ANNUAL BUDGET STATEMENT

[Mr Speaker in the Chair]

Debate resumed.

Mr Tan Soo Khoon: Mr Speaker, Sir, I just want to rise on a point of clarification.

Mr Speaker: Yes.

Mr Tan Soo Khoon: Earlier on, in my speech, I made a reference to the financial figures of the PUB. The correct figures should be: accumulated surplus, $1 billion; and surplus in that year after contribution of $67 million to the Consolidated Fund, $207 million.

Miss Penny Low (Pasir Ris-Punggol): Mr Speaker, Sir, after listening to more than 50 speeches in this House, I cannot but observe the many contradicting demands we have on ourselves. To illustrate my point, the business community does not want the Government to interfere with business, but urges Government funding and facilitation that will bring the civil service back into the business community. Our people have been asked to be self-reliant but, at the same time, goodies would be welcome. Many have also called for pump priming of the economy but as our colleague, Mr Khaw Boon Wan, said, we should be frugal. Are we experiencing a schizophrenic existence, as my colleague in this House, Mr Iswaran, has put it, or are we confused? Or is it a case of kiasuism at work, where we want all of the best and none of the worst?

Whatever the case may be, these sentiments, in uncertain times, are perhaps the necessary catalyst for change. Perhaps it is chaos before order. It is the catalyst that allows us to take the bull by its horns, to make fundamental policy shifts and even explain "labour pains", to restructure our economy and remake our society. Singaporeans are resilient. We are capable of rising to the challenge and bringing us to the next level of growth.

During the last election, amidst recessionary times, the ruling party had asked for a strong mandate in order to carry out the necessary, though painful, task of change. Let us not forget that while our people showed their support, their expectations have also risen accordingly. We have a duty to our people.

We promised jobs in our last election. It is evident that even in the midst of long-term planning, the Government did not forget that. It has done a great deal in the last one-and-a-half years since election, to augment both the supply and demand sides of labour, in a bid to align the differences created by the advent of technology, as well as economic restructuring, to higher value-added manufacturing and service industries. But have we done enough? Is our plan bold enough? I believe we can be bolder and not tiptoe this golden opportunity to effectively deal with our economy and seal our people's emotions to this land. My colleagues have dealt in both length and breadth about possible bold measures, and I would like to focus on achieving the greater buy-ins from our 3Ps - the people, private and public sectors - and the CPF.

First, on the people sector. As I listened to the Budget Statement that has been shaped to embrace most of the ERC recommendations, right at the back of my mind is how do we fire up the imagination of Singaporeans to have a sense of mission to embrace these changes? What is the mental picture of Singapore in the year 2010 and beyond? Do the people on the ground really understand the ERC Report?

I refer to the Straits Times article on 1st March 2003 written by Mr Tan Tarn How entitled, "A dose of mild medicine for economy in transition". In the article, he surmised the lack of psychological dimension for the people in this Budget. I acknowledge that. No new "goodies" - yes, that is true, but the Budget does extend existing goodies, like the S&C charges, rental rebates, and so on, to help Singaporeans tide over these difficult times. A little help here and there would be heartwarming, but we must avoid fashioning the Budget Statement into an annual "goodie bag" or, worse, even lucky draws, as some benefits would only apply to specific segments of the population. That would certainly not cultivate the right spirit and attitude of the nation. But the call for a psychological dimension is an important one. It is a call for the alignment between the leadership and the people, so as to achieve accelerated growth. We must see our people not as functional economic units of production but as meaningful value contributors. Henry Ford was a gem at mass production but could not have been more mistaken when he asked, "Why is it that I always get the whole person when what I really want is a pair of hands?"

We need to understand that in this knowledge-based economy where changes are happening everywhere, fast and furious, the sense of anomie may be heightened if we lose track of our case. People work for a living, but live for a cause. And it is in this process of working towards the cause that establishes Singapore's and Singaporeans' modus operandi and identity. If we are in a branding exercise, this exercise will have to start at home, and not just with IE Singapore. I hope the relevant agencies involved in this "branding" exercise, including the new institution for continuing education and training, will focus on firing up the passion in every person, rather than impart mere technical skills to mechanically "retrofit" people for jobs.

Restructuring means uncertainty; it means change, and sometimes pain. It is traumatic for workers accustomed to a full employment situation to find themselves, firstly, being retrenched; secondly, asked to go for retraining - sometimes in an alien field; and, thirdly, to realise the call to be self-employed contract workers and embrace entrepreneurship, preferably of the high value-added type. To many, this seems like a triple whammy! Many workers have neither the skills, resource nor mindset to do so. Sir, to lessen the shock and pain felt by some of our workers, I advocate the setting up of a proper job transition mechanism using a holistic approach. Perhaps under the new CET Institute to be set up under the Ministry of Manpower, retrenched workers can receive advice and counselling that is beyond simple job matching. We can assist displaced workers by a four-step process:

First, give them emotional counselling, so that they are better able to absorb the retrenchment news;

Second, give them financial counselling, so that they can better manage their living expenses and better deploy their retrenchment benefits;

Third, retrain them or job match them, so that they can have a meaningful placement; and

Fourth, for those who desire to venture into entrepreneurship, they could be redirected to an entrepreneurship agency, so that they can learn to better assess and manage their risk. Mentorship programmes can be encouraged and access to business networks, opportunities and infrastructure could also be facilitated indiscriminately. In other words, whether the entrepreneurial activity is in the low-tech, high-tech or no-tech industry, the desired outcome is to get our people to adopt a different mindset - a mindset to carve out a niche for themselves to stay nimble and be self-reliant, a mindset to embrace risk as part of their daily staple.

On CPF. Mr Speaker, Sir, I support the policy on the temporary freeze on CPF restoration for two years. However, I hope that employers who are doing well will reward their employees and put back some of these CPF reductions to their salary either in the form of monthly variable component or even yearly bonus. This would augur well for long-term employer/employee relationship. Perhaps the civil service may want to lead by example.

The CPF scheme is a sacred cow not to be slaughtered. Started in 1955 as a simple retirement savings scheme, it is a scheme that encourages the virtues of work and thrift, and saving for rainy days. The scheme's sole purpose was that of nestegg accumulation, so that members can be self-reliant when their income stops. Today, the CPF scheme has evolved into a multi-layer and multi-purpose scheme which not only confuses some, but no longer a reliable nestegg for many.

In good financial planning practice, it is important to earmark specific resource for a specific goal. Otherwise, the multi-use of a resource with separate goals can lead to conflict, confusion and an intertwined web of different objectives. Sir, a slave of many masters faces multiple duties, obligations and functional woes. This, to me, appears to be the dilemma faced by our CPF scheme. Over the years, this simple compulsory savings scheme has come to mean different things to different people. As much as it is a life-line for retirees, home owners and investors, it is also a source of lifeblood for some of Singapore's economic initiatives. This is evident in industries where CPF funds can be channelled into. Clearly, in the residential property market and, to a lesser extent, the financial market, each relaxation of the CPF rules, from 1980s to 1990s, to allow for more funds released into the respective industry, never fails to fuel the industry.

According to the Department of Statistics, $119 billion was poured into housing over the last 10 years while $12.5 billion was withdrawn from CPF in the year 2000. And where did it go? Into housing. If this is not evident enough of our obsession with property, a 2001 paper by the Wharton-SMU Research Centre showed that the average Singaporean has 75% of his assets locked into housing, compared with 20% in the USA. What then is left for retirement? Answer: a big house, small cash, and perhaps arrears in payment. Perhaps the Government can set up a study group to examine ways to help Singaporeans unlock the value of their property to encourage self-sufficiency.

As in the case of property, but perhaps to a lesser extent, the financial market boomed as millions of dollars were poured into the CPF-approved financial instruments. All these would have been good news, except that the starry eyes that went in came out tearing, as the volatility in these investments proved too much to stomach.

The consequence of such a development, if unchecked, will result in an urgent call for a bigger provision for social security measures, either through forward financing - meaning we have got to pay more tax today - or a burden on the next generation of taxpayers, and more deficit budgeting in the years to come. All these are undesirable.

What is the alternative? I think the move by the Government to relook and realign the CPF scheme is a wise one, but one which needs to be done at an accelerated pace and more decisively. I have four basic suggestions:

First, on the retirement fund. CPF should stay true to its original objective of providing a nestegg for its members. This should remain the primary and single most important objective. In the original scheme of things, assuming that an average couple earns an average annual income of $50,000 per year, and works for 35 years, at the original contribution rate of 40% and an interest rate of 2.5% per annum, they would have accumulated a nestegg of more than $1 million in their CPF. In other words, almost every other Singaporean household could be a millionaire household when they retire! But this could be history. With CPF funds pouring into property and half-understood investments, it was reported that most Singaporeans would not even be able to meet the Minimum Sum when they retire. Therefore, bolder steps to move cash into the retirement account should be advocated with urgency.

The Special and Retirement Accounts' interest rate of 4% per annum is highly attractive and, in fact, generous in such times. Could the Government use this as an incentive to incentivise members to voluntarily contribute additional funds in the above accounts? Could cash also be accepted? Could there be further tax relief for those who bite? Obviously, members would have to reckon that such voluntary contributions can only be withdrawn at retirement age. The current recommendation of a moderate increase to the retirement account is too little, too late. This could be a one-time exercise or a long-term strategy if the Government can afford it. Ultimately, it is either we encourage self-funding or state funding.

Second, on investment account. Investment via the CPF scheme should be properly missioned and managed. It is a nestegg and should be treated as such. While there is nothing wrong with advocating self-investment, the assumption must be that all CPF members comprehend the principles and tools of investment. But is this a reasonable assumption? I do not think so. Most investors who make use of the CPFIS are, in fact, first-time investors. Like fire, this resource is useful to those who know its risk and learn how to use it. Like fire, it is dangerous and damaging to those who are ignorant. Many CPF members saw it not so much as a way to grow their nestegg, but a way to make some money and cash out immediately from the profits. Alas, the fire proved too hot for handling and many got their nestegg burnt. They got barbecued egg in burnt nest instead. While some may be wiser after losing their money, many remain confused and put the blame on CPF or friends who have advocated the investment. We need to do more to help Singaporeans wise up in the world of financial management. It is not rocket science, but it is no ABC either. I have advocated many times in this House, that financial literacy should be made a priority to increase the financial quotient (or FQ) of Singaporeans, so that we can cope with the ever complex world of investment, and the urgency of retirement funding.

Next, let me move on to the home purchase fund. The CPF Board also calls the CPF scheme a home ownership fund'. But is this really so? Upon closer examination, it looks definitely more like a house purchase fund' or a property purchase fund'. Let me explain the difference. While a home purchase fund would focus more on the roof over the head for a household, a house purchase fund works like a property investment fund, where a basic roof is not the purpose, but the profit of the purchase becomes the primary objective. This is, in fact, the single most important fuel that fired up the property boom up until 15th May 1996, when the capital gains tax was imposed on property purchase. This is one way to place greater restraint on fund use. CPF as a home purchase fund" is fine; but as a `house purchase fund' or a property investment fund, there will be no end to the property chase.

Next, on the Medisave fund. In the past, emperors and sages feared living too short a life. Today, many people fear living too long. The concerns of healthy living and illness funding are frequently heard. In fact, market talk has it that it is better to die than to fall sick in Singapore, due to high medical cost, amongst other things. Hence, I applaud the Government's helping hand in introducing and encouraging various medical and long-term care schemes like ElderShield, MediShield and, most recently, the portable medical benefit schemes. Knowing full well that there can only be limited success if left to market forces of demand and supply, the decision to make premiums payable via the Medisave scheme is a brilliant move. But more can be done. Here, I would like to support Mr Yeo Guat Kwang's call to widen the scheme. But in addition to the suggestions he has made, I have also been told that many Singaporeans are contracting one form of critical illness or another at a younger and younger age. As such, critical illness insurance premium is indeed amongst the most expensive forms of insurance, and it could be argued as probably one of the most important forms of insurance. Why? Because people do not necessarily die from it, but it will certainly make them a lot poorer. Critical illness does not work the same way as medical benefits which are indemnity schemes. Critical illness policies pay a lump sum upon diagnosis of a critical illness. Hence, I propose that the Government seriously consider setting up a national critical illness cover or allow critical illness policies to be purchased via the Medisave. This way, the drawdown on a person's limited resources could be better managed.

Next, after we have talked about the people sector, I would like to move on to the private sector. Perhaps, in my opinion, the single biggest group that will benefit from this Budget is the SMEs. The Budget is consistent with the Government's effort to proactively develop a higher level of entrepreneurial activity in Singapore. But perhaps we should take a reality check and ask: where are we now? Over the years, various international rating agencies have consistently rated Singapore highly for its infrastructure and pro-business environment. Yet in the Global Entrepreneurship Monitor Report 2001, published by the London School of Business and Babson College, Singapore was cited to be having one of the lowest rates of entrepreneurial activity in the 29 countries surveyed. There seems to be a disconnect somewhere. Have we created an environment where it favours foreign investors and GLCs over local SMEs? Or is it that the rewards of labour far outweigh the risk of entrepreneurship? In short, have we inadvertently become a victim of our own success?

Mr Speaker, Sir, in any economy, there are essentially four factors of production - land, labour, capital and entrepreneurship. In Singapore, the risk reward ratios of these four factors are out of balance. The rewards for land and labour far outweigh that of entrepreneurs, thereby creating disincentives to entrepreneurship. We will need to re-balance the equation to make entrepreneurship an attractive career option. As long as reward ratios are out of balance, then it is going to be difficult and an uphill struggle for us to encourage entrepreneurship. Access to capital could also be improved, especially for start-ups and those in the emerging and expansionary phases of growth.

At the end of the day, businesses move to where there are more business opportunities and where money can be made. Yes, Singapore does not have a hinterland as in the case of Hong Kong and China, but our `hinterland' is located within the seven-hour flight radius, facilitated by high-tech connections and the successful Free Trade Agreements and bilateral trade and business agreements concluded. Thanks to the hard work and vision of MTI, we have cause for celebration, and opportunities await at our doorstep. It is now up to the Government to spread the good news, and the entrepreneurs to spread their wings.

Finally, on the public sector. It is heartening to note in the Finance Minister's Budget Statement that the public sector will continue to simplify its rules and procedures and cut red tape. However, it is not just the rules and red tape that need pruning, but the necessity to urgently cultivate a pro-business, pro-customer service culture as we move forward. Obviously, deciding to transform is easy, but implementing it is difficult. The policymakers may have the will but the civil service must be prepared to `stick their necks out', stand on the side of business to understand the desired outcomes sought by the policymakers, and not get trapped in the process of things.

As our civil service grows, the expanding midriff and layering distance the policymakers from the customers, and response time could be slowed. Many business and ordinary folks have been frustrated with standard replies and follow-the-rule-book attitude. Playing it safe becomes the name of the game, as no one wants to be held accountable for their actions. Hence, I applaud the setting up of the ministerial committee on the service industry, headed by Deputy Prime Minister Lee, and the ministerial committee on entrepreneurship under Minister of State Raymond Lim. This will bring both decision makers closer to the ground, provided that the structure is kept lean.

Sir, in the past two days in this House, we have consumed western medicine, eastern medicine, psychotherapy as well as physiotherapy. Are we now ready to give birth? Sir, I believe that when the mind speaks, the body listens. The challenge is whether we can connect our mind (which is our leaders) to our body (which is our people), so that we can walk the talk as a nation. Our mind needs a loud and clear vision, so that our body will align itself to the purpose. Our people need a mental picture. If I could pose this question to our Finance Minister, if you have a piece of clean canvas today, what would be the picture that you would paint on it?

We have no tradition in demonstrations, but we have a good track record in campaigns, which have helped built our nation. I hope that in the next few months, campaigns depicting our visions and goals, best done in pictorial forms, could be launched as a marketing effort to align our mind and body. Ultimately, we do not want visions embossed on paper, but we want visions embodied in the daily lives of every resident in Singapore. Together, we stand; divided we kang-kor, meaning we fall.

Mr Speaker, Sir, there is an old Chinese proverb that says `we cannot help the birds of sadness flying over our heads, but we need not let them build nests in our hair'. In fact, if we look beyond, there is a silver lining, and there is blue sky. We have a lot more sources and network than that of our forefathers who came from afar. As we stand at the crossroad of our third phase of growth, let us emulate the undying spirit of our founding fathers to be industrious, to be frugal, and, most of all, to be hopeful.

Sir, I support the motion.

Mr Arthur Fong (West Coast): Thank you, Mr Speaker, Sir, for allowing me to join in the debate.

Sir, since the release of the ERC Report, there has been much debate on the means through which we can improve the competitiveness of Singapore in this fast changing global economy. We have talked about how we should remake Singapore, and have drafted plans to restructure our economy, to make our education system more responsive to the demands of the economy and to innovate in ways that will sustain development and wealth generation for all Singaporeans.

Indeed, we have seen some of these imperatives of economic restructuring being put in place through last year's Budget. And in this year's Budget, delivered on 28th February by the Minister for Finance, we see more initiatives, vital to our survival, which are recommended by the ERC, being implemented.

Sir, aside from the wealth of quality ideas from the various stakeholders from all quarters, an able Government and a dependable infrastructure to execute the well-crafted grand plans, the people of Singapore must play their part.

The economic slowdown and the threat of terrorism have cast a gloom on our people. It has put an austere mood over many a Singaporean. While it is a good thing to be austere and to revere the virtues of frugality, as Senior Minister of State, Mr Khaw, spoke about yesterday, in such times, the flip side is a dip in our morale. I want to speak on the ways in which we can improve the morale of Singaporeans in these hard times.

We need to quickly adopt a double-barrel approach. We already have one barrel pinned down quite well, and that is, the ERC's recommendations are refreshing and hold promise. I would like to make some comments on the practical examples of the forward-looking character of our growth strategy.

Singapore has taken further initiatives in the field of wealth management. These build on those initiatives announced last year. Singapore recognises that we need to position ourselves to provide these kinds of wealth management services to successful families. Singapore is well suited to deliver such services at a high level. There is competition, but the competitors do not have the advantages that Singapore has. Among the advantages are our sound banking and financial regulatory system.

Presently, too much of the wealth management service industry, undertaken globally, is shrouded in secrecy. There is already a drive for change as advocated by the Organisation for Economic Cooperation and Development and other financial sector watchdogs. Singapore must be a first mover. There is an opportunity to take advantage of a significant shift in an industry that will learn to depend on service levels and confidentiality, rather than on secrecy. Singapore is uniquely placed to take advantage of this opportunity. We have developed into one of the top tier financial services centres in Asia. The infrastructure is basically in place.

To pre-empt or address any concerns on the standards applied in Singapore, we must put a supervisory framework in place. Some Members have, over the last two days, talked about the Singapore brand. The supervisory framework will safeguard our reputation as a Wealth Management Centre Par Excellence. This framework will respect the confidentiality of the clients of the service providers while ensuring that those service providers fully understand their clients, and the source of funds being managed.

Singapore is noted, among financial watchdogs, for taking a tough stand in areas of money-laundering. This reputation will be a plus to develop Singapore to be a pre-eminent financial centre. This supervision is best done by way of a cooperative effort and could be spearheaded by the MAS. Respect for confidentiality might also lead to a desire to enact provisions for trusts that mirror those of banking information. That would further demonstrate our seriousness with which Singapore banks, financial and wealth management institutions treat their clients' information.

The current changes to the trust provisions, which were announced in the most recent Budget, clarify certain areas so that one avoids ambiguity. In fact, something of a non-NUTS approach is evident in the ERC. An exclusion list of what cannot be done is proposed and anything outside that list is a green light. This will spur the creative and innovative culture we have been lamenting that is so lacking or subdued. The current changes have also expanded the availability of the benefits to foreign trusts managed by all trust companies in Singapore, details of which can be found in the Budget Statement.

As the Minister mentioned, one other component that will be put in place soon is the review of legislation. This will bring the statutes current. This was recently done in relation to the companies legislation. Now it is the turn of the trust legislation.

We need to create an environment where the fiduciary service providers want to locate to Singapore. This is high value work. We will see the concept of clusters at work here. Significantly, ancillary services would flow from the development of wealth management services in Singapore. Legal services, banking services, financial management, financial planning and private banking are all services that depend heavily on the skills and abilities of the persons supplying these services. These services are skill-intensive and require a high level of understanding and some experience. We will see a magnet for talent flow from this. In addition, the information technology requirements are very sophisticated and the development of information systems can provide an opportunity to service the industry worldwide. Best practices are evolving in this area as well. An opportunity exists here. Skilful and hardworking people are providing conscientious service to global clients. This is a recipe for success that augurs well for Singapore's plan to be a pre-eminent financial centre.

I spoke of taking a double-barrel approach. It is clear from my elaboration of the wealth management area, addressed by the ERC, that we have one barrel fully loaded and armed. Let us consider the other barrel. The other barrel should be loaded with a call to Singaporeans to rise to the challenge we face. Government leaders, while persisting in encouraging changing mindsets of Singaporeans, must also continue to reassure Singaporeans that we will have our day in the sun.

Sir, just like in banking, when a client's investment portfolio is down as a result of market action, bankers will, along with working out strategies, also handhold their clients through a difficult period. In so doing, it will allow continued focus on the longer term investment objectives and avoid hasty knee-jerk reactions.

Sir, while we want individuals to be more self-reliant, we must ensure that the fighting spirit of Singaporeans cannot and must not wane. Singaporeans cannot be pessimistic. We cannot let our energies ebb.

Singaporeans have to recognise whatever creative effort and energy that are present in us, and draw on them. We cannot lose the sense of urgency to move on. Singaporeans must see this. I think in this area, Government leaders must do more cheer leading along with their grand plans. Without a high morale, we will find ourselves at the bottom of the cliff and without voice. Then, we cannot say we have a great this or a great that, or we are ranked this or that, or how clean and green our city is. For we will no longer be any of these, but a nation of pessimists doomed to fail. Investors will not come to our shores and people will leave once the people of Singapore lose their drive and desire to succeed, most of all, the guts to try and try again.

Sir, the morale of our people must be high. The Government has the leadership quality, the resolve and experience to tip the morale scales in Singapore's favour. The ERC Report is just one of the avenues, or tool kits, to address and pre-empt the challenges we are facing and will encounter in the near and foreseeable future.

The Government has always been upfront and direct about the problems we have. We acknowledge what and where the problems are. In this respect, we need to reassure Singaporeans that we will ride the challenges and come out with our heads high, just as we did in the 1970s.

I was encouraged and felt a sense of pride as I read in the Sunday Times' report on the four Singaporeans who ventured to India. Their indomitable spirit to succeed and try something new came through clearly. Sir, we need to hear and see more of such instances of a fighting spirit. We need to celebrate and give cheer to such instances of entrepreneurship and pioneering spirit. As our Prime Minister so succinctly put it - we should philosophise and see how things are not all bad.

Let us look at the Finns and see how they dealt with a dramatic upheaval in their economic environment. Up until the early 1990s, Finland had been part of the Eastern bloc and went unnoticed in the global economy. With the collapse of the Soviet Union, Finland's economy underwent a major transformation. Practically overnight, it lost a quarter of its major export market. This resulted in massive unemployment in many sectors of the Finnish economy. However, despite this economic hardship, the Finnish people did not despair. The Finnish Parliament agreed that its government should invest heavily in education and research. These investments paid off. Today, 10 years after the crisis, Finland is the world's most competitive economy, according to a ranking by the World Economic Forum. Average economic growth since 1994 has been 5%, and this is significant for an industrialised country.

It is ironic that it took a serious economic crisis for Finland to realise its potential. We have the benefit of a strong open market economy that has stood us in good stead for many years. But given the success of previous years, Singaporeans were not prepared for this sustained downturn. It was a shock to the system.

Like the Finns, Singaporeans need to be flexible, innovative and turn a deep adversity into a grand challenge. Unity of purpose across the sectors and interests, and planning with perspective even in the midst of a crisis are important. Look at the Finns and the remarkable Nokia their people have created. Singapore is geared in the same way.

Sir, we need to raise the morale of Singaporeans. As Mark Twain once said, "There is nothing sadder than a young pessimist." We cannot be a young nation of pessimists, if what the ERC recommendations and the implementation of such imperatives are anything to go by. There is much hope. Yes, we are facing serious challenges in the economic downturn. However, we must make all efforts to ensure that Singaporeans do not lose heart. If that happens, then no amount of remaking will help us get to where we need to be in the New Economy of a changed world.

Sir, we have the brains, we have the passion and the will. But we need to have a heart and the guts to move forward.