ANNUAL BUDGET STATEMENT

Debate resumed.

Mr Steve Chia Kiah Hong: Thank you, Mr Speaker, Sir, for allowing me to join in this debate. I would like to take this opportunity to congratulate the Deputy Prime Minister and Finance Minister for his maiden Budget Statement. There are several proposals that I support. However, there are also some concerns that I would like to take this opportunity to raise.

First, like several other MPs yesterday, I want to talk about the impact of the GST on the poor and the ageing Singaporean workers. Second, I disagree with cuts in the top marginal personal income tax as a means for promoting business. Third, the corporate tax cut is not bold enough to increase Singapore's competitiveness. Fourth, as Singapore moves towards greater indirect taxation, the anticipated impact of future GST increases should warrant exemption of essential goods and services from this tax. Last but not least, I support Prof. Chin's call on the Government to use the funds collected from the additional COEs to help HDB cover its car park building cost.

As I study the impact in detail, I become more and more convinced that these Budget changes and the recommendations of the ERC are from the rich, by the rich and for the rich - to make the rich even richer. The income gap between the talented and the workers is going to widen drastically. More has to be done to help the poor, the unskilled and the untalented to cope with this rising wealth gap. Otherwise, in our effort to rebuild our economy, the social cohesion and fabric of our society will risk being threatened and crumble in the long run, leading to detrimental results.

It is quite certain that after the five years of offset measures, the lower income and the ageing workers will become poorer, especially for the ageing workers who had been paying taxes in their younger days. Over the last 30 years of nation building, they had contributed in their own ways to help build Singapore into this developed society. They, the older workers, are retiring soon, or some of them have already retired. But they are going to continue to face paying GST right up to their deathbeds and even into their coffins.

This is not right. The Government should look into how it can waive the GST completely for the retirees and senior citizens. They have done their share of duty to serve the country. We should recognise their contribution and exempt them from this tax burden in their twilight years. The Government may have recognised this problem and adjusted the pension allowance for retired civil servants. But how about many other retirees and blue collar workers from the private sector? I believe the Government can do a lot more for this generation of nation building senior citizens not from the civil service too.

Next, coming to cuts in top-end personal income tax to 20%, I do not think that this is a useful move. The Minister had argued for a significant reduction as a means to attract international talents to work in Singapore and help create more jobs. Is that equation really that simple? I do not think so. I believe that talented high-income earners will not just flock to Singapore because of the lower individual tax rate. In any way, 20% is not attractive enough compared to other countries like Hong Kong. They will consider the total package. Factors like pay compensations, a more conducive living environment, cultural adaptations and other examples of cost of living, like car ownerships, will play a bigger consideration than simple tax cuts. If they have to spend more of what they earn by paying more indirect taxes, like higher liquor charges and car costs, then they will not be interested to come to Singapore in the first place. These talents are not stupid. It does not make sense for them to save on direct personal income taxes but pay a bomb to own a branded car or a pigeon hole in the sky.

Taxes are taxes, direct or indirect, it is cash outflow from the individual to the Government - be it income tax, GST, ERP, COEs or fees, it still adds to the Government's coffers. Therefore, we need more than personal income tax cuts to encourage talents here to help spur our economic activity and entrepreneurship. If the Government is genuine in wanting to encourage entrepreneurship through tax reductions, then it should consider waiving the tax liability of start-up business persons in the initial few years until their business is more stable and profitable. A larger "entrepreneurship income tax relief" can be introduced to help start-up smaller businessmen. It will definitely be more helpful than the top-end cut of 6% for already successful high income earners. Any tax waivers or rebates given to a new start-up business person will definitely help to plough back to help their business grow more and survive.

How many entrepreneurs just starting out can make disposable income of more than $320,000 a year to qualify for the 6% cut in personal income tax? Not many! I personally do not know of any. Maybe the Government can give us some examples of which entrepreneur has achieved this. This will help more Singaporeans to emulate their success. Incidentally, not all high income earners are entrepreneurs. Many in Singapore happen to be working in the Government service. It is clear that they will be one of the greatest beneficiaries of this tax cut. They earn very high income with zero risk of business failure attached.

But for the private sector, I wholly support the cut in the corporate income tax. However, I feel that this ERC proposal is not bold enough. If countries like Germany, as cited, can reduce its corporate income tax from 40% to 25% in one year, we can do better than the miserable 4.5% cut over two years. We can be a lot bolder in cutting corporate income tax to keep us ahead of the competition. When a company has more retained profits, it will be bolder in employing more people, thus helping to create more jobs and helping the economy. If foreign companies intend to take advantage of this lower tax benefit and relocate to Singapore, their employees will have no choice but to move here too or they will face retrenchment back home in their country. There is no need for us to cut the top marginal personal income tax rate just to attract these companies to come over here.

The Government should save on cutting top marginal personal income tax for the rich. By doing so, the Government will save $620 million every year. This saving can be used to offset a bigger and bolder cut in the corporate tax rate than the 2.5% recommended.

Mr Speaker, Sir, I will now move on to talk about GST. Many speakers here have talked about the effects of the increase in the GST rate and have asked to delay its implementation. There is also a suggestion that certain items be exempted from GST. The Government has said no. Like many Singaporeans, I do not understand why the Government is so unwilling to exempt essential staples from GST. If the Minister finds it so difficult to decide what items to exempt from GST, be it sushi, fish or rice, then may I suggest that the Ministry of Finance send an investigative delegation to other developed countries with GST exemptions on these essential goods and services and study how these countries do it.

If these countries and some states like California in the USA can have a system where certain essential goods like rice, oil, sugar, salt, meat, vegetables, fish, etc, or services can be exempted from GST, I do not see what is so difficult about implementing it in Singapore. Where there is a will, there is sure to be a way, unless it is the Government's intention to raise as much revenue as possible from GST. If so, I have nothing to say. If not, I will give one very good reason why these essential goods and services should be exempted from GST.

Currently, the GST rate stands at 3%. Come January, it will be increased to 5%. Five years later, maybe after the next general election, it may again be raised, perhaps to 7%, 9% or even 12%. I do not know how much higher it can go, but I am very certain that every percentage increase is going to affect everyone, but more so for the lower income, the poor, the unemployed and the retired.

When GST is all-encompassing and raised even higher, it is going to make living in Singapore more miserable and create greater social inequality, resulting in resentment to Government institutions. Citizens need to eat and drink to live and survive. It will become unbearable for less well-off citizens just continuing to eke out an existence here. Their lives will become more miserable as they have less purchasing power.

Looking at the trend, I am quite certain that there are going to be more cuts in the personal income and corporate tax rates in the future. To make up for this revenue loss, it is certain that the Government is going to raise GST even higher.

So before this GST is increased to 5%, 7%, 9% or even higher in future, I hope the Government can plan ahead and institute a system to exempt certain essential staple items from GST. Do not wait until there is great social discontent to do it.

Once such a system is institutionalised, any future increase in GST to a very high level will not cause severe hardship and political ramifications. Those who find that the tax on sushi is too high can still opt to buy plain rice and fish, with the option of not going hungry just to save on GST. The freedom of choice is there and this is very important.

Mr Speaker, Sir, as we progress into this developed world, let us work together towards a kinder and more caring society. Let us not subject our lower and middle income citizens and our aging community to more stress, hardships and taxes.

At my Party constituency walkabout in Jurong West two Sundays ago, I spoke to a senior citizen who said to me, "Given a choice, I would rather return all the ERS shares and rebates to the Government if I have the option to be exempted from GST. These rebates and grants are short-term measures to ease our pain, but GST is going to stay with me till I go to my grave. I would rather not have it. I paid taxes when I was young and working. Now I am old, unemployed and waiting to die, and I still have to pay taxes. This is unfair."

Mr Speaker, Sir, I hope the Deputy Prime Minister and Finance Minister can take the words of this old man into due consideration and look into how retired senior citizens and the lower income can be exempted from the effects of GST. I believe that the most efficient and equitable way is to identify a list of these essential items and exclude it from tax. If it is so easy for NTUC Fairprice to produce a list of such staple items and absorb the GST increase, I believe the Ministry of Finance can do a lot better than a blanket no.

Finally, Sir, I want to talk about car usage and car parking. If we want to allow more Singaporeans to own cars but encourage them to use it less often, then we must have incentives to encourage them to keep it stationary, ie, not to drive it. Increasing car parking charges is definitely not an incentive.

To the car owners, whether it is money paid to HDB, URA, LTA or the Ministry of Finance, it is still money going to the Government. The Government should consider the total revenue it collects from cars and look into subsidising some of these loss-making departments within the Ministry that help to solve and regulate car usage.

We cannot expect every department in the Ministry to be always profitable. There will always be some departments that cannot. If every department in the Ministry must be profitable, if HDB has to build car parks and make them profitable or at least break even while other ministries make a lot from COE, then it can only mean one thing, ie, our citizens will become poorer and poorer through all these taxes. I hope the Government will not insist that every Government service must be able to recover cost.

Mr Gan Kim Yong (Holland-Bukit Panjang): Mr Speaker, Sir, I do not have the fortune of Mr Seng Han Thong, who can keep "kok kay" at home, but I do have eggs at home. My fear is that our economic restructuring package is like an egg. My concern is that the Opposition Members of this House are trying to have an omelette while the rest in the House here are trying to hatch a chicken so that, hopefully, we will have more eggs for the days to come.

Sir, I would like to share with you that there are probably three types of people in this world. The first type of people make things happen, the second type watch things happen, and the last type do not know what is happening. And, Sir, I would like to suggest that perhaps today there is a fourth type of people, and they are sitting there criticising everything that happens.

Sir, I would like to take this opportunity to respond to several comments made by our Opposition colleague, Mr Low, as well as Mr Steve Chia. Mr Low has denied and refused to acknowledge the compensation package that the Government has put in place. He has criticised the Government's efforts to restructure the economy. He even criticised the Government for giving recognition to encourage philanthropy. He also said that we should not reduce the cost of car ownership. I wonder whether Mr Low is therefore suggesting that we should restore the cost of car ownership.

Sir, restructuring is not without pain. There is a Chinese saying, "liang yao ku kou li yu bing, zhong yan ni er li yu xing". I wonder whether Mr Low prefers morphine, painkillers, rather than cure for our economic ills.

Sir, I would now like to turn to Mr Steve Chia. Mr Chia has mentioned five points in his speech: GST for the poor, cut in personal income tax, corporate tax cuts are not bold enough, GST increases should warrant certain exemptions, and that we should continue to subsidise car parks.

Sir, with regard to impact of GST on the poor, Mr Chia has suggested that we should perhaps give special waivers for retirees, the lower income groups and for those who suffer most, those who are poorer. But Mr Chia, again like Mr Low, has forgotten that we have a compensation package. Mr Chia keeps repeating that tax is tax, it is money from the people to the Government. I would like to say that a package is a package, it is still money from the Government to the people.

Secondly, Mr Chia also mentioned that cuts in personal income tax are not effective in attracting foreign investments. Granted that I do agree that cuts in personal tax alone are probably not enough to attract talents to Singapore, but if we do not cut personal income tax at the highest end, Sir, no matter what we do, those higher income earners will think that Singapore is trying to cream off what they have contributed and, therefore, it may not be enough on its own, but it is still necessary.

Thirdly, Mr Chia mentioned that our corporate tax is not bold enough, suggesting that perhaps we should reduce corporate tax even further. Yes, probably a further cut may be even more effective in bringing in foreign investments but, if we do so, we need to then increase GST. So I wonder again if Mr Chia is suggesting that we should review whether we should increase the GST even further in order to finance the further cuts in corporate taxes.

Mr Steve Chia Kiah Hong rose ---

Mr Speaker: Yes, Mr Chia.

Mr Steve Chia Kiah Hong: Can I clarify something, Sir?

Mr Speaker: Are you giving way, Mr Gan?

Mr Gan Kim Yong: Yes, please.

Mr Steve Chia Kiah Hong: Mr Speaker, Sir, I said that it is not necessary to cut personal income tax. This saving could be used to cut corporate tax further, which would give us an equal balance. So I am not saying that we should cut more of the corporate income tax and then increase the GST. The hon. Member will have to hear me more clearly.

Mr Gan Kim Yong: Mr Speaker, Sir, I do hear Mr Chia clearly, but I just said earlier that cutting personal income tax is a must, if we are to attract foreign talents and foreign high income earners and entrepreneurs to come to our country and to retain them here. Even our local entrepreneurs will benefit from this. Given this point, my next point will therefore be valid, that if we have to cut personal income tax and we still want to cut corporate tax further, then there is no other choice but to raise taxes from elsewhere.

The fourth point that Mr Chia mentioned is that GST increases in future should maybe warrant some kind of exemption. That perhaps is an item for the Minister for Finance to consider, but my personal view is that there is a very high cost of policing exempt items. Coming with this high cost would mean more resources would have to be put in. It would mean, again, more taxes to be collected. At the same time, giving exempt items would mean the collection of GST overall must come down and, therefore, again, it implies higher GST rates. So again I am not sure whether Mr Chia is suggesting higher GST rates.

At the same time, it would be far better for us to come out with a package to target at those in need rather than general exempt items, because if we exempt sushi, the poor eat sushi; the rich also would eat sushi. Similarly, if we exempt rice, the poor eat rice; so do the rich.

Lastly, Mr Chia said that we should continue to subsidise car parks. This is not an issue, whether we buy a car to keep and not to drive it. Mr Chia is entitled to buy a car and keep it and not drive it, although we will wonder why he would bother to buy a car. But, nevertheless, the issue on car parks is a matter of cost recovery. If we have travelled to other parts of the world, we would realise that Singapore, comparatively speaking, has one of the cheapest car park charges in the world. And most of the cosmopolitan cities have very expensive car parks, and it is often that you find that it is a lot cheaper to take a taxi, take the underground or take a bus, or most likely, just walk to where you want to go. Therefore, for this car park issue, it is a matter of cost recovery, rather than compensation for those who want to buy cars and keep them at home without driving them.

Sir, having spent so much time addressing the issues of our Opposition Members, I have very little time left for my own speech.

Mr Low Thia Khiang: Mr Speaker, Sir, may I clarify?

First of all, I did not forget the offset package but I would like to state that the offset package is not forever. It is a smokescreen that makes you feel good but eventually, you have to pay GST, but without the offset package. I did not forget that.

Mr Gan talked about my objection to philanthropy and car ownership. I did not. I have given this and others as examples to ask whether or not we should consider other options rather than just raising GST as an easy way out. Raising GST would affect the majority of the people, especially the lower and middle-lower income. When a Government decides to increase a tax, which is so broad-based, affecting everybody, including the business at this point in time, should we not ask: is there any other option, or do we just accept whatever it is?

Mr Gan Kim Yong: Mr Speaker, Sir, I did not say that Mr Low does not support philanthropy. What I said was he was suggesting that we should not give tax rebates for those who have donated, for those philanthropists. Sir, may I now continue with my speech?

Sir, our economy has undergone tremendous fundamental and structural changes over the last few years. The external environment has definitely changed. Our market has changed, our competitors have changed and we too must change in order to survive.

The objective of this year's Budget is in response to those changes to keep Singapore competitive. These measures, the tax cuts, are much welcomed by our business community. However, Sir, there is undoubtedly a price to pay. To balance the budget, the GST rate has to be raised.

The Budget does provide for a comprehensive compensation package to cushion the impact of the GST hike. However, it is not without pain. I agree. I have no doubt that our people are fully aware of the challenges that we are facing today and I am confident that they are all prepared to make short-term sacrifices to achieve long-term stability and prosperity. But it is crucial for us to ensure that our efforts to restructure our economy succeed so that we keep faith with our people, and so that their sacrifices will not be in vain.

Mr Speaker, Sir, to succeed in restructuring and repositioning our economy, I would like to suggest to the Government, in addition to the change in the tax regime, to consider three aspects - the Government itself, the businesses and the people.

Firstly, the Government. True, taxation is only one of the many components of business cost. Reduction in corporate and individual taxes is helpful, but tax cuts alone are not sufficient to ensure Singapore's overall competitiveness. It is important for the Government to be conscious of the overall business environment and take steps to further reduce operating costs here.

Let me share with you my experience. My company, Natsteel, is in a highly competitive industry. It is a wonder that we are still alive today. We have to constantly battle cheaper imports from low cost overseas suppliers. Margins erode as competition intensifies. The only way for us to stay afloat is to make sure that we are always more cost-effective and provide better quality and service than our competitors.

Sir, review and restructuring happen every day in my company. It is a way of life where I work. In the same way, the Government must not let up its efforts on streamlining its bureaucracy and to oil its machinery, so as to provide an ever more cost-effective business environment. I am glad that the Minister for Transport announced yesterday that a sum of $18 million would be put aside to upgrade our ports. Yes, indeed, our port must continue to upgrade its facilities and improve its operational efficiency to stay ahead of competition.

Similarly, our banking sector must be reformed to provide world-class services. So too our bureaucratic processes must be streamlined to facilitate business transactions. Our regulatory systems and our laws must be reviewed regularly to ensure greater flexibility while preserving the integrity of the system. Sir, this is a continuous process and will become increasingly more important as the world becomes increasingly more competitive.

The Economic Review Committee seeks to reposition our economy for the new era, but we must not stop here. I would like to urge the Government to consider setting up a permanent high level Inter-Ministerial Committee with the objective of ensuring a competitive business environment. This Committee will then help to coordinate among the various Ministries and provide inputs and feedback on the implications of the policies implemented by the various Ministries on the business environment, as well as recommend measures to continuously improve our competitiveness. In this way, we can ensure that the efforts to strengthen our economy's fundamentals will be sustained.

Next, the business community. The tax cuts and various incentives mentioned in the Budget will, undoubtedly, give our businesses a much needed boost and attract more investments here. However, we will need to supplement it with more refined tools, such as the pioneer incentives, to attract the right types of businesses here and not just those that are primarily motivated by the low tax regime in Singapore. The incentives for the financial industry and the shipping industry are moves in the right direction.

Our local businesses, on the other hand, must not just sit back and enjoy the ride of lower tax regime because they must know that their seats do not have safety belts and, instead, they are fitted with ejection buttons. If they do nothing, it will not be very long before competitors will catch up and they will be promptly ejected. Instead, our business community must take this opportunity for them to restructure their business. They must not lose time in upgrading themselves and in seeking new opportunities. I would like to urge the Government to consider taking proactive initiatives to help local companies upgrade and venture abroad.

Much has been said about China. I would not go into the details of China. A lot has been said already. But China, undoubtedly, is a challenge as well as an opportunity. It is important for us to look at China, but it is not easy to do business in China. Venturing overseas, especially into places like China, has inherent risks and difficulties. Many of us do not have the resources nor the know-how to venture abroad. It is also difficult and at times, costly to recruit or persuade senior managers to go overseas and work there. These are perhaps where the Government can play a significant role. For example, the Government could consider providing incentives for Singaporeans working overseas, either to the individual or to the employer to help reduce the high cost of overseas postings, and encourage our companies to venture abroad.

Thirdly, the people. Sir, we must prepare our people for the challenges ahead. As economic restructuring picks up momentum, changes are going to take place at a much faster pace. Certain sectors of activities in the economy will find themselves becoming obsolete very quickly. They will need to innovate and change to stay relevant. Employees who are unable to keep up with the pace of change will soon find themselves being phased out. It is, therefore, critical that we step up our training and retraining programmes to help these workers adapt to the new economy. More importantly, we need to inculcate in them the spirit of flexibility and adaptability. They need to change their mindsets.

There was a saying, "give the man a fish and you feed him for a meal; teach him how to fish and you feed him for life". This is a very well-known saying, but unfortunately, I think it might not be true today. In this fast paced world today, very soon, I am afraid, you will find that there is no more fish in the water and, therefore, teaching him to fish is still not enough. We have to teach him basic survival skills. If there is no fish, he must learn to hunt. If there are no animals left, he might have to go back to farming. Just like the mice in the book "Who moved my cheese?", he needs to look for new cheese all the time. Therefore, we need to look at our education system, not just to impart knowledge and skills, but also the survival instinct that is so crucial in the world today.

Our people must also have realistic expectations. Many of us are used to the fast economic growth in the 80s and 90s. Many of us are used to see significant annual increments and promotions and with the tight labour market in the past, employers used all kinds of ways and means to retain staff. This may not be the case in future and we need to get used to the new environment and be realistic in our expectations. We need to make serious efforts to reform the seniority-based wage system to one that is based on productivity and contributions. And perhaps, we could start with the civil service.

Having said that, we must still recognise that there would be invariably people who are unable to cope with the changes, or those who might need a bit more time to adapt to changes. We have to put in place an adequate social safety net to help these people. We must ensure our cost of living remains affordable in general. Healthcare and education, in particular, are of the greatest concern. For this reason, I am glad that the Government will be absorbing the GST increases in both these areas.

The Government has also set up this Committee to Combat Profiteering chaired by Mr Chan Soo Sen. I think there may be a need for an agency to monitor the general trend of cost of living, to provide feedback and make recommendations to the Government from time to time. Perhaps, the role of Mr Chan's Committee can be expanded for this purpose, rather than just looking at the GST impact.

Finally, it is important for us to give Singaporeans a vision, a dream that they can strive for, a realistic goal that we can hope to achieve. This common vision and dream will serve as a platform to unite all Singaporeans as we sail through the restructuring process.

Looking forward, Sir, the task ahead of us is a challenging one. The recession last year might have been a crisis, but I think it might have been a blessing in disguise. It reminded all of us that we are vulnerable, despite our past successes. Our competitors are no longer the store next door; our competitors are no longer our neighbouring countries. We are competing against China and the whole world. We need to quickly reposition our economy on a stronger footing to meet these challenges. Sir, we have the mandate of the people to lead them out of the recession and to provide them with better prospects and opportunities. They have trusted us. They are willing to make short-term sacrifices. We must keep faith with the people and deliver results.

The financial policies outlined by Deputy Prime Minister Lee is the first step towards restoring and enhancing Singapore's competitiveness. To eventually succeed in repositioning our economy and fulfill the task entrusted to us by our people we need a strong tripartite collaboration among the Government, the business community and the people. While the Government provides a conducive competitive environment, the business community must take the lead in spearheading our economic expansion and our people must be nimble and be prepared to be flexible and adaptable. This way, Sir, we will be able to stay ahead of our competitors, attain economic excellence and realise our Singapore dream.

Sir, I support the motion. 4.18 pm

Mr Tan Soo Khoon (East Coast): Mr Speaker, Sir, one of the advantages of speaking on the second day of a debate like this is that you get the chance to go home after the first day to make changes to the text so as to avoid repetition. I know it is hard for you to believe this, but I found that the deletions I had to make were all the nice things I wanted to say about the Government and the Budget. So I am left with the parts which are, well, not so nice.

Sir, the jury is still out as to whether there will be economic recovery this year. The signals from the United States for the first quarter are mixed and it is still early days as to whether our economy would turn around. MTI is optimistic, revising its prediction of economic growth for Singapore from between 1% and 3% to between 2% and 4%. But then MTI has been wrong before, predicting growth when there was recession.

Government has always maintained that at 3%, our GST rate is one of the lowest in the world and we lag behind the GST rates of other countries. Sir, this is one race where I do not think we are in a hurry to be number one. It is therefore a bitter pill for Singaporeans to swallow when they heard that the Goods and Services Tax would be increased from 3% to 5%, coming as it was just two weeks after the Deputy Prime Minister had assured the House that the GST would only be raised when the economy is on a firmer footing.

To put it in another perspective, it is just not two little percentage points more that we are talking about. What it means is that for every $100 that you spend, where you now pay $3 in GST, you will in future be paying $5, and that is a 66% increase in your tax bill.

The Government argues that it needs to lower income taxes in order that we can attract investments and business. The DPM has lamented that companies and foreigners are not coming to Singapore because the first thing they want to know is what is your tax rate. Is it not too high?

How much one has to pay in taxes in a country is a consideration, but that is not the starting point. I do not intend to dwell on why people find Singapore unattractive, but as Mr Inderjit Singh has said yesterday, there is a slew of other indirect taxes and levies that one has to pay in Singapore. Therefore, while we can appreciate the lowering of income taxes, it has been pointed out that that is not the raison d'etre for going into business. If that was so, many Singaporeans, including myself, would not have gone into business when the corporate tax was 40% for a long time. We would not have become the nation of shopkeepers, merchants and manufacturers that we are today. People go into business because there is business to be done and profits to be made. Likewise too with foreigners who come here, or with Singaporeans who venture abroad. They go to where there is business to be done and where there is money to be made.

Why do businessmen queue up to go to China even though China has high taxes? Because goods can be produced cheaply there and because there is a potential market of 1.2 billion people.

Conversely, tax havens would be places of bustling business and economic activity but you do not find people making a beeline to the likes of Brunei, the Cayman Islands, the British Virgin Islands or Liechtenstein.

But while everyone is happy with lower taxes does it necessarily mean Government ends up collecting less if the tax rates are lowered? I will now ask the Clerk to distribute two tables to Members. [Copies of Tables distributed to hon. Members.]

Sir, there are two tables here, but let us take a look first at Table No 1. Column 1 in Table 1 shows the amount of corporate and income taxes collected from FY93 - the year before we introduced GST, when the corporate tax rate and the top personal income tax rate were 27% and 30%, respectively. And it shows through the years when we progressively reduced the rates to 24.5% and 26%, respectively. Column 2 shows the income tax as a percentage of all taxes, which includes your estate duties, property taxes, stamp duties, lotteries and betting duties, and the GST collected by IRAS. Column 3 shows the amount collected from GST.

When the then Finance Minister Dr Richard Hu introduced the concept of GST in his House in his Budget Speech in 1993, he told us that GST collection per year would be $921 million per annum. The total revenue loss to the Government as a result of the reduction in income taxes, property rebates, more public assistance, more subsidy for health and education, S&C offsets, plus the transitional measures, (which were the rebates for S&C, rental rebates and grants to the CCCs, and these would only be for five years) would be $1.1 billion. This would mean a loss of revenue to the Government of $183 million per year, for at least the first 5 years, after which he said the position would then be revenue neutral. Well, it all sounded very well-packaged.

Now, let us take a look at Column 1 again. It shows that over the years since income tax rates were reduced, income tax collection actually grew from $7.31 billion that year, the year before we lowered the rates, to $12.35 billion in FY2000. I must say that there are some missing spaces because these are the years 2001 and 2002-end. We have not got the Annual Report of the IRAS yet.

Let us take a look at Column 2. As a percentage, income tax has always contributed to around 50-plus to 60-plus percent of all taxes collected by Government. By FY2000, it already contributed to 65.6%, more or less the same portion as in 1993, in spite of the reduction in corporate and income tax rates.

Column 3 shows the revenue that has been collected from GST. In the first year that GST was implemented, ie, in 1994, Government collected $1.52 billion, much more than the $921 million that was estimated. There was certainly no shortfall of the $183 million that Dr Hu had anticipated. GST collection has increased steadily over the years, except for two years, 1998 and 2002, when recession resulted in less consumption spending. But every year, GST collection far exceeded what Government gave away. By FY2000 it had already exceeded the $2 billion mark, double the amount it had originally anticipated it would collect. And this year, Government expects to take in another $2 billion in GST. All this is based on the present GST rate of 3%.

So income tax rates were reduced, GST was implemented, there were a lot of giveaways, but the position was not revenue neutral. Far from it, the Government collected more income taxes and more GST.

Any more GST will just increase the burden on the people, especially the poor. The Government may disagree with me but GST is regressive. That is why the underlying principle of the income tax collection system is called "progressive". It means the more you earn the more you pay in taxes. The rich who have made the most from all of society pay more to Government so that money can be used to help those who are less well off. How do you justify a system that now says the rich, with their big fat salaries, pay less, and they are probably the ones who do not feel the pinch, and the other 70%, who could not afford to do so all along, have to start coughing up? Sure, you can give the goodies, or the offsets, but I want to ask: why do you want to break a man's legs and then give him crutches to wobble on? Is not that adding to the crutch mentality that we were trying so hard to avoid in Singaporeans?

My conclusion after seeing all these figures is that the Government has realised what a goldmine the GST is. It is like the COE. When it was first introduced, no one could foresee that the COE would be a billion-dollar money-raking machine for the Government. I am prepared to predict that within a few years, GST collections will exceed the $3 billion mark, and it would not be at the expense of income tax collections because the economic pie will expand. So when we are told that GST must be raised to make up for losses in the collection of income taxes, I must ask what losses is the Government talking about?

The Government also puts forth the argument that GST must go up so that we do not run into a structural deficit. I would be the first to query in this House if the Government were to try and run a less than prudent Budget. But let us look at the Government's budgetary record from 1994. Let us look at the second Table. Column 1 shows the estimated surplus or deficit each year when the Budget is presented to Parliament. Column 2 shows the revised figure towards the end of each financial year. But it is not the final figure as all data would not have been fully compiled by then. So Column 3 shows the actual figure which is available only two years after the end of the financial year for which it is reported.

The record of the Government in this respect is good. It has never incurred a deficit in any year, except possibly, it is going to have one in 2001. In 1998, when we had the $2 billion off-Budget measures to fight the recession, that was when the then Finance Minister estimated that we would run up a deficit of $800 million, the Government ended up with a surplus of $930 million. That is $1.7 billion off its prediction.

Even in 1999, when Government estimated a deficit of $5 billion, it walked away with a cool $4.9 billion at the end of that year. That is $10 billion off the mark.

In 2001, we had two off-Budget packages, $2.2 billion in July and $11.3 billion in October. We were told that these two packages would result in budget deficits of $4 billion in FY2001 and $1 billion in FY2002. But we see from the revised figures for FY2001 our deficit is estimated at $1.43 billion, far below the high $4 billion anticipated deficit. And as I explained earlier, the actual figure will not be known till another year's time. So maybe there is some hope that it might be a plus, but it is still, at this point of time, off the mark by $2.57 billion.

For FY 2002, the estimated deficit of $1 billion that had been forecast when the off-Budget package was announced is now turning out to be a surplus of $900 million. That is before the new giveaways are computed inside, but it is still $1.9 billion off the mark.

Sir, I am more than happy if our forecast deficits are reduced, better still, if they turn into surpluses. The Government should therefore not be waving the red flag all the time, otherwise it will end up like the boy who cried wolf, and nobody is going to believe you after a while. The fiscal record of the Government is the envy of many other governments. Between 1997 and 2001, based on what we know - as of now - the Government netted in $15 billion. It is not a bad record, in fact, it is great, I will say, considering that we lowered income taxes and gave away so many goodies. It is a feather in the Government's cap but, Sir, it does not need to pluck any more feathers from the people.

Mr Speaker, Sir, revenue is just one part of the equation. I agree with the Deputy Prime Minister when he says that Government departments have to spend only on essentials and eschew frills and extravagance. I wish that that message had been sent earlier. It seems to me that every Ministry and many statutory boards today want to have their own headquarters or corporate building. But if you see many of them, you wonder if they are looking more like 5-star hotels. Singaporeans refer to the Seven Wonders of Singapore: MOE, JTC, IRAS, the new Supreme Court, Foreign Affairs sitting on a choice district 10 land, the twin towers of Home Affairs in Thomson and the upcoming HDB headquarters in Toa Payoh. It seems that twin towers are becoming fashionable in Singapore. In fact, I cannot understand why HDB, which is downsizing as the building programme is being cut back drastically, cannot stay where it is. It has to build twin towers. I remember not too long ago too that Government offices had that spartan look. Of course, we now can afford to look better. But if you see the furnishing and fittings in many of these buildings, I think there must be a competition amongst them to outdo one another to see which one can look better than the Four Seasons Hotel. Needless to add, posh buildings mean large sums of money every year just to upkeep them.

Sir, I must, of course, give credit to MITA. MITA has seen it fit to take over an old police station, refurbish it - I have not been inside, so I cannot say what it looks like inside - but I understand that the people there might not be too comfortable, considering the fact that they are working in former jail cells.

Many departments also publish their own newsletters, which contain news which are quite outdated, or PR flyers. Very often I am inundated with glossy brochures and colourful charts like this one [indicating]. It is a data sheet - Statistics of Singapore. I think I am expected to hang this up somewhere. But all these do cost a lot of money to produce and print, and I really question the purpose of many of these things which are sent out. I wonder again how many of these items that are circulated actually go into wastepaper baskets.

Take again the recent renaming of statutory boards under the Ministry of Trade and Industry. Some people may feel it is hip to change the Standards, Productivity and Innovation Board to Spring Singapore, the Trade Development Board to International Enterprise or IE, and the National Science and Technology Board to Agency for Science, Technology and Research or ASTAR, but at least the old names, to me, meant what each of these organisations stood for. Can you see how foreigners, or for that matter even Singaporeans, have to scratch their heads to look for something called the IE (International Enterprise) when they just want to make inquiries about trade? Spring Singapore sounds like a nightclub. And if a lot of money has been paid to some consultant to dream up ASTAR, let me say that it also reminds me of a certain singer from Taiwan who writes her name in the same way with the (*) sign after the letter "A". So much for creativity.

An hon. Member: Ah Mei.

Mr Tan Soo Khoon: Yes, Ah Mei, that is her name.

So what is in a name, you might ask? Well, for one thing, changing the name means you probably have to pay some slick design consultant to think up your new name, re-do your logo, all your signboards, letterheads, envelopes and other stationery, not to mention spending lots of money to tell the whole world that you now have a new name, and at the end of it all, you are still doing the same old things, but nobody is any wiser what you actually do or how to look for you.

Sir, I am disappointed that this Budget has not done enough to solve many of the difficulties that ordinary folks and businessmen have been faced with for a long time. Two recessions in less than five years have still not sent the signal that there are many issues that are fundamentally wrong in Singapore. Like others before me, I am prepared to wait for the Economic Review Committee to present its report.

But I want to say something and, that is, it is not enough to bring out off-Budget measures every time we run into difficulties. Off-Budget measures are ad hoc, they do not provide the kind of certainty that we all want as solutions to our problems. The only bold thing I find about this year's Budget is the unshamed hurry to increase tax revenue under the guise of preparing for changing circumstances at a time when Singaporeans are reeling and recoiling from the effects of the recession, when unemployment is now hovering around a six-digit figure, and when new entrants into the job market cannot even smell a job interview.

Sir, more than half the MPs who have spoken so far have expressed their reservations about the increase in GST. I want to beseech the Government that this is a genuine concern that strikes at the heartstrings of almost every single Singaporean. And I know it might be futile to say this, but I hope the Government would rethink this.

Mr Zainudin Nordin (Bishan-Toa Payoh): Mr Speaker, Sir, like many of the hon. Members in this Chamber who have risen and spoken on the Budget Statement delivered by the Deputy Prime Minister and the Minister for Finance, I would like to join in the debate and will try not to belabour on everything but tread on issues that are of immediate concern. I hope to give my perspectives and views on the matter and at the same time give feedback on views I got from the ground.

[Mr Deputy Speaker (Mr Chew Heng Ching) in the Chair]

4.38 pm

Mr Zainudin Nordin (Bishan-Toa Payoh): Sir, if I recall correctly, more than six months ago, we made some commitments. Six months ago, we had asked the people to trust us. Six months ago, we had assured them that we would take care of them. The concerns then and now have not changed much. We all know that our citizens are worried for their livelihood, the future of their children and the future of Singapore. The people knew then and understood the difficulties that lie ahead. By giving the PAP an overwhelming victory, they have put the trust in the Government whom they know is a no-nonsense, realistic and pragmatic Government who can deliver and has always delivered.

Here we are more than six months later. I believe we have arrived at the juncture where we are expected to deliver something. In moving forward to revive the economy; thus creating more jobs and businesses, we must not lose track of the very reason we are doing all this, ie, the people. Let us give them back the self-confidence, the morale and the self-esteem. It is our duty in this Parliament to ask whether this Budget can do the job of creating jobs and businesses. Let us face it, Sir, no single Budget can satisfy all the sectors of the economy. With the present scenario of stiff competition and rapid globalisation, we have to put our priorities right, that is, to implement measures to ensure Singapore remains competitive.

From the feedback that I have received, people are quite comfortable with the proposed tax reforms and some, like what Mr Inderjit Singh had suggested, are even asking for more. Naturally, the expected hike in the GST, parking charges and ERP are of concern. Let us not deny also that the offset measures are quite balanced. On the other hand, the people are aware that these offset measures are not permanent but the GST, HDB parking charges and ERP are here to stay. Sir, their argument is simple. They say that the Government gives them some in the right pocket and takes them out from the left pocket. And worse still, the Government takes out more than what they give! This is the feeling and it is quite prevalent.

Timing is of another concern. Many are asking: why now? Can it be done later when the positive signs are clearer and the economy is growing? The experts from the ERC and MOF may prescribe the bitter pills and expect people to swallow. Majority may do it but some may react differently. Already, we are hearing more who consider migrating and hope to find a less stressful place in the sun for themselves and their family. These are generally those who are talented, mobile and can afford to uproot and move. Can we, as a country, afford these losses? As it is, we are struggling to attract talents to our country. Similarly, are we taking care of the underdogs and the underprivileged of our society to face these challenges? Some argue that the GST is going to put them in deeper trouble than before. How then, Sir, can we allay their worries?

The Government, time and again, has encouraged the people to be brave, enterprising and to take risk so that we can have more successful local companies and this, in turn, could be the other wing of growth for our country. I am not going to repeat some of the salient points raised by the other Members but I would like to stress that more should be done to help the SMEs to grow. One suggestion that I would like to put forward is that the bankruptcy laws should be further reviewed.

I would like to tell a story of someone I know whose father was a successful businessman. When he was in his mid-forties, in the prime of his life, his business went bust and he was declared a bankrupt. As I understood, there are many restrictions and rulings being applied to a bankrupt; to put it simply, his freedom was limited. He wanted to revive his business and explore new areas and had tried many times to get discharged but failed. Now, 15 years later, he is in his sixties, a broken man who has practically given up on business and retired with many regrets and pains of those lost years. By the way, he was only discharged last year.

Mr Deputy Speaker, Sir, with every success story that we hear and read about in the media, there are hundreds, and possibly thousands, that failed. But these people are resilient and they will come back and will try again. I am not advocating for handouts but we must provide for the environment and support that will not deter but spur them to try again and again.

In this respect, I would like to urge the Minister for Finance to revisit the financing schemes for SMEs and start-ups and consider setting up a special bank that would cater for their needs.

Sir, I am very glad that the Ministry of Education is getting more funds this year. We know the importance that the Government puts in education by the sheer size of resources that have been poured into education. We cannot afford not to invest in our people. As we move into the knowledge economy, we need to have more "knowledge workers" that are multi-disciplined and can handle multi-tasks at the same time. The education system should prepare the future generations for the rapid changes and produce nimble, creative and innovative minds.

Parents are very concerned about their children's future. Thus, education is of utmost importance to them. We can be comforted by the fact that we have a Government that emphasises on quality and standards for our education. Many people around the world and locally recognise Singapore's quality in its education system.

But I believe, Sir, we can still fine-tune it to make it even better. I would like to reiterate the call that I made in my maiden speech, that is, we should have a more holistic approach towards education. Academic excellence should not be the only thrust of education. A child should be nurtured on values such as national education, community spirit, social services, voluntarism and sports. This will nurture a well-rounded individual with strong community ties. Ultimately, our education system should aim to develop citizens who are able to put Singapore and community before self.

I would like to propose to the Ministry of Education to seriously consider bringing the early childhood education into the formal education system. Put it directly under the purview of MOE. This portion of our education system has mostly been left out to the community organisations and private sector. We know that the Ministry of Education has some initiatives and programmes in this area. Is this enough? Can we do more in this area?

I honestly believe we can and we should do more in the area of pre-school education. As the pressure for economic excellence continues, we will see more dual income earning families. Parents need support to cope with this growing trend and phenomenon.

There are many developed countries that have incorporated the pre-school education into their primary education. More recently, when PM Goh visited Europe I believe the delegation had visited countries that have espoused this method. As we progress and more of our female citizens go out to join the workforce, we are going to encounter more demands for better and structured pre-school system existing under the mainstream education.

We should consider a system that takes in children from three to five years old in the ecole maternelle and kindergarten. We could make these pre-schools as part of the primary schools. The compulsory education law that was passed in Parliament is a clear indication of Government's commitment to educating our future generation. This augurs well for us. Let us take this a step further and incorporate the foundation years into the mainstream education provided by MOE.

The Ministry of Education can ensure the quality and standards of the early childhood education and the kindergartens. This is to ensure that a strong foundation is in place when they continue to primary education. I believe the more senior Members of this Chamber would probably be able to recall that in 1979, the pre-primary system was implemented in some schools. The purpose was for bilingual education, ie, to give students more or equal exposure to both Mandarin and English. It was a worthwhile exercise and the Ministry then had the motivation, the vision and boldness to see it implemented. But sad to say, subsequently, it was discontinued in 1989.

Mr Deputy Speaker, Sir, the Ministry of Education has an impeccable record locally and internationally and I see no reason why they cannot take up this challenge and develop an excellent early childhood education system and programme suited for our needs.

Allow me to touch on education focus for the Malay community. Sir, the Minister in charge of Muslim Affairs has recently presented the vision of a progressive and dynamic Malay community. In the present economic climate, the community is faced with more daunting challenges and it should strive to do better. It has made significant progress in the area of education over the past 10 years. We should keep up the pace and explore new areas and try non-traditional fields of education. In this aspect, I would like to encourage the community to continue to emulate the culture of academic excellence into the Malay community. We must aim to achieve high standards in education and attain world-class recognition in whatever we do.

Education, Sir, is a great social leveller. Through education and training, the community will be able to stand tall, participate and be part of the mainstream. We should imbibe lifelong learning and make it our second nature.

Sir, our workers are constantly grappling with rapid changes and the need to acquire new skills and knowledge. Many are struggling and some are resisting the change. How then, Sir, can we assist them to manage the change? I have again repeated this. I would like to commend the Ministry of Manpower, NTUC and CDCs for their effort. But I believe more can be done to make these changes less painful and more meaningful for our workers. The burden of change should not fall on the employees but employers should also ensure that the workers are regularly upgraded and retrained even during good times. Employers should consciously make provisions for their employees to upgrade and pick up new skills. Measures should be put in place to ensure that employers play their role as a responsible corporate citizen vis-a-vis their workers.

From the requests for assistance, the numbers given by the Minister for Manpower on the success rate of job matching, I just have this lingering pessimism that we are just not good at this service. Are we then not giving people the false hope by offering them assistance that resulted in near total failure? 5% to 10% success rate? Is there anything more that can be done to improve this? Are we exploring all the possible avenues and alternatives? I look forward to the Committee of Supply for answers to these questions.

Mr Deputy Speaker, Sir, I support the motion.

Dr Wang Kai Yuen (Bukit Timah): Mr Deputy Speaker, Sir, the recession we are going through is the result of existing factors as well as some long-term trends. The primary short-term factor is the collapse in external demand for electronics which is starting to recover. We are beginning to see signs of the turnaround in our manufacturing sector. In the long term, manufacturers continue to relocate their facilities to low cost countries leading to structural unemployment. It is clear that the era where we depend on export-oriented MNCs to provide large scale employment is coming to an end. Thus, the Government has stated that it would encourage the formation of more small and local companies in the next phase of our development.

Sir, I would like to ask what are the pressing problems businesses are facing today. In simple terms, existing businesses are facing declining profit or chalking up mounting losses. New start-ups are being clobbered and strangled. In this environment, our people are looking forward to the Government to provide leadership in restructuring the business environment to address these issues: how to make existing companies more profitable and how to create the environment for new start-ups to prosper.

In response, this Budget aims to position Singapore for a different world through cuts in company and personal income tax. This is based on the assumption that, doing so, will attract more company formation, greater personal strife and thereby creating more jobs in future. In adopting this strategy, the Government has accepted the recommendations of the Economic Review Committee. Sir, if these changes indeed were to succeed in attracting more companies and talents to Singapore, the impact would still be felt only in the mid or long term. There is not much in this Budget in the immediate term that will give the economy a fillip in. Nonetheless, it is heartening that the Government has gone through a lengthy consultation process, tapping the views and opinions of many professionals and lay persons. It is a reflection of the willingness of the Government to listen and to further the pre-policy consultation process. However, as a strategy, the Budget lacks the comprehensiveness of a total response as it addresses only part of the issues facing Singapore. It uses old tools, that is, tax changes to address problems in a changing world. Thus, the Government has left untouched many opportunities for truly remaking Singapore. Like the other MPs speaking before me, perhaps these are being left in the next phase after the Remaking Singapore Committee has completed its work. I too look forward to their recommendations.

Sir, being tax measures, the company tax and the personal income tax cuts, while effective in certain aspects, have their limitations. Let me give some examples. As we all know, the profit of a company equals revenue minus cost. And of course, what is really important to the business is profit after tax. There are only two ways one can have a higher after tax profit if we cannot increase the revenue, being in a stagnation or recession, and that is, to cut cost or reduce tax rate.

Sir, with your indulgence, I would like to give a comparison of the effectiveness of tax cut and cost reduction in increasing after tax profit. To yield an after tax benefit of $1,000 for a company, the Government could have cut cost by $1,324.50 based on the 24.5% company tax. And doing so, it would apply to all companies, large or small, profitable or not. On the other hand, when we cut company tax from 24.5% to 22%, the Government forgoes 2.5 cents per dollar of profit. To yield an equivalent benefit of $1,000 to the company, that company would have already been profitable and must be making $40,000 profit in that year. For a company that makes $1 million profit, of course the saving of $25,000 is significant. On the other hand, for a company that is only making $10,000 profit this year, the benefit is only $250. For a company that is breaking even, or is not making any money at all, the tax cut has no impact whatsoever. Thus, the company tax reduction is good for large and profitable companies, such as MNCs and GLCs, but is of little help for struggling SMEs. Hence, for SMEs, reducing cost is of greater benefit than reducing company tax. Therefore, it is not surprising that many of the CEOs and businessmen who participated in the Feedback Unit dialogue sessions commented that they are not too worried about paying tax at all so long as they are making money. Many participants lamented that this Budget does not address the root cause of the high cost of doing business in Singapore.

Sir, what are these main cost contributors? We know they are wage costs, land costs and other Government administrative fees and levies. Wage costs have been pushed up over the years by the tight labour market in Singapore as well as by the Government's policy regarding the civil service pay. Land cost permeates through the infrastructure to contribute to higher cost all round. For instance, higher land cost resulted in higher rental. And I also recall that the asset enhancement policy pursued by this Government about 10 years ago also helps in playing its part in increasing land cost. Neither wage cost nor land cost could be unwound that quickly without causing major dislocation in our economy.

Sir, that leaves the Government administrative fees as the remaining major cost contributors. And it is a disappointment to many that the Minister did not take this opportunity to further cut these costs. On the contrary, the Minister decided to increase parking fees as part of the measures to control vehicle usage. This begs the question whether this Government administrative fees have been cut to the bone. Perhaps, the Government is waiting to evaluate the impact of the slew of cost-cutting measures introduced last year before taking any further steps.

Sir, in his speech, the Minister spent some time on the Government's position on GLCs. The gist of his comments is that the Government will divest those GLCs that are no longer of strategic importance to the nation. Sir, GLC is an emotive topic in most of the dialogue sessions that are organised by the Feedback Unit. For many of these sessions, the issue always come up. And needless to say, most of the comments are unfavourable ones. Basically, the contention is that GLCs crowd out the SMEs. Like an ecological system, every niche in the system is occupied by a species. And when an exotic species without a natural predator is introduced to the eco-system, they would displace the existing species. Once established, no new species could emerge unless the existing species become extinct or the environment undergoes dramatic changes creating new niches in the process. So it is the case with our economic system.

Therefore, Sir, to encourage greater entrepreneurship and risk-taking, we need to review the fundamental reason for the existence of GLCs. Merely divesting GLCs by itself might not address the issue. The fact is that the Government has made use of the GLCs as part of its talent development programme for the civil service. Senior officials have been transferred regularly to these GLCs to make way for younger officers moving through the system.

Thus, Sir, I believe that it will be very difficult to get the whole system to accept the need to revamp the GLCs for an inconclusive objective of promoting entrepreneurship. Perhaps, the more pragmatic solution is how to level the playing field and to leave niches in the eco-system for budding young enterprises. A favourite example quoted in the dialogue sessions I talked about is that of PWD Consultant with its 5-year moratorium. You will say that as a result of its monopoly of Government projects at a time when Government projects are the only ones available, this company has grown substantially, so much so that it has to subcontract out its jobs while the independent firms competing with it are starved of projects.

Sir, let me now move on to GST. Once the Government has decided to cut company and personal income taxes, the increase in GST becomes inevitable. The Government has announced a relief package, including the Economic Restructuring Shares for lower income families to offset the increased burden of the tax. I would like, firstly, to comment on the philosophy of the ERS and then touch on three elements of the GST.

Sir, of course, it is not the first time the Government is handing out cash disbursements using the concept of shares. Last year, the Government issued the New Singapore Shares. Now the Economic Restructuring Shares. It is all about a mindset change. As a Government and as a people, we have decided that it is the right thing to do distributing public funds to alleviate economic burdens as a result of Government restructuring policies. The ER shares will be in place for five years, long enough to become part of our national psyche. I think it would be very difficult to change our people's expectations in the future in this area when we encounter economic recessions then. At that time, we would be handing out more ER shares. In this respect, I am concerned about creating a dependency mentality in our people. When we look back 20 years from now, it is very likely that this Budget will be remembered as the one that changed our social compact for a different Singapore. Whether it is good or bad, only time could tell.

Let me move on to specific comments on the GST. When the GST was first introduced in 1993, it was presented as a tax reform aiming to be revenue neutral. The Government reviewed all the existing taxes then to ensure that GST did not increase the tax burden. Two examples come to mind. The first is the tax on petrol. The Government changed the tax regime so that the total tax collected per litre of petrol remained the same. The second is cess. It remained at 4% after GST, with 1% going to the Singapore Tourist Board and 3% earmarked for GST. This time round, there is no mention of the words "tax reform", even though the tax reduction and the additional GST collections nearly balance each other out. Hence, we could conclude that there is no attempt to mitigate the increase like before. Thus, it would be logical to expect to pay more for petrol, cess and everything else.

Secondly, Sir, it seems that the GST relief, such as the ER shares, will be distributed based on HDB housing types, just like before. The feedback received by the Feedback Unit is that a fair number of Singaporeans found that this classification is not entirely equitable. For example, some households living in 5-room flats have dependent aged parents living in those households. Had the parents been living by themselves, they would have qualified for more payoffs. So, by living together, these Singaporeans feel that they are being penalised. Some have suggested that it would be more equitable to use household income together with the household size as a measure to determine the disbursement. I hope the Government would consider these suggestions.

Listening to what the other MPs have said, the general sentiment amongst our population is that with lower income tax and higher GST, the rich get richer and the poor get poorer. Well, with the GST relief package, it is not as simple as that, at least for the next five years. It is clear that for the higher income group, they would enjoy some tax savings as the reduction of income tax is far greater than the increase in GST. We know that the lower income groups are covered by the GST package and, therefore, would not be worse off. So who are worse off under this regime? Some groups must be, because they must bear the increase in GST over the reduction of personal income tax so that the Government could have a balanced budget.

To my mind, Sir, the concern expressed by many MPs regarding the lower income group might be overstated. Perhaps those groups that truly feel the burden of GST in the next five years should be identified, and this group feeling the squeeze could be the middle income group. I do not have the data to determine what is this middle income group. Perhaps the Minister would be kind enough to identify the income bracket where the net GST increase is greater than the reduction in personal income tax. This group will truly experience an increase in tax burden. This group of taxpayers will feel it sooner or later, so we might as well be as transparent as possible in identifying them.

In conclusion, Sir, the tax changes in this Budget could only be part of a strategy to remake Singapore. Judging from the ongoing work of the Remaking Singapore Committee, one would expect more is yet to come. We look forward to the recommendations that will bring about long-term transformation for a better Singapore.

Mrs Lim Hwee Hua (Marine Parade): Mr Deputy Speaker, Sir, I would like to begin with a businessman who flies in from Hong Kong to Singapore for his company's board meeting, hopefully on Singapore Airlines. His plane gets a slot, touches down as scheduled, and he enjoys air-conditioned comfort right from the aerobridge. He has no hand-carry baggage, so he whizzes through immigration and customs at Changi International Airport Terminal 2, and breezes into the CBD in a limousine, all in a record time of 35 minutes.

Sir, we may ask: is this good enough? Perhaps, not quite enough from our perspective, if we are thinking of being excellent, being number one. Since traffic flow is hard to control, we focus on reducing the time required to clear him at Changi Airport. We study the challenge and then decide that in order for the time to be reduced by, say, five minutes, the plane must always be served by an aerobridge whenever it arrives. To ensure this, we must have enough aerobridges and other airport terminal services. We then aggregate all such demands and conclude that we need to increase capacity because in the words of the Civil Aviation Authority of Singapore, "our philosophy is providing capacity ahead of time". Sir, what about the passenger's perspective? He may not even notice the five minutes' improvement or, even if he did, it may not matter to him at all. After all, in the other major cities, he takes a good 60 minutes at least.

Sir, I am of course oversimplifying the situation here and may have even been unfair to the very well-run Changi Airport. I do understand that we are building Terminal 3 at a cost of $1.54 billion to handle the new generation of large aircraft. But my point here is: how do we guard against the danger of over investing in infrastructure and in hardware?

As a country, foresight and forward planning have served us very, very well, and I am not for one moment suggesting that we live our lives right on the edge. But, Sir, there is a fine line between allowing some bursting at the seams, to induce productivity improvements, and over-providing.

Sir, as I understand, the new Terminal 3 can handle another 20 million passengers while Terminal 1 and Terminal 2 currently handle an aggregate of 28.6 million passengers. It could therefore take a while before we fill up. In the meantime, there will be gross under-utilisation. That is not all. There is a real massive cost to be depreciated, and this will find its way into the economics of landing charges, ground and other related services, thereby affecting our cost competitiveness.

Let me now move on to the expenditure relating to the schools development programme and to the buildings for Ministries, their agencies and statutory boards.

Sir, our schools are generally already of a very high standard, and I wonder how we can guard against the over building of features and facilities. Every school strives to have the full works, but is the expense really justified, relative to the benefits and utilisation? Until recently, because schools have fought so hard for such features, raised funds for them, they have guarded them very jealously, and sharing with, say, the community is rare, if at all. Many foreign visitors to our schools have nothing but praise for the modern and extremely high-tech facilities that we have. But they themselves have produced excellent students from their own older premises. So when will it be sufficient or do we always have to be top-notch in hardware? Excellent hardware can sometimes be value-destroying. We seem to focus more on the hardware than software. How about spending more for, say, administrative support or teacher counselling than on a theatrette?

Sir, let me now move on to another illustration, that of Government buildings, which my honourable colleague, Mr Tan Soo Khoon, has so eloquently spoken on a while ago. It would appear that it is not only local businessmen who love to have their own piece of real estate and their very own building. Over the past decade, virtually every Ministry and statutory board has constructed its own building, and some on prime land, no less. It is not quite clear to the public why this is necessary. Ownership of buildings and land, accounting issues aside, is very capital-intensive, and can distract Government agencies from pursuing their primary objectives and roles.

Sir, the issue goes really beyond the size of the development expenditure to one of balancing the Budget. Many Singaporeans accept that in order to have jobs, we need to have a conducive business environment and that reducing corporate and income taxes was a necessary step. They also accept that this could mean a revenue shortfall unless economic activity and, therefore tax collections pick up and compensate for the rate reduction, such as what we have seen previously. As many of my honourable colleagues have raised in this debate, the attendant question is therefore one of the quality of the Budget estimates or the possibility of reducing Government expenditure, both operating and development, against having to raise the GST. I shall not belabour the point as many of my colleagues have already spoken on the concerns over the increase in the GST rate.

Sir, if the public can be convinced that Government expenditure is well justified and that raising GST revenues was inevitable, then the transition will be acceptable and the offset package appreciated in its entirety. If, however, the public sees what it considers to be excesses in infrastructural building or in Government expenditure in general, then the GST increase will be resisted. I would, therefore, like the Minister to explain the underlying principles for undertaking massive infrastructural projects and the accountability thereafter. I would also like to urge the Minister to, firstly, review anew and scrutinise all real estate propositions by Ministries and statutory boards; secondly, urge all Ministries to be especially mindful of such expenditure; and, thirdly, to educate the public fully on the merits of such infrastructural projects.

Sir, notwithstanding the need to explain the balancing of the fiscal Budget, I agree with the underlying intent of the Budget which, I believe, will help put Singapore on a firmer path.

I support the Budget. 5.15 pm

Dr John Chen Seow Phun (Hong Kah): Mr Deputy Speaker, Sir, Mr Tan Soo Khoon is a good friend of mine. Whenever he speaks, he catches my attention and I enjoy listening to him. I am impressed with the well-researched figures he produced earlier. However, he told only half the story. I would be happier if he had juxtaposed his tables with another table showing the income, education and quality of life of Singaporeans over the same period. The point we should consider is not how much surpluses we generate but whether at the end of the day Singaporeans' lives have improved. And this is what this Budget and the GRC work are all about.

Sir, I wish to commend the Deputy Prime Minister on a very good Budget in Singapore in what is very challenging times. The restructuring of our fiscal system to make us nationally more competitive is critical to our long-term economic survival, as we face new challenges from globalisation and from newly developing countries like China.

I wish to propose four points for the Deputy Prime Minister to consider and, if he thinks fit, take them into account in the final Budget.

Sir, the market size in Singapore is limited. To survive globalisation, companies must expand regionally and internationally. In fact, the Government has been encouraging them to do so. However, when these companies make losses in their overseas investments, they are not allowed to offset these losses from their taxable profits in Singapore. To be fair to these companies that heed the call by our Government, the group tax offset for loss making local subsidiaries should also apply to overseas subsidiaries. This will provide additional incentive for our companies to risk their dream abroad.

In order to prevent abuses, certain limits could be placed. Perhaps a registration system could be implemented and administered by a Government agency.

The second point I want to touch on is on the single tier system for company taxation. The reduction of company taxes to 22%, with an eventual target of 20%, has been coupled with a single tier system for company taxation. This will result in the individual investor paying more taxes on the dividends he receives.

The retirees who have saved their money in the form of share investments pay little or no tax. It is this group of people who are the hardest hit by this measure and they are a group of people who can ill afford the additional burden.

Sir, as the economy matures, growth rates of companies will be slow, and a greater proportion of their profits would be returned to the investor as dividends. An investment strategy based on yield now becomes increasingly plausible compared to a growth strategy.

Apart from the professional fund managers and corporate investors, there are many individuals who invest long term to build up a retirement fund. The Special Retirement Scheme (SRS) has recently been introduced by the Government to encourage this group of people.

The dividend payout and the taxation it attracts affects the motivation of these long-term individual shareholders. The Government should not put them at a disadvantage compared to the pre-Budget situation.

Investment holding companies which make losses at the company level also suffer from the single tier proposal. Due to their nature, investment holding companies' only revenue source is from the dividends paid by their subsidiaries and associate companies. Since no tax credit can be claimed from the subsidiary's dividend, they cannot offset their running cost against their subsidiary's income.

I urge the DPM to reconsider the move to a single tier scheme for company taxation. The old scheme of franked tax credits for dividend paid has served us well and could be retained or dividends can be paid untaxed, ie, companies need not pay tax on the portion of profits paid out as dividends. In the latter scheme, individual taxpayers must then pay taxes on the dividend earned.

Since we are in the age of computers, there should not be much difficulty in administering either scheme. All listed companies are already reporting to the tax authorities the list of shareholders and their dividend distribution amounts via CDP computers.

Sir, the next point I want to touch on is on taxation of bank interest. Interest paid on deposits is a form of compensation for the opportunity cost of using the money and inflation. Many individuals in Singapore, especially the more risk averse, save their money in savings, deposits and fixed deposit accounts. Like the long-term investors I mentioned earlier, they are saving for their retirement. The Government ought to encourage this activity by not taxing the fruits of such savings.

I encourage the Government to bring forward the plan to waive taxation on interest as recommended by the ERC sub-committee. I am speaking especially for the man-in-the-street, who should not be penalised for saving his money in a deposit account by having his interest taxed.

Sir, the last point I want to make is on CPF review. It has been noted by Mr Lim Boon Heng that our older, lower income workers would face increasing uncertainty as our economy transforms. The world is entering into a new economic era and the impending restructuring of our economy cannot be avoided. However, we must remember our workers from the previous generation who have made Singapore the success she is today.

The Government has already done much for the lower-income group, through the various rebates, asset enhancement schemes and the New Singapore Shares, etc. It helps to narrow the disparity between our high income earners and the less fortunate. Mr Lim also mentioned, and I agree, that workers over 40 would find it difficult to find a new job. This could be either because their skill set is now less in demand due to economic and industrial restructuring, or because employers simply prefer to employ younger workers. Mr Lim floated the idea of lowering the CPF for these workers, ie, those over 40 to make them more competitive in the job market.

Mr Deputy Speaker, Sir, I agree that lowering the employer's CPF contribution for older workers would enhance the employment opportunities of these workers. However, I do not think that we should lower the total monthly CPF savings of these workers. Lowering the CPF rates is not without its associated problems. Firstly, it effectively lowers the worker's actual income although his take-home pay may remain the same. This may lead to a second problem of having less or insufficient funds for his retirement and healthcare needs. Workers with existing housing loan commitment may also be adversely affected by a lower CPF saving.

I would like to propose an alternative. My alternative is for the Government to subsidise or pay for part of the CPF for older workers below certain income levels to help them remain employed. This is a better way to help lower-income Singaporeans, compared to our previous schemes of CPF top-up. It not only provides sufficient incentive for employers to consider hiring older workers, it also sends a clear signal to them that older workers ought to be considered on an equal, if not favourable footing because of their experience, when deciding on suitable persons for job vacancies. Most importantly, this is a meaningful and effective programme to ensure our social stability and cohesion as we face globalisation head on and the spectre of greater income disparity. I am sure the ERC can work out the details.

Sir, I hope DPM could respond to these suggestions. On that note, I support the Budget.

The Senior Parliamentary Secretary to the Minister for Home Affairs (Encik Mohamad Maidin B P M): (In Malay): This year's Budget has shifted Singapore further into the path of indirect taxes. This is a very important and wise move. Over time, it should bring a lot of good, especially in our effort to be a more competitive business hub as well as to retain and attract talent and to generate investment and to create more jobs for our citizens, in the hope that these jobs would be better and bring higher wages for Singaporeans. Directly and indirectly, the reduced tax rates that had been announced would result in a saving of $900 million to our taxpayers in our country. I hope over the years, such savings would be put to good use, especially in the form of more investments by companies and individuals.

The new GST rate of 5% as announced is still among the lowest in the world although we agree that it could have some impact on the prices of goods. However, I believe the effect will not be too difficult for us to cope with. We need not be overly concerned about the effects on Singaporeans. I am sure that the rebates announced should take care of the people who need help. It is very important for us to look at the issues that we are facing now and these issues are not whether the GST should be at 3% or 5%. But to encourage investments and increase job opportunities, and should we fail in this area, we would be facing a bigger problem because without jobs, without income that is stable and permanent, even if we do not impose a GST, Singaporeans would be facing a big problem to survive, so the actual issue is to increase job opportunities for Singaporeans.

Mr Deputy Speaker, I would like to take this opportunity to assess the impact for us to help workers and Singaporeans in general from the income that they receive. Firstly, how can we help them to increase their savings and investments. Usually a person with income, his money would be spent on three areas: first, expenses; second, savings and perhaps some on investments. Every individual should make his own decision as to how and how much they should spend, save or invest.

Mr Deputy Speaker, I would like to suggest that our tax system be structured to encourage more people to work hard and save and also to invest some of their earnings and we should make this advantageous and profitable for our workers. This is necessary because generally many people feel that their purchasing value will be levelled out by inflation, ie, the purchasing value of cash would be eroded over time. So in this way we should give them a strong enough incentive to feel that saving and investing is a wise move. Otherwise, it is possible that many would end up with the idea that it is better to spend all now and worry about all else later. This is not a good situation for Singaporeans. As all forms of expenditure would involve GST, I wonder whether a person will get more benefit if he works hard to increase his savings and investments. At present, I think, based on our present taxation system, the answer is "Yes" and "No". I would explain why. One example is that should a person save every source of his income in a bank, the money escapes the GST, but the saver would have to pay a bank charge. The bank will pay an interest on the savings. However, at present, we find that the interest given by the banks in the form of fixed deposits or ordinary savings is still taxable. The amount of tax would depend on the individual's tax bracket. If the person belongs to a tax bracket of higher than the 5% GST rate, the interest earned would be taxed at a higher rate. The question is whether our taxation system is strong enough to attract Singaporeans to save. For the present, we find that the interest paid by the banks is very low. It is not attractive. Secondly, for a person who pays tax at the rate of 10%, I think the effect on his savings will not be much for him.

Furthermore, should he spend the interest from his savings in the future, it will still be subject to GST. So will the Minister consider enabling all forms of earnings to be exempted from tax because finally if the money is spent later, it would still include a portion for the GST? I think the same should be considered for personal investments. Like all investments, there are risks involved. Not all investments can bring in profit and since the Government has also encouraged the people to invest in shares, I would like to ask whether GST should be charged for the services provided to purchase shares.

Mr Deputy Speaker, I am not extending this argument to other forms of investments but only for investment of shares in listed companies in Singapore because for most people investment in shares of well-run companies may be the best way for them in using some of their savings for investments. And this process, I think, is still a learning process for most Singaporeans. I also feel that finally, when their investments are profitable, and Singaporeans who keep some of their earnings can still contribute by way of GST when they spend the money.

Finally, Mr Deputy Speaker, I would like to refer to the statement of the Minister for Finance when he said that the Budget this year is for a world that has changed and considering that the world has changed and it has brought uncertainties, we as a nation will have to take steps to adjust to it. I am sure that his words are relevant, not only for the Budget but also for all Singaporeans. We need to make a fundamental shift in the way we see and do things so that together, we could help in the remaking of Singapore. For workers in particular, there is a need for us to respond to the challenge to upgrade our skills, adjust ourselves and we should do this seriously so that we can continue to make ourselves relevant with the changing job profiles in the marketplace. Our investors should also stabilise and strengthen their position. Looking at the region, we should all work hard and grow the Asian economy that is developing and will continue to develop in the years to come. I am sure if all of us play our role, we can change the world at present now into a world where we can all be comfortable and improve our lives as individuals and as a nation.

I support the Budget this year.

Mr Sin Boon Ann (Tampines): Mr Deputy Speaker, Sir, the feeling of gloom and doom by many Singaporeans following the recent Address by our President at the Opening of Parliament is to some extent mitigated by the assurance of growth and employment that our Deputy Prime Minister gave on the Budget Statement which I rise in support of.

This Budget is constructed on the basis that we would restructure the economy of Singapore in order that we may stay competitive and in the process help to bring about sustainable growth and employment in the longer term. Towards this end, we have what many would consider to be a pro-business Budget that sets about introducing many incentives to induce businesses and even talents here; the key instrument in this statement being the reduction of corporate and personal income taxes. To ensure that the economy is sustainable in the long run, the Budget had to balance and we achieve this by raising indirect taxes in the form of five percentage points for the GST amongst other things.

In marginally shifting the centre of gravity from direct to indirect taxation, we are once again faced with the age-old issue of taxation and distributive justice in society. At the risk of over-simplifying matters, the question is: do we or should we continue to tax the rich highly, so that the benefits can be enjoyed more by the poor, or do we make the poor pay more indirectly, since many do not pay taxes, so that we can encourage the rich to remain or even come to us to help us grow the economy?

Since the announcement of the increase of the GST rate from 3% to 5%, there has been an understandable concern among Singaporeans about coping with the rising cost of living. As it is, even before the announcement of the increase in the GST, there have been constant complaints and grumbling on the ground about the rising cost of living in Singapore. The announcement of the increase therefore could not have, in the minds of many, come at a worse time, when many Singaporeans, especially the middle aged and unemployed Singaporeans, are in a predicament because of the recessionary climate of the economy.

To address these concerns, a comprehensive relief and offset package was announced at the same time. The package of GST offsets and reliefs are intended to help those who are in the lower income bands, and the announcements provide some comfort and cheer to many Singaporeans. The reliefs notwithstanding, there are however some issues and concerns that have since surfaced. Sir, if I may, I will just elaborate on some of these.

First, GST offsets and relief packages together with economic restructuring shares are temporary, while the increases in GST are permanent. Our Government has given the assurance that the present round of assistance should ensure that those in the lower income group would not be worse off than before the increase. While this is reassuring, the people would like to know whether the Government would be prepared to continue giving similar assistance after the initial five-year period is over and there are no signs of a long term recovery.

Secondly, and this relates to the earlier point and echoes the sentiments of many of my colleagues in this House, the Government had previously given utility rebates to lower income households to help defray the likely increases in the cost of living when the GST was first introduced. Why cannot the Government now introduce a similar rebate since for many of the lower income households, utilities constitute a substantial part of the household expenditure? I understand that utilities are a precious resource in Singapore, and giving utilities rebates may send the wrong signals to the public on consumption habits. While I can understand where the concern is coming from, I wonder whether this suspicion or concern was borne out the last time when such rebates were given. In other words, did the Government look into the consumption pattern when such rebates were given? My view is that rebates of this nature provide relief and I doubt very much if the majority of households would consciously or unconsciously increase spending on utilities simply because of the rebates. On the other hand, for the majority of the lower income households, such rebates and relief by the Government would be a welcome assistance indeed.

Thirdly, the Government has also given the assurance that increases in the GST would result in business operators taking advantage by profiteering. In this regard, we are told that a Committee has been set up under the leadership of my honourable colleague to deal with such problems. Sir, there are some reservations to this approach. To begin with, the Committee lacks teeth in the sense that it has no power to bring those guilty of profiteering to court and charge them with such excesses. All that the Committee can do for now is to work with the merchants to persuade them not to take advantage. This approach is what others would consider as moral suasion. In the worst-case scenario, the Committee may just shame the profiteers publicly through the media. While this may work in the case of blatant and outright shameless overpricing, it would be difficult to monitor in situations where price increases have been incremental and progressive over a period of time. How will the Committee deal with such a situation? It may be better perhaps if the Government could consider providing enabling legislation to allow the Committee the ability to deal with profiteers during this period of time.

Fourthly, many Singaporeans do not understand why it is necessary for the Government, on the one hand, to give out Singapore Shares and, on the other hand, take back such handouts through increases in the GST. There are many Singaporeans, especially those whose annual property value exceeds $10,000 who feel that they do not need such shares and it may be better if such resources are channelled to those Singaporeans who are in need of assistance during this period. This can take the form of a gradual increase in GST or that a fund can be set up to be given to the really poor through the grassroots organisations like the CCCs or the CDCs.

Over and above the concerns over the GST, there are many who feel that more should be done for the SMEs and these sentiments have been reflected early in this House. The reduction in income tax and the provision of group relief may give businesses much encouragement and incentive. However, there is some disappointment as nothing was specifically targeted at the SMEs. To begin with, there are many SMEs who are not GST registered. Sir, we know that the operating principle of GST is to pass tax down the value chain so that the goods and services do not technically end up having a compounded payment of GST. However, with the increases in GST and in the climate of extreme competition, the manufacturer or the service provider may well absorb increases in GST. If the party concerned is profitable, the reduction in income tax payment could well be offset, or used to offset the absorption. On the other hand, if the business of the manufacturer or the service provider is poor, the increases in GST may well add to his woes.

Sir, we accept and recognise that SMEs play a pivotal role in reshaping our economy. SMEs are essentially homegrown industries and are largely owned by Singaporeans. While we would in the longer term have to rely on the GLCs with their resources to provide the charge in creating world-class companies, that charge alone would not be sufficient if it were not supported by the SMEs. Indeed, many of the SMEs have the potential to become world leaders in their own field if only they were properly funded and supported. And it would not be asking too much of the Government at this time to constantly remember them when looking at the slew of incentives to improve the business environment here; and I would say that we should constantly be looking at finding out who the promising SMEs are that we can nurture into world-class companies.

Sir, many Singaporeans have asked whether by going along with the increase in the GST, there is any assurance that the economy will turn around. I started my speech by saying that this Budget serves to mitigate the climate of doom and gloom that has brought about a climate of pessimism all round. I must reiterate that I am confident that it will. However, much has to be done.

Sir, in the earlier debate on the Presidential Address, I had advocated a central tenet that we should continue to use our reserves to explore acquisitions in world class companies or companies with world class potential and then leverage on these companies to help bring our people up to speed on the demands of international business. With a successful external economy, we could then afford to have a little slack or inefficiency in our domestic economy in order to keep our people employed. We are a very small economy and for us to compete effectively, we must learn to think of the world as our hunting ground.

Next, while there is some measure of hollowing out, I do not think that there will be a complete hollowing out of our manufacturing industries. It has often been said that Singapore is a country that runs like a well-oiled machinery. Everything here works. And this will surely be our advantage. I have often said that while Singapore may lack the critical mass to produce world-class talents, but when you take everything in its totality, Singapore can present quite a formidable challenge even to China. Yes, we may not have the most brilliant surgeon compared to China. However, I know that if a Singapore surgeon operates on me, the blood that the hospital here supplies me is safe, the operating theatre is clinical and I will not get secondary infections in the process. I also know that the intensive care unit will be well run and their staff will be competent. In other words, it is not the surgeon's skill alone that will ensure my survival, but rather the entire system that works to support him. I am sure that many foreigners see this and share the confidence that we have in our system.

Indeed, while China is powering ahead with its economic boom, there are on-going reports of its systemic weakness that may well in the long run hinder its growth. Much concern has been raised about the weakness of its financial institutions, the state-owned enterprises, and the extent of corruption within the system.

We will have to continue to find new niches that enable us to take our place in the world economy. Our present strategy is right. While industries may continue to hollow out, there will be other industries that will replace it. New activities such as pharmaceuticals, chemicals, wafer fabs and high-end electronic manufacturing should continue to be encouraged to move here. There will be some pains initially in the process as we move higher up the value chain; however, this is a necessary step.

While it is unfortunate that our service sector has been dealt a major blow with the departure of two large customers, we should not lose heart, as we firmly believe that with new pricing and other strategies, we will be able to compete even more effectively. Indeed, the recent liberalisation moves have sparked off growth in several service industries. Many segments of financial services, telecommunications and media have picked up as a result. I am certain that the new moves to reduce income taxes will continue to make us attractive to foreign investment capital.

Sir, in the final analysis, will we survive in the middle term? I am under no illusion that we will have no difficulty surviving for the next five years. In fact, generating annual growth rates of between 2% and 3% should not be a problem for us. For the longer term, I believe we should have a new social compact with our people; we need to get everyone to pull the gravy train in the same direction.

With that, I support the motion.

Mdm Cynthia Phua (Aljunied): Mr Deputy Speaker, Sir, thank you for giving me this opportunity to join in the debate.

In Deputy Prime Minister and Minister for Finance's Budget Statement, he painted the scenario of a harsh and turbulent world that Singapore is in now. I would not dwell on the fiscal measures of the Budget but would like to urge the Government to review its impact on the human and social capital. I would address three concerns of the Budget and highlight one observation.

For those who are in the 40s, we are the baby boomers of the 50s. This is the significant age mentioned in the recent debate on the CPF rates. I would like to take this opportunity to highlight to the Economic Review Sub-committee, tasked to make a review of the CPF rates, to take into consideration that at this age group of 40, we have the old and the young with us [you lao, you shao]. Our expenses are the heaviest at this age group. Most of us were married in our late 20s, and at 40s, our children are only either in the teens or in the tertiary age group, and we still need to support our active parents.

My first concern. With the description of the turbulent times, harsh volatile economy, fierce competition, fast changes and disruption, not only the working adults, but the whole family, are subject to this stress and strain in this kind of environment. While the Government is steering and urging the people to prepare and adapt to change, in this Budget I would like to urge the Ministries to be bold in the provision of support services to our people at the local community.

Since the 1990s, we have seen many Ministries becoming very specialised in the provision of various support facilities at the local community, together with the various voluntary welfare organisations. We have social services provided by the CDCs and various VWOs, through the Family Service Centres (FSCs), the Senior Activity Centres (SACs) and now, I understand, that there are the Neighbourhood-linked Centres. I just realise the existence of these Neighbourhood-linked Centres when I wanted to set up a Senior Activity Centre. Very confusing indeed! This is exactly what happened at the local community level. When one family is in need of help, whether it is a child who needs counselling or getting home-based services to bring the handicapped or the sick regularly for medical services, or seeking for financial assistance and advice, the family must know which "C", or centre, to go for assistance.

I am urging the Government to consider and allocate additional resources for an integrated centre for the provision of social and community services to our families at the local community. There is a need for a one-stop service centre for families.

My second concern. Many of my colleagues have spoken on this issue of unemployment and job-matching services. The rate of successful job-matching is dismally low for the above-40s, as highlighted by Dr Lee yesterday. It is half the success rate of that of the younger unemployed, which is at 8%. I urge a budget be allocated not just for simple job-matching services but bold and innovative measures for job-matching agencies, such as NTUC, MOM, CDCs, to have a collaborative joint effort with employers' associations, unions and career development and training professionals to help chart the career path for targeted groups of the unemployed. This is to enable them to acquire the required skill sets that will make them employable. This is similarly done by most forward-looking companies for their employees, so as to make them more efficient and able to meet the demands of the future.

From the meet-the-people sessions and house-to-house visits, we could identify two main unemployed groups of above 40s - the professionals and executives as one group, and women who are formerly working in the factories as the other group. The GST package would not be able to help these groups if they cannot find alternative employment. With a clear and identified career charted out and a planned and identified programme for training for these distinct groups, effective changes and results can then be achieved.

I urge for more focus on the success rate of the matching services rather than the front-end application of job-matching services by our various Government agencies.

My third issue. Ms Indranee has spoken of the encouragement of procreation. The rate of 1.4 is below the replacement rate, the lowest in history, and knowing the seriousness and impact this has on our economy in time to come, I would like to encourage and convince the third group, that is, married couples who have the first child and decided to stop at one or two, to have more children. I would like to share my personal experience. I was very concerned of two things at that time - commitment and expenses. However, I was wrong. I really enjoyed motherhood with this third child that I have. Although I have less time with him, his two other elder siblings keep him occupied and entertained and actively help me to bring up their little brother. He is a most cheerful boy, always smiling, and is most alert as he would disappear when his elder siblings have a situation with me. The power of play and learn among the siblings cannot be under-estimated within a family.

I would like to urge the Government to re-broach the issue of encouraging more children through sibling support, as the joy and benefits of the older children who gain from the experience are much more beneficial and long lasting. As this is a Budget debate, I would like also to take this opportunity to urge for more direct incentives for the children, to help families with young children and working mothers, ie, increase the amount for the second and third childcare subsidies and adding the before-and-after-school care subsidy. I too would like to support Mdm Halimah's call for review of medical benefits for the children of women civil servants. This would definitely help in the course of bringing up the children.

To end, I would like again to urge the Government agencies and Ministries to think out-of-the-box to review and realign the resources to provide closer and direct assistance support services to our families at the local community in this period of change.

Sir, I support the Budget.

Dr Teo Ho Pin (Holland-Bukit Panjang): Mr Deputy Speaker, Sir, I would like to propose the following measures for the Finance Minister to consider.

Economic Restructuring Shares for all Singaporeans

Sir, many adult Singaporeans welcome the issue of the Economic Restructuring Shares. But some queried why the shares are issued to adult Singaporeans only. Babies, children and teenagers are also affected by the GST increase. In fact, some babies are bigger consumers than the elderly. In line with the Government's push to encourage families who can afford to have more children, we should recognise and reward those with two or more children.

Similarly, lower income families under the Small Families Improvement Scheme should also be rewarded for keeping their families small so that more resources can be channelled to their children. Thus, I would urge the Finance Minister to consider issuing Economic Restructuring shares for children and teenagers. In this way, all Singaporeans will understand that the economic restructuring process involves everyone.

Pre-school programme subsidy

Sir, I support the 7.4% increase in budget for the Ministry of Education. The expenditure is mainly attributed to general education, university, polytechnic, and ITE programmes. But there is no support for pre-school education programme. The Government has always considered pre-school education as the private sector's responsibility, and thus has not provided much guidance and support.

However, in recent years, feedback from many primary schools has highlighted that the different teaching approaches and standards of private pre-school operators have produced pupils with differing standards of reading and writing skills. This has posed difficulty and affected the pace of teaching in primary schools.

Sir, the importance of pre-school education in preparing our children for primary school education must not be overlooked. While the Government provides subsidy for childcare and formal education, there is no subsidy for pre-school programmes. As education has always been a priority for our Government, I would urge the Finance Minister to consider providing pre-school fee subsidy to pre-school pupils. Presently, pre-school pupils pay between $25 and $800 per month for their school fees. This poses much financial burden, especially for the middle and lower-income families.

In addition, I would urge the Government to consider providing subsidy on a per capita basis for pre-school operators. This will facilitate the recruitment of better quality pre-school teachers and the acquisition of essential resources to improve the standard of pre-school education. The Education Ministry can also play a leading role to ensure quality in pre-school education. By working closely with pre-school operators, we will be able to provide good quality and affordable pre-school programmes for our children. This will provide a strong foundation for children entering primary schools.

Property tax

Sir, the implementation of GST has changed the taxation philosophy of Singapore. It is a broad-based consumption tax, which provides the necessary revenue for the Government. Therefore, we should review and gradually remove other taxes, especially real estate and asset ownership taxes. The asset enhancement push by the Government has encouraged many Singaporeans to be home owners.

Property tax is part of ownership cost, especially for owner-occupied properties. In order to continue to encourage Singaporeans to own their homes, I propose that owner-occupied properties be exempted from property tax. Many associations and non-profit organisations have also voiced their concerns on the property tax of their premises. Many felt that the Government should show philanthropy and not impose property tax on these non-profit and community-based organisations. I would urge the Finance Minister to promote philanthropy by taking the lead in removing the property tax for all associations and non-profit organisations. Season car parking charges

The increase in car parking charges has raised concerns, especially among car owners in HDB estates. Many felt that season car parking fee is part of car ownership cost, which HDB car owners must pay monthly. It is not related to car usage per se and thus should be differentiated from the URA/HDB hourly parking charges. Many HDB car owners are delivery drivers or work in sales-related jobs. The increase in season car parking charges will pose additional burden or increase the business cost of their companies.

Sir, at present, HDB pays town councils $4.80 per car park lot per month to maintain the car park, while collecting a monthly season parking fee of $75 and daily car parking charges for a lot. Car parks are relatively maintenance free if properly constructed. To avoid the situation of HDB having a deficit, HDB should build no-frills multi-storey car parks so as to reduce the cost of construction and maintenance. This will indirectly help to reduce car ownership cost in the long run.

Employment assistance scheme

Despite efforts by the Ministry of Manpower and the Community Development Councils, many retrenched and unemployed Singaporeans are still unable to find jobs. Skills, age and attitude of these job seekers have been identified as the main hurdles for them to be employed. We need to provide more employment assistance to help these hard-to-employ Singaporeans back to work. One effective approach to upgrade workers' skills and change their mindsets is to promote employer-led initiatives under which the workers learn key skills in their workplace. But we must be focused and strategic in identifying future industries for this group of Singaporeans. For example, the service industry is a potential and attractive sector to provide employment and skills upgrading for these Singaporeans.

Sir, I would like to propose a two-pronged approach to help these hard-to- employ Singaporeans to join the service industry. First, we need to attract more tourists to Singapore so as to create more job opportunities. We must adopt more creative and innovative strategies to expand our tourism industry. We have to carve out new niches and have new tourism features that would attract repeat visits.

Secondly, the Government can, in the meantime, be the surrogate employer for on-the-job training and employment schemes initiated by employers. Many hard-to-employ Singaporeans do not have money to enrol in training courses and are not convinced that they will get employment after attending these courses. As a result, the present skills upgrading and traineeship schemes achieve limited success. We must provide more support for employment-related training schemes where workers learn skills while in employment.

HDB lift upgrading programme

A total of $325 million has been allocated for the upgrading of HDB precincts. But only $43 million will be used for lift upgrading. The upgrading of lifts to provide for easy access at every floor is crucial in view of our ageing population. Besides the elderly, the handicapped, disabled, injured, sick, bedridden and pregnant women are also affected. Many HDB flats that were built in the 80s do not have lifts stopping at every floor level. If HDB were to adopt the present pace of lift upgrading, these residents may have to wait many years before realising the benefits. Thus, I would urge the Government to expedite the lift upgrading programme.

Sir, I support the motion. 6.08 pm

The Deputy Prime Minister and Minister for Finance (Mr Lee Hsien Loong): Mr Deputy Speaker, Sir, I thank all the MPs who have spoken and the many who have supported the Government's financial policy for this financial year.

These tax changes are a vital part of our economic restructuring efforts to secure economic growth and to create new jobs for Singaporeans. I stated the rationale in the Budget speech. To create jobs, we need to attract investments and talent to Singapore. To attract investments and talent, we must bring down our taxes and, particularly, we have to bring down our direct taxes - the corporate income tax and the personal income tax. That is the only way we can be competitive in attracting companies and talent here. But if we bring down our direct taxes, we are going to have a shortfall in revenue and to make up the shortfall in revenue, we have to raise the GST. This is not a quick fix for this year, or for next year, but it is a strategic shift for the medium and long term for Singapore.

I am happy that the growth this year is turning out well. But that is not the measure of our success. Our measure is that the economy continues to grow 4-6% per year for the next decade, and to deliver prosperity to Singaporeans.

How much difference will this shift in taxes make? It is hard to quantify. But it is quite clear that if you look back over the last 17 years since 1985, had we not made a strategic shift from corporate and personal taxes at 40% in 1985, progressively down to 33% after the recession in 1985, then down to 28% when we introduced the GST, then gradually down to around 25% today, we would not have had the high growth which we enjoyed, nearly 10% per year after 1997, and even in the last five years, nearly 5% per year. If we had stayed where we were, 40% in 1985, you can say you are happy to pay tax, and maybe Mr Tan Soo Khoon will be happy to pay tax truly, but I do not know how many others would be, and we would not be sitting pretty today. So, in the same way as we go forward, we have to bring our direct tax rates further down, and we have to bring our GST up.

Some MPs, Mr Ong Kian Min and also Mr Low Thia Khiang, have described this as a tax change which will only benefit the rich. One of them put it colourfully, although not very originally, by the rich, for the rich, of the rich. But, in fact, this is a tax change to benefit the whole economy. The way to help Singaporeans, and especially lower income Singaporeans, is not to tax the better off Singaporeans as heavily as possible. If that were the way to prosperity and nirvana, it would be quite simple. I just push the tax rates up, 40%, 50%, 60%, collect, redistribute. Happiness all round. But if you try to do that, the high income individuals and certainly the profitable companies would leave Singapore together. We would lose the jobs that they created as well as the taxes which they would have been paying. As Mr Matthias Yao put it picturesquely, you can rob the Sheriff of Nottingham, but the Sheriff has gone off to Hong Kong, and he is on his way to Shanghai. When that happens, all Singaporeans would be the worse off for it.

Low income Singaporeans do not pay personal income tax. So they will not benefit directly from the cuts in the income tax, but they will benefit. They will benefit from the increased growth, they will benefit from the job opportunities that the tax cuts will foster.

Mr Tan Soo Khoon says that GST is regressive. Yes, it is. But we have to look at the whole tax system which is very progressive, and the whole tax system includes personal income tax, corporate income tax, property tax, which is a wealth tax, and includes taxes on cars, which is a very heavy wealth tax even after these changes, and it includes the GST. After we have done these restructuring, after we have brought the corporate and personal taxes down to 20% and pushed the GST up to the horrendous figure of 5%, we will still only be collecting $4 billion in GST, compared to $12 billion of revenues from corporate and personal income taxes. In other words, direct taxes will still account for three times as much revenue as our GST, and two thirds of working Singaporeans do not pay personal income tax. So if we take the tax system as a whole even after this change, it will be a very progressive tax system, not just looking at it in itself, but looking at it compared to other tax systems in other countries. For example, in Britain, you pay tax almost from the first pound you earn, 20 cents per pound, or thereabouts. But in Singapore, we say the first $20,000 is yours.

So, let us not get carried away by rhetoric added in the middle of the night. If we account not just for the tax system but also for the expenditure, the spending of the Government, then you will see that, in fact, we have an even more progressive system than that. Because the Government's social spending is very heavily focused on the lower income groups, our housing subsidies, our HDB flats, subsidised rents, free education, almost free or very cheap tertiary education, subsidised basic medical care. If you take this whole package together, in fact, for the vast majority of Singaporeans, the amount which you receive in benefits very far outweigh the amount which you pay in tax, and adjusting the GST is just a small correction to this overall balance.

We did a calculation once that, for a household around the median, $50,000 annual income, 4-room HDB flat, tax burden overall, all things considered, would be $7,500 a year; benefits in kind, $18,600 a year, more than double. So I think we can stand up honourably and proudly and say we are doing the right thing for Singaporeans.

Many MPs have asked me in this debate: will it work? Mr Yeo Guat Kwang raised this, Dr Chong Weng Chiew raised this, and Mr Low Thia Khiang asked this too. Will it work? If you cut CIT, PIT, if you raise the GST, will business come? We cannot be sure. As many MPs have pointed out, there are other factors at work, there is a pull of China, there is a concern over the region, there is the smallness of our market and the image of Southeast Asia as being not an exciting place to be. In fact, there is no image because it is off the radar screen for many investors. But all the more, because of these negative factors, we must get our tax rates right and register that if you do come to Singapore and you do make money, then it is worth your while to be here.

Direct taxes are the primary fiscal tool that the Government can use to attract investments and talent. It is not everything, but it makes a difference. Once we read the Budget speech, EDB, always fast off the mark, went and knocked on doors in America to try and get new business, and they have reported that American companies have fed back that they have taken note of our Budget package. They have noted that we have made the right fiscal moves.

Recently, the Economist Intelligence Unit rankings have placed us first in Asia, ahead of Hong Kong, and mainly in recognition of our planned tax cuts and our avoidance of budget deficits. And, recently, over the weekend, I had a visitor from America who runs a think-tank. He spent a few weeks in the region, including Singapore, and he congratulated me on our Budget. He said, "You are doing absolutely the right thing, bringing down the direct taxes, shifting over to consumption tax, encouraging enterprise and investments." If he thinks that, and if his think-tank reflects those views, I think other Americans will also know and it will make a difference.

If we do not do this, of course, then the chances of our maintaining 4%-6% growth in the medium term will be considerably dimmed. Granted that we have to do this, is the timing right? Mr Iswaran and Mr Inderjit Singh and others have questioned the necessity of raising GST in 2003. Why not put it off? After all, we have an offset package, so it is not going to raise much revenue next year, so why not do it later on, five years from now? I think we are at a turning point. Let us take all the measures we have to do and do them now, take our medicine and, if we can have a bit of sugar to go with it, let us have the sugar to go with it, but the medicine is in place. You say push it off - maybe I do not have a deficit, can push it off; maybe the deficit is not permanent, push it off; maybe it is not a big permanent deficit, push it off further; maybe I can afford a permanent deficit because I have reserves. Eventually, we will be in a chronic position, unable to salvage our situation.

The reason we are sitting pretty today is because we have not allowed this procrastination to happen and allowed ourselves to drift into a weak fiscal position. And if we put it off until we are really in difficulty, and then implement a goods and services tax, will we be able to do it as now, with a comprehensive package to make sure that everybody can accept it and ease it in so that in five years' time, after the package is over, the tax is in place, the economy has grown and everybody is all right? If I do it five years from now, will Mr Low or even Mr Inderjit Singh stand up and tell me, "Well, now we are in straitened times, let us proceed, we will take it cold turkey, no need for offset package." I cannot see that. So I think we better take it now. We have an offset package that looks after nearly every Singaporean. Let us get over this hurdle and then a new vista will open, and we have new possibilities.

Some MPs, of course, have asked whether we need to raise GST at all - Mr Low Thia Khiang, followed by Mr Tan Soo Khoon and a few others. I would say that raising GST to 5% is the anchor move in this tax restructuring strategy. We are bringing down our direct taxes, we are bringing up GST. The key parameter, the key shift, is to move the GST from 3% to 5%. We fix that, then we will adjust the other parameters, depending on what we can afford and how the economy turns out and what the external circumstances are.

We have calculated that if we go from 3% to 5% with the GST, we can afford to bring down direct taxes to 20% by FY2004 and, at the same time, we can afford to fund all the programmes we need. It is going to cost us about $1 billion in revenue lost but, if we do our sums carefully and we are careful with our expenditures, I think we can afford that. If it turns out that things are better than we expected and we collect more revenue than we estimate, I would say that is a happy problem. But the solution to that problem is not to reduce the GST. I say keep it at 5%. If I have surpluses, I can share the surpluses. If the economy does well, I can have New Singapore Shares.

Alternatively, if my revenues are strong but it is a competitive environment which has become even more competitive, I have the flexibility to bring my direct taxes down further, below 20%, to 19% or 18%, depending on what we need and how soon we need to move. But it gives us options, cards, which we can play in a game where we do not really know what the rules are and every card we have, we better keep in our pocket and save for a difficult moment. This is not yet a difficult moment.

This increase in GST, we expect, will raise $1.3 billion extra of tax revenue per year. This is assuming growth is about 4%. If growth is more, then there will be more revenue. If we forgo this increase in GST, that means we are giving up $1.3 billion of revenue a year. In other words, we will have to reduce Government development expenditure by 15% in order to balance the Budget. And $1.3 billion is roughly equal to one year of HDB upgrading and public housing subsidies. It is not a small sum. We will save on buildings, we will save on renaming, we will make sure that all our little expenditures are well justified and, where MPs have questions, whether it is A*STAR, SPRING Singapore or the furnishings in some buildings, raise them in the Committee of Supply and argue about them. The Ministers will defend and justify what they have done. And I fully sympathise with the sentiment that we should be very careful when we spend public funds. Whether it is $1, $100 or $100 million, that is Government money. Do not spend it unless you absolutely have to.

In fact, when we built this Parliament House, we had a special committee to make sure that it did not end up too plush, and Mr Tan Soo Khoon will know. He was Chairman of the committee. If you go around and you find the furnishings somewhat spartan, you will know it is the good work of the former Speaker. And that is what we should do with all our buildings. But even if I turn all our buildings back to Central Supplies Office furniture and put MPs on Government issued benches, it will not come to $1.3 billion. So we have to do this.

Mr Tan Soo Khoon raised several basic points about the package. First, he questioned whether the 1994 package of GST, plus direct tax reductions, was in fact revenue-neutral. He showed us a table, he raised some questions but, if I may refer Members to the table, I think it does not show that the package was not revenue-neutral. What we said, when we introduced GST in 1994, was that for the first five years we will be revenue-negative, because there are offsets, there are expenditures to ease it in. After five years, we hope to be revenue-neutral. If we look at his Table 2, column 3, Actual Surplus, we started off with an actual surplus of $8.5 billion in 1994, it went down in 1995 to $6 billion, thereafter it fluctuated: $2 billion, $5 billion, $1 billion, $5 billion and $4 billion. So it shows that the surplus has gone down. Our expenditure has varied some too. But, overall, it does not show that our surplus has gone up. So, on this basis, there is no reason to believe it was not revenue-neutral.

Table 1 shows that the revenue from GST was more than we expected. Yes, that is true. It is true because the economy grew more than we expected. We did not plan for 10% growth per year. We were lucky we enjoyed it. We did not plan for 5% in the middle of the crisis, but we enjoyed it. So, revenue from GST was higher than we expected. But so, too, the discounts on the personal and the corporate income taxes were higher than expected. Because revenues were buoyant, so the percentage discount was correspondingly bigger. There is no column for the discount there because it was not in the IRAS annual report. But if you had computed them, you would have seen that they too would have grown and, overall, they would, more or less, have broken even. So, the figures sounded good, the table looked interesting, but I think the conclusion was mistaken.

The question is: going forward, will we be lucky to have a table looking like this again? Since 1994, we have enjoyed high growth. Therefore, revenue was buoyant. Furthermore, expenditures could be capped - the population was young, social spending was not high, we did not worry about structural unemployment, many pressing demands on our exchequer. The question is: do we believe that we are at a turning point, that the world has changed, that going forward, what was will not again be? If we believe that the world has changed, then can we really not increase the GST and raise the extra $1.3 billion? On the other hand, if we believe, as Mr Tan says, the economic pie will expand, then we have no problem. If he is right and I am wrong, then the Government will be in a happy position of sharing out the surpluses. If he is wrong and, unfortunately, we are right, this is a turning point and we did not take the bend and we went off the road, then our problems will be very, very serious. So, if we want to ponder the alternatives, even if we are not sure, I think we make this fundamental move now.

Mr Chiam See Tong wants the Government to promise not to increase the GST for five years. In 1994, we promised this. When we introduced the GST, we said 3%, five years, no change. This time, I can honestly say that a GST increase within the next five years is not in my plans, and not in the Government's plans. But I cannot promise this because, this time, it is a different situation from 1994. In 1994, we were going swimmingly, the region looked good, we did not expect 10% but we expected steady growth, we calculated our sums, we felt safe for five years. Now you can have the most massive super computer, you cannot predict what is going to happen in the next five years. Will there be a war in Iraq? What will happen on the West Bank between the Israelis and the Palestinians? What will happen with Laskar Jihad in Indonesia? If you could tell me that all those would be no problem, I could give you a promise. You cannot, and we cannot promise, but it is not our plan.

We have calculated our offset package based on 5% GST and a certain amount of ERS and other items, and we think that it will offset more than five years. So, that is the basis on which we are calculating. But, if the kaleidoscope turns, that is a new ball game, and it is only fair that we warn everybody.

Raising the GST to 5% will be sufficient for us to cut our corporate and personal income taxes to 20% and we will not need to raise the GST again just to move the corporate and personal income taxes down to 20%. We have calculated that it is enough. We are prepared to take the loss, and we will be able just to keep our noses above water.

Will the GST increase raise prices and cut consumption? Several MPs, such as Mr Heng Chee How and Mr Iswaran, have raised this question. I would say that if we did not offset the GST increase, we would have a problem. It happened in Japan. They went from 3% to 5% at an inopportune moment, people held back on spending, the economy went into a tailspin. But we have an offset package which more than offsets the GST for five years and, in fact, it is front-loaded. So, we are giving the ERS over three years to offset spending for five years. The offset package will restore the households' purchasing power and may even cause some of the households to bring forward their spending because, on 1st January 2003, if you have the offset package, you can withdraw $300 and spend it. I would not recommend it because then you would not get the bonus shares but, if you want to, you can.

Will the GST raise prices? Some, but I do not think it will be a big impact. As Mr Low Thia Khiang pointed out, hawkers are not doing that well and will not be able to increase prices that much. I think he understands what the real market balance is.

When we introduced the GST in 1994, there was a little bit of a blip in inflation but it was hardly noticeable. Inflation was about 2%, it went up to 3% for one year, came back down to around 2% and stayed there for a long time. This time, we are expecting zero or negative inflation in 2002, and the GST increase is only 2%, compared to 3% in 1994. So, the impact should be less and it should not trigger inflation. But, if it does, or if there are some shops, hawkers or unscrupulous profiteers who want to take advantage of this, we have a committee on profiteering who should name them, shame them and highlight alternatives where people can go to. Mr Chan Soo Sen is chairing this committee. I am happy to learn that he has invited Mr Chiam See Tong who has agreed to sit on the committee. Mr Steve Chia has also agreed to serve on the committee. So, it is all entirely aboveboard. We will show you the statistics. We sample, we go and measure prices across the board, and you will see the statistics. If it is up, it is up. If it is not up, I hope you will be able to vouch for it that this is what the real situation was.

Finally, on GST, there are many misperceptions. Mr Leong Horn Kee pointed out some of them and Mr Hawazi too, and encourage us to do more to dispel misconceptions about the GST, and especially the misconception that GST involves tax on tax, and because it is on many stages of production, although you say it is 5%, at the end of the day, the GST adds up to more than 5%. I have prepared a chart (Cols. 1089-92) which tries to explain this. I would like to ask the Clerk to distribute this to Members and I would take you through it briefly. [Chart distributed to hon. Members.] Chart - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1089-1090)

Table - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1091-1092)

Let us just look at the left side of the chart. There are two examples. On the left, there are two scenarios: one, where the retailer is GST-registered; one where the retailer is not registered. Let us, just for simplicity, look at scenario A. You are buying a television set, it costs $300, without GST. You pay the retailer $300, GST of $15, so it is $315. The retailer paid the manufacturer $200 for the set. His mark-up was $100. The manufacturer paid the parts supplier $100 for the set. The manufacturer's mark-up was $100. Now, how much GST was paid? The parts supplier paid $5 of GST to IRAS, because his price was $100, he paid $5. The manufacturer paid $10 of GST to IRAS because his price was $200, 5% of $200 is $10. But because the manufacturer paid the supplier $100 plus $5, so he claimed from IRAS a refund of $5, so the manufacturer paid $5. The retailer pays $15 of GST, which he collected from a consumer, to IRAS. But the retailer had already paid $10 of the GST to the manufacturer, so he gets a refund of $10 from IRAS. So the total amount of GST collected by IRAS on the television set, from the start of the process, when it was components all the way to the end when it was delivered to the consumer is $5 plus $5 plus $5, it is $15. In other words, there is no tax on tax.

And if the retailer was not GST-registered, he has a small shop, then we look at the right-hand side of the page. In that case, he does not collect GST, but he has to pay $10 of GST to the manufacturer. And having paid $10 to the manufacturer, he marks up his product, and sells it for $310. He did not have to deal with IRAS. The consumer got the television for $310, instead of $315, and the SME still gets the same mark-up as before. In other words, whether the SME is registered or not, you only pay GST once on the product. Furthermore, if the SME is not registered, he is at an advantage, compared to the registered company. And when the tax went up from 3% to 5%, his advantage grew bigger, because now he can sell for $5 less. Previously, it was a $3 difference. This explains why it is not a tax on tax. It is fair, it is efficient, it taxes just once.

Let me address another basic issue which Mr Chiam raised: why is this Government obsessed with surpluses and reserves? I am not sure that I would say we are obsessed but I think we are highly preoccupied with it. We have a reason to be highly preoccupied because, unlike other countries they can always fall back on timber, oil, gas. Somebody said oil wells but, alas, it was only a slip of the tongue. The only resources we have are our people and our financial reserves. That is all. The stability of our Singapore dollar and of your savings and your CPF money depends on our maintaining healthy financial reserves and fiscal surpluses.

A strong financial position instills investor confidence, it instills confidence in the Government, it instills confidence in the Singapore economy, it gives Singaporeans confidence in their country. That is why we must maintain the reserves, gradually build them up, and not lightly draw upon them. But we never say never. There will be occasions when we need to tap on the reserves in extremis. It could be an emergency. It could be a dire economic situation. It could be a security emergency, and you have to expand Government's spending and you cannot raise taxes, and you have to draw on the reserves.

You never know how long the bad times will last and you should be slow to squeeze the trigger because once you spend them, it will take you very long to build them back up again. With the reserves, we have the flexibility and the capability to respond to the needs of Singaporeans in difficult times.

We had an off-Budget package last year. We said $11.3 billion. Nobody blinked an eyelid in Singapore. No other government can make an offset package of 7% of GDP, $11.3 billion, and you do not need to worry where the money has come from. We could do it last year because we had reserves, and even then, only because we had been lucky. Since 1997, despite the economic difficulties, we were able to build up surpluses and we had something put aside which we could use when we needed to.

If we did not have that, we would not be able to have that flexibility to help Singaporeans. In any case, I really ought to point out that Mr Chiam got his sums wrong on the FY2002 Budget surplus, because we are not expecting a small surplus, as he has said. After we have made the tax changes and made the offset package, we are expecting a small deficit.

Now, let me deal with the offset package. Mr Iswaran and Mdm Ho Geok Choo said that one's housing type was not a good criterion for distributing the ERS. I agree. It is not ideal. We had considered the alternative, which is to use income. But income also is not ideal and raises other problems. Let me just go through them briefly.

First of all, if you had no earned income, it does not mean you are poor. Your husband may be looking after you, your wife may be looking after you, you might be living in a big house, you may have wealth. So, to go on a person's income is not quite a reliable measure.

Also, we have to use the household income. You cannot look at the income of the person, but you have to look on a household basis, which means that I have to check who are all the members of the household, how much do they individually earn, tally it all up, add it together, all of which means using IRAS numbers, and then informing the household that, "I have added up all your incomes and it adds up to this amount of money, and this is what you are entitled to". I think it would be very complex and rather intrusive and many households would prefer us not to add their incomes together and tell us how much it adds up to.

Having considered that, we decided it is easier for us to go back to housing, but we will not make fine distinctions between 5-room, 4-room and 3-room in our main component of our offset package, which is the ERS. Let us give nearly everybody $1,200. But at the top, if you are living in a fairly large private property, which is what the $10,000 annual value means, then we will give you $600 worth of shares, instead of $1,200 worth of shares. It is a rough and ready measure, but it is approximate.

Why did we even give $600, some people asked, maybe they do not deserve. Well, because I cannot be sure that if you are living in a condominium that you have a high income. As many MPs have pointed out, you may be living in a condominium and you may be a retiree and you may need the money. So, as a rough and ready measure, we said, "$1,200, and at the top, $600 worth", not perfect but reasonable and practical.

Our fall-back solution, in case anybody says, "It is not fair to me" is that if any household is not fairly treated because of your circumstances - for example, you are a retiree living in a terrace house - then you should approach your CCC. Your CCC will study your case and help you through the CCC assistance scheme.

Of course, if you are a low-income Government civil servant, retired, then we are going to revise the Singapore Allowance. We have not decided how much yet, but if you just do some rough sum, even if it is $10-$20 worth of a revision, that is worth a lot, in terms of extra GST payable, because that is $10-$20 per month. Therefore, we can promise that if you are the lower-income, lower half of the population, the offset package will look after you for at least five years. If you feel that it has not, see your CCC and they will sort it out. I can say this with some confidence because, actually, the people who are the lowest income should have no problem. Once we have ERS, it should be sorted out.

I will just do one more sum. Let us say you are earning $2,000 a month. 2% extra of GST means $40 extra of GST per month. For a year, it is $480 extra of GST per year; five years, $2,400 of extra GST. Husband and wife, ERS is $2,400. Even not counting any service and conservancy rebates, even not counting any rental rebates or any Singapore Allowance, the ERS alone will cover the entire GST increase for you for five years, if your household income is less than $2,000, and there are two adults in the household. So the low-income Singaporeans will already be all right, just based on the ERS. The people who might not be all right are the ones who are not quite such low-income, but earning between $2,000 and $3,600 and they may fall between if they are living in private property, in which case, come to the CCC, we will help you.

If you are earning more than $3,600 - just now, Dr Wang Kai Yuen said who is the group who suffer - he will look in vain, because even if you are earning more than $3,600, even if you are in the middle-income group, the package has been constructed such that for nearly everybody, you also have at least five years' worth of offsets. If you add in the savings on your road tax, in fact, it will be more than five years' worth of offsets if you own a car. Of course, if you smoke and drink, that is a different arithmetic, but I advise you not to smoke and to drink less.

The net effect is that we have looked after nearly everybody. We have not done utilities rebates deliberately because, instead of giving household utilities rebates, which means they have to spend it on utilities, we have given them Economic Restructuring Shares. It is cash. It is better than cash because it earns good interest. If you want to use this to pay your utilities bill, that is fine. If you want to save this, that is fine. If you want to use this for some other urgent requirement, your children's school needs, uniforms, your parents' hospitalisation expenses, that is fine too. So what we have given actually is something better than an utilities rebate. And the total amount we have given you, I think, is eminently reasonable for a long transition period.

Miss Irene Ng asked why we did not give a higher weighting for the poor. Our answer is that this package is meant to offset the net increases in the taxes, particularly the GST. It is not meant as a wealth-sharing exercise. It is not meant to address income inequality. We have other schemes to do that. At the right moment, under the right circumstances, we will do - whether it is New Singapore Shares, whether it is HDB upgrading programmes, whether it is lift upgrading. We have other schemes to help lower income groups, specifically. But this one is specifically designed to offset the GST package and to make sure that everybody is covered during the transition period. Even then, because of the rental and service and conservancy rebates, the lower income groups, in terms of the number of years of additional tax offset, are somewhat better off than the middle and upper income groups. If you look at the table which I distributed with the Budget Statement, for the rental flats you have 8-10 years' worth of offset, whereas for the lower middle income, you are talking about 6-8 years depending on family circumstances. So I think that we have been fair, given the objective of the exercise.

A very popular subject for many MPs has been small and medium enterprises. The complaint has been that this Budget has done nothing for the SMEs and they have not benefited at all. In fact, they do benefit, because the decrease in the corporate income tax also benefits SMEs. Furthermore, we had a big package last year with a significant component which was focused on SMEs, the offset package in October, which was really a mini-Budget. Members may have forgotten because it was six months ago, and some were not here. So I ought to remind you that there were rental rebates, which went up to 30% of rentals. There was lower foreign worker levy, which will be reviewed at the end of the year. There was property tax rebate, $8,000 worth of property tax, the result of which is that many HDB shop-owners pay no property tax at all. And there was a 2-tier corporate tax system, which was introduced in the last Budget, the effect of which is to reduce the corporate tax payable by small and medium enterprises by half or even three-quarters. So while this Budget does not have additional specific items, significant steps have been taken, which are still in effect, helping the SMEs.

I think we should distinguish between two categories of SMEs, which may get confused together. One, the existing SMEs in the retail sector, which are hurting for various reasons. And, two, the newer SMEs in the technology line who are looking for venture capital, angels, risk money, who want enterprise, a suitable environment and so on. Their problems are different. The existing SME retail sector faces a structural problem, because there is an excess supply of shops and not enough business. It is a legacy of history. In older housing estates, MPs know we have often one shop per 70 flats, because we built the shops in order to resettle the shopkeepers. Now, the population has thinned, aged or moved out and there is no business. Whereas in the newer estates, you are talking about one shop for 120 flats. So it is more flats per shop and easier to do business. So some rationalisation is unavoidable and HDB has schemes to help shop tenants who want to exit their business to exit and they get some ex gratia payment, and then we can restructure and redevelop the neighbourhood centres and do something better of it. We have done a few and if they are successful we will do some more. We cannot solve this problem overnight, but I hope, over time, we will be able to improve business conditions for the SMEs.

The new SMEs, the start-ups, they are different. They are facing difficulties securing funding, especially the tech start-ups, and they want the Government to step forward and produce the money. Well, the Government is not good at being venture capitalist. We are not good businessmen, as we are regularly reminded in Parliament, and therefore we should really stay out of it. There is truth in the criticism. We are not good businessmen. We have to let companies run commercially and where we have to put our money in, I think we should be very careful not to be left with lemons.

We can, at best, kick start the process on a small scale. EDB has a venture capital outfit. Temasek also has a small venture capital outfit. They want to expand, I say, "Be careful. You do not have the skills." Seed the process, yes. Kick start it. But as soon as possible, let the private sector take over. Let them do it. They know, they can judge. It is not just a matter of thumping up the money. It is also a matter of knowing whom to back, which are good risks, who will be promising, how to guide the project as it grows along the way so that it does not go wrong and you go bust. These are all very specialised skills. You need the touch, you need the experience. The Government is not in it. But even if you had venture capital in Singapore, not everybody will get funding. In Silicon Valley, only one project out of 20 gets funding. That is why the projects which do get funding are promising, because there is ruthless competition, survival of the fittest. Only the best get funding, and even then after being funded, many of them fail. So if we try to short-circuit this Darwinian process and say I will give more generously, let us hope a hundred flowers will bloom. Are you sure? You may have thrown your money away and planted weeds. So you have to be very careful talking about venture capital.

We also have to be very careful in favouring small and medium enterprises for Government contracts. It sounds good, it is very popular, but it can result in inefficiency. If you want to cut back on Government spending, this is not the way to do it. Tender, best bidder, best qualified to provide the service, most efficient, best quality, wins contract, he supplies the Government. Countries which have tried to favour SMEs have found that it leads to great inefficiencies. The Japanese have tried, the Germans have tried, other countries have tried. It is better to have schemes to help the SMEs get started, help them improve their productivity and capability, and then they have to compete and hold their own. And if they cannot hold their own, if they cannot compete, then the market has to sort it out. We hope that many will succeed, but we cannot expect none of them to fail.

But the future of our economy does not just depend on the SMEs. We will rationalise the traditional SMEs. We will promote new SMEs to start, but we also need new growth areas. We also need MNCs. We also need major companies, to create new jobs to replace jobs which are being lost.

The GLCs are part of the solution, not part of the problem. Many MPs have asked whether the GLCs have been stifling entrepreneurship, crowding out local players. Dr Amy Khor asked this. Mr Inderjit Singh says, why not the Government simply divest GLCs. I would if it were so simple. It is not the mission of Temasek or of the GLCs to crowd out small and medium enterprises. We gain nothing. Our job, as I explained, is to have companies which are strategic to our economy, or which have regional potential to grow and become international players. Other companies not relevant, Temasek will progressively divest when the conditions are right.

At the borders, some overlap is inevitable, and it is especially troublesome with statutory board companies in the process of being completely privatised but not quite there yet. Members mentioned PWD Consultants. There are a couple of others which are in the process of being privatised, where moratoriums were given, and there is some feeling that this is not quite at an arm's length relationship yet. But our policy is that we should maintain a strictly arm's length relationship between such companies and their statutory boards. In fact, we should cut the umbilical cord as soon as possible and separate them, either divest them off completely or they should go and be put under Temasek or under some other Government agency. So it is not directly held by the statutory board and there is no incentive for transfer pricing or some non-transparent arrangements, which will cause problems and inefficiencies and difficulties to the private sector.

We do not post senior civil servants to the GLCs. Dr Wang Kai Yuen says we do it for talent development. I think he was being polite. We do not do it. Mr Inderjit Singh also said we have senior civil servants posted there for career rotations. We do not do that. The GLCs have their own staff. They recruit their own. They recruit on the market. They find the best they can get and if the people are not good enough, they have to go. They are run commercially by their managements. They are not run by the civil servants. The civil servants have enough to do without going into other business.

Mr Inderjit Singh cited vigorously problems of GLCs stifling entrepreneurship, crowding out local companies through unfair practices, or dominating and predatory practices, compelling foreign companies to work with GLCs. It sounded awful but, unfortunately, he did not give any particulars. So I would encourage him, if he has any specific information of actual cases, to let me have the evidence. I will expunge his name and pass the evidence along, investigate it personally and put it right.

Let us be quite honest and adult about this. Competition is a fact of life. Even if we privatised the GLCs and the Government washed its hands altogether and found a good private owner to own and manage it, they would still be formidable competitors to the SMEs. They are well organised. They are bigger. They have the depth of management expertise and they are able to deliver a service or a good and get the job done. So whoever owns the GLCs, the SMEs are still going to face severe competition. The broader question for us, as a Government, is not whether the GLCs win or the SMEs win. The question is: are the GLCs competing fairly? Is the result that the most efficient company succeeds and delivers the best service for the economy and the best value-added and the highest productivity? Or is the GLC winning because there is some inside track, some unfair advantage, some improper information which they are taking advantage of and therefore clobbering the SMEs and the private companies? If there is, they are harming the economy and we must put a stop to it. If there is not, and they are competing fairly, I say a certain amount of robust competition is unavoidable. But it is not their job to go and look for small business. Their mission is what we have defined for Temasek and Temasek will have a charter which will be published soon.

Next, CPF. Mr Inderjit Singh argued for lower contribution rates in the longer term. It was one of his wish-list items. Mr Othman Haron voiced concern that workers might face difficulties with their housing commitments if CPF contribution rates were lowered. I agree with Mr Othman Haron. I also agree with Mr Matthias Yao that the fundamental objectives of the CPF should not be diluted. He put it in a very neat and succinct form yesterday and I would like to quote him in toto because this is something which bears repeating and which I think Singaporeans need to be reassured of. We are not going to muck around with the CPF. CPF, as Matthias said, is for retirement, housing and healthcare. Everything else should be secondary and we should not use CPF as a macro-economic tool to alter the money supply or disposable income. Workers should be receptive to changes that might be necessary if they are not to be priced out of a job. So it may be necessary for us to adjust the CPF scheme but any changes made will be phased in carefully and we will give as much time as possible for Singaporeans to adjust. And I may add what I have said before, that we promise to restore it to 40%, and that stands. It may take us some time, but we will do it.

Now, I would like to address a few points briefly. On medical benefits, Members made their sentiments unambiguously known, many lady MPs and a few men too. I should explain that under the new Medisave-cum-Subsidised Outpatient (MSO) scheme, in fact, we have essentially equalised, because whether you are a male or a female officer, what you get is one extra percent on your CPF in Medisave. You have $350 worth of outpatient allowance, which you can use for yourself. At the end of the year, if you do not use it, it goes into your Medisave. The men can use it for their children, the women, cannot. But at the end of the year it goes to the women anyway. So essentially, it is the same. For the older schemes, we have not changed it yet. There is still a distinction. I am sure we will discuss that in the Committee of Supply.

On HDB parking charges, this point will be dealt with amply, I am quite confident, when the Committee of Supply discusses Mr Mah Bow Tan's budget for MND.

On older workers, this is a separate problem, not addressed by our tax restructuring package. The problem is not funding. It is not availability of training programmes. It is a matching of workers with vacancies. We have the People-for-Jobs Traineeship Programme. It has trained about 2,000 unemployed workers and executives. Some workers are still not taking advantage of it. But let us pursue these programmes. Let us try and get them to work before introducing or thinking about more permanent measures, like subsidies and rebates.

Finally, Dr Amy Khor and Mr Yeo Guat Kwang asked the Government to take care of Singaporeans who are struggling to cope with economic restructuring. Yes, I fully agree that this is indeed the basis for the generous offset package for the GST, and we have given special attention to make sure that the lower-income group will not be worse off.

Sir, I think I have addressed all the major points raised. I have not fulfilled all the wish lists, but perhaps it is just as well. Because, for example, Mr Inderjit Singh asked for a 30% reduction in the price of all properties. I would suggest to him to consider this very carefully because it means that all his residents, who are also my residents, will suffer a 30% reduction in their property values, and that is not likely to be considered. And if we halve the petrol tax and ERP charges, foreign workers' levy and property tax, what he has not told you is that Santa Claus comes and the bill arrives the next day, and the Government's bill to do all this may be a much higher GST than 5%, maybe 6%, maybe 7%, maybe 10%. So before you sign on, better find out what the deal is.

This is not a complete response to the challenges which face us, as Dr Amy Khor and others have pointed out. Dr Amy Khor said it is just one piece of a jigsaw puzzle. She is right. The ERC's recommendations are yet to come. We are working on it. There are sectoral policies to deal with financial services, manufacturing, other services to deal with SMEs, to deal with helping the older workers cope. We have a human resources package working on it. We have to deal with the CPF and wage issues. It will take time to work these out and implement them. But the first step is fiscal reform, and this we have done.

Our competitive pressures are increasing, but we can rise up to the challenge, and I think we have strong reasons to believe that we will succeed. Our political and social stability, our market access to major economies, our pro-market Government policies, our ability to adapt to changes quickly - these are traditional strengths - we have repeatedly cited them, but they remain valid and they will help to see us through the next period.

We are still competitive. We are acting now, not because we already have a problem, but because we see the problem ahead. World-class companies still find Singapore a good place for investments. We have had a big project between AMD and UMC to build a 15th wafer fab plant - $7 billion. We are attracting regional HQs from Dupont, IBM, Toyota. We are building capabilities in emerging growth areas, supporting R&D, investing in higher education, trying to anticipate the next wave, but not just on one front. We are doing the right things - getting growth and investments and making the tax changes to put our economy on a sound footing, to enjoy economic growth beyond the short term.

I fully agree with Mrs Yu-Foo that we must take heart, and we must not be discouraged. There is reason to be confident. With the economic restructuring package, we have made the first step, and we can look forward to facing the future with hope and confidence. [Applause.]

Mr Low Thia Khiang: Sir, can I have your permission to seek clarifications from the Finance Minister?

Mr Deputy Speaker: Yes.

Mr Low Thia Khiang: Sir, first clarification. The Finance Minister has said that to put off the GST increase now will result in a chronic situation. Can he clarify what does he mean by chronic situation? I wish to remind him that GST is not the only way the Government collects taxes. We are not talking about reducing corporate and personal income taxes to zero. There is still something to collect. On top of that, we have property tax, customs and excise tax, import duties, motor vehicle taxes and betting taxes. The motor vehicle tax collection is even more than the GST in fiscal year 2001.

Sir, second clarification. The Finance Minister also said that the increase in GST in this Budget will provide options to the Government. I wonder whether it is the Government's financial policy to always budget for a surplus. If my estimate is right, I think the Government will end up with quite a huge surplus in 2005. My question is, are we over-taxing? Is the Government over-taxing the people for what is needed by the Government?

Third clarification, Sir. The Finance Minister also said that the world has changed, and we are at a turning point. The turning point, to me, seems that now Robin Hood cannot rob the sheriff of Nottingham. So he robs from the "Roberts" on the street. I do not quite understand. The turning point, it seems to me, is that, from now, we have to accept that the rich will get richer, and the Government would even have to do more to woo them and to persuade them to stay here.

I would like the Finance Minister to explain why the Government does that and how these rich people affect our economic growth in one way or another.

Mr Lee Hsien Loong: Mr Deputy Speaker, Sir, it has been a very long debate. So I will try and keep my answers short. What do I mean by a "chronic" deficit. I mean a situation where you find yourself running a deficit. You hope it goes away the next year. It does not go away. The next year, it still does not go away and you are unable to fix it. The European countries, most of them, are in a chronic deficit. Hong Kong now has a deficit which they fear is structural. They are hoping it is not, but it has not gone away. We have not reached that situation. In my judgment, if we reduce the direct and personal taxes and do not offset the GST, we will risk a chronic deficit.

The Member thinks that we are in a happy position, and we will have an enormous surplus in 2005. I do not know what are the bases for his econometric projections. I hope he is right. If he will share them with the Ministry of Finance, maybe we will update our model. But our model does not show any such enormous surplus. It shows pressure on the Government budget, because we are needing to spend more for healthcare, for education, maybe even for housing; certainly investments in transport, trains. These have to be funded. We can either not build them or we can make these adjustments and fund them within our means, and we have chosen to do the second.

This is a turning point. The rich are getting richer. That is happening the world over. Some of the richest people in Asia are in communist China. In fact, the rich ones are now being invited to join the Communist Party. Because that is the way the economy is moving. Where are there no rich people? Well, in North Korea, there are very few. In Cuba, there are also very few. In North Vietnam, there are not many, but in South Vietnam there are quite a number. So, that is the way the world is going. How do we assure a good life for the not-so-rich Singaporeans? By making conditions in Singapore conducive so that successful people will come here, start business here, do business, live here, and provide employment and grow our economy, and enable many other Singaporeans also to enjoy the new economy and live in this new environment. That is the turning point we are at today.

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 2002 to 31st March, 2003.