GOODS AND SERVICES TAX (AMENDMENT) BILL

Order for Second Reading read. 1.30 pm

The Deputy Prime Minister and Minister for Finance (Mr Lee Hsien Loong): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Bill will amend the Goods and Services Tax Act to give legislative effect to the following measures:

a) To change the GST rate;

b) To provide for the transition from the existing GST rate to the new rate on 1st January 2003;

c) To zero-rate co-location web-hosting services and managed services; and

d) To make explicit the Comptroller's powers to obtain information and records kept in electronic format or alternative media.

Sir, I shall now explain the main amendments in the Bill.

Increase in GST Rate

I have earlier stated the Government's intent to amend clause 3 of the Bill to effect the amendment to section 16 of the Act to increase the GST rate from 3% to 4% for the year 2003, and from 4% to 5% for the year 2004 and subsequent years.

I shall now explain the more technical points in the Bill.

Transition to Higher GST Rate

In view of the increase in GST rate, there is a need to provide transitional rules to prevent businesses from circumventing the time of supply rules. Under the time of supply rules, businesses may account for GST at the lower GST rate of 3% by issuing tax invoices to customers before the GST rate increase, even though the goods are delivered or the services are performed or the payment is made only after the GST rate has been increased.

Hence, clause 5 amends section 39 of the Act to provide for the circumstances in which a tax invoice, issued before the date a change in rate comes into operation, ceases to have effect. Businesses will be required to issue a new tax invoice in these circumstances.

Zero-rating of Co-location Web-hosting Services and Managed Services

In a co-location arrangement, a service provider will generally require the customers to bring in their own server platforms and place them at his facilities. Where a local service provider provides web-hosting and managed services to an overseas customer in such a co-location arrangement, the services are standard-rated if the server belonging to the overseas customer is located in Singapore, and zero-rated if located outside Singapore.

Zero-rating the entire web-hosting services and managed services provided to an overseas person, regardless of where the server is located, will promote Singapore as an e-commerce hub. Hence, clause 4 amends section 21 of the Act to provide for zero-rating of the supply of services to an overseas person in relation to computer server equipment belonging to that person which is co-located in Singapore.

Clarification of Comptrollers' Powers

Increasingly, business transaction information and data are stored in computers, electronic media and other alternative media. However, the Comptroller of Goods and Services Tax's powers to access and to seize such electronic records may be limited based on the interpretation of the current legislation. Therefore, clause 7 amends section 84 of the Act to clarify the powers vested in the Comptroller to access and seize such records kept in electronic and other alternative media.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee: Sir, I would like to put on record my support for the Government on the phased-in approach to the GST implementation. This phased approach to increase from 3% to 4%, and then from 4% to 5%, will lessen the impact on the lower income group and lighten their burden - the so-called psychological impact on the people. It also took into account the changing economic conditions and reflects the Government's sensitivity to our people's plight.

Sir, I would like to join the other hon. Members who have spoken earlier in congratulating the Government and the Deputy Prime Minister for adopting this phased approach. I see great value in the sensitivity and financial prudence of the Government. It gives confidence to the people when dealing with Government bodies. In particular, I like very much the Deputy Prime Minister's message that Government bodies would have to cut back on their spending, so that the Government can maintain a balanced Budget. This financially prudent policy of living within our means is an excellent one to adopt.

This is a very clear signal of the style of the Government: that it is a level-headed and clear-minded one which is at the same time sensitive to the worries of the people. It will strengthen the public's confidence in the Government. At the same time, the decision to retain the entire relief package, while only phasing in the GST increase, shows that the Government is also very generous in this instance to retain the measures to help the poorer people. Therefore, the Government has a feel for the poor.

Sir, I would like to conclude by reiterating my support for the proposed amendment and the choice of the Government to adopt the phased-in GST approach. I am very gratified to note with pride that we have a rational and responsive Government in charge which is also closely attuned to the plight and worries of the people.

Dr Amy Khor Lean Suan (Hong Kah): Mr Speaker, Sir, let me first, like other hon. Members of this House, thank the Minister for Finance for having listened to the people and modifying the planned GST hike.

Mr Speaker, Sir, like education and many other issues before this House, the GST hike, which is what the Bill is concerned with, is, in my view, not "if" but "when" and "how".

On the "if", the Minister for Finance has already given this House and the people of Singapore several reasons for the need to raise GST, such as the need to attract and retain talent, as well as the fact that we are increasingly facing an ageing population and that the tax base will diminish concurrently as the burden on public finances to fund health care rises. These factors, coupled with the anticipated slower economic growth in the medium term, produce compelling reasons why Singapore needs to broaden its tax base and increase indirect taxes like GST whilst reducing direct taxes.

Sir, I would also like to note that with the increase in GST from 3% to 5%, our rate remains one of the lowest among nations that have implemented GST. For instance, the standard GST or VAT rate is 17 1/2% in the UK, 12 1/2% in New Zealand, 10% in Korea, 5-10% in Taiwan, 5% in Japan, and 7% in Thailand. The hike to 5% is, thus, not misaligned from this perspective. In fact, it is clear that almost all agree that the GST rate would have to go up. No question about this. The question is when.

On the "when", coming after a series of price hikes in transport fares, utilities, parking charges and even garbage collection fees, the ground feel is naturally one of consternation, sharply heightened by the poor economic conditions and the spectre of even more unemployment in the streets. Although the Government has said that the offset package will more than cover the increase in GST and that it will be expansionary, many Singaporeans remain unconvinced, as the Minister for Finance has noted earlier. One Singaporean, in an unpublished letter to the press, noted that whilst more than a million CPF account holders have withdrawn their New Singapore Shares, stallholders have at the same time reported a drastic drop in businesses by up to 80%. Hence, he is sceptical that the offset package will be expansionary.

In fact, I have had quite a number of residents who have asked me to appeal to the Town Council and Singapore Power, amongst others, to ask for deferment of payment until they have encashed their NSS or ERS. Thus, many lower income residents are in fact using the NSS and ERS as a lifeline to tide over their financial difficulties, and pay for essential household bills, school fees and textbooks. The expansionary impact of the GST offset package is thus likely to be less than expected.

I note the oft-cited view that there is never a good time to raise taxes. Indeed, they say that death and taxes are the only two certainties in life. One argument for a 2003 hike is that foreign investors will lose confidence in the Government's ability to keep its word, since the hike was already announced in the 2002 Budget Statement as part of a package of measures to restructure our tax regime. Therefore, any delay could be construed by the international community as succumbing to people pressure against the long-term interest of the country. And because the Government is not populist, we will have to do what we say we will do. Sir, this Government is not one that reneges on its word.

But I am proud to note that when the GST was first introduced in 1993, this Government promised to hold the GST rate at 3% for five years and it has kept its promise. On the other hand, breaking a similar promise now, ie, deferring the planned hike, would be easier to do because of the political backlash of being a promise-keeper. Nonetheless, Sir, I am delighted, and so are many other Singaporeans, that after habitually saying "The answer is no" and "The answer is still no" on many occasions, this Government is now finally saying "Let us consider because of the changed circumstances" and, indeed, it has modified the planned hike.

I do not think that this means the Government is bowing to populist pressure. Rather, it shows that the Government is not afraid to bend, if it is satisfied that there are good reasons to do so and, indeed, there are good reasons.

Sir, I believe that the votes - and, as Mdm Ho noted earlier, the bets - were split as to which of the two options was preferred. Nonetheless, I feel - and I think the Government feels that too - that there could be a tilt towards the phased-in scheme, which I am pleased the Minister for Finance has announced the Government has opted for. Phasing in shows that the Government is firm in its policy, yet flexible in responding to the economic and political environment. Most would welcome some reprieve, real or imagined, from the full increase in rate. As one retailer noted, "every bit helps".

However, I would like to highlight that some businessmen, particularly those who are not registered for GST, feel that due to the poor economic conditions and strong competition, they may be forced to absorb the 1% increase in GST, thus further squeezing their already razor-thin margins, as their clients would say, "Since it is only 1%, you should absorb it." In fact, a few businessmen actually told me that their preference was for the Government to increase the rate to 5% straightaway, and then provide additional help to those in need. They feel that there is not much difference between a 1% and 2% hike, and we might as well take the pain straight and face up to the realities of the harsh economic conditions and aggressive competition ahead.

But the option of increasing the GST to the full 5%, but with more help to low income families, could have a higher political cost, since there would be groups who will not benefit significantly or directly from any offset package.

Additionally, the current experience has shown that even though theoretically many individuals should not be worse off due to the two-percentage point GST increase as the relief package should cushion the blow, many are still upset as they perceive this to be yet another hike. Many also tend to divorce the GST hike and relief package, and feel that the two are separate matters. I am pleased to note that the Government has taken heed of these sentiments.

On the "how", as the Government has chosen the phased-in scheme, I urge the Government to give careful thought to mitigating the pain, especially on two groups:

1. smaller businesses which do not benefit from the lower direct tax regime and will find themselves squeezed by consumers because of weak demand to absorb all or part of the increase; and

2. lower income groups struggling to eke out an existence.

The Government must continue to find ways to help small businesses to lower their costs, as many which are yet to be profitable would not benefit from the corporate tax cuts, while those who are struggling and making marginal profits will also not benefit significantly from the new tax regime. Rental rebates, lower property taxes, grants for upgrading the businesses, or even attractive financing packages, could be further extended to such businesses which are struggling in the current economic conditions but which are otherwise fundamentally sound.

The lower income group is struggling due to the poor economic conditions as well as the structural change in the employment landscape which renders many who are unskilled redundant in the labour market. They will continue to need help as long as the economic outlook remains bleak.

As noted earlier, many are in fact using their NSS and ERS as lifelines to tide them over the financial difficulties. We need to continue to help this group remain employable through retraining as well as through job creation. At the end of the day, Sir, the groundswell against the GST hike stems most acutely from the fact that we are in the midst of a recession, and the livelihood of ordinary citizens are at risk. There is really never a good time to raise taxes, but the people of Singapore will need to take a calm and rational look at the grim economic realities affecting the long-term future of our country that is at the core of the Government's tax policy. But the immediate pain, though alleviated through the phased-in approach, still cannot be lightly dismissed. I would urge the Government to consider additional off-Budget relief measures to help Singaporeans and businesses tide over their cash flow difficulties if the economy worsens.

Modifying the when and how of the GST implementation would clearly help to restore the people's faith in the Government and, barring any other Government policy announcements, will be a good note on which to end the year. It will certainly add cheer to the Hari Raya festive season tomorrow.

Mr Chandra Mohan K Nair (Nominated Member): Mr Speaker, Sir, there has been a great deal of debate by the people of Singapore and politicians about the proposed increase in the Goods and Services Tax from 3% to 5% as proposed in clause 3 of the Goods and Services Tax (Amendment) Bill which seeks to amend section 16 of the Goods and Services Tax Act. The Hon. Deputy Prime Minister has kindly proposed an amendment which I am sure is most welcomed by this House and the people residing in Singapore.

The original proposal of an increase to 5% is substantially more than 66% increase and the general sentiment coming from our citizenry is that of unhappiness. Now, it is an increase of 33%. Unfortunately, the economic climate in the recent past, present and in the immediate future is bleak and therefore the difficulty in being able to support such a proposal. In a recent local radio survey, around 80% of the listeners were against the increase in GST at this time. Only 20% supported such a proposal. The psychological impact of the proposed increase is one of hopelessness on the part of citizens once the Government decides to go ahead with an increase in any form of taxation. The spirit of the people and the nation is down and our Government must take serious note of this and not just pay lip service to it, as perceived by many people. Today, as a result of the amendment, the Government would be perceived to be more caring.

The political leadership must be compassionate and must feel for the sentiments of its people and not be too logical and pragmatic all the time. Even a logical and pragmatic Government, as seen today, may not, when analysed in future, turn out to be correct and accurate in their decisions. The Government's main argument in support of the proposed increase in GST is that it needs to balance the budget. It is easy and convenient to say that the budget of the nation needs to be balanced. The issue is whether that is a top priority when times are bad. This move may cause the budgets of the other sectors of our society, namely, that of lay persons, retailers, manufacturers, service providers, etc, to have difficulty in balancing their respective budgets. Which then is to prevail? Only the Cabinet can decide this. They have the power to do so, not the citizenry. Cabinet members would have, hopefully, given serious and independent thoughts to this proposed increase, be it 1% or 2%. Was it an unanimous decision or were there differing views amongst Cabinet Ministers and even senior civil servants? It would be interesting to get a revelation of the minds of different Cabinet Ministers on this topic of GST increase. It may not be the practice to give individual Cabinet members' views but such a practice could be revealed to see how the Cabinet works and how they came to the conclusion that there should be an increase, albeit it is now in two phases of 4% in 2003 and 5% in 2004 and subsequent years.

Our Government may want to balance the national budget purely to have a clean record of never having failed to have balanced budgets these past few years. However, it may be preferable not to have a balanced budget in a year where the nation has fared badly economically. Citizens generally are taking home less this year. So should not the State too take home less? It would assist the spirit of the citizens for them to know that our Government does care and is not a government that is purely and coldly efficient, especially during poor economic times. We must give a boost to our national spirit and not create unhappiness with more taxes when there is sadness and gloom facing our society.

The Cabinet has decided, the people and Members of Parliament can debate in detail all the pros and cons of an increase in GST. However, it makes little difference. All I can do is register my point for what it is worth. I propose that the clause proposing an increase in GST be deleted from the proposed amendment and let there be a review of an increase in GST only if times are better, and only in the second half of 2003.

Besides this reservation, Mr Speaker, Sir, I support the other proposed amendments, namely, clauses 2, 4, 6 and 7.

Mr Tan Soo Khoon: Mr Speaker, Sir, when the Second Reading of this GST (Amendment) Bill was postponed last week, I, like many others, felt that something was brewing. While I would say that there were some of us, including myself, who were hoping that the increase of 2% would be fully deferred for at least six months to a year, I must say that the change in plans to increase it by only 1% next year and another 1% in 2004 come as a pleasant surprise to us. While I would not say that what the Government is forgoing is ikan bilis, I would like to say that perhaps we should be grateful for little mercies that do come our way sometimes from the Government.

Sir, a lot has changed since the Government first announced the GST increase during the Budget debate. Unemployment has now reached an all time high of 4.8% and this is expected to rise to as much as 5.5% very soon. There are therefore now more Singaporeans without jobs than in March. Without jobs means without any source of income. Like every one else, all the people who are unemployed have to face the other increases such as the bus and MRT fares, hospital charges, utilities bills, car park charges, etc, that we have to put up with this year.

Sir, the employed are of course not much better off. If they are not already faced with uncertainty of losing their jobs tomorrow, they have now been told by the NWC and the NTUC to be prepared for further wage cuts. We still do not know what the economic outlook will be like next year. Our forecasts for economic growth are as reliable as the weatherman's, and had to be revised several times this year. Singaporeans are therefore tightening their belts and they want to save whatever money they can save for a rainy day and for some, that rainy day has probably arrived.

Sir, I am a bit concerned whether in fact there will be a kind of retraction of the economy even though we are told that the Government is pumping in more money during this difficult period. We must not under-estimate the impact of a negative multiplier effect on the economy. Our retail sector has already been suffering for several years. Whether you are a big store in one of our Orchard Road shopping malls or a shop in an HDB estate or a market stall, you would, in all probability, have been suffering from a declining business. If we just take a look at the frequent changes in the tenants of shops, we can get a feel of how difficult it must be for each previous tenant. If Singaporeans now tighten their purse strings further, the situation is likely to worsen in the months ahead.

Sir, I want to make the point that one million people have already cashed in their New Singapore Shares and they did so in spite of knowing that they would be forgoing an annual 3% Government-guaranteed dividend, even more if there is strong economic growth. This to me, Sir, is a pity. We can empathise with them because, if what we know on the ground is correct, many did so because they need the money today to pay for household expenses or to settle their arrears such as their utilities bills and other expenses, in other words, to pay for very basic needs. It is a reflection of how tough life must be for them. A lot of the money which was given out would eventually go back to Government, in fact, very quickly. So I am really concerned whether in fact there would be any expansionary effect on the economy in spite of the Government giving away the amount that it has announced that it is giving.

Lastly, I would urge the Government to consider again reinstating the EDRS very quickly, in spite of what the Deputy Prime Minister told us that in a difficult situation, we need to give out such schemes, but if the emergency is no longer there, we need to withdraw the scheme and reinstate it at a later date. What I am concerned is the fact that we do have 100,000-odd people who are unemployed now and there is no guarantee that the employment situation is improving. I would therefore strongly urge the Government to consider reinstating the EDRS because I am sure that there will still be a lot of unemployed people who will be coming to MPs during their meet-the-people sessions looking for help.

Ms Braema Mathiaparanam: I do not have very much to add other than to just expand on a few points.

I thank the DPM for what he has spoken about as far as the amendment in the Bill is concerned. Like some Members of the House, it would have been good to defer the 2% and review the whole thing in the year 2004, the reason being that for quite a number of us, we are not savvy enough to totally understand how increasing GST by 2% can improve the economy or help to balance the budget, and why that becomes very pertinent. Perhaps, there is a greater need to try and be more communicative to the population at large so that they can be in sync with what Government's intentions are and understand why the 2% is important, and now the reduced rate of 1%. I know it has been said many times but I think I am quite naive in this area of money matters and I am sure there are many others out there like me. It would be good to have a greater and clearer explanation.

Coming back to the point that I raised earlier on the VWOs, I appeal that we do reconsider the situation where they are concerned, especially when they have big item expenditures and are no longer entitled to the Ministry of Finance's grant to offset the GST. From 1994 to 1999, they have been receiving a $2.7 million grant. This has helped about 42 to 60 VWOs. What a GST imposition really means is that for recovering $7 million in terms of donations, it can come up to $200,000 in GST, which can stall quite a number of their programmes as well as plans. So I appeal that we do not forget the VWOs in this instance.

The second point is that, as I mentioned earlier, it is not that I am asking for a more generous package. There are quite a number of people in crisis. I have asked earlier in the House about the number of people who are receiving aid for the period from April 2000-March 2001. The figure that was given - thanks to the Ministry of Community Development and Sports - was 5,265. For the same period, April 2001-March 2002, it has already gone up to 14,950. For that year, about 15,000 people have received $15 million in different aid packages. It is good that they are already receiving quite a lot of help. Nevertheless, add into this, like what Mr Tan has mentioned, 100,000 people are unemployed who are not sure when they are going to get the next job, I think these are the people in crisis. Although it is an increase of only 1% and in, real terms, it may not be very much, I think we need to monitor how they are affected, and to work out how the criteria schemes that we use currently to help these people can perhaps be broadened and to monitor the situation.

There are some programmes on the ground such as IUP, etc, that are perhaps imminent in some constituencies. In this present situation, I think people will be quite perturbed to have new initiatives coming where they have to take money out of the pocket and perhaps have to face the GST hike which will be incorporated into such programmes. Perhaps it is also a good time to review whether it is necessary to go ahead with such programmes.

Lastly, it is wonderful that institutions like NTUC Fairprice will absorb the GST, but it also begs another question. What about the small-time retailers in the HDB heartlands? They may not be in a situation to absorb the GST hike. Maybe we need to keep an eye and also see that they too can survive.

Mr Steve Chia Kiah Hong: Mr Speaker, Sir, as I have said earlier, I applaud DPM Lee for the steps taken to phase in this GST increase. However, I would like to state again that I still believe that the GST should not be increased totally, not even by 1%. But, as I said, it is still better than a 2% increase.

Sir, I applaud the efforts and plans to cut Government expenditure and spend wisely. I think this is a very good move and a great emphasis has to be done. As DPM Lee had said earlier, the economic recovery outlook was fair when this idea was first proposed and debated in May. The assumption was that the ERS and offset packages will more than neutralise this GST increase of 2%. However, instead of looking brighter, the economy may be turning for the worse and getting uncertain. This is probably the worst economic period we are going to see since independence.

Everyone is affected by this economic slowdown. But, like what Mdm Halimah said earlier, the groups that are most affected are the SMEs, the retailers and the small business owners, and their continued survival will impact on the level of unemployment and wealth creation in this society. With a drastic decline in consumption power and still very high business cost, the retail industry is the worst off and hardest hit in this instance.

Therefore, I appreciate the Government's plan not to increase the GST fully to 5% now. The upturn in the NODEX does not indicate a change of business sentiment for the better. Even as we speak, the economic indicators in the US are beginning to turn down again. On balance, the Government has not put additional and undue burden of 2% increase at this difficult time on our small retailers. I can only hope that this 1% increase in GST will not be the straw that breaks the camel's back.

This additional cost of doing business will have to be absorbed most likely by the small businesses that are not GST-registered. This may cause some of these small businesses, especially some of the new businesses which are already suffering, to consider closing down and cause higher unemployment.

I appreciate DPM Lee's understanding of the problems in the retail sector. The retail sector is very fragile. Consumer confidence is very fragile. There are many retailers still struggling to survive and many are seriously thinking of closing shop. If forced to survive in this harsh environment, many will be forced to review the one area of expenditure over which they have some measure of control, and that is labour cost. With the retail sector employing more than 75,000 workers, any untimely increase of the GST to 2% during this period of economic recession will definitely lead to further job losses and cause more unemployment.

Maybe to the Government and civil servants, this is just an increase in the statistics. But to the person who is retrenched, it means job loss, financial insecurity and lots of bills will go unpaid. It affects not just the employee but his immediate family and friends who will then pull back and tighten their belts even further. And, irrationally, the retrenched worker will remember that he is jobless because the company is forced to cut costs, because times are bad and GST is still increased. But, now, I am happy to say that the Government has listened to the cries of the people. My only hope is that the GST rate will stay at the 4% level.

To help the economy and save jobs, demand should be stimulated in this difficult time. Thus, keeping the offset packages and giving out the ERS shares is one step in this right direction. It is expansionary and will help to boost the economy. The priority in this uncertain time should be, first, saving existing jobs and then creating more of others. I thank the Government for not forgetting that this is what it pledged to the people at the November elections last year.

It does not help that the economic tax restructuring may create some new high-tech jobs but, in the process, cause many more traditional jobs especially in retail, to be lost. As it is, there is already a high job/skill mismatch in Singapore. Let us not make it worse by causing more traditional jobs to be lost for Singaporeans, while more foreign workers are employed to fill the high-tech new jobs.

Sir, though not completely satisfied or ideal, I will reluctantly support the Government in phasing in this GST increase and hope that it will be reviewed after one year.

Mr Chiam See Tong (Potong Pasir): Thank you, Sir, for allowing me to speak.

I was not here when the Minister for Finance announced that the full 2% increase in GST will not be implemented, but rather to phase in 1% increase first, and the other one percentage point I do not know when.

An hon. Member: 2004.

Mr Chiam See Tong: Anyway, with the 1% increase, I still think that the majority of Singaporeans shall be entering the New Year with long faces. If there is no increase, then it will be a big welcome for the New Year. Even now, many Singaporeans are already suffering hardship.

The curious thing is that if the Government is not very certain whether to increase it by 2% or 1%, why does it want to go on with the increase at all? The Government complains that it would lose revenue. I think it is something like $1.3 billion from the reduction in corporate and personal income tax. But now, probably it has changed its mind and said that it can absorb some of the losses. Therefore, not a 2% increase but only 1% increase in GST.

In any event, the Government has got huge surpluses and it is definitely not in deficit. But as Jennie Tay, President of the Retailers' Association, has said, the people and businesses in Singapore are already in deficit. In fact, during my meet-the-people sessions, many of the residents have come to tell me that they have lost their jobs and that they cannot pay their children's school fees and their utilities bills. As a result, their lights and water supply were cut off. I am certain that there must be many others with a similar fate in other constituencies. Those families, with lights and water supply cut off, are not living in the first world, as the PAP has touted. But they are still living in the third world without the benefit of electricity and running water from the taps in their homes. At least, when Singapore was in the third world, residents could still go to the roadside standpipe to take water. These days, there is no public water supply. They must go to their neighbours for water which can be very embarrassing to them.

Sir, I am happy, of course, that the 2% GST increase has not been implemented, but only 1%. Still, 1% is 1% more than is really necessary.

Many people in Singapore have lost their jobs. It was reported in the papers that about 4.8% or about 100,000 of our workers are unemployed and the economic situation does not look good and the situation is not improving. There is talk of double dip this year. The war in Iraq is looming and oil prices may rise drastically, which does not help the US economy at all, and which is not good for us because our businesses are dependent on the US economy. The economies of the region are also in dire straits and, in the circumstances, they do not help us either.

Many people have written to the press and say that this GST increase does not help us at all. In fact, in this difficult time, the people must be encouraged to spend and not save. And if the GST increase is implemented in full, there will definitely be price increases in goods and services. With higher consumer prices, of course, people will spend less. In these hard economic times, people should be encouraged to spend so as to revive the economy, and not to spend less. It would appear that if the GST were to be increased by 1%, the Government is, in fact, making things worse and not better.

Nearly all of our retailers, from statistics taken by the Straits Times in a recent poll, complained that businesses are poor and the rentals are high. The Government, being the biggest land owner in Singapore, is not setting an example of lowering rentals of business premises. In fact, the Government's policy appears to me to be just to accumulate wealth for itself. The question is: what is the point of accumulating so much wealth when it does not use it in time of need for the people? The people are definitely in need of assistance now and the Government should show some care and compassion. And I would advocate that the Government not only continues with the various relief programmes, pay out the ERS, and as announced now, it has put on hold 1% of the GST increase, something of course is better than completely nothing, so 1% is some improvement on the 2% increase.

I believe that if the 2% implementation of the GST was postponed for one year, it would definitely help the economy, and especially the retailers will be the happiest people in Singapore. If there is a hike restraint, to a certain extent it will ease the flow of Singaporeans to Johor Bahru to do their shopping.

To some extent the Government has heeded the plea of the people this time, but the point I think I made earlier is that if the Government is unsure of itself, why does it want to increase the GST at all? 2.18 pm

Mr Lee Hsien Loong: Mr Speaker, Sir, I thank the Members for their contributions. May I now pick out some of the points which they raised.

Dr Amy Khor talked about small businesses and the need to give them rental rebates. I agree. These are things which are being done by JTC and HDB. It is separate from the GST package.

Mr Chandra Mohan talked about why balance the budget. I think this is quite a fundamental point. Why do we need to live within our means to balance the budget?

The Government's fiscal stance is one which we have to fit to the state of the economy and to our circumstances. We can live beyond our means for a time or in an emergency, but eventually the chickens come home to roost and we have to pay for what we have spent. When the economy is in a recession, and there is a major downturn, then it is right for us to run a budget deficit because you cannot raise the same amount of taxes, you are going to squeeze businesses, you need to stimulate the economy, get it going again.

When the economy is at an even keel, it is not in a recession, if you routinely run a budget deficit, you will have a very serious problem because soon you will be borrowing money, your credit will not be worth what it says it is, and as I have explained just now, your Singapore dollar will go down, inflation will go up, your savings, the value will go too, because your CPF is in Singapore dollars, and if the dollars are worth less, your savings will be worth less. So when we live within our means, and try and maintain a balanced budget, say, next year, it is because we think that is about the right level to manage the economy and to provide the stimulation which is needed, not more, not less.

This year we are not running a surplus, contrary to what Mr Chiam said. We are running a deficit this year. We also ran a deficit last year. But next year, I think, at best, we can do a balanced budget, if you have heard what I said. I said I do not think we are going to get a surplus, at best, we aim for a balanced budget. We try, but we will have to see the circumstances in order to do it. If we go on the basis that we can spend because we have reserves, I think the reserves will soon be gone, and Singaporeans will be much the sadder for it.

So we do have to be sympathetic and we have to feel with our hearts as well as think with our minds, but it is necessary to be logical and pragmatic and I am sure Mr Chandra Mohan, as a lawyer, will agree that logic is not irrelevant, and that is why we have to work out a package which makes sense, which is what we have proposed - to phase in the increase but not to postpone it altogether.

Mr Tan Soo Khoon was generally supportive of the change we made and I am grateful to him for skipping many pages of his speech. We too know how to be grateful for small mercies. I should like to correct one point which Mr Tan made which was that unemployment is up 4.8%, it is a record, and it is 100,000 people.

First of all, it is not a record because we have been more than 4.8% before, for example, in the 1985/86 recession, we went all the way up to 6%. Secondly, it is not 100,000 unemployed. It is 72,000 people unemployed. 4.8% is a seasonally adjusted percentage, but the actual number of people is 72,000 unemployed. Mr Chiam also quoted 100,000. 72,000 is more than we would like to have, but we should not exaggerate the extent of our problem and talk ourselves into a gloom and a funk. The saving grace for us is that even though people are unemployed, the work is still available, jobs are still available. We still have foreign workers here because employers are unable to find Singaporeans to go and do the jobs. And particularly the smaller and medium enterprises who would like to do business on a small scale, they find it very hard to get Singaporeans to go and work for them. Maybe the hours are a bit irregular, maybe the wages are a bit low, but if you are unemployed, and a job is available, then better to have the job rather than not to do it at all. And I think our solution for the unemployment problem, while we have to help those who are in a desperate state, at the same time, we have to encourage all of the people who are out of work to look for work and to take up the jobs which are available and some of them which they can do, even if it is not ideal.

So although Mr Tan talked about reinstating the EDRS, as I had explained earlier, I think that we do not need to do it for now because we have enough means to help the unemployed and the people who need help. But if there is another crisis we will examine the situation and, if it is necessary, we will re-introduce the EDRS.

Ms Braema talked about reviewing the HDB upgrading programme because that would be additional expenditure by people at this time. I think it is something which the Minister for National Development will be considering and which many MPs will be considering when the propositions are put to them because finally to do the upgrading, main upgrading or lift upgrading, the residents have to vote for it and have to agree to want it. And if they do not want it, it does not proceed. If the MP says it is not necessary even to put it to the residents, you do not proceed. But some residents still want it, and if you will remember earlier this afternoon, we were talking about lift upgrading and some MPs were pressing us to proceed even though the residents did not vote for it. So I think there are contradictory pushes in different directions, but overall we will have to see how many of the upgrading programmes we can afford because it is not just money from the people, it is money from the Government, and in tough times we have to consider how many we can afford.

Ms Braema, Steve Chia and other MPs talked about the small retailers and their problems. I think Dr Amy Khor also made the same point. As I had explained earlier, they do have a structural problem which will take some time to be worked out. The Members are concerned that the extra one percentage point on the GST will affect them. I think it may, to some extent, but on the other hand, they are not totally negatively affected. Let me explain why.

The 1% applies to all businesses - big and small. The big ones have to pay, the small ones have to pay, most of it, but not all of it. And the reason is because the small ones whose turnover is less than $1 million do not pay GST on their own part of their business. They are GST exempt. So in fact when you raise the GST by one percentage point the big shops are affected more severely than the small shops. So, relatively speaking, it is better off for the small shops than before. Of course, everybody would feel happier if we did not have to do this at all. But if we do have to do it, in fact, the burden on the small shop is less.

I was not quite sure how Dr Amy Khor intended me to respond when she said that 1% they cannot pass on, 2% they can pass on. Does that mean she prefer to have a 2% increase and that would solve the retailers' problem? I do not think so.

Dr Amy Khor Lean Suan: Some businessmen prefer that.

Mr Lee Hsien Loong: Some businessmen prefer that! Well, if she thinks that is a better solution, when we move the amendment in the Committee stage I think we can look into the matter. She might want to express her views again. We could even take a vote. But I think 1% is better than 2%. There is some inconvenience. The businessmen have also expressed it, that they have to adjust their settings, their pricings, twice, but it cannot be helped. These are trade-offs they have to accept.

Finally, Mr Chiam talked about showing care and compassion and how the poor in Singapore are not living in the first world. I think Mr Chiam will know that while we need to improve the conditions for all Singaporeans, and especially for poor Singaporeans, somebody living in Singapore, however poor, is in a much, much better position than somebody living in China poor, or in Indonesia poor, or in India poor, or poor in nearly any better part of the world, including in America. We have gone into this before. You may not have your running water every day if you do not pay, but you do have your running water available. You do have a house over your head. Your children have schools. You have medical care provided for you. You have a Medifund if you cannot afford hospital charges. Your MP looks after you and come New Year, the MPs and the residents arrange, and you have hong baos and hampers, and I am sure Mr Chiam also arranges those. We have a community in which the poor are part of our community and we look after them and we carry them along with us and help them to upgrade as the rest of Singapore upgrades.

So when we say that this system has failed, I think we should look at the reality and do a reality check rather than just read off some speech which does not correspond to what is happening on the ground. We have made a significant move to phase out the GST - 4% this year, 5% on 1st January 2004. I would not hold out hopes to Members that come 1st January 2004 we are going to have a rethink and reconsider again. I am sure the subject will be discussed, but I should put down my cards clearly to Members so that there is no misunderstanding. This is an adjustment which we are making this time so that we will take it in small steps. 1% is a small step next year. 1% in 2004 is another small step. We have to do it. We will have to adjust other things if there are difficulties in the economy next year, but this is a structural change which will help us to get out of this problem, which will help us to create more jobs, and which will help us to recover and to grow in the long term. That is why I ask Members to support this policy and to support the amendment I am going to propose.

Question put, and agreed to.

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

The House immediately resolved itself into a Committee on the Bill. - [Mr Lee Hsien Loong].

Bill considered in Committee.

Clauses 1 and 2 ordered to stand part of the Bill.

Clause 3 -

The Chairman: The Deputy Prime Minister and Minister for Finance has given notice of an amendment to this clause. The notice of amendment has been circulated to hon. Members. As inadequate notice has been given of this amendment, it is subject to the consent of the Chair and the general assent of Members present. I give my consent. Is it the pleasure of hon. Members that the amendment be moved?

Hon. Members indicated assent.

Mr Lee Hsien Loong: Sir, I beg to move,

In page 2, line 12, to delete "5%" and insert "4% for the year 2003 and 5% for the year 2004 and subsequent years."

I have earlier explained to the House the reasons for the change and I am relieved that the Members have given me their general assent.

Amendment agreed to.

Clause 3, as amended, ordered to stand part of the Bill.

Clauses 4 to 7 inclusive ordered to stand part of the Bill.

Bill reported with an amendment; read a Third time and passed.