ANNUAL BUDGET STATEMENT

Resumption of Debate on Question (3rd May, 2002).

"That Parliament approves the financial policy of the Government for the financial year 1st April, 2002 to 31st March, 2003." - [Minister for Finance].

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Speaker, Sir, I am most obliged and honoured to be given this opportunity to start this Budget Debate with you in the Chair for the first time as Speaker, and with the Deputy Prime Minister, Mr Lee Hsien Loong in his maiden Budget Speech as the Finance Minister.

Sir, after the announcement of the Budget, our GPC for Finance, Trade and Industry, held a meeting with 20 newly-appointed members of the GPC Resource Panel. The Resource Panel Members comprise professionals, top executives and entrepreneurs who come from varied industry background, such as banks, insurance companies, manufacturing companies, hotels, retail and others. For the record, on behalf of the GPC, I wish to express our sincere thanks to them for their valuable comments and contributions. My GPC members and I shall be bringing up meaningful points raised by the Resource Panel members during this Budget Debate and at the debates in the Committee of Supply.

Global changes to the tax system

Overall I would like to describe this year's Budget as a watershed, not so much because of the above factors that both you, Mr Speaker, Sir, and DPM Lee, are in your new appointments, but because of the profound long-term impact this Budget will have on the Singapore economy. It is a forward-looking and progressive Budget in the sense that the announced policies are meant to prepare Singapore for the challenges of the future.

Sir, the proposed tax and GST changes are bold and will have deep structural impact. For this Budget, the corporate tax and personal income tax rates will be reduced to 22%, with the GST increased by 2% to 5%. The basic objectives of these fundamental changes are to make Singapore more competitive and better able to attract foreign investments, attract foreign talent, and hold on to the well-qualified and wealthy residents and Singaporeans to remain here, arising from the lower tax incidence for them.

However, I cannot help but feel that if merely changing the tax structure will attract foreign investments, retain talent and solve all our problems, then the solution seems all too easy. As DPM Lee has said, the Budget is not a magical wand. Merely by one wave of the wand, everything will be solved magically. I think that is too simplistic.

Budget is part of an unfinished jigsaw puzzle

Mr Speaker, Sir, I feel that this year's Budget policies and changes announced by DPM is but part of an unfinished jigsaw puzzle. Annually, the Budget serves as the blueprint of the Government for not only the year's financial and fiscal policy, but a policy narration of the medium and long term economic plans of the Government.

For this Budget, a major piece of the puzzle is in place, which is with regard to tax policy. However, certain major Government policies are not fully described in the Budget. The overall economic plan normally includes other key elements. They should encompass the following:

1. Major industrial policies, such as promotion of local industries, technopreneurship, innovation, target industrial sectors for promotion such as biotech, IT, education services and tourism;

2. Manpower planning and labour policies, which impinge on CPF rates, retirement age, foreign labour, foreign talent and training; and

3. Trade and international competition, such as economic relations with our neighbouring countries, and threat and opportunity of China and India.

The main reason for this sense of incompleteness of the Budget is primarily because the Government has launched two initiatives where the final reports are not out yet. One is the Economic Review Committee (ERC) chaired by DPM Lee himself and the other is the Remaking of Singapore called the ROS. These two major long-term review studies have various sub-committees looking into several areas. As DPM Lee has said, these groups will review all matters, including sacred cows and leave no stone unturned.

Because of these two committees, the people are adopting a bit of a wait and see attitude. I believe that once these reviews are completed, the entire jigsaw puzzle will be complete and the total picture will emerge. DPM Lee could perhaps enlighten this House on the progress of these committees, and when do we expect to see the whole picture. What are the final grand plans? What directions are we taking? Where are the threats and opportunities? Where are the further pains to be borne by the people? Will there be final light at the end of the tunnel?

Specific comments on the Budget announcement

While we wait for the big picture to emerge, Mr Speaker, Sir, allow me to make some specific remarks on the Budget.

Financial Year 2001 and Financial Year 2002 Budgets

I am very pleased to note that for the FY 2001 Budget, the Government has achieved a surplus of S$3.84 billion versus an original estimate of S$6.22 billion. Although lower than expected, we are pleased that a surplus is nevertheless achieved, in spite of the year 2001 being a very bad recession year. This enabled the Government to introduce the new Economic Restructuring Shares (ERS). We are very thankful and appreciative of the very generous gesture of the Government to introduce this ERS soon after giving out the New Singapore Shares (NSS) last year.

Similarly for FY 2002, the Government is projecting a small surplus of S$0.89 billion. Again, we are very thankful that due to prudent and careful financial management, the Government operating budget for FY 2002 remains in surplus and not a deficit.

Impact of tax changes

The general concern of the people is that the tax and GST changes are shifting the tax burden from the rich individuals and successful companies to the lower and middle income people. About 70% of the people, essentially those from the lower and middle income bracket, do not pay income tax, so they will not enjoy the income tax reduction but at the same time will pay more on consumption tax. Fundamentally the tax changes are regressive.

I am very pleased to note that the Government has introduced offset measures to lighten the higher GST load on the low income group. But the definition of this group is derived from the use of 1-5 room HDB flats as the base criterion. However, two groups of Singaporeans will have to bear the brunt of the GST increase without much relief from the offset package.

One group is the lower to middle income employees and executives who do not live in HDB 1-5 room flats. They enjoy very little of the income tax reduction, but at the same time have to pay more GST. Another group is the pensioners, especially a certain pocket of retired junior and mid-level former civil servants, who live in old condominiums, old private apartments and small terrace units. They also do not enjoy the personal tax cut. However, they will pay fully on the higher GST rates without enjoying any of the offset package being offered since they do not live in HDB flats. Therefore, inherently there is a flaw in this method of offering offset reliefs via HDB flat dwellers as the definition. On the other hand, these groups of Singaporeans are too proud to seek redress through the relief scheme administered by the constituency's Citizens' Consultative Committee.

I would like to suggest that the Government comb through its pensioners' list and offer on an automatic basis, those lower income pensioners who do not live in HDB flats, a package similar to those given to the HDB dwellers. This would be a very nice gesture on the part of the Government if done. It will demonstrate the Government's appreciation of this bunch of old civil servants who have laboured hard to help Singapore in the progress we have made today.

Group offsetting of corporate tax

I am very pleased that the Government has finally agreed to this long-standing call by MPs, including myself, to allow group offset of corporate tax. The first step agreed upon is to allow subsidiaries of 75% owned Singapore companies for corporate tax group offset. I have some suggestions. One is to include all Singapore companies above 51% because 51% is the standard definition of a subsidiary to enjoy group tax offset; and the second is to consider extending group offset to foreign subsidiaries of Singapore-based companies. Sir, I shall elaborate on these suggestions during the debate in the Committee of Supply under the Ministry of Finance.

One tier tax system on dividends

Under the proposed one-tier system, there is no allowance of a tax credit to the individual, who will then be taxed at full rate for the dividends earned on shares they own. This one tier tax system is unfair to lower income earners and also to pensioners who depend on their share dividends as part of their income. These groups of people pay no tax or much lower than the full rate of income tax. Again, I intend to elaborate on this detail on my proposal during the COS stage.

Educating the public on the purpose and impact of GST

Since the GST is a hot topic, I thought it is imperative of the Government to continue to educate the public about the concept of GST.

For a start, the Government has to continuously explain to the people via public education programmes on why lower direct tax can help to attract foreign investors, and in the process create jobs. Many people are enquiring: Will the shift of direct corporate tax burden from lower direct tax to higher GST truly bring in new investments and therefore bring in employment? What if we cannot achieve these desired results? Will there then be deeper direct corporate tax cuts and personal income tax cuts leading to the need to increase on GST? I believe it is useful for this matter to be fully explained to the people.

GST as a tax-on-tax

Another common misunderstanding of the GST is that the 5% rate is a tax-on-tax. The confusion is that some people think that the GST is computed at the full 5% at each stage of a transaction. So for a product that requires a few transactions before reaching the final consumer, the total GST charged could end up being 15% to 20% because of the tax-on-tax effect. Of course, this is the wrong perception because GST is computed on a value-added basis. However the public is not clear. To make matters worse, I understand that certain opposition MPs are propagating this misunderstanding and instilling unnecessary fear on the people.

Small firms bear the GST

The other common misunderstanding is that the small firms, since they are not GST-registered, therefore cannot claim for GST paid from the Government. For small firms and retailers, they have to absorb the GST which is charged on them by the larger GST-registered suppliers. In turn, they cannot claim from the IRAS. In the process they are disadvantaged. Obviously, this is another false understanding. Sir, I believe there is a need for more public education to clarify the matter on GST.

Combat Profiteering

There may be unscrupulous retailers, shops, hawkers and companies which want to take advantage of the added 2% GST increase to charge unfair higher prices. I am pleased that the Government has formed a Committee to Combat Profiteering under the Minister of State, Mr Chan Soo Sen. To improve the effectiveness of this committee, I wish to urge the mass media to come in to take part and help to publicise those culprits, retailers, shopkeepers, group companies who are proven to be profiteering from this GST increase.

Assistance to local companies

It is said that the tax reduction is to attract foreign MNCs to invest in Singapore. By the same line of justification, it can be construed that the corporate tax cut is therefore beneficial primarily to MNCs, and not to local companies, especially for the SMEs. The reason is that SMEs generally pay low or no corporate tax as they do not make substantial profits. Hence, the corporate tax cut does not benefit them.

On the other hand, SMEs continue to face pressure on the high cost of doing business in Singapore. Unfortunately, this year's Budget did not address in much detail on how SMEs can be helped to lower business costs. In previous years, the Government has helped the SMEs by lowering property tax rate, lower rental charges by HDB and JTC and other such measures. This year, there is scarce mention of how the Government intends to promote local companies and how to help them to combat rising business costs. A good example is the recent increase in petrol prices.

There is a call on the Government to address these issues, perhaps under the Economic Review Committee. There is also a call on the Government to continue to extend the previous rebates and rental reductions, such as property tax rebates and other fee reductions for local companies. The reason is that many of them are still facing severe business downturn, with no signs of recovery yet in sight for them.

We need to lift the doom and gloom mood

Finally, Mr Speaker, Sir, I wish to report that there is a prevailing mood of gloom and doom amongst some people, especially amongst the older segment of the working population. Maybe I could cite this example to illustrate my point. Recently, I was informed by a colleague of mine who said that he was very struck by the very low spirits of his elder brother and his group of friends. In the past, he and his friends were a cheerful and spirited lot. They are in their late 40s and early 50s. They have enjoyed the heydays of Singapore's boom in the 80s and 90s. They bought houses and cars, went on family holidays overseas, and generally had a good run. But in recent years, since the Asian financial crisis in 1997, and the recession last year, many saw their fortunes turned for the worse. They saw their friends losing their jobs and encountering great difficulties to be re-employed. Prospective employers thought they were too old and outdated to employ them. Those with jobs clung on precariously, toiling long hours just to keep their jobs. Those in business saw business failures, or severe cutback in their business volume. Many are just hanging on.

In the last two years, we saw the September 11 incident, read about the terrorist threat in Singapore and around the world; watched with concern the political and religious turmoils yet to be fully unfolded in Indonesia; the escalation of the quarrel between Singapore and Malaysia; repeatedly told of the great threat of China but not yet told of how Singaporeans should work together to deal with this threat and turn it into an opportunity. They were worried about the rising costs, such as how the increase in GST could add to their household costs. The talk about CPF cuts has raised some concern. People are worried about how the CPF cuts will affect their ability to service their housing mortgages. Just today, there is a report in the front page of Business Times that states that "Defaults on HDB mortgage loans on the rise". There were 19,400 households in arrears as at end March this year against 14,400 a year ago.

Sir, on the bright side, there are reports of signs of economic recovery in Singapore. The Government has upped the forecast of the GDP growth rate. In the US, which is our largest trading and export partner, the Federal Reserve Board Chairman, Mr Alan Greenspan, has said that signs of recovery are evident.

In typical "Greenspan" speak, he recently said on 17th April 2002 at a Joint Economic Committee hearing that "the foundation for economic expansion has been laid." I think we have to figure out ourselves what he meant by that. But there are also other economists and politicians who have said that it is still too early to tell. Such conflicting reports add to the confusion and uncertainty. We are living in a fast changing world with shifting sands, hazy future and few guide posts to help us find our way.

As I said earlier in my speech, Mr Speaker, Sir, I cannot help but feel that the Budget is only revealing a part of the big picture on how the Government intends to take Singapore into the future. I would urge the leaders to conclude the reviews of the ERC and the Remaking of Singapore expeditiously.

Do not try to fly too many trial balloons. Do not pick every stone to turn it up, and then merely put it back down again. Do not mindlessly slaughter all our sacred cows, many have served us well.

Mr Speaker, Sir, in times of uncertainty, the people want strong and able leadership. The Government has in the past proven itself to be capable of tackling crises. Work out the short, medium and long term plans quickly, explain them to the people and then just get on with it. We believe that if we work side by side together, Singapore could once again pull through this crisis. All we need is the Government to point the way.

Mr Inderjit Singh (Ang Mo Kio): Sir, today I would like to address a number of issues which are related to the state of the economy and will basically set the stage for a number of recommendations which I hope to make during the next two weeks of the Committee of Supply discussions.

Let me start by saying what I have said many times too that Singapore's economic development model has done very well in the first 30 years of development. Our model of bringing in foreign direct investments, multinational companies and even of developing Government-linked companies was necessary to bring Singapore to where it is today and it is a model that many countries try to emulate. In developing strategies in the past, we did however develop some structural problems which I would like to address today before I talk about the Budget proper.

Sir, the fundamental problem of how our economy is structured can be traced to the role of Government in influencing the economy. We are seeing our worst recession in our history since independence, and in my opinion, the approach we took in developing our economy got outdated as the new economy arrived. Specifically, I would like to highlight a few areas where the Government had played a role in causing some of the problems, because of its dominant presence.

First, the asset enhancement policy. The asset enhancement policy has been a key policy since the 1990s and the key goal was to create wealth for all Singaporeans through owning properties that will increase in value over time. Little did we realise that this wealth was mostly going to be unrealised or perhaps paper wealth. Through a number of Government initiatives and policies, we drove property prices to untenable levels, much like how the Japanese asset bubble grew in the 1980s. As has been told by history many times before, the bubbles are never long-lasting. The Government's attempt to implement the asset enhancement policy basically backfired, resulting in a vicious cycle of artificial high costs of properties, high wages and the high cost of doing business in Singapore. The three policy levers which the Government used that have created this vicious circle are: firstly, the use of CPF investments in properties, resulting in Singaporeans over-investing in assets, especially in properties; secondly, the land sales policy and the approach of reserve pricing which artificially propped up the price of land, whether for private, commercial or industrial land; and thirdly, the prices of new HDB flats which increased at unbelievable rates throughout the 1990s.

All the above levers were completely in the hands and control of the Government. Why do I say that this is the cause of our economic problems and hence our employment problems? The answer lies in the vicious cycle that I mentioned earlier. The high cost of owning properties drove the need for higher wages which added to business costs. Similarly, as commercial and industrial land and property prices went up, this eroded the margins for businesses. This therefore accelerated the changes in the type of industries which could operate in Singapore and also led to many companies having to exit from Singapore, many prematurely because of the high rate of increase of cost.

The second issue which is structural in nature is one of Government-linked companies and is another significant factor and the creation of these companies, which are called State Owned Enterprises in many countries, is another deliberate Government policy. Being impatient about the development of certain industries, the Government felt that they needed to step in and create companies, using the reason of market failure. On the other hand, the Government, through its protective policies, created monopolies which lasted for too long.

What are the issues that GLCs have created? I will briefly mention some of them as they have been widely debated. The three main issues are:

(1) the stifling of entrepreneurship by using their resources in the GLCs, especially easy access to funds, to do the same of what can be done by smaller players, that is, before they are publicly listed;

(2) the crowding out of local companies, sometimes through unfair practices; and

(3) dominating and predatory practices which result in foreign companies being compelled to work with the GLCs instead of local companies.

The third structural issue is one of the Government influencing the outcome of the economy. The Government created many economic agencies which have tremendous influence on the outcome of our economy. If you talk to any private sector company, whether big or small, they will most likely agree that these agencies have had an impact on what they do and how they do their business. The Government has been dominant in the following three areas:

(1) picking industries;

(2) picking winners in each industry; and

(3) deciding on how funding and incentives should be

channelled. All these influences are outcomes of our industries here.

When we have regulators also playing the role of industry developers, we run into problems. Today, you will see many private sector companies here which feel that they have to get the endorsement and the support of our economic agencies in order to get moving in their businesses.

While we still have the opportunities to be competitive in certain types of industries if we focus on enhancing capabilities and productivity, and through the use of technologies, when Government agencies start picking industries, they will never be able to do a good job simply because they do not have a feel of business nor the experience of business acumen to understand what determines the success of a particular industry. For this reason, we have not been able to successfully create global champions like Starbucks and McDonalds. These industries would never have been on the radar screen of our economic agencies. Instead of planning the industries to the details and instead of driving industry development to the details, the Government should focus on the broad strategies and be involved in only creating and facilitating the business environment.

Why are there no new world-class companies from Singapore? I still remember the Government's bold plan of identifying 500 world-class companies in a certain number of years. We have missed the target by miles and if you ask me, I would have guessed that we would have missed simply because the Government was not capable of picking industry winners. The various Government agencies have relied on old and irrelevant measures in picking the potential winners to groom. Schemes like the Promising Local Enterprise (PLE) which have been in place for so many years have had no success in finding real global winners except for a handful of companies which were excellent in their own sense. The yardsticks measuring promising companies have to be completely different from what we are used to.

The third structural issue is basically rules and regulations designed for multinational companies and GLCs and not for SMEs. One of the clear issues we have today, which is a cause for concern, is a structural problem and that is the lack of local private enterprises and local entrepreneurs who are able to develop world-class capabilities. How did this come about? We started rightfully with the industrial economy driven by multinationals and then one dominated by Government-linked companies. Our administrators basically focused on a regulatory system which was conducive for both types of companies to operate in Singapore and they were big. There was nothing wrong with this in the beginning, but we never got out of this mode, despite the many signals that we got many years ago when we started seeing sleeping giants like India and China opening up. What we should have done was to start shooting the laws to accommodate and encourage and grow local enterprises, particularly SMEs. We should have learnt from countries like USA where legislation has been put in place for many years with SMEs at the core. The focus for legislators and government administrators in the USA has been to create local private enterprises many years ago. It will logically follow then that if rules and regulations work for SMEs, there should be no problems for the same rules to work for larger companies. The likes of competition laws, Government procurement procedures, financing schemes and many others are examples of legislation with SMEs in mind. Time is of essence for us in Singapore. We must make the necessary changes to our rules to facilitate the development of our private enterprises.

Sir, there were very high expectations for this year's Budget because it was supposed to be a Budget for a new and different world. I personally feel that there were no real new initiatives to tackle the issues of the new world, except for the tax changes. I was hoping that this could have been called a bold new Budget, with creative initiatives, but frankly I feel that there has been nothing significant this year. To be fair, I believe that the Government is still waiting for the recommendations of the Economic Review Committee to be finalised before making the bold changes which Singapore badly needs. I hope that after the recommendations are ready, the Minister will not wait for next year's Budget to make more changes. I feel that there is a real need for us to implement measures quickly, particularly in the area of the cost of doing business in Singapore and by waiting too long, it may result in the premature collapse of many companies and the premature departure of many multi-nationals. I would like to touch on a few areas which I feel should have been addressed, but have not been done so in the Budget and, I hope, in anticipation of the ERC recommendations, these issues will be considered seriously soon.

Sir, first of all, the tax system. While I am in complete agreement to go towards a consumption based tax system, I believe that we have been too quick to increase the GST from 3% to 5%. By all means, this should be the long-term target, but by doing it so early, we once again put tremendous cost pressures on our companies even before they could recover from the worst recession our nation has seen. The real short-term improvement that the Government is suggesting is a mere 0.5% reduction in taxes since, in the preceding years, we were already enjoying tax rebates, bringing the effective tax rate down to 221 / 2%. So, by going down to 22% with a consequential increase of 2% in GST, this is a significant increase in cash out-flow for many companies. The feedback that I have got from a number of people is that while a 20% maximum income tax level is good, we have not been radical enough. We are still worse off than Hong Kong, and if we include the many other taxes that Singaporeans and Singapore-based companies are paying, then we are still not very competitive. While we may look better than many countries like the USA and Germany, as the Minister has mentioned, we must compare this against the percentage reduction these countries have made as compared to the reductions we have made. The facts are as follows:

In the USA, as the Minister has mentioned, the effective tax rate, after many provisions, is actually 11%. In Germany, the new tax rate is 25% compared to the previous 40%. This is a reduction of 37 1/2% for the 15%-point drop. Whereas in Singapore, we plan to reduce from 25% to 20%, and this is only a 20% reduction. In Ireland, the tax rate is at 12 1/2%.

The countries that I have mentioned are the ones that we should compare against, as we are trying to do the same things as all of them. It is obvious that compared to where they have gone, our changes are not radical enough.

The second issue with this Budget is that we have not addressed the single most important issue, and this is on the cost of doing business. I mentioned about our vicious cost cycle and the consequent impact on the cost of businesses. This year's Budget clearly did not address this very important issue. On the contrary, we ended up adding to the cost problems with the implementation of the additional 2% GST. We may argue that companies will be able to offset this with lower income taxes. The problem is that this additional 2% adds up to the cost upfront and affects cash flows and puts additional strains on businesses, while the tax is an after-the-fact phenomenon. Many companies in the short term may not even benefit from the lower taxes, because they will not be making money in the first place. I therefore urge the Minister to delay the implementation of the additional 2% GST until the business environment improves. Why the hurry, especially since the Government has the firepower to withstand lower tax collections for a short period?

Unless we find a solution for our structural cost problems, we will have difficulties competing in any type of industries that we choose to compete in, including those in the high value added activities. Everything being equal, we will still lose out because of the cost when it comes to competing with any of the countries, whether it is Taiwan, China, Malaysia, Ireland or many others. So we should not brush aside the cost issues by saying that those industries dependent on cost should be eliminated from Singapore while we bring in new industries. The cost issue will linger on with us forever. It is a structural problem and needs urgent resolution.

What are our cost problems? And everyone knows this. First, the high wages driven by high asset values.

Second, terribly high land cost leading to high rentals, thus eroding margins for businesses.

Third, the regime of hidden taxes which also erode margins. Let us for a moment try to add all the taxes, levies and charges which may seem small on their own in some cases, but all add up significantly. Let me list the ones that I can think of. We have property taxes, petrol taxes, utilities taxes, foreign worker levies, COEs, ERP charges, business licences, Skills Development Fund contribution, and these are all that I could think of when I was writing this speech. I am sure there are many more that I do not have the time to think of. These all add up and do have a high cost impact for businesses.

A couple of years ago, a prominent businessman from the Singapore Chinese Chamber of Commerce and Industry showed me a computation comparing similar businesses in Singapore, Malaysia, Hong Kong and Taiwan, and his analysis showed that because of all these hidden taxes, companies in Singapore are inherently delivering weaker profits and much lower margins compared to Malaysian and Hong Kong companies doing business in the same area.

Fourth, Government charges like aviation and port charges, Government fees, licence fees and the likes are also significant. Adding to the cost problems are also our high telecommunications charges compared to many other countries in the world.

The third issue that was missing in this Budget was help for the small and medium enterprises (SMEs). This is another regular topic for many of us from the private sector. There were high expectations of the Budget from local companies, and they were disappointed that help did not come promptly. Many are struggling and have faced two consecutive recessions and many have yet to come back to profitability. The additional cost burden, especially the increase in GST, could deal a final blow to some of these companies. I mentioned about the need to restructure our economy and to create an environment which nurtures small and medium enterprises. SMEs are not always looking for handouts, as has popularly been talked about. And I also do not support a subsidy mentality, because I believe that it weakens companies and not strengthens them. All SMEs want are avenues which facilitate and not hinder their businesses.

The issue is that our SMEs face obstacles in many areas, including when they deal with Government agencies. Those which are bigger know how to get around the obstacles, but the smaller ones, particularly the start-ups, have tremendous problems. They do not have the resources and time to manoeuvre around the obstacles that they face.

The other important problem they face is the access to funds. Once again, SMEs are not asking for free and easy money. They just need the right channels and institutions where they are able to get the support. For the banks, the effort put in for too many small companies are just not worth their while and they prefer to deal with bigger clients, and a number of bankers have mentioned this very clearly.

The issue for Singapore is also the fact that we are at a very infant stage of our venture capital (VC) market, created by transplanting some big names from around the world into Singapore. The problem with this transplant is that these VCs operate in a very narrow range of investment cycle. With VCs on the one end and debt financing through banks on the other end of the spectrum, we have one big vacuum which should consist of a whole slew of financing instruments consisting of angel investors, early stage VCs, hybrids, derivatives, junk bonds, collateral and IP-based financing, brand name financing and many others. If the Government wants to help out by not getting directly involved in businesses, then it should focus on developing the financial instruments that I have mentioned above. It will go a long way in helping our SMEs. This approach differs from giving handouts and subsidies which we all want to avoid. We will see two possible outcomes if nothing new is done for SMEs. First, they will collapse and, second, they will relocate, and many of them are talking about relocating to the nearest location they can think of and manage, and that is to Malaysia. And I know that many of them are seriously thinking of this right now.

Sir, the final issue about the Budget, and about most of the Budgets that we have had in the past, is that the approach that we have taken to address the cost pressures during the recession has been by temporarily bringing down rentals, charges, levies and taxes through rebates, and we have become a nation of rebates, subsidies and grants. While this is good for the short term, it does nothing for the long term. On the contrary, it sends the wrong signals to investors and companies that costs will go back again to the high levels once there is a sign of improvement in the economy. It may have worked in the past in keeping companies invested in Singapore, but I think, by now, most of them have wised up to the reality that costs will come back and hit them over and over again. So, instead of using rebates to address our cost problems, it is more prudent and more useful to institute real cost reductions, whether in rentals, taxes, levies or charges. It will allow companies to have a long-term view of things and plan to be in Singapore for the longer term.

Sir, I also have an issue with the approach that we have taken each time when we run into an economic crisis. Each time, we have put in place rebates for companies as well as individuals. The signal that this gives to our society is that we are so tightly geared and fundamentally stretched that each time something changes, we have to resort to such measures to create some relief. This indicates that we are living to the brink and have very little room for changes. With such tight margins, life can be very stressful and one can understand why the Government has to come to the rescue with rebates and subsidies. We really need to permanently reset the whole cost structure so that Singaporeans and companies here will have much more margins, and each time they face a crisis, we will then not have to resort to rebates and subsidies. And we should spend the next few years building up the margin for Singaporeans so that their lives do not have to be so stretched and stressful.

Sir, in conclusion, I started by saying that the Budget has not been bold enough, contrary to expectations that something significant should have been done in this year's Budget. We know that we have to wait for the final outcome of the ERC recommendations. I thought I should take the opportunity to give a sense of what I feel are bold measures and of what it should really mean when the Government says that there will be no "sacred cows" and that "no stones will be left unturned." Here is my wish list of radical things which we should do:

First, a 30% reduction in rentals, whether it is JTC or HDB properties, and allowing property prices to decline and to find their right levels, without propping them up artificially. And if need be, the Government should step in to mop up any residual problems, even if it means dipping into the reserves.

Second, bringing the income tax level down to 121/2% that Ireland has.

Third, to spin off most of the GLCs, except for strategic ones like SIA, PSA and perhaps SingTel. And the Government should cut its ownership to less than 30% in each of these GLCs.

Fourth, to help the SMEs with their problems before we could develop a mature financing industry, to create a fourth local bank to service the SMEs.

Fifth, halve the petrol tax, halve the ERP charges, halve the foreign worker levies and halve the property tax.

Sixth, eliminate the need for yearly Government issued licences and depend on income tax and GST to collect all revenues.

Seventh, reduce the size of the Government and the civil service by 30% over a 5-year period.

Sir, these are radical things, just to give you a feel of what people are thinking of. The list can go on, but I thought that I would give a feel of what being bold really means, from the perspective of the private sector.

Finally, I feel that it is too early to rejoice. When the Minister revised the growth forecast from the previous 1-3% to the current 2-4%, I thought he was a little too quick off the mark. Things are still very unclear, including in the USA. There are pockets of recovery, but just a few. Good times will come back, as we know, but let us tread carefully for now and not let our guards down too quickly. By thinking that the economic recovery is going to come very soon, I feel that the Government may get complacent in trying to help address some of the issues that I have just mentioned. Sir, uncertainty still rules the day.

Mr Chiam See Tong: Mr Speaker, Sir, I must commend Mr Inderjit Singh on his very interesting speech. In fact, it was a good lecture, as far as I am concerned. He has touched on cost issues and he has also given his wish list. But I think it is very difficult because whatever spare money in the market, the Government will mop them up. Basically, I think the Government's intention is always to have a very strong surplus.

Sir, I shall touch again on this topic of Government surplus. In the past, in the debates on Budget statements, I have highlighted the obsession of the Government in wanting to budget for a surplus for that year. This year, despite the recent economic recession that Singapore has just gone through, the Government is still bent on budgetting for a surplus, albeit a modest sum at $0.9 billion, compared to other years of $4-5 billion. However, with the 2% increase in GST and revenues from motorcars and other sources, I would not be surprised at all if the Government ends up with a budget surplus close to $3 billion. I have asked many times in this House why is there a need to have such a substantial budget surplus every year. If I am not mistaken, it is reputed that Singapore has about US$140 billion surplus. Why is there a need to accumulate such a mind-boggling sum of money? That colossal amount of money, I believe, is mostly invested abroad. Singapore does not really benefit much from such a large sum of money in terms of improvement for its people. Our quality of life has not improved by our surpluses when compared to those in the developed West. Our indigenous industries have not in any way benefited from our surpluses. Other than Creative Technology, which we have heard so much, we cannot speak much of our home-grown industries. The surpluses are like huge monuments set up to give repute and manifest the power of the PAP Government. The surpluses that are tucked away do not benefit Singaporeans very much in their daily lives.

The surpluses remind me of the pyramids of ancient Egypt. The old Pharaohs exuded power and might in the pyramids they built. At first, the people of Egypt were happy and joyful to labour under the hot sun, to cut stones and drag them to build the pyramids for their kings. In later years, when much of the stone supply in neighbouring quarries were exhausted, the Pharaohs had to source for stones further and further away. By then, the people of Egypt were quite exhausted. They could not see the purpose of building those huge monuments to perpetuate the rule of the Pharaohs. The Pharaohs had to use force to get their people to work hard, to go further and further afield to bring the stones back to construct the pyramids.

I sincerely hope that the huge amounts of surpluses the Government has accumulated are not just for the purpose of perpetuating the PAP rule.

I see that, at the present time, the economic difficulties of our people are not resolved yet. Unemployment stands at about 5%, and the world economy has not really picked up. Times are still tough for Singaporeans. Yet, the Government goes ahead to force the people to pay an additional 2% GST on what they consume. Government coffers shall probably swell by a couple of billion dollars. If this is not pushing our workers to work harder and contribute to the income of the Government, I do not know what is. The workers and the poorer Singaporeans shall probably suffer a double blow. On the one hand, the GST is raised to 5% and, on the other hand, retailers and hawkers shall seize the opportunity of the increase in GST to raise their prices. When GST was introduced in 1994, prices were increased by about 20%. This time round, since the GST is pegged at 5%, the price increases shall most likely be more than 20%. This will cause hardship to households with old people, infants and other dependants.

On the people's part, they must be urged not to give in to hawkers and shopkeepers who practise blatant profiteering. Until now, without the Fair Trading Act or other statutes to control unfair trading, the Government and CASE cannot really do much. I am wondering how the proposed committee to check on prices can be useful when it has no enforcement powers.

HDB flat dwellers are concerned at the impending increase in the monthly parking fees. At the moment, it is pegged at $55 a month for one parking lot. At $55, the HDB is already getting more than the land cost. It is therefore unfair and unnecessary to increase the cost of parking at HDB housing estates. If the monthly parking fees are increased, then it is a case of the Government giving rebates to HDB flat dwellers on the one hand and taking them back with the other.

As regards the increase in GST, I hope the Government shall commit to holding down the GST at 5% and give a promise not to increase it for at least five years beginning from 1st January next year.

The Minister of State, Prime Minister's Office and Ministry of Community Development and Sports (Mr Chan Soo Sen): Mr Speaker, Sir, what we have heard from the Deputy Prime Minister and Minister for Finance, I believe, is a pro-growth, pro-job and, very importantly, a caring Budget. We heard Mr Inderjit Singh wanting to do very radical things. I think some of the proposals may make very good economic sense. But when we consider people's feelings as well as the kind of people who may be most affected by such radical changes, the outcome can be disastrous.

We, in Singapore, are faced with a very big dilemma. We must compete with the potential competitors around the region and win. Because if we do not, we get skinned! And we were told that there were many ways of skinning us. But, on the other hand, if we have a Budget which is perfectly correct economically, but without due care for the people who may be very badly affected, then I think we will face an internal collapse. We lose cohesion; we lose unity. We will be finished with all our bones broken. We either lose all our skin or lose all our bones. Hence, we need a balanced, pro-growth, pro-job and, at the same time, caring Budget. It may not appear radical at first, but with clear direction and consistent implementation, it will all add up over time.

Today we are facing a situation very similar to what we were going through in the late 60s and the early 70s. Just like that time, we have to generate growth, we have to generate jobs, we have to preserve the value of our savings, and we have to ensure that we do not have hyper inflation that eats away confidence and strength. And that explains why we cannot have deficit financing, certainly not on a large scale - cutting 30% here, 40% there. Such sudden and panic action will scare away foreign investors.

I must say that on the unity part, I read the 4th May Lianhe Zaobao and I found something very exceptional. I see Mr Chiam See Tong, in a sense, giving some support to what we are trying to do, saying that whatever that is given out in this Budget as relief is more than enough to balance off the increased tax liability on the people who are poor. He even said that while there can be concern about profiteering, he would be very happy to join the Committee to Combat Profiteering. Well, may I say that I sincerely invite him to join the Committee and work with us.

We are here to achieve unity. We are here to involve everybody to support the new measures and the new Budget, necessary for our economic restructuring. In combating profiteering, we are going to invite the local community to judge whether a certain undue price increase amounts to profiteering. If it is, we will try to talk to the traders for precisely the same reason that Mr Chiam and Mr Inderjit brought up, that the traders were also subjected to price pressures, some of which might be beyond their control. Maybe the sole distributor may have jacked up prices because of certain international pricing policies set elsewhere. What is important for us is to ensure that people feel that we have a Budget that is really fair to everybody. Well, maybe not entirely fair to everybody, as not everybody would agree that the Budget is totally fair to him. But seen as a package, I think we have benefited here and there, and everybody feels that it is something worth supporting.

I would say to Mr Chiam that he might want to let me know later whether he wants to accept this sincere invitation.

I think many hon. Members will be talking about the economic and financial aspects of Budget. I would just want to emphasise on the heartware aspect. We are going to go through a very, very important phase in order to face a changed world. We want to be able to face this changed world as a people, as a people who feel that we have got a stake in this nation. Therefore, we have to ensure that our Budget or our economic policy is well balanced with people understanding it, with people feeling that they play a part in it, and with people supporting it. In the 1970s, we were able to achieve unity of the people and we steered through the then difficult economic situation. Not only did we create an economic miracle, we also built a nation. We are now at the crossroads again. We want to ensure that all of us, cosmopolitans and heartlanders, feel that we are together on this ship, each playing a role in sailing through this difficult stretch of water. If we sail through this difficult stretch of water, then we would emerge with a stronger Singapore to face the 21st century.

Mr Arthur Fong (West Coast): Sir, many people, when asked what they thought about the recent Budget 2002, had described it as a "balanced" Budget. I would like to use the word "surgical" to describe the Budget. Let me explain.

As the Minister for Finance has said, we are in a very different world. As a result of all that has happened around us in the recent year or two, Singapore, like many other countries, faces many challenges that affect the economic and social conditions. The Budget addresses many of these challenges and concerns in a pragmatic approach.

I would like to highlight four areas that I feel the pro-business Budget underscores the surgical aspect that I am referring to.

Firstly, the reduction in corporate taxes. Business performance is key to our nation's survival. I am happy that the corporate tax is being reduced from 24.5% to 22% for the Year of Assessment 2003, and a plan to further reduce it to 20% by financial year 2004. This is good news.

For companies with deferred tax liabilities, a reduction in corporate tax rates will result in an immediate reduction in their deferred tax liabilities. Companies with a big capital expenditure programme on their balance sheets will then have an improved net asset position and tax write-backs. Some of our bigger companies that fall into this category will have a direct benefit as a consequence of the reduction in corporate taxes.

What many may not know is that the cut in the corporate tax by a 2 percentage point also means that the estimated market earnings per share (EPS) of a company may rise by about 2%. A combination of these two factors, ie, improved net asset position and a rise in EPS, makes these companies very attractive to investors. This gives investors a very clear signal that the Government is serious in promoting companies in this position.

Secondly, the business community's and hon. Members' request for group relief for losses has been answered in Budget 2002. It is indeed a welcome news and all too timely. By allowing qualifying companies within a group to transfer their current year's unutilised capital allowances and losses, it helps businesses reduce some risks in doing business. It echoes the Government's call to businesses to be more entrepreneurial and to explore new ventures. By this one stroke, it also reduces the high effective tax rates in their consolidated accounts and cash flow problems due to tax settlements.

Thirdly, on the GST increase. The GST increase will impact some businesses that are not registered for GST who incur the increase of 2% on their purchases from GST registered suppliers, and residential property developers and financial services industry that may not fully recover some input tax. With the specific tax changes for businesses coupled with the corporate tax decrease, it may mitigate some of these effects. For some SMEs, for example, if they have private cars that they use for their marketing force, the charges for the repairs on these cars may not be claimable by the company.

For individuals, the offset package that will accompany the GST increase is not only comprehensive but is flexible. As the Minister has said that, should the need arise, a review to extend the package beyond the five-year time frame is possible, this package will benefit the lower income directly.

The fourth highlight is in the area of transport and logistics. We are faced with extreme competition. The extension of the Approved International Shipping Enterprise Scheme to enhance the attractiveness for international shipping companies is crucial at this time. We need to tackle the possible slide in contribution to our GDP from this area with some urgency.

Sir, if necessary, I hope that the Minister for Finance can support an allocation of a supplementary budget to reinforce our position in the transport and logistics sector, as it is not only the threat of a reduced contribution to GDP from this sector but recent events have shown that a loss to another competitive party has impinged somewhat on our national morale.

Mr Speaker, Sir, yes, I am kiasu. In this matter, we cannot lose. Not yet. Not when our other engines that we are building in R&D, biotech, life sciences, and so on, have not taken off yet.

Mr Chiam See Tong mentioned that the Government's intention is always to have a strong surplus. Without a strong surplus, we would not have been able to dish out the package that we did last year to help our citizens. Kuwait has oil. Brunei has oil. They can extract their oil, send it overseas and invest, and when need to, they could call on those resources. We do not have oil. We do not have water. And I do not think it is possible to squeeze water or oil out of this sand that we are using to reclaim land around us. It is just like what Mr Lim Swee Say mentioned earlier on, this is the character of the PAP Government. Mr Lim mentioned that we have reserves of about 100 times our daily consumption of water in our reservoirs. Money is like water. In that sense, it can never be enough. But we are using it and directing it to help our citizens.

Mr Speaker, Sir, when Mr Mah had one minute left to answer some of the points that Mr Chiam brought up about promises that we have to keep, may I remind him that, ever since the elections, almost every other day, we have been keeping our promises. The ERC has been meeting almost every other day involving citizens and non-citizens to keep our economy and engine going.

Sir, permit me to continue by using some aeronautical parlance. In the early 80s, as a result of our pragmatic approach to economic planning, we enjoyed economic growth, employment was not a problem, foreign investments were pouring in, so the economy accelerated and we went aerobatic. Then in the mid-80s, Singapore faced a difficult period. The economy went acrobatic. During that period, many of our businesses had to take the flips, the twists, the yaws and the pitch as the economy spun. Well, we went from aerobatic to acrobatic, and it certainly was not very aromatic when parts of the economy sputtered and many splattered towards earth.

Mr Speaker, Sir, now, we are in a very different world, where economies are so intertwined that even with the control of the joysticks in our hands, the deliberate actions on those joysticks may not produce an exact response to the input. As our Leader of the House, Mr Wong Kan Seng, put it in his speech on a sitting on 31st August 1985, and I quote him, "economics is not an exact science". In the world of today, the aircraft must be built with a fuselage that can take the spins, the twists, the yaws, the pitch and the forces in the environment through which it has to navigate. The PAP Government had been building this fuselage, inspected it as it went through some stress testing as late as the 1998 Asian financial crisis and as recent as the global economic slowdown that began last year. This Budget will, in my opinion, contribute to strengthening that fuselage.

We need our people and our businesses to understand that we need to adapt to new forces that are already upon us as we go about in our lives today. We have built and strengthened the fuselage, but it is only as good as the crew and passengers to take the physical stresses the fuselage can withstand. In this changed world, our economy, our country, has to be able to navigate the crowded airspace with new engines for this fuselage. We have to jettison the old engines and snap on new ones that will take us through.

This Budget encourages the production and the ultimate promotion of those engines. As I have mentioned earlier, I liken these new engines to the areas of biotechnology, life sciences, the businesses of R&D and intellectual property. The budget also secures the fuel to drive these engines. It provides the technology to operate and, more importantly, the ability to tune these engines while we are in mid-flight.

Sir, this is much like the Formula One car, where the suspension set up can be adjusted from the technical directors' computer via radio signals from the pit lane as the car races around the circuit. They do this to account for the changes in the race conditions brought on by variables, such as fuel load changes as the car gets lighter further along a race and changes in the track temperature as a result of the weather, and we know how controllable the weather is!

Singapore has to adapt as we race along. The changes to the economic, social and security aspects demand that we have to adapt on the fly, except that our race is for survival and to provide a better way of life for the four million of us.

Mr Speaker, Sir, this Budget has been surgical in that it fixes the areas that need to be mended, reinforces areas that need to be stronger, and it reconstructs areas that need to be more flexible. And I hope that during the Committee of Supply, we will be touching more on SMEs and cost of business.

In concert, Sir, this Budget is what I will call an ERS, not the Economic Restructuring Shares, but this Budget is expedient, it resuscitates or revitalises areas that needs it and, if I may borrow the expression, it is "right on the money" in its specificity.

Sir, I support the motion.

Mr Heng Chee How (Jalan Besar): Mr Speaker, Sir, thank you for allowing me to join in this debate.

After the Budget Statement was made on 3rd May, there has been much discussion in society. And as expected, the most discussed areas were the GST increase and its offset package, and the cuts to corporate and personal income tax. Some individuals say that they will not benefit from the tax cuts because they were already not paying any income tax. Some business people lament that the corporate tax cuts will not help them if their business is bad and there is no profit to be taxed, and therefore no tax to be saved.

On the GST increase, we hear fears about it triggering inflation and profiteering, driving up the cost of living. And turning to the offset package, some pointed out that it might not be enough to offset the tax in their case. One person at a dialogue asked, "Even if it is enough to offset for five years, what happens after five years?" And another pointed out that since the offset package cost almost the same as the expected increased GST collection, why not save the effort and do the tax cuts?

Sir, Singaporeans are indeed paying great attention to how these measures are affecting them individually or as businesses. This is understandable and to be expected. It is in fact a good sign that Singaporeans are concerned about the impact of policies and have done the calculations and are voicing their reactions and concerns. The challenge before us now is how, having listened to those reactions, do we connect those views with our process here in this Budget debate, to yield the best outcome for Singapore and Singaporeans?

Sir, although the budget session is an annual exercise, it is by no means a routine or a mere ritual. When we decide on the budget, we do not just vote money for the Government Ministries and Departments to continue operating as they are. When we ask questions on the budget, we do not ask them just to make a display or to give a semblance of scrutiny, or to create work and stress for those who have to answer.

Sir, the budget is the means to carry out the intent of this House. It is the ship that sails us to our desired destination in the future. And if we build a ship that is structurally weak, or that lands us in a different place from that which we want to head, then we will be in trouble.

Speaking of ships, I am reminded of the story of the Titanic - not the love story that came to our cinema screens, but the real disaster that killed more than 1,500 people on the high seas. The Titanic was touted as an "unsinkable ship" in its design. It had 15 airtight buoyancy compartments that were supposed to be impervious to piercing. Furthermore, its designers calculated that even if four of the 15 compartments did puncture, it would still have enough buoyancy to stay afloat. Added to that was sophisticated communications equipment of the time, and additional safety provisions such as some lifeboats. Hence, the maiden trans-Atlantic voyage of the Titanic was supposed to be nothing but pure fun and enjoyment for all those on board. For what could go wrong?

But the Titanic, as we all know, sank after hitting an iceberg. Was it an unfortunate accident that could not have been avoided? Records showed that the ship received at least six warnings of icebergs before the hit. The warnings were not taken seriously. Maybe people were more caught up in the revelry and game of one-upmanship to see who could get better seats at the ship's theatre. Maybe the captain and crew did not act on the signs because they were complacent about what they thought were the "unsinkable" design of their ship, and saw no need to prepare the passengers for what was happening. Maybe they dismissed too readily what seemed to be little pieces of floating ice until the hit revealed the rest of the icy mountain that lurked beneath the surface. Whatever their thoughts were, when the accident happened, there was utter chaos and confusion, as the population on board plunged totally unprepared into the sea.

In the aftermath of the disaster, fingers were pointed in many places and at many faces. Why did the captain and crew not take the ice warning signals seriously? Then there was another ship nearby which could have helped but did not. Why? There were not enough lifeboats relative to the number of passengers. Why? Some men were rushing to get onto the lifeboats, denying places for women and children. Why? Whatever the reasons, one thing is for sure. No answer, however comprehensive and wise, could bring back one lost life. It simply was too late.

Sir, the often-told story of the Titanic is one of tragedy, drama and heroism at the point of disaster. The seldom mentioned story, and that which, to me, is of immeasurably greater value, is the prevention and preparation that could have gone into avoiding the disaster. But alas, prevention and preparation are never as glamorous as high drama, and so are often overlooked.

What has the Titanic story to do with our Budget debate? Everything, in my view.

Sir, when the President addressed this House in March this year, he reminded us that "the world has changed". And it was in the context of that changed setting that he laid out the future direction of the Government.

The Finance Minister in his Budget Statement said, "We are entering a very different world. Conditions are uncertain and volatile, competition is intense, change is faster than ever. Our ability to adapt nimbly and quickly will give us a valuable edge. In our personal lives too, we must expect change and disruption."

Sir, these are the iceberg warnings to us. They define the setting around which this Budget must be built. The central purpose of this Budget is therefore not a mere routine or ritual. It is our opportunity to redesign our ship, Singapore, so that it can sail the stormy seas and bring us to our destination safely. We must be careful not to become Titanic II.

How then should we structure our policies to maximise our hopes? Sir, I would like to suggest three areas for consideration. First, to increase awareness of the fundamentally changed circumstances among the population. For without widespread understanding and acceptance of the new situation, old patterns of behaviour will continue to be entrenched.

Sir, my concern is that despite the many jobs that have been lost, and the many pronouncements of change and need for fundamental adjustments, I think the message is still just scratching the surface of our collective awareness.

If we ask ourselves what proportion of our population have become keenly aware of these wrenching changes that are altering the way work and employment are structured in our economy, what would be our estimate? If we ask of those who are aware, what proportion among them is responding proactively, what would be our estimate? If we do not know the answers to these questions, or if we think the proportions are still low, then we must consider how to redouble our efforts in this area. The Government on its part must consider how best to coordinate the flow of information from the labour market to the student and working populations on a sustained basis. Improved knowledge of supply and demand conditions, and the ways that work is structured are key to helping both students and workers set and adjust to realistic expectations.

To get the message out on a strong, sustained basis cannot just be the work of the Government. It is not only a question of information and resources to mount communication campaigns. It is also about the strength and credibility of networks and how these can be tapped to speed up dissemination, acceptance and response.

This leads me to my second point, which is the need to rally the public, private and people sectors to work more closely together to achieve national progress and development. We must recognize that it is only through such a partnership approach that the different strengths of the three sectors will reinforce each other.

The private sector is the engine of economic growth and wealth creation. It must identify opportunities for investment and break barriers through innovation, resourcefulness and sheer grit to make a success of enterprise. How far have our businesses come to terms with the changed landscape? What are their strategies to overcome the challenges posed by a saw-tooth economic growth path? Do they expect to win by out-competing their rivals to capture market share and revenue growth? Or do they just hope to survive through more cost savings and rebates? And indeed, how are employers fulfilling their role as responsible corporate citizens to help prepare workers for the changed environment?

Sir, in a time when circumstances were much more stable, it may be viable or desirable for the State to decide industrial policy and for businesses to simply toe the line. In the complexity of today's environment, much more visioning, strategizing and path finding must come from the businesses themselves. Enabling businesses to strengthen themselves in these areas is key to our future. For this reason, enterprise development must continue to be given heavy weightage.

The public sector has great clout in Singapore. Through its policies and commitment of resources, it signals to the rest of the society the direction that the country will head. For example, when 45 % of the Government Budget is proposed to be allocated to Social Development, with Education, Health and Community Development and Sports getting substantial increases, it signals the Government's emphasis on human and social capital. Similarly, when the Government says that it "will not stint in its support for workers to upgrade themselves", we know that the employability of workers is topmost on the mind of the Government.

But the role of Government is more than just using its annual Budget allocations to signal its priorities. It also has the critical role of setting up and managing a conducive environment and infrastructure, so that the overall goals of society could be achieved.

Here, I would like to highlight two specific points. If tax revenues and Budget surpluses are most likely going to be reduced and become more volatile, then how should Government agencies plan their services? Clearly, they cannot go on the basis of "straight line projections from the past, or business as usual". On the other hand, it may not be wise for Government services to match the volatility of cycles like the private sector business would try to do. Some services, such as those in social development, may arguably have funding needs that are counter-cyclical. Hence, Ministries and departments, just like businesses and individuals, must examine the implications of the new economic landscape and adjust their work accordingly. Clearly, in such an environment, more must be done to be frugal in expenditure and to maximise savings from improved productivity.

The Government must also continue to invest in long-term infrastructure and capability building to strengthen Singapore's place as an investment location and hub. How are Ministries and statutory agencies being measured for investments and outcomes in these areas? My concern simply is that "what gets measured gets done." In the private sector, unbridled pursuit of shareholder value and return on investment, asset and cost of capital have accentuated the already short-term orientation. Chief Executives may not always be interested in the long-term good of their companies, because they do not expect to be there in the long term to inherit either the rewards or the mess. In an environment of reduced surpluses and more uncertainty over tax revenues, there may, at times, be similar temptation for the public sector to let up on longer-term commitments in favour of projects that yield more immediate returns, or to inadvertently drive up costs of services and assets in order to show a return. So we must ensure that our performance indicators for the public sector continue to let a long term view to be taken.

The people sector is an equal partner in this tripartite relationship. It is not a "remainder sector" that picks up the pieces that neither the public nor the private sector wishes to deal with. By its vision, focus and capabilities, it encourages and amplifies the efforts of Government and enterprise toward social cohesion. Encouraging philanthropy is a good example of an action that links the three parts together for the benefit of the less fortunate in society. Strengthening the relationship between the Government, labour and employers is another example.

The potential of the people sector is immense. In an increasingly uncertain and stress-filled world, many of the services provided by the people sector, such as social work, counselling and mediation will become critical. An ageing population will also create new demands that the people sector will be well placed to meet. These enhanced capabilities and capacities will require additional attention and resource support to develop.

Sir, I move now to my final point, which is to increase the development and support of individual self-help and initiative. This I see as a key success factor in a more turbulent operating environment. Central direction is too slow and inadequate in many instances.

All said and done, the individual is the one who ultimately faces the consequences. As someone once remarked, "The unemployment rate may be 5%, but to any unemployed worker, the unemployment rate is 100%."

Individuals who insist on not responding to the changed reality have made themselves unemployable. But those who understand the situation and want to keep themselves relevant and employable should be helped. Here, I return to my call for the Government to move on supplementing employer-based training with more support for individual-initiated training. Conditions can be set and safeguards made to ensure that training is not frivolous or wasteful. Countries such as Sweden and even England are ahead of us in this. Let us move quickly on this.

Sir, the challenges before us are big and serious. Our only hope lies in strengthening our unity, organisation and capabilities. This Budget is strong on prevention and preparation, to give Singaporeans hope for a better future.

Sir, I support the Budget.

Miss Penny Low (Pasir Ris-Punggol): Mr Speaker, Sir, thank you for allowing me to join in this debate.

Sir, the quintessence of Finance Minister Lee Hsien Loong's Budget Statement is encapsulated in the title for his speech "A Budget For A Different World". Indeed, while the physical landscape of the world remains largely intact, the economic landscape has seen fundamental shifts.

In ancient times, human beings were hunters and gatherers. The economy was totally mobile - existing where the hunters and gatherers existed. The agricultural revolution created predictability in food supply. Homes were built, production and economies were centralised. The industrial revolution again changed the basis of economic production. Division of labour and mass production led to economic specialisation. Where is the hunter and gatherer? Meanwhile, in this whole process, our hunters and gatherers have become merchants and tradespeople - their geographical spread diminished in favour of clustered industries.

Today, however, the IT revolution is again changing the rules of the game. Time and distance do not limit businesses. Even space tourism is now a reality. People are once again extremely mobile, like our `hunter and gatherer' forefathers. The new age hunters and gatherers find their food in a borderless world, armed with advanced information systems and network that can help them find their opportunities and make their kill. The world is their oyster. The rule of the game is the fittest and the fastest survive.

May I take this opportunity to applaud the Finance Minister's courage in keeping in sight the demands of the global arena in the formulation of this year's Budget.

In the face of this breed of new hunters and gatherers, we must ready our people, our economy, to stay relevant to the world. May I offer three areas which the Budget, or the rest of the ERC jigsaw puzzle teams can address:

First, we must attract the new breed of hunters and gatherers to our land. Second, we must cultivate our own, our local hunters and gatherers and, third, we must take care of all who is in our land.

Let me touch on the first point. To attract the new breed of hunters and gatherers to our land, we must realise that when these IT-age hunters and gatherers move, they move with huge resources and global network that we can benefit from. They can enhance our global hub status and bring the latest technology to create jobs, jobs and more jobs for our people.

The Budget has addressed these challenges by firming a fundamental shift in the national tax regime, from narrowly focused direct tax structure to a broad-based indirect tax structure. The controversial GST hike from 3% to 5%, the welcome cuts in corporate tax from 24% to 20% and the reduced personal income tax from 26% to 20% in 3 years are necessary steps to position Singapore as a viable business location for both local and global players. The Not Ordinarily Resident (NOR) taxpayer scheme attracts talents, while the tax incentives for the global fund managers attract capital. With all these, combined with our FTA efforts that fasten our links to the world, Singapore is in a better position to attract talents that will reside here and create new business enterprises.

However, I feel we need to further identify the type of hunters and gatherers we want to attract. The Budget signalled a shift in emphasis to develop high-end manufacturing alongside high value added services, such as finance, logistics, healthcare and education. Given the limited land and high labour cost, we must indeed focus on branding ourselves and develop industries at the top of the economic value chain. While diversification is sound, we must avoid diluting our potentials to become mediocre players. Just as the Singapore brand is synonymous with "quality", we may consider further positioning ourselves to be synonymous with our niche industries. This will position us as the de facto headquarters for our desired hunters. These niche industries should then be developed as our new engines of growth that lead economic activities further down the value chain. For example, when we think of consumer electronics, Japan comes to mind. When we think of IT, Silicon Valley appears. When we think of textile, it is India and when we think of fashion, it is Paris. So my question is: when we think of Singapore, what comes to mind? Perhaps it is SIA or Creative Technology. Whatever the case may be, we need a face and personality to attract these global hunters.

Second, cultivate hunters and gatherers from our land. In times of severe crisis, I believe that chances are the home-grown industries will have a stronger economic and social heartstring to Singapore. Therefore, we must not relent on our efforts to cultivate our own companies, alongside world class MNCs.

To do so, we need to adopt a holistic approach. Very often, it has been said that we are very clinical in our approach and we segmentise things, and when these segments are put together, they do not form anything that is viable in the long-term. Hence, I would call on the Government to consider putting these segments together and examine them closely and adopt a holistic approach. Perhaps, a broad-based "dare to fail" or "never say die" culture should be inculcated all round, rather than in limited pockets of activities.

May I suggest that via the budget allocated to MITA, Ministry of Manpower, Ministry of Education, Ministry of Trade and Industry and Ministry of Community Development and Sports, we invest heavily in our human capital. We can create more community-in-partnership programmes beyond the football fields into the fields of arts and culture, entrepreneurship, sports and adventure. This broad-based approach will help lay the foundation for an entrepreneurial culture and provide the critical mass necessary to encourage any snowball effect desired.

I also applaud the 7.8% increase in MOE's budget and hope that the investment in our children's varied talents will translate into future leaders who are not just academically sound, but also able to think out of the box and move fast in the global hunting arena. For those who have left school, the Finance Minister can consider a higher personal tax relief for education to encourage working adults to upgrade themselves. The current relief level of $2,500 has not kept pace with the cost of education which, for a part-time degree programme can cost between $15,000-$20,000.

While there is no gain without pain, an encouraging breeding ground for our own hunters should have favourable risk-reward ratios. This is especially so in Singapore where many are educated and taught to look at cost-benefit analysis before venturing beyond their comfort zones. Currently, the risks associated with entrepreneurship is perceived to be at a premium vis-a-vis a return on investment. For example, a young entrepreneur who requires a small basic office with two clerical staff would probably need a start-up capital of about $75,000 to last a year, ie, not counting his own salary or living needs. For the many self-employed road warriors in sales-related work, a shift in car cost from ownership to usage has also become an additional cost that eats into their return on investment.

This cost of doing business, this risk-return relationship, must be addressed, not just for the new start-ups, but also for the existing SMEs. In fact, for the new start-ups, due to the limited finance schemes available, young start-ups often have to beg and borrow from the 3Fs - father, friends and some say in jest, the `fools'. Each of them then becomes a minor shareholder who may decide to get interested and exercise their rights when the business grows, thereby distracting the entrepreneurs from the main thrusts of his business. When the business fails, the entrepreneur is greatly discouraged and he becomes the laughing stock of the community that he lives in and borrowed from.

This is made worse with the local bank mergers. Even banking and finance costs have increased for the new and smaller enterprises, as banks prefer to deal with the 'bigger fish'.

All these, to sum up, are entry barriers. Perhaps, the Finance Minister can look into the above areas of concern and consider measures to create a conducive breeding ground for local hunters.

On the point of SMEs, many SMEs that I spoke with were unexcited about the Budget. Some lamented about the high cost of doing business in Singapore and some were worried about the hollowing out of some industries to countries with lower cost. Many are unhappy about the crowding-out effect of GLCs. All these were not directly addressed in this Budget. May I suggest that resources be allocated to build a database of business opportunities, procedures and network programmes, so that there is more transparency and accessibility to information? Perhaps GLCs and successful enterprises may also act as mentors for the new or smaller kids on the block.

Whilst the Budget made provisions for start-up stock options, specific incentives for SMEs would make our economic stimulation initiatives even more powerful. In particular, easier access to capital for SMEs and other entrepreneurial financing instruments could be developed. Perhaps, the Government could consider setting up SME banks that operate on slightly different objectives from that of the three big banks, with the focus on helping and investing in SMEs.

In both the inward and outward economic expansion strategies of Singapore, the EDB has been instrumental, over the years, in bringing the top names to Singapore. The newly-formed International Enterprise Singapore (IES) will need to expand their every effort to globalise our enterprises. To this end, we need to unlock the potentials of SMEs and grow them into corporate giants of tomorrow. We should identify as many SMEs as are deserving, so as to form a critical mass with real impact. Thus, the Budget should increase the resources for these Boards in lean times, rather than cut them. A penny saved on this may cost us many dollars in lost business.

Third, take care of all in our land. If the Pareto's principle of 80/20 is true, then whilst the Budget addresses the needs of the top 20%, which are our desired hunters and gatherers, who may create jobs and wealth for the nation at large; the Budget must make provision for the less well-endowed and the less able.

To this end, Budget 2002 has sagaciously granted double tax deductions to charitable and welfare organisations with IPC status. This means that for every one dollar given, the Government contributes 44 cents. In addition, donations from estates, are now exempt from estate duty. This is certainly a step in the right direction.

The higher personal income tax relief for NSmen, their wives and parents, new tax reliefs for families with handicapped parents and continued child-bearing rebates for divorcees, are also much welcomed measures. All these demonstrate the budget planner's determination in promoting a cohesive society based on the virtue of care and share.

However, perhaps more funds can be allocated to help the lower-income and senior citizens who have toiled to bring us the fruits of their labour. Many of them are the founding fathers of Singapore, and many of them have low education and little funds to live on. Even with retraining, many would not be able to keep up with the pace of change and the rising cost of living. Hence, I hope that the heartening increase in the social development budget to 44.5% would translate into greater benefits for the less-able and senior citizens, to help them take care of their basic needs like food, medical, transport, among other needs. Most of all, it must help them to integrate into the mainstream. To this end, perhaps I could suggest that the GROs be given more operating grants so that volunteers can focus on serving and integrating residents and the community, rather than limiting their ideas and imaginations to the funds they can raise.

RC centres, for example, given the necessary manpower, can be opened every night and utilised as residents' kampong corners. These centres can certainly act as social glue stations for all, regardless of race, language or religion. In the face of rising ethnic and religious intolerance, as witnessed in the Middle East and, more recently, the rise of Mr Jean-Marie Le Pen in France and the shooting of Mr Pim Fortuyn in Holland, I urge the Government to reconsider its funding operatives for GROs.

In conclusion, after the two economic crises in 1998 and 2001, the GST hike and the sweeteners, what remains unchanged is an economy that needs to constantly redefine itself, in order to stay relevant to the world. This is the only way to ensure that its people can continue to enjoy growth and the comforts of secure jobs. Commensurate with this, Singaporeans must be willing to take on the challenges and accept rapid changes in their working lives. This means not just a political will but a collective will of the 3Ps, as Mr Heng Chee How has mentioned - the people, the private and the public sectors. The Government's role will then be to persuade and enable the people, enhance and empower the private sector, and style itself as a shrewd steward of Singapore's economic growth in the global arena.

On this note, Sir, I support the motion.

Mr Speaker: Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 3.30 pm.

Sitting accordingly suspended at 3.10 pm until 3.30 pm. Sitting resumed at 3.30 pm