream onto all kinds of Funds - Lifelong Learning Endowment Fund, Medical Endowment Fund, ElderCare Fund, etc. I hope the Minister has some mechanism to monitor whether these funds are put to good productive use.

These tax offsets and rebates given this year will help make an impact on the overall population. The Government promised last year that significant steps will be taken to uplift our people by financial assistance, by access to education and learning funding for school-based or work-based learning, to level up society in the wake of the income inequality from globalisation challenges. I think it is delivering all this.

A tax cut on property from 12% to 10% is quite across the board, impacting many Singaporeans. The reduction in individual income tax by 2-5 percentage points for all bands will significantly impact Singaporeans from all walks of life.

The generous service and conservancy charges and rental rebates granted for HDB dwellers are welcome goodies from the Minister. Many low income families and retirees will appreciate this gesture from the Government towards building a caring society.

Sir, I support the motion.

Dr Michael Lim Chun Leng (Cheng San): Mr Deputy Speaker, Sir, the Budget this year has been generous, yet crafted carefully to propel the economy forward. It has measures to help Singapore stay competitive and has also eased the pain of restructuring. While the Budget has focused on the big picture, I am glad that the Budget has also catered for the needs of the individual Singaporeans. Most importantly, I am concerned that the unskilled or lowly skilled Singaporeans will have difficulty in finding a niche for themselves in the new era economy. Many of them are also sole breadwinners. I am glad that we have announced increased funding for several schemes, like investment in education and technology, CPF top-up, utility rebates, SC&CC rebates, ElderCare Fund and the Medical Endowment Fund. These are some measures that have been put in place to help the lower income, but I think more needs to be done.

As we push ahead to help propel the economy forward, there will be stresses on the social fabric of society. For the unskilled or poorly skilled, structural unemployment will be a major social stress on the family, and many of them find that even though there are opportunities for training, they may not have the ability to adapt to the new environment.

For the skilled workers or even the professionals, they face a different type of stress. The increasing trend of families with both parents working long hours will also stress the family unit. It is important that as we work towards increasing productivity and restructuring the economy, we must be mindful of the family unit and the stresses it faces. Having more children see psychiatrist and increasing divorces are signs of strain on the Singapore family unit.

Down on the ground, the Community Development Councils (CDCs) can play a pivotal role in working with the voluntary welfare organisations to help prevent or relieve the social stresses on the Singapore family. It can be a central agency to marshal the resources of the voluntary welfare organisations, and also be a key point for people to go to when they need help in this area. Current CDCs have insufficient manpower and resources to carry out their roles to their full potential. Government should increase funding for CDCs, and also look at increased incentives to encourage both individuals and companies to help provide increased funding for the CDCs in their personal or company capacity.

The other key organisation that is important in the heartlands where most people live in will be the town councils. After the Asian economic crisis, the town councils and, more lately, the CDCs have been looking for alternative financial instruments to place their funds. With the lowering of interest rates, bonds have become attractive alternatives. In line with the Government's effort to grow the bond market, town councils have also been active in participating in the bond market. In the 1998 Budget statement, a 10% concessionary rate of tax on interest income derived from qualifying debt securities was announced. However, the concessionary tax rate for bonds has not been extended to town councils and the CDCs. Both these organisations are organisations that work not for themselves but for the people on the ground and the people in the heartlands. I think it is time that the Ministry of Finance considered extending this concessionary tax rate to these organisations.

Mr Loh Meng See (Kampong Glam): Mr Deputy Speaker, Sir, I wish to congratulate the Minister for Finance for giving out the best Budget during his tenure to date. In many ways, Dr Richard Hu's long years of prudence in steering the financial and fiscal policies has enabled Singapore to remain the beacon of a stable, progressive and prosperous economy.

On the operating expenditure side, the Government has kept itself small, lean and effective. In the development expenditure, there is no let-up in ensuring that our infrastructure and investment in schools and educational institutions, transportation, housing, hospitals, medical centres and polyclinics keep up with the times and of high quality for the benefit of all Singaporeans.

On the revenue side, personal incomes and corporate earnings have grown and therefore tax revenues. The introduction of COEs, GST and new fees and charges has enabled the Government to have good and regular income stream to finance the expenditures required. What is of significance is Singapore's ability to ride over the difficulties of economic downturns and prepare for the new wave of economic and business challenges in the horizon.

The economic restructuring process, began in the mid-1980s, when Singapore met with its first economic recession since independence in 1985, taught us the valuable lesson. We learnt the lesson well and successfully overcame quickly the regional financial crisis 12 years later in 1997.

The new knowledge economy poses tremendous challenges for the Government and Singaporeans at large. But, Sir, I like to make a plea for the elderly citizens in the light of all these challenges. The longevity of our people, because of higher standards of living and the increasing number of elderly persons, are long-term issues we cannot avoid, but to deal with as early as possible. For this growing group of elderly citizens, their earnings will decline and expenditures will rise. We are already seeing within a family two generations of retired persons - parents in their 80s and above, and children in their 60s who have also retired. This brings a heavy burden on these families where medical cost and healthcare expenditures are major concerns. They belong to the generation of little or no CPF savings and lower earnings in their early active working lives. For many of them, the homes they live in are the only assets they own. They have little cash. Yet the policy appears to disadvantage them for assistance. It is not easy for the elderly with financial needs to dispose of their homes they are comfortable with or to downgrade to smaller flats or selling off their property and living in rented accommodation.

I wish to ask whether the Government can be a little bit more sympathetic and considerate to these elderly citizens with financial difficulties to exclude from consideration the HDB flat that they own, to be able to obtain financial help from the Government through the CDCs or other Government agencies. The difficulties lie because their children, who themselves are not doing well, have their own families to support. I know the children are encouraged and expected to support and look after their parents, but for those whose parents have prolonged illness and need long-term medical care, the financial strain is burdensome indeed. Perhaps the Government can modify its attitude to recognise that we are having in our midst the pioneering generation of independent Singapore needing help. If we lighten the burden of these elderly citizens in their twilight years, we are helping their children at the same time. They would be relieved from the financial burden of taking care of their grandparents and parents and concentrate on taking good care of their young families. Competencies in Finance and Risk Management

When I observe the difficulties faced by individuals and small businesses, what strikes me most is the general lack of competency or even literacy in the management of the financial affairs and risks in our population. I agree with the principle of caveat emptor, that the individual is responsible for the consequence of his investment decisions, but do we have the positive attitude of sharing investment knowledge and experience amongst our people? Perhaps the Finance Ministry can take upon itself to educate our population in the area of financial and risk management. These are areas of knowledge and skills essential to strengthening Singapore's position as a financial and business hub where we have an investment-savvy population playing an active role in the businesses of the region and the international markets. We can all help one another to realise better returns and values for investment, both national, corporate and individuals. This is one way of securing the best growth returns for the retirement nest egg of our people. I say this, Sir, because in recent years we have seen that those who have made investments through their CPF savings have not obtained the kind of value that they have wished.

By and large, Singaporeans like the "DIY" (Do It Yourself) approach and are not prepared to pay for the service of the experts. Sometimes I do not blame them because the so-called experts are not truly the experts. Therefore, the move towards greater professionalism in the financial services sector is a welcome one. The Singapore consumers deserve better service from businesses and service providers. In order to break away from the traditional ineffective ways of rendering service, foreign talents are attracted to play the useful role of providing the much needed expertise in both the domestic and international markets. Though I must add that the DBS Bank management did not display the high standards expected of talented foreign management in the handling of the POSBank merger and subsequent consumer retail business in POSBank, I believe we all can learn from the lessons there. Supplementary Retirement Scheme

The Supplementary Retirement Scheme allows foreigners to enjoy additional benefits that they do not have on tax deductible allowance for CPF contributions. Concerns have been raised about the level of charges levied by SRS operator banks and the quality of financial advice they can offer to SRS participants. I agree with the Government's move to support the local banks. I hope these banks will do justice to the favourable position they enjoy in the deposit and investment of SRS funds.

Perhaps the Government can take one step further through the SRS to give incentives to small and medium enterprises (SMEs) to encourage them to engage the services of foreign talent to help expand their markets. Traditionally, the executives in the MNCs have specialised and expert market knowledge and networks round the globe. The Singapore SMEs can benefit tremendously if they can be more successful in achieving good brand names for their products and services. In the Internet world, having indigenous brands and managing the integrity of our products and services will become highly critical in the global markets. Stock Option Scheme

Finally, Sir, on stock option scheme. Under the Company Stock Option Scheme, the Government has provided some waiver of tax for gains of up to $1 million over 10 years, and I believe this is a good move. I support the sentiment that the Company Stock Option Scheme should benefit the majority of the employees so that as stakeholders, the workforce will bond the staff together working as a team for the long-term interest of the company and the people working in it. I am surprised that there are still some tax experts who quibble as to why tax should be shifted from the point options are exercised to the point when stock is sold, given the wild swings in the share prices. Do these experts not know that, firstly, the employees would be granted share options regularly, and secondly, precisely because of the volatility of share price fluctuations the option holders should only exercise their options when they want to sell their shares. It is really unwise for the option holders to exercise their shares and continue to hold them as they would then have to bear the risk which many have learnt to their despair during the regional financial crisis that it is the most unwise thing to do. I am glad that the Finance Minister does not heed this suggestion of shifting tax from the point option is exercised to the point when stock is sold, giving the clear guidance and message as to how option holders should be careful in exercising the options only when they want to sell the shares.

Sir, I support the motion.

Mr Peh Chin Hua (Jalan Besar): (In Mandarin): Mr Deputy Speaker, Sir, this year the Minister for Finance, Dr Richard Hu, has presented a wealth-sharing Budget and this has made Singaporeans think that this is a very generous Budget in an election year.

With global economic competition getting more and more intense today, many countries have plunged into economic and political predicament. In certain countries, owing to the quality of political leadership, these leaders are unable to turn around their economic decline, resulting in substantial currency depreciation, outflow of capital, withdrawal of foreign investments and grave unemployment situation. The people there have not been able to see the light at the end of the tunnel and there are frequent riots. The whole economy is paralysed. Under these circumstances, even a general election followed by a change of government is unable to solve their national problems.

On the other hand, take a look at Singapore. We are able to accumulate budget surpluses year after year. The people are well taken care of. They are well fed and well clothed. People enjoy high wages and stable jobs. Even the low income group and the less fortunate people receive very good care and concern. People are able to share in the prosperity of the country. Our society is stable and peaceful, and our currency strong and stable. People live in safety and prosperity. This is due, to a great extent, to the fact that the people of Singapore have been wise in electing a reliable and good Government which has the people's welfare at heart.

I know that some Singaporeans are of the view that the political leaders are overpaid in Singapore. Fortunately, the vast majority of Singaporeans are sober in realising that we would rather have a good government which is paid well, of high quality, efficient, and works for the benefit of the people than to have a "cheapskate" government to lead Singapore into disasters and chaos. As long as we are able to maintain this national consciousness we will continue to have a peaceful and prosperous Singapore where the people are able to share in the wealth of the nation, year after year. This is our common wish. The Opposition Member, Mr Low Thia Khiang, remarked that the Budget was only seemingly generous but not so substantially. I think such a remark can only come from those who may know a lot about politics but little about economics.

Mr Deputy Speaker, Sir, when I visited the Silicon Valley in the United States of America in July last year, the US economy was booming. I was told that when a high-technology company wanted to engage a head of department, it had great difficulty in getting a suitable candidate. Very often, it had to offer very attractive salaries and stock option to poach from other high-technology companies for the required talent. Even then, not many people were interested in such attractive offers.

However, a few months later, the situation over there underwent some earth-shaking changes. Two weeks ago, I visited the Silicon Valley again. I could vividly feel that the US economy has slowed down. Those dot.com companies which did not have solid foundations saw their share prices falling from US$100 to US$1, some even went down to 60 cents. Even the strong high-tech companies also found their share prices tumbling down from US$100 to between US$16 and US$26. The consumption market was also very hard hit. The same high-tech company, which I mentioned earlier, now receives some 60 to 70 applications for one vacancy of head of department. Among the applicants, many are Ph.D and M.Sc degree holders. As such, I feel that the slowing down of the US economy or the possible recession will have great impact on the world economy, including Singapore's economy.

There is one observation which warrants our attention. When I was talking to the entrepreneurs in the Silicon Valley, they did not think the conservative economic ideas of the new US administration would be able to solve the present economic crisis faced by the United States of America. That being the case, we should pay more attention to the changes in the US economy, and monitor closely the progress over there. Perhaps, we should consider putting part of our economic development plan on the two major economies in Asia, namely, flourishing China and the potentially viable India. In my view, hitherto, our investments in these two countries and our understanding of their cultural backgrounds are grossly inadequate.

I am very pleased with the tax reduction and rebates announced in the Budget. These will benefit Singaporeans from all stations of life as well as the business community.

Reduction in corporate tax is the general trend in the whole globalised economy. The biggest piece of good news to the business community is the reduction of corporate tax from 25.5% to 24.5%. To maintain our competitive edge, it would be absolutely necessary to carry on cutting our corporate tax in the next few years.

As for the individual tax, with effect from YA 2002, the Government will reduce the rate of individual income tax by 2% to 5% and the top income bracket will be reduced from 28% to 26%. This is a wise move.

The Government has continued to help the low income group by ways of rebates and reduction in rental, utilities, and S&C charges. This means that when we have succeeded in our economic development, we do not neglect those less fortunate and elderly people. We also provide opportunities for them to be trained and retrained. The Minister has also put forward many measures to stimulate our commercial and business community. These include the employee stock option scheme.

From 1st April onwards, the gains made by this scheme will be tax exempt for the first $2,000. Thereafter, a tax of 25% will be levied on the other gains with a cap of $1 million. This measure will stimulate the enterprises and the enterpreneurs. I feel that the Government is still very conservative in this scheme. I hope that the Government will be bolder and faster to approve the entrepreneur's application for such a scheme so that their employees will be able to enjoy the gains under this scheme earlier.

I support the motion.

Dr Teo Ho Pin (Sembawang): Mr Deputy Speaker, Sir, I rise in support of the motion as proposed by the Finance Minister.

This year's Budget is indeed a good Budget filled with goodies for everyone. It is a Budget aimed at nurturing Singaporeans and our businesses to transit into a knowledge-based economy. The Budget will provide a boost for Singapore to position itself in the new economy. It will also help Singaporeans to prepare themselves for global competition.

As a small country with limited resources, Singapore has no choice but to continually carve out niches to position itself in an increasing seamless global market. Development of human capital has always been our main focus. The Government continues to invest heavily in educating our young, and upgrading the skills of our workers.

While we are constantly chasing global trends, we must not forget those who may encounter difficulty to keep pace of the changes. Every effort must be made to help these fellow Singaporeans feel at home in Singapore. Otherwise, dichotomy will occur in our population, thus weakening our social fabric. Thus, the key challenge facing the Government is to develop a globally competitive workforce, and at the same time continue to improve the quality of life of all Singaporeans.

Although this year's Budget is a generous one, I am sure the Government can do more to help small consumers and small businesses. This is particularly so for many working Singaporeans who had suffered CPF cuts over the last two years. Small and medium enterprises (SMEs) have also been badly affected by the financial crisis and globalisation trends.

Sir, I would like to propose the following measures for nurturing small consumers and SMEs to transit into the new economy:-

On personal tax and GST rebate, the cut of income tax rates and one-off income tax rebate of 10% have indeed lowered the tax burden of many workers. A comparison among low, middle and high-income earners shows that low-income earners (those earning $35,000 per annum) will enjoy a tax saving of $175 while the middle income (those earning $50,000 per annum) and high-income earners (those earning $100,000 annual income) will have $375 and $1,775 tax savings respectively. As all income earners suffer a flat rate of $250 GST rebate cut, this has drastically reduced the income tax saving of low-income earners.

Sir, whether you are a low or high-income earner, you still pay the same price for a cup of coffee and a bowl of noodles. The increasing cost of living has put much financial burden on many small consumers. It affects their quality of life. I hope the Finance Minister can consider more innovative ways to give out tax rebates, which will benefit low-income earners.

A good example to follow is the National Wages Council which recommends a fixed and variable salary increase mechanism to help low-income earners. Income tax rebate can also have both a fixed sum rebate and a percentage cut to motivate all our workers.

As for S&C and utilities rebates, we should extend the benefits to HDB Executive flat residents and retirees living in private estates. Some Singaporeans in these groups do not enjoy much benefit from income tax rebates or other relief. For example, in Woodlands New Town, we have quite a number of multi-tier families staying in jumbo HDB Executive flats. These residents have made efforts to stay together as one big family so as to look after their parents. But, they are always being left with not much rebate when Government shares its surplus.

On Widow Fund, the competitive society and cost of living in Singapore have made life very difficult for one group of Singaporeans, that is, widows. Families that are struck with disaster, such as death, or major illness of their sole bread-winners, usually encounter much difficulty to raise their families thereafter. Their quality of life deteriorates very quickly and their children's education is badly affected. A widow with two or more children to support will face grave difficulty to balance between work and family. There is a drastic lack of communal support facilities and affordable family service centers to help these families. I would urge the Government to consider setting up a Widow Fund to provide special assistance to these disadvantaged families. This will provide a level playing field for their children to succeed in life.

The present assistance schemes provided by the CDCs and various constituencies are inadequate to alleviate the financial burden faced by widows. Very often, the financial assistance is short-term and does not alleviate the long-term financial burden of widows. I would urge the Government to show more compassion to widows, and help them to live life more comfortably. My sympathy and admiration goes to all widows who make untiring sacrifices for their children to succeed in life. Sir, they deserve special attention.

On subsidy for pre-school education, in the past, the Government has taken a position that pre-school education should be left to the private sector, and thus not much support was given to pre-school operators. However, recent findings have shown that pre-school education plays a critical role in nurturing young minds to be well equipped for mainstream education.

Today, children in mainstream education enjoy subsidized education while those in pre-school centres pay market rates ranging from $25 to about $800 per month. This has placed much financial burden on families with two or more children. If the Government were to encourage Singaporeans to have larger families, we must provide this basic support of subsidizing pre-school education. This is in line with the Government's focus on educating our young.

On Eldercare and Medical Endowment Fund, the contribution of $250 million to the Eldercare Fund and $100 million to the Medical Endowment Fund is a welcomed move in view of the fast ageing population. The rising health cost in Singapore has been a concern for many Singaporeans, especially the elderly and low-income earners. Besides supporting nursing homes and medical bills of the lower-income individuals, I hope the funds can also be used to provide free community ambulance services for the elderly and primary healthcare services at the community.

In October last year, the Ministry of Health implemented a pilot Primary Care Partnership Scheme to contract private clinics to serve needy elderly in the community. This scheme can be expanded to provide a wider range of medical services for the elderly. The eligibility criteria should be reviewed to allow more elderly to qualify for the scheme. The scheme can also be extended to young children below the schooling age.

On nurturing small and medium businesses, local SMEs play an important role in our economy. They comprise 92% of the total establishments in Singapore and employ 51% of our workforce. In the knowledge-based economy, our local SMEs will continue to perform a vital role to spearhead Singapore's globalisation efforts. But, the Government must be proactive to help local SMEs perform this role.

The SME 21 plan is a step forward in building the capabilities of our local SMEs. But we need to identify the potential of SMEs in the products and services industry. More efforts must be channelled to help SMEs that have good potential to develop niches and position their products and services in the global marketplace. More generous grants can be given to accelerate their globalisation efforts.

Feedback from local SMEs indicates that many of them are facing problems of high rental and labour cost in Singapore. The cost of Government services and compliance cost have also contributed to the increased business costs. In order to position local SMEs in the new economy, I would like to propose the following measures:

(a) Property Tax Cut

The cut in property tax and the removal of the existing 25% property tax rebate in July 2001 will not help much in reducing business costs. SMEs, especially owner-occupied businesses, expect a higher property tax cut to enable them to ride out the crisis. Since the implementation of GST, the tax base of the Government has broadened. It is about time that the Government seriously considered removing property tax in Singapore, especially for owner-occupied properties. This would not only encourage asset ownership but also reduce the cost of businesses that invest in property for long-term growth. Our taxation policy must not pose unnecessary hindrances to the growth of our local SMEs.

(b) Reduction of National Development Expenditure

This year's budget has allocated a lower development expenditure for the Ministry of National Development. The $500 million reduction in development expenditure will have an adverse impact on the construction industry, which is presently experiencing low workload. The projected slowdown of HDB building programme will further aggravate the state of the construction industry.

Many local construction firms are HDB contractors and, thus, will not be able to secure enough contracts this year to keep their workforce. The decrease in development expenditure will further dampen the industry, resulting in more job losses. There will be more intense and unhealthy competition among contractors, leading to undesirable consequences such as poor construction quality and safety.

As the Government is actively promoting sporting and healthy lifestyle among Singaporeans, we should expedite the construction of park connectors and upgrading of sports complexes. Older design swimming pools should also undergo major upgrading to keep abreast of new lifestyle aspirations of Singaporeans. Sports complexes can be upgraded with modern equipment, like those of the California Fitness Centre, to attract Singaporeans to keep fit.

Sir, the construction industry is in need of assistance to get out of the crisis. Many construction firms are finding it difficult to survive in the present environment. Unless the Government steps in to assist, we may lose some construction firms, including some construction pioneers of Singapore. This will retard our efforts to nurture local SMEs to be world-class companies.

Sir, the next few years will be testing years for Singapore as we transit from the old to the new economy. Both our business community and people will be affected in one way or another in the transition. We must continue to strive to work hard together to cope with these changes. I believe our concerted efforts will definitely bear fruition for future generations of Singaporeans.

We must continue to support good governance to safeguard our future. In a globalised environment, it is even more crucial to have good governance to ensure that Singapore can thrive in the global world successfully.

Dr Jennifer Lee (Nominated Member): Mr Deputy Speaker, Sir, I join others who have spoken already in expressing appreciation of the Minister for Finance's generous Budget, with something in it for everyone - companies big and small, and individuals across the board.

Against the background of the Census Report 2000, released last month on household income, it is good to note that we have not forgotten to specifically direct some small measure of assistance to those at the bottom of the economic ladder in the form of utilities and rental rebates, and in the structuring of CPF top-ups, such that lower-income earners receive the highest payouts.

The Census Report showed a widening of the income gap, with those at the top 10% of households earning 36 times more than those in the bottom 10%. It has caused a significant discussion, as indeed it should, especially in the midst of concurrent recent soul-searching about what it means to be Singaporean, on belonging, rootedness and values. The Prime Minister, just quoted in yesterday's newspapers, said that we should not get too carried away in exaggerating both the width of the income divide or its consequences. Certainly, at this point in time, we are very far from being a society that is polarised, with a group of very rich who indulge in ostentatious consumption, against the backdrop of large numbers of desperately poor without even their most basic needs met.

In fact, our short history has been one that has seen large numbers of Singaporeans, the majority, being able to translate their efforts and capabilities into much improved standards of living for themselves. Nor is there any argument with the Government's focus and policies to ensure that we keep abreast of the challenges of globalisation, of its philosophy of leveraging upwards, giving its attention to how to support and facilitate enterprise and talent at the top, so as to generate benefits for the nation at large. Nevertheless, I do believe that we should pause to look at the widening income gap and review if we are indeed doing enough to ensure that we will continue to maintain our social cohesion and build an even stronger national spirit.

In addressing the income divide, there are two main issues that are cause for concern. The two issues are, firstly, ensuring access to education and training that are critical to providing all Singaporeans the opportunity to do better for themselves and, secondly, providing adequate assistance and support to those who are struggling at the bottom of the income ladder. These two issues are of particular relevance to four groups of people: the elderly poor, women, the large group of older and unskilled workers, and the present and future school children from low-income households.

We have an education system that produces sterling examination results and sees our children winning accolades at international mathematics and science competitions. These are our kids at the top. But does our system give enough support to the kids at the bottom, particularly those whose home environment may afford them hardly the bare essentials? That education is the bridge across the income divide is clear and unquestionable. Another quick look at the Census Report shows clearly the difference that just one member of a household having a higher level of educational attainment makes to those households' average income. It is imperative, therefore, that children of the lower income households have not only the opportunity to be in school, but a little extra attention, where necessary, to make up for what support may be lacking in difficult home circumstances, so that they may have a good shot at better opportunities in life in the future.

Similarly, for the large pool of older unskilled workers, retraining and upgrading of their skills are critical and, in this area, the Government has been devoting significant attention and resources. However, response to skills upgrading programmes could be much more satisfactory, and work must continue to be done to see how this can be improved. Apart from those for whom the issue is simply that of poor attitude, what are the obstacles hindering the participation of the others?

For the elderly, we must look at both those who are already currently in their retirement years as well as preparing for the aging of our population of baby boomers. The IMC on the aging population in 1999 devoted one segment of its report to planning for financial security in retirement. For those already 65 years and above, it is too late to be talking about financial planning, and our efforts must be to see how we can help those who need assistance to access it. These are the citizens in our midst who do not know what help is available, do not know how or are too frail or otherwise incapable of accessing available assistance.

The recent information on the almost 200,000 Singaporeans who missed the opportunity of benefiting from the first tranche of CPF top-up is an illustration of this. 23% of them were over 65 years of age, probably without CPF accounts in the first place, unaware of the scheme or the necessity to deposit $100 in the qualifying period, or too poor to spare the amount. Our CPF top-up is the best way to share some of the economic surpluses during good years for the country. Would the working majority begrudge some portion of the goodies being shared with those who have no CPF accounts, particularly if they are the older generation who contributed in the past, or women whose contributions are not in the labour force?

In fact, could we go beyond the current structuring of payouts to further direct the money where it is most needed? For the people in the top 20%, could we implement an opt-in scheme to indicate that they want their $500 top-up, otherwise that money would be re-directed for disbursement to the bottom 20%? The amount could mean very little to one group and be significant to the other, and it would be a good way to demonstrate concern and support across the divide.

The approach of looking at various ways of enhancing Singaporeans' financial planning for their retirement, through their CPF savings, assumes that people have enough savings available to spare in the first place. The Supplementary Retirement Scheme, the details of which were also recently announced, is such an example.

In fact, there is a large group of Singaporeans, the 47% of women who are not in the labour force, ie, the homemakers, and who therefore have no CPF accounts, who will presumably have to rely entirely on their children to provide for them, since they are most likely to survive their spouses. These women work; only their work is unpaid labour, done at home. Would our economy be able to hum and grow as it has, if there was not all that work being done every day in homes all through the island to keep our workers fed and rested, and our children cared for? These women will also grow old and add to the households with retirees without income that form the bottom 10%. We must find a means to register and reward their contribution so that, when they grow old, they do not then find that, after the many years of contribution, they are reduced to feeling that they survive only on the generosity of society.

Finally, there is one other group that has an important part to play in any discussion on the income divide, and this is the group at the top, who are of concern for two reasons. Firstly, they may be moved to give something back to the society that has enabled their development and progress, and contribute their skills and abilities as well as some portion of their material wealth in helping the further advancement of the nation and the welfare of its less well-endowed citizens. And, secondly, that they will remain rooted to Singapore in the face of the many opportunities open to them anywhere else in the world.