ANNUAL BUDGET STATEMENT

Debate resumed. 3.42 pm

The Deputy Prime Minister and Minister for Finance (Mr Lee Hsien Loong): Mr Speaker, Sir, this Budget is an important step forward in restructuring our economy. It builds on the strategic shifts which we began last year, especially the tax changes, the offset package for the tax changes, including the ERS distributed on 1st January, and also the CPF changes. So, as aptly pointed out by Ms Indranee Rajah and other MPs, the measures and policies in this Budget should be seen in that context, and not in isolation.

The Budget will also have to be seen in the context of the current global outlook, and the short-term prospects for the Singapore economy. The global outlook is very uncertain. Much hinges on what will happen in Iraq. The whole world is now anxiously following developments at the UN Security Council, watching to see if war breaks out over the next few days and, if there is a war, how events develop and what happens afterwards.

One significant question is which way oil prices will move. Oil prices are already very high, both in anticipation of the war disrupting supplies and also because problems in Venezuela have already reduced supplies. Analysts are not optimistic that oil prices will fall rapidly, as happened after the Gulf War in 1991. If oil prices stay high, it will dampen the global economy.

From the US economy, the recent signs have been mixed. The consensus is still that we can expect a modest US recovery in the second half of the year and that, as a whole, 2003 should be slightly better than 2002. But this is not at all a sure thing. Some well-respected analysts are worried about the US economy, particularly Steve Roach of Morgan Stanley. They fear that high oil prices, high consumer debt, deflation and the lingering hangover of the burst dot-com bubble will result in another US recession. Since Europe and Japan remain weak, a US recession would leave the whole world without any engine of growth.

This is still a minority view, but it is one that we have to take seriously. I met one experienced US analyst recently and he told me that in more than 20 years he had never seen a time like this, where people were so uncertain as to which way the US economy was heading and market analysts were so divided in their views. And, therefore, he was very worried.

Despite these dark clouds on the horizon, right now, our own economy is still growing. We had 2.2% GDP growth last year and the unemployment rate improved somewhat to 4.2% at the end of the year, coming off from its peak of 4.6%. So far, this year, the signs have been positive. For January, our non-oil domestic exports increased by 18% year on year and our industrial production manufacturing output also went up 14% year on year. The early indications are that the first quarter GDP growth is quite steady. Our early estimate, based mainly on January data, is plus 2.7%. And this is despite the major uncertainty of war hanging over the global economy.

Therefore, I think Dr Wang Kai Yuen may have been a little bit too pessimistic when he said that the worst is yet to come. But it is certainly possible that things can get worse and we will need to monitor and assess developments closely, and be prepared if this happens.

The main concern among many Singaporeans is jobs. Many people have said this is a pro-business budget. But, as Mdm Halimah Yacob and Mr Matthias Yao have pointed out, in fact, this is a pro-jobs, pro-growth and pro-worker Budget. The Budget aims at preserving existing jobs and creating new and better jobs for our people. But all the budget measures are only enablers, because success lies in our people seeing, creating and seizing the opportunities that come our way.

In the immediate term, reducing costs is important. But, ultimately, to create more jobs, we need to look for new businesses and create new value. We are making major strategic shifts, and we must get them right and implement the changes speedily.

Mr Low Thia Khiang complained that the cost of living is very high. If I may borrow a phrase from the Ministry of Foreign Affairs, he is a very good storyteller. In fact, last year, the consumer price index fell by 0.4%, despite the public transport fare increase. Many basic food items cost less, like rice, cooking oil, meat, seafood and vegetables. Housing cost 2.2% less, because of electricity tariffs coming down, accommodation and household durables becoming cheaper. Transport and communication costs fell by 1%, because of cheaper petrol and the lower road tax. Only healthcare and education costs rose marginally.

While the CPI fell, nominal wages went up by about 1% last year. Mr Steve Chia asked for a 30% cut in Ministers' salaries. How will this solve our problem? If it is to be a symbolic gesture, then we had already done it in November 2001, when we cut monthly salaries of Ministers by 10%. And, if we take it together with cuts in annual payments, in fact, the result was an overall reduction of 20% in annual remuneration. Last November we extended the cut for another 12 months till December 2003.

Several Members, such as Dr Warren Lee and Dr Teo Ho Pin, have asked for more help to be given to the lower income group. This we will do. The Government has already implemented substantial measures to help all Singaporeans in this year's and last year's budgets, specially focused on the lower income group. We are providing additional help where it means the most, in basic household expenditure items, such as utilities and Service & Conservancy (S&C) charges. The Government extended the Utilities Save scheme by one year, and granted an extra month of rebates on S&C charges for all 1- to 5-room HDB flats. So, come April, all the flats will be spared S&C charges. And these are over and above the previous provisions. Also, we should not forget that by staggering the GST increase into two steps, we have effectively given Singaporeans a very large rebate this year of $650 million.

Mr Ahmad Khalis, Dr Warren Lee and Mdm Ho Geok Choo also spoke on maintaining the social fabric and providing additional help to those who cannot pay utilities bills. We will do that. However, we should keep the lines of responsibility clear. Power Supply is not a welfare organisation. Its bills have to be paid. But people who need help paying these bills should try to get help from the CDCs and CCCs, where ample help is available. We will have to depend on the grassroots leaders to distinguish between those in genuine need and those who can help themselves to be more self-reliant. With their assessment, with their sensitive management, where there is discrimination, we can deliver the help where it is most needed, without discouraging a lot of other people from working and looking after themselves.

Several Members, including Mr Inderjit Singh, Mr Iswaran and Mdm Cynthia Phua, have said that the middle income group's concerns have not been addressed. I think they are mistaken. Rightly, we have focused our help on the lower income group. However, we have also implemented measures for the middle income group. The Utilities Save and the S&CC rebates are weighted towards the 1- and 3-roomers, but they have also been extended towards the 4- and 5-roomers. Furthermore, the middle income group will benefit significantly from the 1% GST deferment, because their consumption level is a lot higher than the lower income group. So, we have not forgotten the middle income group in this Budget.

Many MPs, including Mrs Fang Ai Lian, Mr Gan Kim Yong and others as well, expressed regret that we did not give further rebates for personal income tax and corporate income tax this year, nor did we lower the rates by another one percentage point. But do not forget that individuals and companies are already enjoying lower personal and corporate taxes this year, as a result of last year's substantial tax cuts. There is no justification for giving them tax rebates on top of these, considering the tight budgetary position.

As for lowering the rates by another one percentage point, remember that it would only affect the taxes to be paid next year, in the Year of Assessment 2004. It is not going to put money in people's pockets this year. So, given the uncertainties ahead, it would be unwise of us to commit now to being generous next year. If the situation pans out favourably, it will not be too late to consider an income tax rebate next year. If it does not, we will have to reconsider our position. But what counts for investors and businesses is our long-term tax plan. For that, we have already committed to bringing down the top rates to 20% by the Year of Assessment 2005.

On help for businesses, one item of attention has been industrial land costs. Mr Inderjit Singh, Dr John Chen, Mr Nithiah Nandan and several other MPs raised this. We cannot match the lowest land prices available in China or Vietnam, nor do we need to do so. In fact, sometimes, land is given away for free in these countries. But the Government will ensure an adequate supply of industrial land to achieve stable and internationally competitive land prices. Already, industrial land prices have come down by about 45% from their peak in 1996.

Mr Inderjit Singh suggested that the Government should announce its intention to lower industrial land prices drastically. I think the last thing the Government should do is to destabilise the property market. He may recall that, last year, he made the same proposal on residential properties - to reduce their prices by 30%. And I advised him to be very careful about what he said, because his voters who own their HDB flats would not be pleased, and they are also my voters. Unfortunately, this year, he has repeated the argument for industrial land. There are thousands of companies owning industrial land, and many banks have lent money to factories against industrial land as collateral. It would be reckless to alarm all of them with rash statements.

We do not need to be rash. We can ensure that our land market is efficient and flexible, and that multinationals coming here have enough affordable industrial land for their operations. There is enough. We can do that because, under the Master Plan, we have reserved at least 12,000 hectares for industrial use and, so far, only 7,300 hectares of this are in use by industries. As most industrial land is held on a leasehold basis, the supply is renewable and ample to meet long-term demand. Because, every year, some leases will expire and the land is taken back and can be re-allocated again. We have also been successful in intensifying the use of the land so that we can get all the industrial floor space that we need, whether to attract new investments or to enable existing investments to expand.

Mr Heng Chee How and several other MPs suggested that the Government's land use policy was to blame for our woes. Particularly, they cited an alleged policy whereby we priced land in terms of its alternative use. But industrial land prices are not pegged to alternative uses, such as residential or commercial purposes. Land is zoned specifically for different uses, such as for industries, and tendered out for that purpose. So, industrial uses are only competing against other industrial uses, and commercial against other commercial uses, and so on. With ample supply, prices should remain competitive.

Dr Wang Kai Yuen suggested that high industrial land cost contributed to the recent PSA retrenchment. He is not right, because PSA is charged very reasonable land prices, and land cost is not a significant component of PSA's total costs. Labour is. The retrenchment in PSA is not due to land pricing but, rather, through redundant overheads. Faced with intensifying competition, PSA cannot afford to carry overheads which no longer contribute to its businesses, and they have no alternative but to rationalise.

On rebates, a number of MPs - Dr Warren Lee, Dr Teo Ho Pin and Mr Nithiah Nandan - have asked for the various rebates which I introduced to be extended, preferably for two to three years. Members should remember that rebates are meant as temporary measures, and they should not be permanent. They are different in nature from the CPF freeze. Let me explain why.

The CPF is a statutory cost imposed on employers and employees. It is an imposition. It achieves important social objectives, but it is a burden on businesses. We can only raise the CPF rates and increase the burden when the economy is strong enough, which means not earlier than two years from now.

On the other hand, the JTC and HDB rental rebates are concessions to the existing tenants. In principle, tenants should pay market rentals all the time, whether the economy is up or down, and, of course, the market rentals will go up and down with the state of the economy. In that way, the companies which are viable will come into the business, and the companies which are no longer viable will leave the business. But to give the people who are already tenants, who are already in business, some respite, some time to catch their breath, we have given the rebates to help them to pay less than the market rentals, and to give them more time to adjust to the new conditions. Over the long term, however, we cannot freeze this flow. We must allow the natural entry and exit of companies and businesses because, if we continue the rebates for too long, then in fact we are holding back the restructuring of our economy. So, it is better to extend the rebates for six months, and reassess the situation again next year.

Mr Tan Soo Khoon raised the concern of Government fees and charges contributing to the cost of doing business. I have great sympathy with this view. They may be small amounts, but they do add up. We are very conscious of this, and we are making every effort to keep our fees and charges as low as possible. However, we cannot totally do away with all fees and charges. Nothing is for free. Ultimately, someone has to foot the bill. Either the users pay, or we have to fund it out of general taxes, which may mean raising tax rates. Or we will have to cut back on services and provide fewer or lower quality services, contrary to all the requests which I have heard over the last three days from MPs to improve the service quality of Government departments. Mr Tan cited DVDs getting cheaper year by year. That is true. But services are not getting cheaper year by year, unlike electronic goods, because skilled people are not getting cheaper. For example, medical costs are getting more and more expensive everywhere, as medical science and technology improve.

The Government will make sure that its operations are run as efficiently as possible and, sometimes, this will mean retrenchments and downsizing, like in HDB. But we cannot avoid these tough choices. However, the best way to keep costs down for businesses is not through ad-hoc rebates but, rather, through prudent Government spending to keep the overall tax burden on businesses as low as possible permanently. And we have kept this Government lean, with Government spending this year accounting for only 19% of GDP. The Government will continue to keep its size small.

Several Members - Mr Tan Soo Khoon, Mr Inderjit Singh, Mr Loh Meng See and Dr John Chen - said that the deficit is not real, and that the Government should have run a bigger deficit. We did better than expected in FY 2002 because, fortunately, we underspent our budget. It is true that we had higher than projected Net Investment Income contribution but, remember, our tax revenues were lower than expected and the two variations cancelled each other out. Some Members seem to regret this. Somehow, they are sad that we did not run a deficit as big as we expected. But I am glad that, as a result, we were able to make additional special transfers to the Lifelong Learning Fund and the Medifund. However, we cannot expect such happy surprises all the time. From time to time, the Budget out-turn swings against us. For example, in FY 2001, we forecasted a budget surplus but we ended up with a deficit of $2.7 billion. And there are many uncertainties when you are looking ahead, even 12 months, especially in a year like this one.

Therefore, we had to decide very carefully how large a deficit we needed in this FY 2003 Budget. We are running a budget deficit for the third year in a row. This is not an illusion. Where the items are meritorious, we have not cut back on spending, for example, on security. And we are making a special transfer of $600 million to the ERS account. It is a special transfer, but it is money which is going to be paid out and that will put cash directly into people's hands for them to spend if they wish.

Mr Tan Soo Khoon also said that the Government should draw upon the surpluses of the statutory boards as a supplementary source of revenue. It is a plausible presentation of a seductive idea. The surpluses of these statutory boards have been accumulated over very many years. But on a year-to-year basis, the statutory boards are only running modest surpluses, which they ought to, because they are meant to generate sufficient revenue to fund their activities and we should be thankful that they are able to do so and do not need to fall back on Government spending.

Statutory boards do make regular contributions to the Government but, compared to our overall revenue needs, these are not significant. Also, to put it bluntly, we should not be thinking of raiding the bank. We can only do it once and after that, we will be poor. It is precisely to stop populist governments from spending these reserves that the bigger statutory boards like JTC are protected with the President's second key.

Many MPs, of course, would prefer us to have budgeted for a larger deficit so that more sweets could be distributed all round. But are they sure that a larger deficit would instill greater confidence among analysts and investors? Might analysts and investors not see it as a weakening of fiscal discipline, an inability to tighten our belts? The same people who now say that they are disappointed we did not open our purses, would turn around and say that they are alarmed that we have taken leave of our prudence.

Mr Iswaran and others made a comparison with Hong Kong's recent Budget. This is a very, very relevant comparison. I draw three conclusions from the Hong Kong experience. Firstly, it shows how quickly a country can move from a large budget surplus to a chronic fiscal deficit. Hong Kong was in an enviable position, just a few years ago, generating a surplus of more than 6% of GDP in 1997, the year of the handover. Now, it is projecting a deficit of about HK$70 billion, 5% of GDP for this year, after running deficits for the preceding two years.

Secondly, despite the large deficit, the Hong Kong economy is stagnant. Like Singapore, Hong Kong is a small and open economy, and deficit spending is not an effective way to boost demand. So do not think that, if only we would open our wallets, the problems would go away and we would all get a warm feeling. It is not true.

Thirdly, once we fall into the pattern of a large deficit, it is very difficult to get out from the black hole. We may say that the spending is temporary, but the reality, as you will know from your appeals on the rebates, is that it is very difficult to withdraw temporary concessions. Hong Kong is now having to raise taxes in a slow economy, which is extremely tricky, both politically and economically.

So, given the uncertain outlook, it would be premature for us to have a highly stimulative budget to try to boost our economy. It is better for us to take a conservative stance now. If things do worsen later on, Singaporeans can take comfort that the Government has available bullets to expend. Not only should we not shoot off all our bullets now, but we need to see the situation develop further before it will be clear what targets we should aim at with our bullets so as to get maximum effect.

These are the short-term considerations. We should also not lose sight of the longer-term dimensions, starting with the international backdrop. Global competition is intensifying. Mr Tan Soo Khoon eloquently cited some examples, so did other MPs. We have got to keep our system lean. We have got to remain nimble, and search for new growth niches and opportunities. Our past success is no guarantee of continued high growth. We can see many examples of countries which have run into difficulties because they cannot change and adapt fast enough, not that they do not know it, but they are frozen, they are unable to do it.

For example, in Germany, as reported in the Business Week recently, enormous structural impediments have stalled Germany's progress. At the core of it all is a job protection law that makes it almost impossible for employers to lay off workers. Any company with more than five employees is subject to this law. So companies stay below six so as not to be caught. And the result of this is 11% unemployment, because the more you try to protect jobs, the fewer jobs will be created. German companies avoid hiring workers even when there is business, and they invest all over the world, rather than in Germany itself, and little foreign investment goes to Germany.

On the other side, we see countries which are rising rapidly, like China and India, which puts pressure on all other countries. China's competitive advantage will be low-cost labour for some time yet. While China dominates the world in labour-intensive products, it will also become a major importer of capital-intensive goods and knowledge-intensive services. In the longer-term, the emergence of China and India are undoubtedly positive developments for us. A more prosperous China and India would mean bigger markets, more investment opportunities, bigger trading partners for Singapore and the region.

Our business to China is growing. We are not just importing more from them, we are exporting a lot more to them. Last year, our exports to China grew by about 28%, to more than $12 billion. Our combined exports to China and India now equal to more than half our total exports to the US. Those countries and those companies which can get organised faster would be able to move ahead and seize the opportunities that these rising economies bring with them. And some of our companies and people are already making inroads into the Chinese and Indian markets.

For example, you may have heard of Dr Tan Hock, a Singapore entrepreneur in Shanghai, whose story was carried on some of our radio stations. He found a niche in the knowledge-based industry in China, by animating the 12 zodiac characters into cartoon characters and created an industry - cartoons as well as all the products to sell with the cartoons. And he is doing well. His creations are now broadcast in over 130 stations across China and 10 stations in Asia.

And there are people who venture into India too. You would have read about a group of retrenched Singaporeans who made good setting up a factory producing ring binders in a small rural Indian village called Tiruvallore. When President Nathan visited Tamil Nadu recently, they turned up to meet him, which is probably how the Straits Times found out about them. It was a remote village. They went there, they set up shop, they made it viable, they even learnt Tamil, albeit a few words, and I think they take turns coming home because living conditions there are hard. But they press on. And there is another company which invested half a million dollars and set up something called Technigroup India to provide modern office furniture in India. They managed to break-even within a year and generated $3 million turnover last year. The opportunities are there and we must take advantage of them. And that is the international backdrop against which we are making our domestic changes, starting with our tax changes.

Mr Inderjit Singh asked airily what was so radical about our tax changes. It is a very significant shift to bring individual and corporate tax rates down to 20% by YA 2005 and to raise GST to broaden our tax base. How many other countries can do that? Our tax rates are competitive for now, but we will need to keep tabs over the long term and be prepared to go lower, if necessary. We are also making other strategic changes, exempting foreign source income, domestic interest income and enhancing taxation on intellectual property, and so on. As Mrs Fang Ai Lian has told Members, and she knows the business, these are important structural changes which, over time, will develop a lot of new businesses for Singapore.

On CPF, which is our second major change, I would like to thank MPs like Mr Ong Ah Heng, Mdm Halimah and Mrs Lim Hwee Hua who have voiced support for the CPF deferment. We are grateful for their support from the unions and the workers. They have understood and accepted the need for the change.

There is no expectation of a restoration of the CPF this year anyway. And even if the economy does moderately well this year, by January 2004, it would probably not have done strongly enough for us to be confident enough to warrant a restoration of the CPF in 2004.

So what we are essentially asking Singaporeans to do is merely to commit now what we would have to decide in 12 months anyway and to say, yes, let us decide now, we will freeze it for 24 months and get on our feet during that time. It is a commitment which we can make, and a commitment which will be an important signal to investors that we are prepared to do what it takes to get our economy back on track.

Mrs Lim Hwee Hua and others raised the question of the long-term CPF structure and the question of the concept of retirement. How can we save enough in our CPF accounts while we are working, so that we can retire at 62 and then live on our CPF savings and hopefully our children for another 20 years or longer? It is not realistic and it will become an increasingly serious problem as life expectancy goes up, our population ages and our birth rate goes down.

We have to find ways therefore to keep our older workers employed and working beyond their 50s and 60s, though not necessarily in the same job or at the same pay. Workers have to be prepared to take on second or even third careers. What can we do to help them?

First of all, mindset change and skills upgrading are important, as pointed our by Ms Braema, Mr Seng Han Thong and Mr Andy Gan. Workers must be prepared to adapt and to make adjustments. We have to continue training to stay on the job or reskill and move on to another job, and many also have to take on lighter jobs at lower pay and work part-time. To carry on doing what you used to do, at a slower rate, and yet expecting employers to pay the same or even more, is simply not viable. But it is essential to find other work or work on different employment terms.

We must keep the labour market flexible so as to preserve jobs and maximise employment, especially for older workers. The CPF system adds to business cost. If the CPF system is to be sustainable, it cannot impose too onerous a burden on companies to employ workers. Indeed, workers, especially those at the lower end, want more take-home pay. Hence, we are reducing employee's contributions for the lower-income workers and also for the older workers aged 50-55. But there is a trade-off because if CPF contribution is too low, workers would not have saved enough for housing, healthcare or old age and, as Miss Penny Low analysed, they will fall back on the Government when they need a house, fall ill or grow old.

So, we have to balance two perspectives - the CPF as compulsory savings, which we would like to have as high as possible, against the CPF as a cost to businesses which we would like to keep as low as possible. In the earlier years, when our growth was high and incomes were rising rapidly, we emphasised more on CPF's role as compulsory savings and pushed it up whenever we could, so as not to let people get used to spending the money. Now that we are in a tougher operating environment, we have to strike a different balance between the two perspectives. But we should not give up the first perspective of the CPF as compulsory savings entirely, because it is still valid. Without the CPF scheme, we would have a different Singapore.

A second major theme is entrepreneurship and SMEs. Mr Raymond Lim has adequately addressed this in his speech. As Ms Indranee and Dr Chong Weng Chiew pointed out, entrepreneurial spirit is about taking personal responsibility and achieving success through his or her own efforts and abilities, rather than depending on largesse from the Government. If you say, "Please help me to become an entrepreneur", chances are you already miss one of the ingredients for starting. In many aspects, the Government should do less rather than more. It should act as a last resort, and not a first recourse.

Yesterday, we heard Dr Gan See Khem tell us in vivid personal terms her first-hand experience, her gung-ho spirit and her passion, fighting for what she believes in. And her HMI Holdings is exactly what we are looking for. It will always be challenging to start up new businesses, and to venture outside Singapore will be even harder. If entrepreneurship was simple, and anybody could do it, the rewards would not be great. Dr Gan See Khem is exceptional, as she persevered and fought against the odds. We need more people like her, and the Government will do its best to help them succeed.

I am sorry it has taken her so long for her to deal with the agencies. I asked the agencies and they tell me that they had good reasons, and there are significant issues in assuring the standards of her training courses, but that they are doing their best to resolve these with Dr Gan expeditiously. It is our job to help, even when it does not appear that we are doing so.

Mr Inderjit Singh suggested that we should shift our focus away from multi-nationals and rely on SMEs. He is mistaken.

Mr Inderjit Singh (Ang Mo Kio): In addition to.

Mr Lee Hsien Loong: In addition to - he is correct. We will encourage small companies and start-ups but we still need the MNCs. SMEs can complement them but cannot replace them. We have hundreds of multi-nationals in Singapore. Even if our efforts to grow Singapore companies are wildly successful, we will only create a dozen or so MNCs of our own, and even that is being very, very optimistic. We need both MNCs and Singapore companies to diversify and to grow our economy and to create enough jobs for our people. However, I agree with Mr Inderjit Singh that more can be done to help SMEs navigate our bureaucracy. SPRING Singapore is the focal agency for assisting them. We have many things in mind, including helping SMEs to get access to financing in a market-based way. However, we have to bear in mind that no matter how much financing we provide, there can never be enough for all the SMEs which want it. SMEs will have to compete for financing, and only those which look viable and can convince the investors or lenders will be able to get it. This is an unavoidable Darwinian process of attrition. Without it, you will not have strong SMEs.

Many MPs, Chew Heng Ching, Ng Ser Miang, Zainudin Nordin and, memorably, Dr Amy Khor, have spoken out for mindset change from the civil service to be more pro-business. Indeed, the civil service is already trying to do this, and we will have to do more. From time to time, we organise sessions in the civil service for the private sector to come and to share their perspectives with the civil servants. I will ask them, in future, to invite some MPs to speak, and I think if Dr Amy Khor and others can come and present to them the way they presented it in this House, it will have an impact, and some positive effect.

There is a pro-enterprise panel chaired by the Head of the Civil Service, with ten members, six from the private sector, and Mr Inderjit Singh is one of the members. The panel receives feedback, suggestions and complaints from businesses against rules and on difficulties dealing with the different agencies. It has received more than 600 suggestions since it was formed in August 2000, and about half of these have been accepted. On average, it took 29 days to settle a case. Change has been quite quick, because issues are put directly to the Heads of Departments and CEOs of statutory boards. For example, we amended the Auctioneers' Licences Act as a result of feedback to the panel and this enabled on-line auctions. So, I advise anybody who is unhappy about any rule to put his case to the panel and it will give a full hearing.

There is also a Rules Review Panel which we set up in May last year. Every Ministry and statutory board has to review all its rules within three years - that means by the end of FY 2004 - and thereafter on a five-year rolling basis, as Amy Khor says, this is a rule about rules. One result is that about one-third of 173 statutory declarations required by the Government will be removed by the end of this financial year. To give another example, Mindef reviewed 135 rules, deleted 80, simplified 40 and retained 15.

But Prof. Low Seow Chay gave an example of a rule which we ought to retain and that has to do with odour control. He was talking about chicken farms. His neighbouring MPs will know exactly what he is talking about. His complaint was that we could not specify the standard of air freshness needed or be sure what odour control process would produce fresh enough air.

Unfortunately, smells from chicken farms pose a real problem in a compact city like Singapore. The Government did introduce a new odour control rule when we started building flats around the farms. However, it is not true that the Government kept changing the rule. The National Environment Agency is still pursuing the matter, simply because the farms have not met the required odour standards - meaning they have not installed what they were supposed to install.

Let me tell you the real story. There were four chicken farms in Sungei Tengah. They were causing an odour problem. They were given a choice of closing down and accepting an ex gratia payment or continuing and installing odour control filters. Three closed down and took the ex gratia payment, one chose to proceed and upgrade. But after it committed to install the odour control equipment, it failed to install everything it was supposed to do, causing a great smell nuisance to residents in the neighbouring constituencies. Hence the problem, which in due course will be solved.

But let me remind Members that after all the promotional efforts, all the rules cutting, all the incentives, whether we can be successful as an entrepreneurial society and economy, ultimately it boils down to talent. Do we have the people who can seize the opportunities? Do we have businessmen with a business sense and that drive and dare? Without them, all the efforts and the nurturing will be in vain. I think if we confine ourselves only to Singaporeans, we will not have enough entrepreneurial talent. There will be a few, but we will not have enough. If we really want to be an entrepreneurial society, we must attract foreign entrepreneurs to Singapore to start their business here, and that we are doing.

Let me now talk about services. The ERC's recommendation is that we have to upgrade manufacturing and services. There is no guaranteed business, not even at the lower end. But we are confident that we can do well by upgrading what we have. Yes, others will pursue the same strategy, but I believe that we can implement this strategy better and faster than others. We have the edge, as our foundation is strong. We are nimble and we can move faster.

Mr Khaw Boon Wan touched on services in his speech. The Government is serious about promoting this as the second engine of growth, and there is good growth potential in healthcare, education and creative services. I agree with Dr Lily Neo that we are well positioned to be a regional healthcare hub. I spoke to some private sector doctors recently and they expressed great optimism about our chances. We have traditional markets in Malaysia and Indonesia, and we are also expanding our markets further afield, to new customers like Arabs in the Middle-East, Bangladeshis, even Mongolians. I asked them, "Do Mongolians speak English?" They said at the upper end, it is no problem. They have the money, and they will come.

Similarly for education services. Raffles LaSalle Limited now runs five schools in China, with an intake of more than 1,000 students. Today, in Singapore, we have more than 23,000 PRC students studying here. There are social considerations involved here too, and also in service sectors like healthcare. If they are really students studying, that is fine. If they are just students in name, that may be a problem. But we have to manage these problems, and we cannot turn away the business. The Ministerial Committee is going to make the trade-offs and strike the balance between the social and the economic considerations.

We are not just targeting the high end of the services industry, as Mdm Yu-Foo Yee Shoon pointed out. There are opportunities in our traditional segments like hair-dressing, retail and entertainment. However, in Singapore, there is no non-tradable sector that we can shield from competition.

Mr Sin Boon Ann suggested that maybe if we build a strong globalised economy, then we can support an inefficient domestic sector which can provide jobs for older Singaporeans. I listened to him twice to make sure, but he did mean that - to support an inefficient domestic sector and provide some jobs. Other countries have tried that, like Japan, where in the retail sector, lots of people are employed, but they just look pretty and stand at the elevators and bow each time you go past. It has not worked for Japan, and it is not feasible for Singapore. We have no domestic service which can be shielded from global competition or from the neighbourhood.

Mr Chiam See Tong highlighted the competition across the Causeway in healthcare services. I am not sure that I would go across to another country if I needed a heart operation, but if I need a haircut, if I want to do some shopping, or entertainment, the facilities are there, it is cheaper, why not? Many Singaporeans do. Even for bridal shops and retail outlets, there is competition. So it is not possible to have a protected inefficient domestic sector in Singapore. We have to be efficient everywhere, and we have to look after our people who cannot find jobs and help them to find jobs, which brings me to the question of structural unemployment.

Several MPs raised this - Dr Ong Seh Hong, Mr Zainul Abidin and Dr Warren Lee. It is a difficult problem to solve. It will not disappear for quite a long time because if you look at the figures, for workers 50-59 years old, more than half have less than secondary qualifications. For the younger workers, the educational standards are higher. But even for the younger age group, aged 40-44 years old, about one-third have less than secondary qualifications, and they are going to be in the workforce for another 20 years. So the Government will go the extra mile to help these older workers. This will be one major focus of the new Continuing Education and Training statutory board. These workers have contributed to the nation's growth and they have made possible what Singapore is today. Like in the PSA retrenchment exercise, we will do all that we can to help the displaced workers, counsel them, help them with job search and with job matching.

Dr Jennifer Lee and a few other MPs also asked us to subsidise older workers. They define older workers as 40 years and above - that is a generous definition. It is a possible approach, but we do not have to consider it yet. The proportion of older workers suffering from structural unemployment is still low, only 11/2%. We should try to solve the problem for this specific group of people with targeted assistance, and not through some broad policy to subsidise many other older workers who are still managing well on their own. Otherwise, you will incur great expense and yet miss the target. Furthermore, you will distort the economy and end up with deficits and inefficiency.

Our approach, as a Government, is a three-level one. Firstly, generate good growth and create new jobs. There are jobs available if the older workers are flexible and prepared to adapt. Even in the wafer fabs, there are semi-skilled jobs, but they will require a certain amount of discipline, adjustment or shift work. It is not easy, but it can be done. Secondly, help to educate, train and match workers to jobs so that they can stay employed, or if they lose jobs, then they can find new ones. That is the purpose of the new statutory board and also the People for Jobs Training programme. Also, we need to set up the right networks at the grassroots, the CDCs, the self-help groups and NTUC, to help workers find jobs. Thirdly, the Government will continue to provide targeted assistance to those who need help the most. But such assistance must be tied to their efforts to find jobs. The Government will also look after the younger generations to make sure that no child is deprived of good education because of lack of finances. This is a problem, because if it is too easily available, people will not look for the jobs.

I was in Australia a year ago and I visited a village about 50 miles outside of the Gold Coast. I asked the guide, "Who live here?" He said, "Some teachers, some retired people, some unemployed people." I said, "Why are they living here, 50 miles away from the Gold Coast? There are no jobs." He said, "Exactly, because there is a rule in Australia that if you want the dole, you must show that you have hunted for work within a certain radius, 30-50 miles, and failed." And this was a good place for failing. So, we have to be very careful. In Singapore, there is no place to go, and if they do not try, you are going to have a problem.

Some people have objected that many of the jobs being created are for younger, better-skilled workers. That is true. But it is important that we do create these jobs and generate the growth. With growth, we will have more resources to help the older workers. With growth, there will be some more jobs for the older workers. If we try to preserve the status quo, to protect the jobs which are no longer viable, and to put off economic restructuring, then we will fail.

We have set as our objective here and as our theme "New Challenges - Fresh Goals". Some people have accused us of doing too little. Some people have accused us of moving too fast. MPs like Mr Inderjit Singh and Mr Leong Horn Kee have said that changes are not radical enough, and more could have been done. We have left no stone unturned. We decided where we needed to make radical changes, where modifications are needed, and where we should leave things as they are, at least for the time being. The changes are more significant than they look because we have deliberately prepared people for them and introduced them carefully. It was our purpose not to shock people. If you are astonished, if you are amazed, if you are not prepared, that means we have not done our job well.

There are big changes - tax structure, committed to reduce the corporate and top personal tax rate to 20%; broaden the tax base with the increase in the goods and services tax. The CPF system - to make significant shifts, to balance our retirement needs and maintain labour market flexibility and to lay the foundation for changes to be phased in gradually. And land - to lay down the principle to maximise value creation from our land resources as well as to keep the cost of land competitive. So, we have done a considerable amount, but maybe we still have not gone fast enough.

Some people, however, have found the changes unsettling and the pace too fast. Some union leaders have told me, "Why do we have to move so quickly? My members cannot catch up." We are making so many initiatives. They have not even read about them in the newspapers. But, in fact, maybe we need to go faster, as the world is changing quickly and our competitors are forging ahead. As Khaw Boon Wan pointed out, we have to move faster than China and the other emerging economies. It would be even more painful later if change is not done soon enough. Therefore, everyone has to put in the effort to adjust, adapt and venture so that we can progress as a nation. The Government will guide and facilitate the structural shifts we need to make, but success ultimately depends on the resourcefulness and resilience of Singaporeans.

We are on the right track. The ERC recommendations are the result of the collective effort of many good minds committed to Singapore. We cannot control events in the short term and we may have to make tactical shifts along the way, but the strategic thrusts are correct and, in time, they will generate growth and transform Singapore.

Mr Low Thia Khiang asked what is the difference between the 1986 Economic Committee and today's ERC. The world has changed and so has Singapore. Those were the days before the Internet and biotech. Those were the days before China and India joined the global economy with their low labour cost and highly motivated workforces.

In Singapore, our per capita income has more than doubled from $14,000 in 1985 to $37,000 in 2001. Our standards of living have improved substantially for the vast majority of Singaporeans. Yes, we are tightening our belts. But, compared to 1985, the last recession, in fact, we are much better off. Most significantly, the quality of our housing has improved. Then, we had 41,000 households living in 5-room flats. Now, we have 194,000.

The education level of our workforce has gone up. Then, graduates were 5% of our workforce. Today, the number has more than trebled to 17%. So, the world has changed, and Singapore has changed too.

The Economic Committee's recommendations in 1986 laid the basis for more than a decade of growth, which ended with the Asian crisis. And this ERC Report in 2003 aims to chart the way forward over the next decade of intense global competition and knowledge driven growth.

As we progress together, we will run into some old challenges in new forms, like cost competitiveness issues. We will also meet totally new challenges, like the emergence of China and India, the explosion of the Internet or the threat of extremist terrorism. The environment and competition facing us today are much tougher than before, but we are also much stronger than we used to be.

The Government will be pro-jobs. We will help to create jobs, more jobs, better jobs. We will help train workers for the new jobs. The civil service will be even more pro-business. There will be more help for entrepreneurs to navigate the way through the Government agencies, and to take off on their own. We will bring along all Singaporeans on this journey. Nobody will be left behind. Those who can must help themselves. Those who cannot, who will be few, will be the focus of help. Above all, we will be pro-Singaporeans, because this is our home.

Tough minds, warm hearts, strong spirits. With these, we can look forward to a bright future where all Singaporeans share in the fruits of our success. Together as a nation, we will realise our vision of Singapore becoming a leading global and entrepreneurial city, one of the best places in Asia, and indeed in the world, in which we can live, work and grow. [Applause].

Mr Low Thia Khiang (Hougang): Mr Speaker, Sir, may I seek clarification from the Finance Minister?

Mr Speaker: Be quick, please.

Mr Low Thia Khiang: Sir, the Finance Minister referred to the CPI and said that I am a story teller. I would like to ask him whether he agrees that the CPI, being an aggregated index, does not tell the full story of the cost of living, especially when there is a sudden drop of income level. If he agrees, then I think he had better listen to my story.

Second, is the Finance Minister saying that with unemployment, CPF cut and lower income, Singaporeans do not face a burden in cost of living?

Third, does the Finance Minister encounter cases in his meet-the-people sessions of people who are unable to pay utility bills, conservancy charges, telephone bills and many other bills? We just heard Dr Tan Cheng Bock who told this House not long ago some of the stories based on his experience. Or perhaps people living in Ang Mo Kio GRC are much richer and do not ask for help, and thereby he is not aware of the problems.

Mr Lee Hsien Loong: Mr Speaker, Sir, first of all, the CPI is an average for the whole economy, covering all income groups. But we also have figures for the different income groups. So, if incomes have gone down, you can see how different groups have been affected in terms of cost of living. Do things cost more? The answer is that things do not cost more. There are some variations, maybe +1%, maybe -1%. But on the whole, the cost of living for all income groups in Singapore has remained very stable.

Secondly, I fully acknowledge that times are difficult, that we have to tighten our belts, that incomes are down, bonuses are down. And, in some cases, net wealth is down, because your property has gone down in value and you feel poorer even if you have not sold the property. But that is not the same as saying that the cost of living has gone up.

Thirdly, I have cases, like any other MP, where people come and look for help. Maybe I get more than other MPs, because they think that if they come to me, they may get a bit more help. But as I explained in my speech, we will help them. But the way to help them is not for Singapore Power to forgive their utility bills. It is for the CCCs, the CDCs, to get to know them, understand their problems, find out why they have a problem, and if they deserve help, to give help. But if they do not deserve help, then you have to tell them to look after themselves.

For instance, if somebody comes and says, "I can't pay my utility bills", and it turns out he owns an airconditioner. You tell him to turn off the airconditioner and he says, "I only turn it on for four hours a night." And he has a handphone. How much help should I give him?

On the other hand, if a woman comes along - she has tried her best and the husband is not there, she has children and they are studying and trying their best in school - then I will go the extra mile to help them. So, I think we need that sensitivity and not just make political capital in order to collect selfish political dividends from people's sufferings.

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 2003 to 31st March, 2004.