HEAD M - MINISTRY OF FINANCE

Column No : 569

Head M - Ministry of Finance

The Chairman: Head M - Ministry of Finance. Dr Ahmad Magad, you have three cuts. You can take them together. Total of 6.5 minutes.

Retirement Scheme

Dr Ahmad Mohd Magad (Pasir Ris-Punggol): Sir, I beg to move,

That the total sum to be allocated for Head M of the Estimates be reduced by $100.

Sir, several hon. Members, including myself, have spoken about Singaporeans' inadequacy of savings for retirement and have argued on the urgent need to tackle this problem. With dwindling CPF contributions and the SRS losing favour because of its excessive restrictions on the scheme, the retirement nest-egg for Singaporeans is shrinking. Hence, further to what I have said during the Budget Statement debate, I would like to propose the following changes be made to section 5 of the Income Tax Act, so as to expand the options available to employers and employees to save for their old age. The proposals have no bearing on the current CPF and SRS, which should also be enhanced to encourage higher savings.

(1) I welcome news to establish retirement schemes that will enable employers and/or employees to contribute directly to a retirement savings plan;

(2) Limits for defined contribution plans should be capped at 20% of salary less employer contribution to CPF, instead of being capped at the level of benefit pay-out;

(3) Employers should have the discretion to determine eligibility to the retirement benefit plan;

(4) Employers should have flexibility in determining contribution level or benefit level;

(5) Pooling of the retirement funds under one master trust to attract low unit cost from fund managers should also be permitted;

(6) Portability of the retirement savings should also be permitted;

(7) The benefits withdrawn at retirement should be tax-exempt, provided that they are used to purchase an annuity; and

(8) Double taxation deduction to employees and employers for contributions made towards retirement savings should be considered to encourage contribution to the fund.

Sir, I believe these recommendations can provide relative tax efficiency at least at the tax contribution end, impose the discipline that the SRS lacks and could be used to assist the Government's undoubted aim of devolving retirement responsibilities to the private sector. They also provide tax-efficient benefits to foreign nationals who are always on the look-out for safe and tax-incentivised environments to park their funds.

Approved Holding Companies

Sir, a major reason why Singapore's endeavour to establish itself as the regional capital for holding companies has been lukewarm may be attributable to the uncertainty over the treatment of gains from the disposal of subsidiaries and other investments. To encourage more MNCs to locate their holding functions in Singapore, it was proposed in the recent Budget announcement that gains by approved holding companies on the disposal of shares in subsidiaries will be exempt from tax, provided that at least 50% of the shares are owned and the shares have been held for a period of not less than 18 months.

Sir, while the announced changes are encouraging, there is a lack of clarity of the definition of an approved holding company and whether it means simply approved for this very purpose. To make this scheme more attractive, I would like to propose that the term "approved holding company" be properly defined to remove any ambiguity and the requirement for the shares to be held for the specified period be removed.

Employee Stock Options

Sir, to make the wage system more flexible, companies should be given wider choices of flexi-components to be incorporated in the overall compensation of employees. An option that is increasingly being used today is to link employee remuneration to the company's performance by granting stock options or direct share awards, ie, share-based compensation. Companies that grant share-based compensation in the form of its own shares have two ways of meeting their obligations. They can either issue

new shares or alternatively buy back their own shares at the time when they are obligated to settle the share-based compensation.

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I am pleased that the Minister has proposed to grant a tax deduction to companies that have incurred actual outlay for share-based compensation, granted through treasury shares, in order to encourage companies to use such to settle share-based compensation obligations.

Sir, first, to encourage a higher degree of usage of performance-linked compensation system, including by MNCs, I would like to propose that the tax deductibility be extended to the MNCs' local subsidiaries here in cases where their parent companies have to purchase their own shares from the open market for the specified purpose of meeting the share-based obligations of their Singapore employees. In this regard, I would like to declare my interest that I am working for an MNC.

Second, Sir, when the treasury shares are transferred to employees pursuant to the share-based compensation scheme, the company could possibly record an "accounting gain" from the appreciation in value of the treasury shares. If so, would the gain be considered as capital in nature?

Third, if excess treasury shares pursuant to employee share-based compensation scheme are sold subsequently for cash or transferred to third parties, would such gains be treated as capital in nature?

And, finally, Sir, would companies be given a choice of method to value the transferred shares when valuing these shares for employees if treasury shares were bought at different prices and times?

Taxation and Duties

Dr Loo Choon Yong: Sir, the PM has stated that our present headline corporate income tax of 20% is competitive. And for some strategic industries, they are granted preferential tax rates or exemptions. The question is: would we be able to be more competitive and more attractive to other general direct foreign investments, if our corporate income tax were to be lower? Can we be ahead of the curve and not be just there? Do we know how much investments we will be able to attract to Singapore and how many more jobs we can create if we were to reduce our corporate income tax to, say, 18%?

To do this, a quick calculation is that the tax forgone is about $770 million and this is equivalent to 3.1% reduction of the operating expenditure. The question is: has MOF not explored this and see if the reduction is worthwhile? After all, if we create more jobs, we will also reduce the amount of assistance we need to extend through Progress packages and so on whilst having more corporations and workers paying taxes.

Finally, estate duty. Much has been said but it bears repeating. I agree that in old societies where there were few opportunities to socially move upwards and where wealth was represented by great estates and other fixed assets, it was more justifiable to tax inherited wealth to preserve social equity. However, the situation is quite different today. In our meritocratic society, there are numerous opportunities for those in poor families to succeed. Our education system and scholarship scheme all exist to preserve social equity and cohesion. Besides, a fool who inherit wealth will soon part with it.

Further, only 3% of the 16,000 deaths pay estate duties and it seems only 2% of those dutiable cases contribute 70% of duty assessed. And it is estimated that only $70 million will be collected, maybe no small sum, as PM said. But I think the continuance of estate duty certainly runs counter to our aim to be an international wealth management centre, our attraction to global entrepreneur who has made his pile. And this is even more jarring when Australia, Malaysia, New Zealand and Hong Kong have all abolished estate duty in recent years. I am sure that the PM knows that estate planners and experts publicly share six best ways to avoid death taxes. However, when they advise you privately, they share with you another 36-lesson own ways. I hope the review will be expeditiously undertaken. Some people are counting on it. They cannot afford to die otherwise.

The Chairman: Mr Lawrence Leow, you have two cuts. Take them together. Total is seven minutes.

Fair Competition

Mr Lawrence Leow Chin Hin (Nominated Member): There have been situations where GLCs, their subsidiaries or private arms compete with SMEs for public projects locally. These are inevitable situations as both GLCs and SMEs are equally entitled to bid for such projects. However, by virtue of their size and background, GLCs have a distinct advantage over their smaller counterparts, and from feedback gathered, GLCs are almost always favoured over SMEs in a head-on competition for the same projects. I would acknowledge that in certain situations, it could well be a problem of a perception rather than GLCs being granted an edge over SMEs.

However, besides feedback that I receive on this matter, on a personal note, I have also similar experience, so I would say that the problem does exist. It is more a question of extent than existence. Sir, I would like to declare that I have an interest here, as I too run a SME setup and would definitely get into situations where business comes into competition with GLCs for projects.

In the interest of fair competition, I have put forth this cut in the hope of having a more level playing field that SMEs can thrive on. I am fully aware that our Government operates a laissez faire environment, leaving the market to set the price and determine the outcome. Sir, I am not suggesting that we have to deviate from such a policy. Neither am I calling for SMEs to be accorded special treatment. However, to uphold fair competition, and to better align our objective of promoting the growth and development of SMEs, some measures have to be instituted to allow SMEs a fair and equal chance when they get into a competitive situation with GLCs.

I would like to propose that for projects of relevance, the review and award committee that is tasked with the job of evaluating the bids and making the final decision on the award of such projects, include representatives that are neutral, such as representatives from the Pro-Enterprise Panel that could provide a more balanced approach to the evaluation process leading to the award of the projects. This would also help to eliminate any perception problem, as the saying that "justice must be seen to be done" is of great relevance in such a situation.

Having a review and award committee that is seen to be neutral would go a long way to correcting any misperceptions the SMEs may hold. Sir, incidentally, I am also a member of the Pro-Enterprise Panel and I would like to clarify that my suggestion to have the representation from the Panel stems purely from the intent of injecting a greater sense of neutrality to the evaluation and award process.

Besides the evaluation and award process, the size of a project, if it is too big, could well rule out SME's participation. Where feasible, a project should be broken down to smaller parts or make them "bite size" so that SMEs can have the opportunity as well as the resources to take a bite and have a share of the pie.

I would also advocate for a strong message to be issued from the PM's Office, emphasising the need to grant SMEs a fair and equal chance to succeed in their bids for public projects, in the light of upholding fair competition. The above are just some suggestions and a more comprehensive set of measures has to be devised and implemented for this purpose.

Sir, in essence, I would like to know if the Government has in place, and if not, whether the Government would consider putting in place measures to ensure a more level playing field, that would allow SMEs an equal chance of securing public projects when they are faced with competition from the GLCs.

Age Limit for Business

Our youths today are no longer quite the same as those of older generation. They are knowledgeable, more IT-savvy and have better access and resources to pursue their interest. This has led to quite an encouraging number of our youths owning inventions and IP. However, by virtue of their age, they are unable to form a company to register their invention and IP.

Many from this group are students from the polytechnics and other local institutions, who are eager to take the entrepreneurial route but are unable to register a company in their own names because of age restrictions. Often, they have to register their invention or business in the names of their parents or friends, to circumvent the problem.

Since we are actively promoting entrepreneurship amongst our younger generation and are encouraging them to be innovative and to take risks, we could be sending a contrasting signal by forbidding them from registering their business or invention in their own capacity because of age restrictions.

At present, people below the age of 21 years old are considered as minors and not allowed to register a business in their names. However, from what I have found out, many countries in the world have lower age restrictions on business registration. In countries like the United States, England and Wales, there is no specific age restriction, while in Germany, Australia and New Zealand, the age limit for setting up a business is 18 years old.

In the case of Hong Kong, the age limit is also 18 years old. With a population of about 7 million versus 4 million in our case, Hong Kong has some 450,000 business establishments as compared to about 150,000 here. I am not certain if the proportionately higher number of business set up in Hong Kong as compared to Singapore, has anything to do with the lower age restriction on setting up businesses, but the statistics do seem to suggest that there may be some correlation.

Sir, I am not suggesting to leave the age limit entirely, but I do feel very strongly for a case of lowering the age limit on setting up businesses to 18 years old. I acknowledge that people below the age of 21 years old are deemed as minors. However, we ought to give due regard to the world we are in today.

Sir, as our youths today are quite discerning and better poised to assume greater responsibility, we should trust that they would be responsible businessmen. For those who may be concerned about dealing with businesses run by people for whom they deem as too young, we should let them assess their own risks and make their own judgement calls whether to deal with such businesses. After all, it is really a case of caveat emptor .

Sir, if there are no big problems in those countries that operate a restriction on the age of 18 years old, I cannot foresee the problem to be of any greater if we were to implement it here in Singapore.

I would therefore like to know if the Government would consider allowing people of age 18 to set up a business here.

Government Procurement

Mr Wee Siew Kim: Increasingly, we hear of the term private financing initiative (PFI) in Government procurement. I wish to ask about our PFI experience to-date, especially after reading of interest a recent Straits Times ' article on its unclear outcomes in the United Kingdom. What are the guidelines and mechanisms used in assessment of PFI projects to ensure that they make financial sense from a taxpayer's perspective? How do we prevent loading operating expenses of future years with what ought to be current year's capital?

I understand that PFI is new. What steps are being taken to ensure that the best of three quotations mentality of current procurement officers has been sufficiently reset since entering a long-term relationship requires a whole new mindset and approach? Additionally, as PFI projects are by definition long-term, how can this new approach to Government procurement be utilised to grow our local enterprises, especially SMEs which may not have the track record of financial strength to fulfil the long-term requirements of such ventures?

The Second Minister for Finance (Mr Raymond Lim Siang Keat): Mr Chairman, let me first thank Members for their comments and suggestions. Our fiscal policies and measures are fundamentally geared towards creating an environment that is best for business and encouraging and beneficial for citizens to provide hope, opportunity and progress for the future.

First, let me address the issue of enhancing economic competitiveness. Our key fiscal strategies to do this are two-pronged. First, a competitive and efficient tax system, supported by targeted incentives and, second, a regulatory environment that is conducive for business.

On Singapore's tax regime, Dr Loo Choon Yong has raised two points and I will address them. One, as he said, we should lower further our corporate income tax rate. Our corporate income tax rate has been lowered quite significantly.

If you look at it in 1986 it was 40%, today it is 20%. I think what you really want is a competitive CIT rate rather than the lowest headline rate. If you look at the recent study done by the Canadian think-tank, C.D. Howe, a cross-country study of 36 countries, and if you look at what is called the effective tax rate, which is the share of tax payable as a percentage of your pre-tax return on capital, Singapore is No. 1, ahead of Ireland and Hong Kong. So we are very competitive. It is not just the headline rate. But this is not something that is cast in stone. We constantly monitor this. We see what our competitors are doing and the aim, as I have just said, is not to have the lowest, not necessarily the lowest, but to have a corporate income tax rate that is competitive.

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On estate duty, I take note that now there are not only six ways, as enunciated by Straits Times, but 42 ways to avoid it. This is something that we are looking at. Our starting point, our operating philosophy, has been that we want everybody to have an equal start in life and not to have undue advantage over inherited wealth through structural advantages like this. But, again, we weigh this against all the arguments that you heard or read about and also debated in this Chamber, that many countries have abolished it, it might affect our aspiration to be a wealth management centre and, as was pointed out, you can get expert advice on how not to pay it. So we are looking at that and we hope to come to a conclusion by the next Budget.

One of our key economic strategies, and this relates to what Dr Ahmad brought up just now, is to develop Singapore as a centre for HQ activities. The Member may be pleased to note, because he mentioned that the response has been underwhelming, that actually it has been quite successful. With EDB, under their IHQ scheme, there are 350 companies under them. We have about 7,000 MNCs in Singapore and 4,000 of them locate their HQ activities in Singapore. The Approved Holding Company Scheme is to enhance and to make it more attractive. So to be an approved holding company, to begin with, you have got to qualify for the EDB HQ Scheme and the requirements there include how much fixed asset investments you are putting into Singapore, total business spending, the amount of jobs you generate. That is one. And, the business that you run should be an operating business, like a manufacturing business, for instance, and not one that simply deals with trading shares. So that is how you qualify the company for being a HQ company under the EDB scheme.

What we have done is to enhance this scheme. Because if you are an approved HQ company, sometimes you might need to transfer or sell your shares in a subsidiary. So we put down two conditions, one that it should own 50% of the subsidiary, the other that the shares that you have, you should hold it for 18 months. The Member has suggested why not get rid of this 18-month holding period. There are good reasons for having 18 months. It is to ensure that you are not in the business of trading the shares. That is why you have this 18-month holding period. This is not something that we are inflexible on. If you do not qualify for whatever reasons, including if you are below the holding period, we will review on a case-by-case basis. It is not as though the door is shut.

Related to being the centre for HQ activities is our aim to become a knowledge hub and exchange. An important part of the knowledge exchange is to attract and retain talent. I think the Member has mentioned about the different remuneration schemes that companies are now coming up with in order to retain talent. We recognise this - this is the reason we made it a matter of policy that remuneration in the form of employee share options or direct share award would qualify for tax deduction if actual outlay is incurred.

The Member has raised, I think, four questions. One is when a multinational corporation subsidiary in Singapore had incurred share-related cost under ESOP, is it tax deductible? The answer is yes, it is tax deductible. The two other questions, I think, are related. Treasury shares, we allow now. With treasury shares, what happens if, while holding the treasury shares, it goes up in value? Is it taxable? I think, the other issue that he raised, he said, what if you have excess treasury shares and then you sell the excess? All these things, you really have got to base on facts. You have to look at the details, but I can give you the principle involved here. The principle is that we would not tax it if the purchase of these treasury shares was not meant for trading. That means you treat the gains as capital. As a capital gain, we will not tax. But as I said, all these things turn on the details, on the facts of each individual case. That is the underlying principle.

Finally, he brought up the issue of what happens if you bought the shares at different times? How do you value these shares? Well, this is something that IRAS is now taking feedback on and they are working it out and they will issue a circular soon - the details on how to treat this.

Let me now speak about maintaining a conducive and business friendly regulatory environment. Mr Lawrence Leow has asked if the Government is looking into lowering the age limit to promote entrepreneurship among the young, say, maybe lower it to below 18 years old.

Currently a person below 21 cannot set up a business independently as the minimum age to be a company director or business owner is tied to the age of contractual liability, which is currently 21. This is important as companies entering into contracts with directors and owners ought to have the assurance that the contracts are enforceable. The Member is right that jurisdictions, such as Australia, Hong Kong, the US and the UK, have reduced the age of contractual capacity to lower than 21. My Ministry, the Ministry of Finance, is studying the desirability of lowering the age of contractual capacity, which could then pave the way for lowering the minimum age to be a director or owner.

In this study, we will also look at other statutory constraints, like the ability to hold land, which may prevent a young person from entering into and conducting business in Singapore. The merits of lowering the age to below 21 years old must be weighed against possible risks to parties to enter into a commercial relationships with young directors and owners.

Mr Leow has also raised the issue of Government procurement rules. Our rules aim to achieve value for money in public expenditure through fair and open competition. We do not favour GLCs or SMEs - fair and open competition. We do not give preference to or discriminate against any supplier, whether local or foreign, large or small, Government-owned or otherwise. Each supplier is assessed on its own merits. We believe this is the best way to grow a strong, resilient and competitive business. I believe that a vibrant SME sector is an important part of the economy. SMEs do face some inherent difficulties due to their size. They are small and so they have certain inherent disadvantages. Competition from bigger companies is inevitable. The way to help them is not to give them preferential treatment on Government contracts, but to enhance their capabilities and opportunities to better compete.

Sir, in response to Mr Leow's question as to what are some of the things we are trying to do to facilitate SMEs to better compete, what we have sought to do is to make it easier for them to participate in the Government procurement market. First, we have amended our rules so that we no longer require a track record for the purpose of registration as a Government supplier. New start-ups and SMEs can now register and bid for Government procurement tenders straight off. Second, SMEs can join forces by forming consortia to bid for high value tenders without forgoing their individual identities. To facilitate SMEs coming together to participate in such tenders, MOF has issued a new set of guidelines to recognise the combined strength of smaller companies. Third, on 1st April 2005, suppliers were given one free user account for GeBiz, the Government's e-procurement portal which all suppliers of products and services to the Government are expected to use. This helps cut business cost for the suppliers, especially SMEs. From 1st April 2005 to 1st December 2005, the number of suppliers registered with GeBiz as a trading partner has increased from 11,000 to 17,500, a 59% increase.

Now the good news is, and this is in reference to his point on whether GLCs get more contracts than SMEs, that our smaller enterprises, our SMEs, have fared well against the competition when it comes to Government tenders. Out of 374 Government tender contracts below $100,000, awarded between April and November last year, 70% went to companies with net assets below $250,000.

Next, let me touch on what Mr Wee Siew Kim brought up on public-private partnership or public finance initiatives, as he referred to them. This is another form of Government procurement. PPPs are long term partnering relationships where we bring together the expertise and resources of the public and private sectors to deliver services to the public at the best value for money. We have awarded four PPP tenders to-date. It will take time to fully evaluate the benefits. But the early results are encouraging. For instance, taking the PPP approach for the desalination and NeWater project has helped to lower the overall cost of water. By leaving the choice of desalination technology to the private sector, PUB was able to purchase desalinated water at a price which is highly competitive internationally. The PPP tender for the NeWater project also yielded very favourable tariffs. The guideline is that PPPs should be considered for all projects above $50 million in capital value. Given their scale, the PPP providers tend to be a consortium. SMEs can participate in the PPP consortium as partners, contractors or subcontractors. Our first PPP project to supply desalinated water to PUB was, in fact, awarded to Hyflux, a home-grown local enterprise. Hyflux's Chief Executive, Olivia Lum, said that the PPP scheme had actually made it easier for the SMEs to participate in such large scale projects. I asked her when we had the launch of the PPP scheme and she said it is because of the consortium arrangement where the main company is likely to outsource work to other smaller companies without these smaller companies having to go through a tendering process.

A final point I would like to make on Government procurement, as brought up by Mr Lawrence Leow, is how do we evaluate it? Evaluation of tenders and the decision on the award of tenders are kept separate. They are decided by different committees in the public sector agencies. This is to ensure both rigour and due process in Government procurement. It is neither appropriate nor desirable for an external party such as the Pro-Enterprise Panel to decide on a Government agency's procurement. What is critical is to have decisions made at the right level, with good checks in place, to ensure fairness and thoroughness in evaluation to make sure that we secure cost effective contracts.

The second thrust of our fiscal policy is to create an environment that is beneficial for citizens in providing them hope and progress for the future and the opportunity to be the best that they can be. We have over the years lowered the personal income tax rate and made changes to our tax system. At the same time, our tax treatment of savings aims to encourage Singaporeans to save for their long-term needs.

Dr Ahmad Magad has raised the issue of retirement saving plans. In Singapore, the CPF system provide the basic framework for retirement savings. Tax exemption is given for contributions in investment returns and withdrawals. Those who wish to set aside more for their retirement savings, over and above the mandatory CPF contributions, have several avenues today. I think it is useful just to outline them. First, Singaporeans and PRs can make voluntary CPF contributions to top up their mandatory CPF contributions up to a ceiling of $25,245 per year. These voluntary contributions enjoy the same interest rates as CPF monies although they do not qualify for tax relief. Second, they can also contribute to the supplementary retirement scheme, SRS, which I think he mentioned just now, which provides tax deferrable benefits. Contributions to SRS are eligible for tax relief and investment returns are not taxed at the time of accrual. Only 50% of the withdrawals are taxable at retirement. But, with proper streaming of the withdrawals after retirement, many people would pay little or no income tax on their SRS withdrawals.

The SRS contribution cap is linked to the CPF salary ceiling as the SRS is also meant for foreigners wanting to save for their retirement but who no longer enjoy tax relief for CPF contributions. The CPF salary ceiling is set at the 80th income percentile. Those who earn more than the 80th percentile should be able to save more if they want more for their retirement. They should not expect the Government to provide tax benefits for doing so. The SRS can be part of the extra savings but is tied to the CPF salary ceiling. Dr Magad has asked whether the SRS scheme can be enhanced. I think Members during the Budget debate have also raised the same issue. The Ministry of Finance is prepared to review the SRS contribution cap in the years to come. But such a review has to be done within the larger context of enhancing Singaporeans' retirement adequacy, including the question of how to improve the rate of return on CPF money as mentioned by Mr Inderjit Singh in the Budget debate.

Third, Dr Magad referred to section 5 of the Income Tax Act. Under section 5, employers can enjoy a tax deduction for making contributions for their employees to pension funds approved under the Act. But, there is a qualifier. All of these funds must be for retirement benefits and must be available to all staff. Dr Magad has suggested that we leave it to employers as to who shall benefit from this scheme. If we allow this, it will become a scheme which companies can use for attracting and retaining key personnel, mostly executives, rather than a scheme for supplementing the retirement benefits of all employees. This does not mean that we should, therefore, not allow it. It means that if we do allow it, it is for purposes of attracting talent rather than enhancing retirement adequacy of everyone.

So this is something which my Ministry will have to study carefully.

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With an ageing population, enhancing the retirement adequacy of Singaporeans is a major priority for the Government. We have several schemes in place, as I have outlined earlier. If Dr Magad or other Members of this House have specific proposals on how any of these schemes can be improved, I will certainly welcome them, with the assurance that they will be studied very seriously, because this is something where we share the same concerns.

Sir, I think I have addressed all the issues.

The Chairman: Amendment (h), Mr Steve Chia, you have two cuts.

International Monetary Fund and World Bank Meeting

Mr Steve Chia Kiah Hong: Sir, the Budget book tells us that the Government has set aside $85.3 million to organise the IMF and World Bank meetings. That sounds like a lot of money for organising the IMF/World Bank meetings that last for a few days compared to some of the help schemes, like the $50 million Opportunity Funds to provide greater learning opportunities for our students. Are we being extravagant in such expenses whilst stingy with our own citizens' future? What is the expected return on this investment economically in terms of branding, reputation or goodwill-wise? What kind of indicators will be used to assess the returns on investment? Finally, how is this amount of spending compared to other countries that have hosted the IMF/World Bank meetings in the last five years? Are we at the top of this spending heap?

Investments

My second cut is on investments. I also understand from the Budget book that the investment expenses went up from $613 million in FY 2004 to $1.29 billion in FY 2005, and is expected to rise further to $1.38 billion in FY 2006. Sir, what kind of rise in our higher asset base from FY 2005 to FY 2006? What are we talking about that can cause such a large jump of more than 100% in our investment expenses? Are the MOF officers being taken for a ride with high-churning activities in the investment market by traders, thus leading to high trading volume and high expense cost? It is incredible to learn of such high expense from our stable Government reserves. What is our current total reserve asset and what is the total investment returns over the last five years? I think we are paying too high an expense ratio and not getting satisfactory returns from our investments.

Temasek Holdings and Government of Singapore Investment Corporation

Mr Inderjit Singh (Ang Mo Kio): Sir, we now have regular updates from Temasek on its performance. GIC also seems to be generating very good returns over the years. I am encouraged by this. In my speech on the Budget, I mentioned about my hope that both Temasek and GIC will return higher percentages to the CPF so that our Singaporeans' returns will be better. But before we can do this, we, of course, need to ensure that we can continue to generate good returns. I have three questions in this regard.

First, while the returns made by Temasek and GIC look good, how good is good? Can we understand how both organisations benchmark themselves? In other words, how do their performance compare to equivalent organisations, companies or funds which engage in similar activities?

Second, how do we account for the significant losses that happen from time to time, like the large write-off recently made by DBS and the expected write-off by other Temasek companies which also have made high profile, expensive acquisitions lately? My main worry is whether we are moving into an era where we can no longer expect good returns from both these organisations. The question is: how do Temasek and GIC manage such write-offs?

Third, how do both organisations account and manage the risk of investments done outside Singapore? I know that we can do this well in Singapore, but how do we do it outside Singapore? It will be useful to understand what is done to manage the risk to give comfort to Singaporeans, and moving forward, the money that we have will be well protected.

The Chairman: Dr Loo, do you want to raise a clarification before Mrs Lim replies?

Dr Loo Choon Yong: Clarification, Sir. I have read the Canadian report. Currently, our tax rate is indeed competitive. I also acknowledge that for strategic industries that we want, we even give them tax exemption. What is the impact? For every percentage point reduction, how many more jobs and how many more businesses are we likely to create? And what are the downstream benefits? Is it worth acquiring these jobs and cut our tax further? This is really my question.

The Chairman: Mr Leow, make it short please because you are taking up other Members' time.

Mr Lawrence Leow Chin Hin: Sir, I want to inform the Hon. Minister of a situation where a subsidiary of a Government agency competes with an SME and the same Government agency has to decide on the award of the project. How can the Government help to ensure that there will be fairness when the award criteria are not based on price alone but based on very subjective elements like design?

Mr Raymond Lim Siang Keat: On Dr Loo's question, he is right. That is what we do. We work very closely with the Economic Development Board because we are talking of tax incentives. They go through it carefully, as I mentioned to Dr Ahmad Magad just now. How do we award the HQ incentive scheme, for instance? They go through certain indicators. They look at the fixed asset investment. They look at total business spending. The Member is right. They look at jobs - how many jobs are created. That is something that is being done.

In answer to Mr Leow, as I said, we have a transparent and rigorous evaluation process. And I will be very surprised if it is a Government contract of a particular agency and that particular agency decides on its subsidiary's tender. It does not happen that way. As I have explained, we actually have an evaluation tender committee and a committee that actually does the award. We separate the two things. But if the Member has specific information, he should let me know, and we will look into it.

The Minister of State for Finance (Mrs Lim Hwee Hua): Sir, first, let me thank Members for their comments and suggestions.

In addition to balancing the Budget and providing a fiscal framework that is best for business and beneficial for citizens, the Ministry of Finance is also keenly focused on seeking the best value for money in Government, both for expenditure as well as in investments.

First, on value for money in Government spending. Members have heard the Prime Minister. Every dollar the Government spends has first to be earned. Members of this House can be assured that we are conscious of the need to live within our means. Our philosophy is always to exercise prudence in spending and to deliver more for the dollar.

Sir, Mr Steve Chia is concerned about the budget allocated for organising the annual meetings of the Boards of Governors of the IMF and the World Bank group. I would like to state that we do not take this expenditure lightly. We decided to bid to host the meetings only after much deliberation and hard-headed assessment of the costs and benefits.

Let me just spell out briefly the benefits that these meetings would bring to Singapore. Firstly, strategic benefits. We aim to develop Singapore as a global knowledge hub - a place where people, businesses and non-profit organisations converge and exchange ideas. Hosting premier international events is an integral part of this strategy, as it will help establish the Singapore brand globally, which he does not deny. Hosting meetings like the IOC and the World Trade Organisation's Ministerial Conference provides a unique opportunity to present ourselves to the rest of the world as gracious host, meticulous planners and efficient organisers. Moreover, playing host to a meeting focused on promoting economic development, alleviating poverty and fostering macro economic and financial stability will also reinforce Singapore's reputation as a responsible global citizen.

Secondly, the economic benefits. In addition to the official annual meetings, there will be at least 300 other meetings and events held concurrently during that time. With the bulk of the expenses borne by the private sector and accruing to the local businesses, there are significant spillover effects on our economy. In terms of tangible economic output, practically all the $135 million that it would cost to organise the whole event would go to contracts for local businesses. In relative terms, I would like to assure Mr Chia that Singapore's expected expenditure is commensurate with that of previous hosts. The IMF/World Bank meetings in 2003, which was hosted by Dubai, incurred expenditures of over $360 million, though that included the construction of a brand new convention centre just to house the meetings.

With 16,000 foreign visitors converging in Singapore in September, the meetings would also generate at least $50 million in tourism receipts. As it is, almost all the hotels and functions rooms in downtown hotels and conference venues have already been booked.

We are mindful, Sir, of getting value for money and keeping costs down but without compromising on security or good organisation. Just to give a little example of the exercise of innovation. For example, to provide some 1,000 office premises for the delegates, the organising committee opted to build temporary offices within Suntec itself rather than to retrofit hotel rooms into office spaces. And this creative solution saved us over $4.5 million.

Sir, the second aspect of seeking value for money in Government is to ensure adequate returns on our investments. Mr Inderjit Singh has asked about performance benchmarking and risk management for GIC and Temasek. Our investment objective for Government's reserves managed by GIC and Temasek is to achieve good long-term risk adjusted returns on a sustainable basis. GIC is the Government's fund manager, managing a globally diversified portfolio of assets comprising a whole range from equities, bonds, real estate, private equity and other assets. Temasek is the Government's investment holding company with stakes in a broad range of companies, principally in Singapore and the region.

As fund owner and shareholder respectively, Government holds GIC and Temasek accountable for returns and overall performance. The Ministry of Finance regularly reviews the performance of GIC and Temasek with the boards and management. We are satisfied that GIC and Temasek have performed creditably against comparable benchmarks.

Sir, what are these benchmarks? In the case of GIC, the performance of each asset class is benchmarked against relevant international measures like the Morgan Stanley Capital International, or commonly referred to as MSCI Equity Indices and the Lehman Brothers Aggregate Bond Index. Performance is also evaluated against other peers. On this basis, GIC has achieved good long-term returns.

In the case of Temasek, since inception, Temasek has delivered 18% total shareholder return by market value and 16% total shareholder return based on shareholder's funds.

Investments taken by GIC and Temasek are subject to rigorous risk management and internal control frameworks. These address all the major categories of investment risks, including market risk, credit risk, regulatory risk, operational risk and political risk.

The Ministry of Finance is involved in deciding the long-term return objectives, the risk tolerance levels and the asset mix for the Government's funds managed by GIC. As for Temasek, MOF endorses the overall strategic directions for its investments. However, the Government does not get involved in individual investments, leaving these to the respective boards and management. It is not for Government to approve each investment by GIC and Temasek, much less the Temasek companies, nor for us to second guess the risk assessments. Such micro management will ultimately be counter productive. What is important is that there is a good governance framework, regular performance evaluation, robust risk management and an effective system of checks and balances. These, I can assure Members, are in place.

Sir, Mr Steve Chia has also asked about the increase in investment expenses. Allow me to explain very briefly. The expenses on investments should not be viewed in isolation but within the context of the size and nature of the investments. The increase in EOI in recent years reflects really three things: first, the growth in the asset size; secondly, the investments in new markets and products; and, thirdly, accounting effects

arising from changes in investment strategies.

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The bulk of the increase was due to a greater use of investment instruments like interest rate swaps. Currently, the Government accounts treat the paying and receiving legs of the interest rate swaps separately as expense and income. But in substance, they are two related sides of the same investment transaction and viewing the net effect will give a better reflection of the return profile of the swap investment. Ultimately, what is important is that returns on our investments are monitored on a net basis, ie, after deducting expenses, and that the long-term performance of our investments remains consistently good over the years.

As for the exact size and returns of our investments, we have explained on numerous occasions that the disclosure of such information is not in Singapore's national interest. Our financial reserves help to maintain confidence in the Singapore dollar and the Singapore economy. Any revelation would make it easier for currency speculators to target the Singapore dollar.

Mr Chia can take comfort in the fact that there is full accountability for GIC and Temasek's overall performance and risk management.

Islamic Finance and Banking

Dr Ahmad Mohd Magad: Sir, Singapore has developed an excellent reputation as a transparent financial centre with a favourable regulatory environment for the placement and investment of offshore funds. Our tax system permits offshore funds to compound tax free for non-residents, with hardly any barrier entry for the repatriation of funds. As such, Singapore is well-positioned as a benefiting party to the movement of offshore funds out of Europe and the United States.

The various ministerial visits to the Middle East to boost bilateral and economic ties coupled with a series of FTA conclusions with several Middle Eastern and Gulf State countries, have created significant awareness of Singapore as an alternative leading financial centre for these countries to conduct business with. SM Goh, as Chairman of the MAS, has also pledged to boost Singapore's status as a centre for Islamic financial services.

All these, combined with our triple A political stability rating and positioning as the region's wealth management centre, should make our country attractive to Middle East funds. But to be the nexus for the convergence of both conventional and Islamic finance and banking in Asia, we need to do more. I would like to make two suggestions. First, to develop a healthy Islamic finance industry here, we need to strengthen the legal framework to attract the more lucrative Islamic funds. As the Islamic market is still infant and not well understood, we should be prepared to invest in its education. This could be done by promoting training and education in Islamic finance and banking and incentivising training courses and programmes with grants and subsidies. Funding for research into new products should also be seriously considered.

Second, Sir, is focused need on product development. To develop innovative products, we need a critical mass of players in the market which is currently grossly lacking. To encourage product development, the MAS could consider the declaration of an open arm and open minded policy to stimulate discussions on Islamic product applications. Doing so would provide assurance to potential investors that Islamic products they are developing or plan to develop, are permissible in Singapore.

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

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Wealth Management Industry

Miss Penny Low (Pasir Ris-Punggol): Sir, Singapore wants to develop into a full-service global financial centre. But the competition is hot. What is our competitive advantage? Although "The Banker" magazine ranked Singapore as the "Financial centre of the future" and Forbes magazine estimated that Singapore will overtake Switzerland as the leading centre of offshore private banking by the year 2008, I was curious about what else we must do to realise these prophecies. To be on the cutting edge, we need to innovate existing products as well as scan the global playground for emerging trends. I would like to highlight two rapidly growing niche markets - they are the philanthropic wealth management and micro-finance industry.

On philanthropy, there is a worldwide acceleration of philanthropy gifting, as witnessed by younger founders of companies like Google which has recently given US$100 million as micro-finance endowment fund, Salesforce.com that has got a 1% rule, Gates and Melinda Foundation, etc, which all accelerated the pace of large sum giftings. How does Singapore intend to tap into this multi-billion industry?

On micro-finance, Credit Suisse estimated the need for micro-credit to be at US$100 billion, with a short-term market size of between US$15-US$20 billion. Banks that traditionally serve the upper markets, like UBS, Credit Suisse and Citibank, have all jumped on the bandwagon to offer a suite of micro-finance products like bond funds, micro-savings, micro-insurance, and so on. It is a high growth industry, fueled by market size and profitability. It witnessed growth rates of between 20%-40%, with extensive diversity in structures and frameworks across the world.

Singapore, I feel, can envision to be (a) a leader in humanitarian issue of providing meaningful opportunity to the low income, as MOS Lim Hwee Hua said it will enhance our reputation as a responsible global citizen; (b) we can be a leader in innovative financial services and lead in the creation of a new micro-finance securities, similar to how asset backed securities were created in the 1990s, and established Singapore as the global centre for trading these securities, like Chicago being the leading futures or options exchange.

Geographically, we are blessed to be in the heart of the emerging wealth centre and micro-finance industry in Asia. In economic terms, we have both the supply and demand right at our doorstep. Hence, may I ask: can we widen our horizon and explore positioning Singapore as a global leader in the emerging fields of philanthropic wealth management and micro-finance? These, together with existing focus on the Islamic finance and banking, pension or retirement funding, markets, REITS, etc, can help to strengthen our position as a global finance hub. Why not let a thousand flowers bloom with some innovative fertilisers and Singapore sun?

Over-the-Counter Financial Transactions

Mr Inderjit Singh: First of all, I would like to declare my interest as a person helping to promote the setting up of an OTC in Singapore. I have been directly involved with a private company to encourage them to set up one in the manner which my committee in ACE envisioned. My involvement in this private company is purely voluntary and I derive no benefit or compensation from it.

We have been talking about setting up of a private equity exchange or OTC which will be an excellent alternative platform to help growing companies raise funds. This is a big missing part of the whole puzzle which ACE has been trying to put together. I am sure many companies will benefit from its implementation.

We passed the legislation about a year ago, I think in February last year, to allow something like an OTC to be set up in Singapore. I know that MAS has many concerns and hence the delay for approvals. But I also know that most of these issues have been resolved. Perhaps, the Minister can update us on the status of the implementation.

Singapore Exchange

Dr John Chen Seow Phun (Hong Kah): Sir, I would like to support Mr Inderjit Singh on this issue. For some time now, it has been proposed that a third board on the Stock Exchange be set up in order to allow young start-up companies, especially those from the new technology sector, to raise early capital. This could be similar to the OTC or BB market in the USA, the NSX in Australia, or GEM in Hong Kong. Although there is much concern regarding the quality of companies listed on such a platform and their corporate governance, these issues could be resolved by letting buyers of shares listed on the third board know of the much higher risks that were involved. They can participate with open eyes and, unless there is fraud involved, the Government should not over-regulate this marketplace. Since we already have our strict measures in place to control fraud and other commercial criminal activities, there should be an arena for those who want to take higher risks in order to seek higher profits to invest their money in. A technology-based third board would be ideal. It will help technopreneurs who today find it difficult to raise funds for their new inventions to progress. Despite reports of much available capital, most still gravitate towards more traditional businesses and more mature companies. The third board would make technology start-ups more visible and these could offer themselves as an alternative avenue for investments. It could be most rewarding to diversify a small part of an investment portfolio in such companies because of the manifold returns each success could bring when it grows into multi-million dollar giants. This would also bring much economic benefits to Singapore. Could the Finance Minister give an indication when such a trading board would be ready?

Personal Debts

Dr Tan Boon Wan (Ang Mo Kio): Sir, banks and financial institutions aggressively market personal loans in various forms to the public. It appears that the lenders are not very particular about who they lend to as long as they meet the minimum conditions. But if the borrowers default in the terms and conditions of the loan agreement, especially those concerning repayments, the lenders also appear to be very fast in foreclosing the loans. During the past few years, when the economy was performing poorly, the number of borrowers who defaulted also increased.

Let me talk about housing loans. Many have lost their jobs and suffered a cut in income and were unable to service their housing loans. The lenders took steps to foreclose the loans. Some borrowers appealed to the lenders to adjust the repayment scheme in view of the financial difficulties. But the lenders prefer to foreclose the loans since then. In other cases, the borrowers' financial situation improves, as they said they could find a new job and could resume servicing the loans. But again, the lender was not interested. To a borrower, it was a very serious and grave matter. The house would probably be auctioned off at a low price, especially in a depressed market, and the borrower would get practically nothing from the auction proceeds. All his family's life-long savings would have been wiped out, and they are left without a roof over their heads. I am aware that this is a commercial decision for banks and financial institutions to make. But I hope that they could exercise flexibility and consideration in handling borrowers' personal loans so that genuine cases are given a needed help. I hope that MAS will convey this request to the banks and financial institutions.

I hope that MAS will also look at this from the viewpoint of legislation or guideline. Although I have discussed this issue with the housing loan as an example, this appeal for new flexibility and consideration for the borrower applies to all personal loans, including credit card debts.

Financial Literacy

Miss Penny Low: Sir, Mr Tan Ah Kow and his wife Mary, both HDB heartlanders in their 40s, have told me that they have attended some MoneySENSE programmes. They feedback that the courses tend to be general and theoretical and do not cultivate a life changing habit. They wanted closer guidance and skills to improve their lives but one-off seminar that aims at quantity rather than quality, just would not do. Like this year's Budget that targets at giving more to those who need most, MoneySENSE perhaps could focus on qualitative programmes that target at in-depth skills acquisition and paradigm shifts.

Some strategic focus I would suggest would be to look at capacity building within the people sector and that includes NGOs, VWOs, Family Service Centres (FSCs), social enterprises where there are ready and needy clients, and do train a training programme that imparts financial literacy or planning skills to counsellors to provide a more holistic approach to help the needy or distressed. We all know that financial concerns can often destabilise a person or family, leading to disorientation, loss of jobs and eventually some poverty cycles. Such programmes may cost more but certainly achieve a better long-term impact on the individual, the family and, of course, the society at large.

Two, inculcating the right sense of money value system and financial literacy in younger children today could help groom a generation of financially savvy youths who are also prudent. This would help prevent Singapore from becoming a nation of debtors - with overstretched consumers whose cashflow overwhelms inflow, leaving very little for the rainy day or retirement funding.

Third, in view of the ageing population and falling fertility rate, perhaps more efforts to intensify retirement planning, adopting a holistic approach and raise awareness on the need to supplement CPF funds and possible alternatives. What is the budget set aside for this year and what would the focus and funding principles be? Would MOF also consider full funding for MoneySENSE programme?

Mr Tharman Shanmugaratnam: Mr Deputy Speaker, I would like to start with Ms Penny Low's first question. She made some observations about the intensifying competition in the financial services for Singapore and made a very useful point that we have got to look at, not just growing existing activities, but looking into innovation and growing niche areas in finance.

We agree with her. But, first, let me say that, yes, the competition is intensifying, but we are also seeing very significant new growth opportunities and Singapore is very well-positioned to take advantage of these growth opportunities to be a conduit between East Asia, India and the Middle East, which Dr Ahmad Magad has identified, and also to be a market for raising capital for enterprises from all over Asia. We are making quite good progress. We basically have two strengths that we are now leveraging on.

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(1) Because of our efforts over the years, particularly in recent years, we now have a critical mass of financial players in Singapore which, in turn, brings in new financial players. It feeds on itself.

(2) We have a reputation that is a very strong one to be a well regulated centre, high standards but also responsive to businesses. We are always well-regulated with high standards, but we are now also known to be quite responsive to businesses.

So these are two quite important advantages that we are leveraging on, not just to grow the existing businesses but, as Miss Penny Low says, to develop new niche areas where reliability and rule of law give us a critical advantage. I will highlight just a few areas because of shortage of time.

First, asset management or the wealth management industry broadly, where we already have a leading position in Asia. We are growing not just the volumes, which the Prime Minister had mentioned earlier, ie, double-digit growth over the past five years, but we are also growing new activities. We now have leading fund managers who base management of global mandates out of Singapore, such as in fixed income and emerging markets and in other areas.

Second, we are looking to broaden the range of activities that exists on the fund management value chain, not just the front end of investment management, but the whole range of associated services in the fund management industry, eg, research, trading as well as asset servicing operations. Asset servicing, in particular, is an area we are placing some importance on, and that is why this year's Budget included an incentive to encourage funds to domicile in Singapore, instead of Dublin, Luxembourg, Cayman Islands and so on, so as to be able to develop the asset servicing industry, such as fund administration, fund registration, valuation and accounting, fund listing and, importantly, custody services. It is an important part of the value chain, not as sexy as investment management, but there is a lot of money to be made. We see industry interest in this following the conclusion of the Comprehensive Economic Cooperation Agreement (CECA) with India. There is interest in having funds domiciled in Singapore and being used as a launching pad for investments into India to take advantage of CECA. We are also seeing interest from the Middle East. Middle Eastern investors are feeling more comfortable with funds that are set up and registered in Singapore. So, again, our reputation is a credible one and it is proving to have commercial advantage. This is a piece of the asset management value chain that we are keen to develop.

Another area in the broad wealth management industry, which Miss Penny Low mentioned, is philanthropic services, and more broadly, the trust business. It is a growth business in Asia especially. We know the whole new wave of wealth that is being created, but we are also seeing a growing number of individuals who are keen on investing in worthy causes. Again, our reputation for rule of law and our reliability confers us an advantage. So growth of philanthropic services is one of the areas we are looking into, and it is aided by our broader initiatives to develop the trust industry, which is a common vehicle used for philanthropic services. So we have modernised our trust laws. As you know, we are updating our regulatory framework for trust companies and we have made our tax regime much more conducive for the growth of the trust business.

Micro-finance is another area that Miss Penny Low mentioned which we are looking into. I do not know very much about it myself, but I agree with her description of the industry. It is growing rapidly. Big players like Citibank as well as smaller niche players are getting into this market and it is something we are keen to look at to see whether we can play a useful role in the regional as well as broader Asian context, including India.

In the capital markets, we already have some strengths. In particular, we are one of the leading stock index futures markets. The warrants market has also taken off very well in the last two years. We are looking ahead now at new areas, and equity derivatives is one important new area of growth. In the Asian markets, it is starting from a very low base but with high prospects for growth, as has happened in Europe and the United States. The Singapore Investment Banking Association (SIBA) has been studying ways to develop the equity derivatives market in Singapore very carefully, and MAS is working with the Association on that.

Insurance is another area where there are niches to be tapped and where we have an advantage. We are already a leading regional reinsurance centre and a captive insurance domicile. But we are in a strong position to develop new niche insurance sectors, such as maritime insurance and credit insurance, given our role as a maritime and trade hub respectively.

Islamic finance, which Dr Ahmad Magad has spoken about, is an important new niche area, and the Prime Minister had touched on this in his Budget speech.

On the regulatory side of things, I would say we take a pro-business approach. It is an evolving market. There are new products coming up. Initially, not everyone understands them, but we want to learn about them quickly and see whether we need to tweak existing regulations to facilitate that growth. It is too early to say that we should set up a whole new edifice to support Islamic finance. The existing regulatory framework is, in fact, quite friendly for Islamic finance. It is able to accommodate most of the new products that have come in. But we are very happy on a product-specific basis, ie, look at the details, see what we need to tweak or amend. That is our approach. Basically, we take a pro-business approach, ie, let the industry come forward with initiatives, and MAS will go forward with them. That is how we have seen the introduction of a whole set of new financial products in the last couple of years, such as Takaful and re- Takaful products, Islamic deposits, Islamic trade financing, and Islamic funds. In September last year, as Dr Ahmad Magad knows, we have fine-tuned our regulations to allow financing based on the Murabaha concept. The Singapore Exchange is also looking into Islamic instruments on the capital markets and the equity markets. We recently launched the first Shari'ah -compliant Pan Asian Equity Islamic index, which should help to grow the Shari'ah -compliant fund management industry, particularly for Asian investors and exposures.

I will just add, in relation to Dr Ahmad Magad's broader point about the need for education to spread familiarisation of Islamic finance, that we are not aiming primarily for the retail market. We have a small retail market, but it is not going to be sizeable enough to make us a centre for Islamic finance. We are aiming principally at the market for large funds, eg, institutional players and wealthy individuals, many of whom come from the Middle East and other parts of the world. There is a niche for Singapore to tap at that high-end segment of the market, and we have advantages in terms of our reliability, efficiency as well as a whole array of other financial services in Singapore to service that market. But we are not aiming primarily at the retail segment of the market.

I agree wholeheartedly with Dr Ahmad Magad about the importance of manpower development in Islamic finance as well as other areas, in other words, develop professional skills. That is a continuous game. We are stepping up our efforts in that area, otherwise we would not succeed in growing all these niches we are talking about. We are putting in place quite a few initiatives. If we look at our financial training scheme, which is part of the Financial Sector Development Fund (FSDF), and the Financial Training Scheme (FTS) which we started in 2001, we have committed over $8 million as of end of last year to train more than 7,000 industry professionals in specialised areas. So we are trying to deepen our pockets of expertise.

In Islamic finance, in fact, we have co-funded more than 25 Islamic finance courses for quite a significant number of individuals. We are also looking to develop the financial research industry. In July last year, we launched the $10 million Programme on Risk Management and Financial Innovation to catalyse more research and training in Singapore so that Singapore becomes a hub for research in financial services in Asia. Certainly, Islamic finance will be one area we will be quite keen to encourage more research on.

If I can move on to Mr Inderjit Singh and Dr John Chen's questions on alternative platforms in the early stage companies. I agree that we need to do more to spur entrepreneurship. It is a long-term game, but we need to develop the financial markets to try to spur this. It means having a range of financial options, quite apart from venture capital (VC) business, bank loans and some form of mezzanine financing provided by the banks within the range of options in the capital markets not just to develop local enterprise but also make Singapore a centre for funding for Asian enterprises, start-up companies and early stage companies from all over Asia. I think we do have an opportunity.

We are doing quite well so far. The venture capital business itself is doing quite well. It has about more than $17 billion managed in Singapore and over 160 VC firms set up already. The Singapore Exchange (SGX), through both the Main Board and SESDAQ, now has more flexible admissions criteria, eg, shorter profit record or even no profit track record, subject to other requirements. But it is a lot more flexible and it is up to the standards of the more innovative exchanges internationally. Last year, SGX announced its intention to introduce Global Depository Receipts (GDRs), which will provide another convenient way for companies from all across Asia already listed on a primary stock exchange in their own country or elsewhere to tap our capital markets. I agree that we should look carefully at the case for new or alternative platforms for early stage companies. There are a number of trends that support this.

First, there is a wave of enterprise creation across Asia, many more new companies being formed, small companies that do not have traditional capital markets very well suited to them. So there is a case that is being built up by this new wave enterprise creation in Singapore as well as across Asia.

Second, interestingly, there is now increased allocation on the part of global portfolio investors to the emerging markets and to higher-risk opportunities. They want to diversify, enhance their returns and to extract alpha in the financial markets, and they are looking at emerging market opportunities, including private equity and other forms of emerging investments. So there are fundamental trends that are driving this. We are not going to rush. We want to study this carefully to make sure that whatever we do is based on business viability and sustainability.

Mr Inderjit Singh asked about the status of the private equity or OTC exchange. Members would know that in October last year, we amended our securities laws to provide for two new "safe harbours" in the Securities and Futures Act to allow private placements and small offers to be made without a prospectus. We are now seeing industry interest. Phillip Securities, as Mr Inderjit Singh knows, is in discussion with MAS on its plan to develop an OTC platform to facilitate trading in shares of SMEs that are not publicly listed to take advantage of these "safe harbours". It is a good proposal, and Phillip Securities is now putting in place the necessary capabilities. MAS does not usually announce approval until everything is ready and I am not about to today.

Dr John Chen also asked about a third Board, which is another interesting possibility to allow start-ups to raise funds, and I agree we should look at this. GEMS in Hong Kong may not be the best example. In fact, GEMS has had a rather poor record in recent years, and they are now taking a fundamental relook at GEMS in Hong Kong. They have a public consultation paper to see how they should go forward because the existing formula has not worked. A better model worth careful scrutiny is Alternative Investment Market (AIM) which is offered by the London Stock Exchange. It is doing very well. AIM allows companies to access capital at the early stage of development before they become ready for full public listing. And they do it by doing away with most traditional listing requirements but relying instead on nominated advisers, or "Nomads" as they are called, who take responsibility for coordinating the admission process and in carrying out due diligence to ensure that the company is suitable for an AIM listing. In other words, rather than set up ex ante listing barriers, they rely on the Nomads and the credibility of the Nomads to attest to the company's readiness. So the success of AIM rests on this pool of expertise that they have in London, expertise in the Nomads to be able to vet, scrutinise and give some assurance about the company's readiness. It also rests, I should say, on certain tax incentives that are peculiar to Britain. They have high capital gains and inheritance taxes, so they give tax incentives to British investors in the AIM market which has provided a bit of a spur relative to traditional capital market instruments.

SGX is currently studying the business case for alternative platforms or financing for start-up companies. MAS' current regulatory framework can broadly accommodate the setting up of these new platforms, but the industry must first make its own assessment as to what is commercially viable in the local and Asian contexts. If the financial industry considers a specific proposal to be viable, MAS will look at the specifics and see whether amendments are required to our regulations so as to facilitate the introduction of any such platform.

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Dr Tan Boon Wan had asked

whether financial institutions can show borrowers more flexibility in settling their debts.

First, let me first say that the level of non-performing loans (NPLs) in Singapore is very low, particularly by international standards. Our NPL ratio for all types of loans is less than 5% and for mortgage loans it is less than 2%. In fact, for owner-occupied mortgage loans, it will be below 2%. What this basically reflects is that risk management is working in Singapore. I do not think it is a situation, as Dr Tan describes, where banks simply willy-nilly grant loans as long as someone has met the minimum requirement. We do have more than a modicum of risk management in place in our banks, and MAS ensures that this is the case.

What happens when borrowers cannot meet their loan instalments? Banks do not immediately foreclose. They will undertake some form of remedial action first and, particularly for owner-occupied housing loans, they go through great pains to take remedial action, giving the borrowers more time to pay or restructuring the loan so as to reduce the immediate debt servicing burden and spread it out over several years. This is the norm in fact for mortgage loans as with other loans. Banks have an interest in doing so, because no bank wants to have a reputation of being quick to pull the plug as soon as a borrower runs into trouble.

Ultimately, decisions on debt recovery and foreclosures are commercial ones and MAS has to leave it to banks to decide on these things. But what MAS has done, and will continue to do, is to check that banks have robust and careful credit assessment procedures in the first place. This will help minimise the number of borrowers who over-commit themselves to loans, enter into loans that are beyond their capacity to repay realistically.

Despite these safeguards, there will remain a small percentage of borrowers who have serious problems in managing their debts. Credit Counselling Singapore (CCS), which Assoc. Prof. Ong Soh Khim had asked about earlier, can help these individuals through credit counselling and, where applicable, assist them to work out a debt repayment plan. This is a useful role which MAS and the banks recognise.

Borrowers ultimately will have to play their part, carefully assessing their own ability to service a loan before they commit to it. That is fundamental. This brings me to Miss Penny Low's last question on financial education. She made some useful suggestions on what we can do to raise financial literacy among Singaporeans - to go beyond generic messages to specific messages, and to go beyond quantity of programmes to quality of programmes. I quite agree with her. We are stepping up MoneySENSE and, in particular, we are trying to find ways to reach into the neighbourhoods. This means working with community organisations. I agree that we have to look at capacity building in our community organisations. One important initiative that is being undertaken right now involves MoneySENSE working with the five CDCs to run a basic money management workshop for low-income families. These are often families that have been referred to the CDCs in the first instance because they have got financial difficulties.

We can improve quality, I am sure. The CDCs are, in fact, building up their capabilities in this regard. South East CDC has implemented a three month train-the-trainer workshop for CDC officers and family service centre (FSC) social workers. They did this in October last year. It is a good initiative, providing the trainers first with knowledge of how to run a basic money management workshop, but also on how to follow up with families subsequently to make sure that they understand how to design a family budget and stick to it. Some consistent advice is required over a period of weeks and months. That is what we found. So it is a good approach, training the trainers, and it will have a multiplier effect. This is a long-term effort. We have been doing this for a few years now, mainly national messages, reaching out through the mass media. We are now penetrating the neighbourhoods, working with grassroots organisations and we have to do more in that area.

Mr Steve Chia Kiah Hong: Sir, the Minister of State, Mrs Lim, did not address my question in her answer. If she cannot tell us what is the investment return, can she at least inform us how much our assets have actually grown up to now? How many hundreds of billions in our assets are we talking about at this point of time?

Mrs Lim Hwee Hua: Mr Chairman, Sir, I believe I have actually answered that. But let me just reiterate for the benefit of Mr Chia that we have explained on numerous occasions that the disclosure of such information is really not in our national interest.

Mr Steve Chia Kiah Hong: Is the disclosure in terms of the returns or the total assets? If she cannot tell us what is the rate of return, at least tell us what are the assets at this point.

Mrs Lim Hwee Hua: Sir, let me just repeat what I have just said. For the exact size and returns of our investments, we have explained that the disclosure is not in our national interest.

The Chairman: Mr Chia, you have got your answer. Any more clarification? If not, Dr Magad, would you like to withdraw your amendment?

Dr Ahmad Mohd Magad: Mr Chairman, Sir, I would like to thank the Second Minister for Finance, Minister for Education, who is also the Deputy Chairman of MAS, as well as Mrs Lim Hwee Hua, Minister of State for Finance, for their extensive clarifications to the many issues raised. In this circumstance, I would like to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

That the sum of $451,490,950 for Head M ordered to stand part of the Main Estimates.

That the sum of $109,450,900 for Head M ordered to stand part of the Development Estimates.