ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Assoc. Prof. Low Seow Chay (Chua Chu Kang): (In Mandarin): Mr Speaker, Sir, our economy recorded a 2.4% GDP growth in 2002. However, apart from transport and communication, all other sectors did not perform well compared with year 2000. In terms of employment, 78,000 jobs were lost (3.9% drop) compared to year 2000. Yet, at the same time, unit business cost and the unit labour cost were higher.

At this difficult time, it makes our work in stimulating our economy harder as we face strong challenges from the low cost manufacturing base of China. It has been attracting many investments from us, particularly in the manufacturing sector. In 2002, we attracted some $9 billion worth of investments in the manufacturing sector, but these were mainly capital-intensive industries which do not create the same number of jobs to replace those that we have lost.

The reduction of business cost is still an important part of this budget. On one hand, we hope to attract more good investments to create job opportunities. On the other hand, we want to retain the existing manufacturing establishments so as not to lose the jobs for our people.

The Government has introduced various measures to make it attractive for the factories to stay in Singapore, such as rebates on property tax, fix petrol tax at level, lower diesel tax for taxi and change OMV calculation. The cut of such indirect taxes at this moment implies that they are significant in the cost of operation in our business. They increase the business cost. Such ad hoc tax reductions are short term measures which can be revoked when our economy has fully recovered, and we will go back to the original state, and it would continue to have an effect on increasing business cost in Singapore. So, when we are reviewing all these factors which would increase our business cost in the long term, we should look squarely on all their implications because they are disturbing matters whenever we talk about the high cost in doing business in Singapore.

On rental cost, in the past two years, the price of offices and factories dropped by 34.6% and 23.7% respectively. Although there has been a significant reduction during the past two years, our office rental price is still ranked No. 18 in the world and our factory rent ranked 12th in the world, slightly lower than that of Taipei in Asia.

Of course, the rent will be decided by the balance between supply and demand. It is also dependent on the Government taxes levied on them. For example, when a landlord buys a factory, he has to pay a 3% stamp fee and another 4% in GST on the transacted price of the property. Then, when the owner wants to rent it out, there is also a 10% of property tax on the assessed value paid upfront before any rent is collected. All these taxes contribute a significant 17% on top of the intended rent of the factory. In other words, these Government taxes have caused the factory rent to go up by 17% more. It increases the cost of business significantly.

If a factory or a warehouse comes under one title deed, it would not be possible to sub-divide the whole premises into smaller units for separate leases. So, even if only a small portion of the premises is rented out, the owner has to pay the property tax based on the assessed rental value of the entire factory or warehouse. This has caused unfair and unnecessary hardship to the owner, especially at a time when the property market is down. This property tax aspect would have a very serious effect on the overall business cost.

As we all know, transport cost in Singapore is one of the highest in the world. More than half of the cost of owning the company's vehicles comes as a result of Government taxes. In this year's Budget, the Finance Minister decides to change the basis for valuing motor vehicles which would result in a decrease in ARF and excise duty payable for most vehicles. He has also locked in the duty on petrol at its present rate, so that it would not go up with the likely inflation of oil prices.

Hopefully, these measures would help to contain our transport cost. I think we should thoroughly review the various factors contributing to our high transport cost, so that it would not be ranked No. 1 in the world.

Apart from these direct taxes, there is also compliance cost which adds to our total business cost. I am very glad to see in this budget some mention about how to do away with some of the repeated or unnecessary compliance costs for the businessmen. However, in our daily lives and also in the process of business operation, in order to comply with some of the Government regulations, the compliance cost is very heavy. Let me quote three examples.

First, in a new industrial estate or agro-technology park, if you happen to be the first to take possession of a factory in this estate, and if there is not enough power supply, you would have to build a substation at your own cost, and it will cost you some $200,000. Those who come in later can make use of the power sub-station, free of charge. In other words, the first person who enters the estate will have to subsidise the cost of the others who use the electricity supply in this area. I think this is very unreasonable.

Secondly, if you are a property developer and you have purchased a few houses which you would subsequently demolish and redevelop the land by building a row of terrace houses on it, according to the regulations, you would have to dig up the existing drain and build a wider and deeper drain in the process of building the row of terrace houses. Subsequently, you would have to cover up the newly built bigger drain with sand and gravel, and reconstruct the drain back to the original state. In other words, there is an existing drain. In order to comply with the Government regulations, you have to broaden it and then, after completion, you have to put it back into the original state. This is an additional cost, which is unnecessary and a waste of time and money.

Thirdly, it may sound ridiculous, but it is true. There are people complaining about the unpleasant smell coming out from the farm. The farm owner was advised by the authority to build a scrubber, costing about $100,000. Despite that, the authority was unable to prescribe an emission standard or propose the best possible technology in dealing with the odour problem. So, even after building the scrubber, when there are further complaints, the owner would be called up, given a summons to go to court, and be fined as much as $10,000 on each charge.

So, if this is to happen in our new industrial sites, I am sure the EDB would take up the matter with JTC, and it will be resolved. However, the farming industry comes under the charge of AVA, and the businessmen have no recourse but to resign themselves to fate, pay the fine and forget about it.

There is no denial that business cost is very high in Singapore. Apart from direct and indirect taxes, the compliance cost incurred by having to comply with the various Government rules and regulations has contributed significantly to the burden of our businessmen.

I feel that the Government should not accelerate its process to reduce our direct taxes to 20% by 2005. If we can find some way to cut down on the indirect taxes and compliance cost to reduce the burden of our businessmen in the present difficult time, they can survive, and even have some profits in their business. Otherwise, if they run into losses or even have to fold up, then any reduction in income tax will have no bearing on them.

I think we should do all we can to help them so that they can survive and even make some profits. If they have no profit, they do not pay any taxes, so even if it is reduced to 20%, what is the use of it? We should look into this heavy burden that is brought upon our businessmen because of the high compliance cost. If the situation can be improved, all businesses, big and small, will find it more attractive to stay in Singapore. They can be more competitive and can face the competition posed by the low-cost localities around us.

I support the motion.

Mr Ahmad Khalis Bin Abdul Ghani (Hong Kah): Thank you, Sir, for allowing me to join in the debate. I will be touching only on entrepreneurship, and more specifically one or two aspects of it.

Sir, I am pleased that the Government, in the Budget, does not see entrepreneurship as a branch of the economy or as an industry, but as a cultural mindset. For Singaporeans to be entrepreneurial, there has to be a cultural shift, and to quote the Minister of State for Trade and Industry, Mr Raymond Lim, earlier, the entrepreneurial spirit has to be one which permeates all walks of life, not only in businesses. I do not think that the entrepreneurial spirit is just about maximising financial profits, but it has to do with maximising potential of resources, lateral thinking, creativity and the pursuit of human ideals. These are some of the qualities stated by my colleague, Ms Indranee Rajah, earlier.

Entrepreneurship is equally applicable in family management and social work as it is in businesses and MNCs. I agree with the Minister of State that we cannot manufacture entrepreneurship, but we can enable people to be entrepreneurs. But we, as a society, also can and should do more. We, as a society, need to evolve into an entrepreneurial one. I do not think that we can become entrepreneurial after one budget debate. Even all the fiscal measures put together in the Budget Statement do not create an entrepreneurial society. However, this Budget recognises entrepreneurship for what it actually is, elusive though it may be, and it decides to move towards a more entrepreneurial society. This House and all Singaporeans have to look at it in the long term, and we shall continue to monitor our progress as we, as a society, evolve the entrepreneurial spirit.

I will now move on to my next point, Sir, on something which is related to this elusive nature of the entrepreneurial spirit. We have decided to embrace globalisation, the infocomm technology, and the new economy. We have decided to make our country more attractive for investments. We are taking steps to lessen impediments and increase attractiveness for top business people to invest in Singapore. We are allowing our people more leeway to explore and to express. The sum total of all the recommendations in the recent reports - whether in the review of the upper secondary and pre-university education or in the ERC - not only allows for more peaks in our people's achievements but also enables these peaks to go higher. But not everyone can keep up with the changes that are taking place. Some are struggling just to remain relevant. These, juxtaposed with the enhancements of peaks, mean that there will be a widening of the social gap between the very top and the very bottom.

Sir, as I face many applications for financial help or otherwise from genuinely hardship-stricken families, I also see many brand new Maseratis, Boxsters and XJs on our roads. Being a young nation, Sir, social cohesion is pivotal to our well-being. Recent events related to extremism and terrorism have caused us to worry about our inter-racial and inter-religious relations. Similarly, we have to ensure that changes in the economic landscape do not over stretch our social fabric.

One possible way to keep this gap down - and I say this only for discussion - is by placing caps at the top. This House has decided that capping the top runs counter to the efforts to attract and keep investors, and we need investors to keep our economy going, in other words, taxing our top earners can only be done to a limited extent, an extent to be determined, among others, by tax regimes in other countries and other costs of doing business in Singapore.

The other way to reduce this gap is to raise the base. Again, there are limitations to this. The Government seeks to be a fair, not welfare state - to borrow a quote from a very well-known book, which I am sure all of us have read or are reading - and further doling out too much help runs counter to our vision to evolve an entrepreneurial culture. But if our top earners are more conscious of the need to maintain our social cohesion and are happy to do so, then we might be able to raise the base without antagonising the top.

I applaud the numerous fiscal measures in the Budget that encourage and facilitate charitable acts. But, Sir, like entrepreneurship, charity is also driven by the human spirit. We need to evolve the spirit of charity, social consciousness and voluntarism. Schools now have community involvement programmes. We have also recently established a National Volunteers Centre. These are only two of many structures and programmes recently set up that would help in evolving the spirit of charity. The success of the programmes should not be measured only in terms of how many activities were conducted and how many people were reached, or even how strongly people feel towards charity and voluntarism. Perhaps, the ideal is reached when our poor and socially handicapped feel that they are not left out, that they see the rich as their partners and their helpers, and not as targets of anger or envy. This can happen when our top and higher income earners have evolved the genuine spirit to help and volunteer to do charity work.

Sir, we can and should evolve this spirit. If we recognise the need and are resolved to evolve this elusive entrepreneurial culture, then, similarly, there is no reason why we cannot resolve and evolve a charitable culture. Indeed, both must go hand in hand.

On that note, Sir, I support the motion.

Mdm Cynthia Phua (Aljunied): Sir, thank you for allowing me to participate in this Budget debate. I speak in support of the 2003 Budget in the name of the Deputy Prime Minister and Minister for Finance, Mr Lee Hsien Loong.

I appreciate Mr Lee's pro-business Budget and his support for the long-term vision for Singapore, as outlined by the Economic Review Committee Report. Sir, I agree that the Budget should create attractive conditions to aggressively attract foreign direct investments. To this end, we have fine-tuned our tax regime to make it attractive for both businesses and individuals. Singapore currently has one of the most attractive tax regimes in the region. I am confident that these changes will attract companies and talent to relocate in Singapore and this, in turn, will help to boost our economy and to create more jobs for Singaporeans.

The Budget also encourages Singapore companies to look outwards to new markets and, at the same time, entices foreign companies that have global operations. Companies that use Singapore as a base of operation will obtain tax reliefs for foreign-sourced incomes, royalties and service incomes. There is even this deferment of income taxes for two years, if their overseas investments suffer operational losses for eligible investment companies.

However, Sir, it is noted that these advantages outlined in the Budget would not be felt by small businesses in these hard times, and do not serve as a sufficient catalyst to help small businesses grow into regional businesses. I am concerned that most of the business cost cuts are temporary for another six months. This does not bode well for our long-term goal of reducing costs and attracting investments. Government infrastructure and services have not seen a drastic drop in cost. For example, it has been reported that business cost still rose by about 5% in 2001.

To cite an example, just submitting an application to URA for approval of simple alteration and additional work will cost a businessman $2,080, inclusive of 4% GST. And in order to build a development of 100,000 square metres of gross floor area, the cost for essential written approval - not even talking about building - is a hefty sum of $350,000. Many of the architects and consultants are stating that these fees were last reviewed in 2000. They have not seen any drop for many years, despite the intense efficiency and productivity drives, and use of information technology. It is time for the Government agency to review its cost of provision of services. It is my view that the Government needs to reach out to the man-in-the-street, to be more sensitive, and to have the ability to be flexible. As my colleague, Dr John Chen, earlier said, the Government agency must be its customer's advocate.

I would like to cite another example of the sensitivity and flexibility that the Government agency could help the local small businessmen. An eating house operator has rented a ground floor of eight conservation shophouses for his new eating house. It needs to remove the ground floor adjoining walls of the shophouses. According to URA guidelines, all alterations and additional works for conservation houses need to be submitted for approval. This is acceptable. However, the charges are now a whopping $16,640, as it is treated as eight applications for the removal of six non-structural walls shared by the eight shophouses. If it is treated as one application, the cost would be $2,080, inclusive of 4% GST.

Sir, I would next like to talk about portable medical benefits. I would like to compliment the Deputy Prime Minister and Minister for Finance for the introduction of these benefits. We have had much discussion about our greying workers in this House. As our workforce becomes greyer, they become more susceptible to job changes and losses, whether due to inappropriate skill sets or as requirements for workers change, or in view of the existing structure of age remuneration pay system. In response to an aging workforce, the Budget has identified new ways in which the burden of healthcare can be reduced for employers and the ageing workforce alike.

Sir, by encouraging employers to implement either the portable medical benefits or the transferable medical insurance scheme, employers will continue to enjoy a deduction of 2% of the total employees' remuneration for medical expenses incurred. If employers do not participate in this scheme, they will enjoy only half the amount. Since the portable medical benefits scheme will involve additional contributions by the employers to the Medisave accounts of the employees, the Budget has also stipulated that the employers' deductions will be increased to $1,500 per employee per year. The concerns are that this lump sum will become attractive for employers to favour younger employees, although I agree that the absolute sum is very attractive.

It is also important for us to determine whether the quantum proposed under the portable medical benefits scheme is able to meet the cost of healthcare in our aging workforce sufficiently. There is a danger that the cost of healthcare insurance premiums could dramatically rise because of age, which would again be counter-productive. We need to ensure that this does not happen during this time.

In addition, I would like to appeal for the enjoyment of this 2% deduction limit to thoughtful employers who have allowed ex-employees, in view of early retrenchments due to restructuring of the company, to continue to take advantage of the attractive insurance rates, because of the large global-based number of employees. One good example is Exxon-Mobil, which has done so. This is especially important for employees aged 50s who would have to buy insurance again due to forced early retirement and, in general, they would have to pay higher insurance rates on re-acceptance into the medical schemes and subject to medical review. This exemption will encourage more companies and statutory boards, such as PSA and HDB - I do not know whether they have done so - to consider allowing their retrenched workers or early-terminated employees to continue to tap on the existing insurance benefits or schemes with the relevant insurance companies. This will help the affected workers to tide over their hardship, and not reduce their insurance protection.

Sir, in this economic downturn, it becomes necessary for a caring Government to help its needy citizens. Even a little assistance goes a long way for those who have been affected by this economic downturn. Sir, while we have several assistance programmes in place for the bottom 10% of Singaporeans, my feeling is that the help net is not enough for the middle income group. Many of the 4-roomers have upgraded themselves during the boom time and without proper credit guidance. Nobody would have foreseen such a long period and severe downturn of our economy. Many of such families are in need of more assistance.

Many of the existing schemes offered, again by the MCDS and the CDCs, are varied, and with many acronyms attached to the schemes. Residents are confused and not clear of these assistance schemes and many of them have very minor differences. I hope these two critical agencies could re-package these minor differences and highlight the assistance programmes to the needy and to those workers who are affected by early retrenchment. The booklets for retrenched workers provided by the restructuring companies should include some of these financial, social and family assistance schemes provided by the MCDS, the CDCs and even the FSCs within the communities.

Sir, the man-in-the street is already facing a tough time in this economic downturn. We will not see any economic recovery anytime soon. So, Singaporeans can expect a rough road ahead. In fact, our Prime Minister has made it clear that he expects things to get worse before they get better. And Singaporeans have been tightening their belts for quite some time.

Sir, while we create ample advantages for the international business community so that Singapore can succeed in the new economy and bring in new jobs to the people, we must also provide as much assistance to our local businesses, providing the local support and services, and also carry as much of the burden for our needy citizens, many of whom have contributed to our stellar growth in the past.

Sir, I support the motion.