Lee Hsien Loong
Singapore
“Yes, of course, every time I sell the land, I put money into the Reserves, but I am not putting the money into the Reserves all today. I am putting it in a stream of payments, 30 years apart.”
“Speaker, Sir, I do not think it was a very difficult question to figure out, that when I spoke to MTI, I spoke to the Minister, because Mr Gan Kim Yong is the Minister for Trade and Industry.”
“" I think that would have been unjust because he has not been charged. If there is a case, the case has not been heard, he has not been found guilty or acquitted or whatever. I cannot prejudge a case based on an incomplete investigation – started recently, or a partial investigation, just entered into the formal phase.”
“Mr Speaker, Sir, first, Mr Leong is quibbling over words. In February, Mr Tan Chuan-Jin told me, "I offer to resign". I said, "Yes, sort out your constituency first". In other words, decision taken. The moment to execute it, I will decide. So, it is quite clear. Legally, he has not resigned.”
“Sorry, Mr Speaker, to respond to Ms Poa on why not no pay leave. It is my judgement to make. The Civil Service works in one way; their basis is if you have been convicted, then you are on zero pay and other consequences will follow.”
“I am very happy to note that Assoc Prof Jamus Lim appreciates the second key and is seeking a third. And I hope that it portends a change in your attitude towards the Elected President and his custodial powers. But I think the Brazil example is a very interesting one.”
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“The facilities have changed, the laboratories have changed, the quality of the staff we are looking for has gone up, and there are the opportunities to travel and link up with other institutions. Who is going to pay the cost of all these? So far, the Government has paid three-quarters of the operating costs, plus all of the infrastructure costs. The undergraduate pays only 25% of the operating costs and that is just the operating costs of the undergraduate education. If, over the next few years, still more university students make it to university, and if we want to improve the quality of their education further, then we need to adjust this balance. It is not to put all the load on the student, but to shift the balance to something which is more sustainable. The Government will still account for a big part of the university costs through its subvention. But I think, proportionately, it should be a smaller part than now. Dr John Chen said that graduates pay higher income tax and therefore they benefit society more than the individual. Therefore, there is no need to charge them more when they go to university. He has a point. We need to pay for this university education and I suppose we could raise income taxes to meet the higher costs of more people going to university and more expensive per capita cost. But not all high income earners are graduates. So why should a non-graduate who has done well pay more income tax to finance the education of graduates? He did not benefit, why should you tax him the same? But Dr John Chen has a point. If we follow Dr John Chen's argument, then we should have a graduate tax, which I think is what Mr Iswaran suggested and is similar to what the Australians do.”
“So now that starting salaries are $1,500-$2,000, university fees should be lower than the starting salaries, but they are not. I think this is the wrong principle. Prof. Low earned $900 as a starting salary at a time when only 4% of the cohort went to university. He was very privileged to go to university. Today, 21% enter university. So graduates no longer command as large a premium when they start work. Are they badly off? No. Are they as privileged as their previous generation? Neither. But the relativities have shifted. And because we have widened university education, we have allowed the economy to grow. Graduates are not poor, and I think we can no longer expect to say university fees should be lower than their starting salaries. Because even now, university fees are still small compared to their earning power. Even if you add up all the university fees for taking an engineering programme, let us say, $6,000 a year x 4 years is $24,000, it is one year of a starting salary. In fact, it is very affordable. It is not the right principle to say fees must be lower than starting salaries. The right principle is to relate fees to the cost of the university education and to the value of this university education to the individual over his working life. Here, I agree with Prof. Low that we should be looking at the cost of providing undergraduate education and separate out the cost of post-graduate education and the research institutes. In fact, that is how MOE does its sums. But even then, you must remember, since 1969, the number of undergraduates has gone up six-fold. The quality of university education has improved tremendously.”
“The amounts have been building up gradually. On average, Singaporeans are saving more than enough in their Medisave accounts to provide for their needs - themselves and their families. If we look at the CPF accounts, each year, contributions to Medisave amount to about $2.5 billion, while withdrawals amount to only about $1 billion. So for most Singaporeans, affordability is not a problem. The problem arises if you are unlucky, because not everybody has the same medical expenses. $1 billion is on average. But if you happen to have an accident or a serious illness requiring expensive treatment, you may be in trouble. So there is a problem. The solution to that is to make greater use of medical insurance, beyond MediShield, to cater for non-catastrophic illnesses, so as to stretch the Medisave dollar. It has to be properly designed - there must be co-payments, there must be deductibles. But I think with risk-pooling, with Medisave, we can make the Medisave dollar go further and we can lift the worry which many people have, that is, just in case, they have kidney disease or are incapacitated, who is going to look after them and how they are going to cover this. This is something which MOH is studying. Education opportunity for all Now, let me talk about educational opportunities and university funding. Several MPs have asked how the review will affect students. Let me assure everybody again that nobody will be denied an educational opportunity which is appropriate to his talents and abilities. Meritocracy and full and equal opportunities are key tenets of our society, and always will be. Prof. Low Seow Chay today said that when he was a university student in 1969, he paid annual university fees of $600 at a time when the starting salary of graduates was $900 per month.”
“Affordable healthcare for all Means testing I note that many MPs have supported the principle of means testing and agree that subsidies, whether for healthcare, education, housing or other living costs, should be targeted according to need. I also agree with Mr Loh Meng See, Mr Zainul Abidin and the others that we need to proceed carefully. Mr Gan Kim Yong has suggested that MOH adopts a multi-tiered approach, rather than an all-or-nothing framework to determine the subsidy level, with an appeal mechanism for deserving cases. I think that is a workable pragmatic strategy. We have to make judgments. We have to look at many factors. It is not just his pay, it is not just his wealth. It is his family obligations, his family circumstances, his needs, his outlook. A judgment has to be made but we should avoid having a step function, where a small difference in the judgment makes a big difference in the subsidy which he gets. There has to be some smoothness in what he gets. The step-down care sector and the primary care services, which means the community hospitals, nursing homes and home nursing, where means testing has been running since July 2000, use a three-tier subsidy level. We have some experience doing this. We will continue to accumulate experience. I assure MPs that we will try and learn how it works in practice and we will consult extensively before settling on the rules for expanding means testing to other parts of the healthcare sector. As we target our medical subsidies at those in need, we will also need to ensure that healthcare remains affordable for the middle income group. Our current 3M health financing framework is quite sound - Medisave, MediShield and Medifund. Our Medisave is actually a very important part of this scheme. We introduced it in 1984.”
“If we had done nothing, if we had allowed SingPower to continue to operate as a monopoly, chances are we would have continued with the old technology and just passed on the extra costs to consumers and businesses. Because there is no market test, it is a monopoly, whatever my costs, add the return, mark up, and pass on. But by restructuring the industry and introducing competition, we have forced generating companies to restructure, lower their costs and to adopt the new technology. In the transition period, we will have both steam and gas plants operating, contributing to excess capacity. But prices have come down. Some generating companies are taking a hit but from the point of view of the economy as a whole, we are deriving a benefit, and we are doing the right thing. May I say in passing that Mr Sin Boon Ann raised many other issues in his speech, many of which I disagree with. But if I respond to all of them, I will have no time to respond to all the other MPs. So let me just say two things. First, he is wrong on the property market. He talked apocalyptically and glibly about negative equity. But an MAS' study showed that less than 3% of private property owners were in negative equity. Negative equity means owing the bank more than the property is worth. As for HDB owners, the percentage is even lower. He is also wrong on healthcare, another complicated subject, but just one small example, we only have one gamma knife centre, and not two. I state this so that nobody thinks that because I did not counter Mr Sin's arguments, that means I agree with them.”
“We have done our first review of corporate holdings for the Ministries and statutory boards. We have identified about 90 companies that are no longer relevant to the Government. Ten of them have since been divested. This is not counting the 12, which I listed in the Budget Statement, which was done by Temasek. We will divest the rest progressively, subject to the right market conditions. MOF will keep on reminding the Ministries to do so. As for the major GLCs, divesting them will not help the SMEs. The issue is not how SMEs can compete against the GLCs but rather whether they can hold their own against large companies. Whether or not the GLCs are divested, SMEs will still face the same competition. The Government will continue to ensure that GLCs are not given unfair advantage. The Competition Law to be enacted next year will provide a level playing field for companies in Singapore. MTI will begin consultations on the draft in the next two to three months. Mr Sin Boon Ann extols the virtues of competition but, at the same time, he blames excessive competition for over-capacity in the power industry, resulting in PowerSeraya retrenching its workers. Mr Sin's statement could be misleading because as I have said, the power industry is a very complex one. A fairer, still not complete, explanation would go something like this. Technological advancement has led to the emergence of gas plants, which are much cheaper and cleaner to operate than steam plants. This has made our existing steam plants obsolete and expensive. The question is: what should the Government do?”
“Mr Leong Horn Kee further suggested that the Government grant the tax exemption from the first year of profit rather than the first year of operation. I have had a look at the data. Based on IRAS returns over the last six years, about one quarter of start-ups become profitable ever and, of those who do, most do so in their second year of operations. So, if you look at it, in the first year, hardly any are profitable. In the second year, a few are. The third year, about one quarter are profitable. Fourth year, also one quarter profitable. Fifth year, also one quarter profitable. I am not sure they are all the same companies in every year. But, by the third year, if they are going to make it, the chances are that they would have made it. So, I think three years are reasonable. Nevertheless, I will keep an open mind and consider whether to extend the length of the exemption after monitoring the results over the next few years. Anyway, even after the 3-year tax exemption period, small companies and start-ups will not get taxed at the full corporate tax rate on the first $100,000 of income because we have a partial tax exemption within our corporate tax structure. For the first $10,000 of chargeable income, there is a 75% discount. For the next $90,000 of chargeable income, there is a 50% discount. So, Mr Ang Mong Seng says "san mian er jian", that is, three exemptions and two reductions. This is even better than that. This is "san mian chang jian" - three exemptions, perpetual reductions. But, of course, after some time, you ask for more. Enhancing competition Now, let me say something about enhancing competition. The Government will continue to divest its stakes in GLCs which are non-strategic or have no international potential.”
“Contrary to the popular perception, SMEs are not so badly off. They do get a fair share of business opportunities. For example, we made a sample of the small Government tenders which were awarded in FY 2002, of values up to $100,000. There were 404 tenders awarded. Of these, 70% went to companies with net assets which were less than $50,000, which are very small companies, and 90% went to companies with net assets of less than half a million dollars. And this does not include supplies procured through quotations or Government work performed by such SMEs through subcontracting. Mr Leong Horn Kee suggested that the Government could help the SMEs by giving them non-strategic and non-critical Government projects. I think this is not right. Government projects must be allocated through open tenders. We cannot exclude big companies from tendering because they are too efficient or too strong. If they offer me a good price, I have to take the good price. If they offer me better quality, I have to accept that. I cannot say, "No, you are too big. Only the little guys are allowed to play." This would only raise cost to the Government, lower efficiency and reduce the drive and enterprise of the SMEs themselves. The right strategy is to help the SMEs upgrade their capabilities, improve their productivity and competitiveness, and venture abroad if they can. And we are doing a lot in this respect, which MTI will deal with in the Committee of Supply. In this Budget, we have granted a 3-year tax exemption for the first $100,000 earned by the start-ups. Miss Penny Low, Mr Ang Mong Seng, Mr Arthur Fong and several others have asked the Government to consider extending the tax exemption period.”
“But when we looked at the experience of other countries, we found that home brewing only appeals to a small group of hobbyists. It needs a lot of time, patience, effort and quite a lot of money. It is really for fun and, after a while, it is easier to just go and buy the can! So, we decided that we will not stand in the way of enterprise. Now, home brewers will enjoy a duty exemption on the beer they produce for personal consumption, and we will levy just a small licence fee of $100 for two years, just to know who is buying the kits and whether it is successful or not. So, the point is not home-brewing. The point is that Government agencies have to make sensible judgements and relax their rules to facilitate enterprise. We have erred on the side of caution and conservatism, and we have often taken a "one-size-fits-all" regulatory approach. If we thought a particular activity poses risks, even if only to a small section of the population, then our instinct was to just disallow that activity. But increasingly, our approach should be to balance the risks and potential problems the activity might pose to society at large against the overriding need to encourage private enterprise and initiative. As long as it does not cause unmanageable problems or harm to others, I think our default position should be to allow this entrepreneurial activity with as few bureaucratic impediments as possible. Opportunities for SMEs and start-ups Now, let me talk about SMEs very briefly, because these are small companies but a big subject, and it will be discussed in the Committee of Supply further. SMEs are a key part of our economy. The Government will support SMEs where we can, but we cannot smother them either with too many rules or with too much help.”
“Nobody wants to go bungee jumping in the day time, and their peak hours are late at night when you have had a drink, you want to enjoy yourself, you want to show off to your girlfriend. Hence, 10.30 pm was a problem. So, they appealed several times. Eventually, they appealed to the Head of the Civil Service and, after a thorough investigation, of course, we established that there were hardly any residents within a 50-metre radius of the bungee jumping site. So, if only three people are screaming at the time, it should be all right! And we have decided to allow reverse bungee jumping until 2 o'clock in the morning. So, we have made a small victory. Let me give you another example - home brewing of beer. Under the Customs Act, anyone who wants to brew beer must have a licence. The licence costs $43,200, because it is meant for Asia Pacific Breweries and people like that. But, recently, an entrepreneur came along and wanted to sell kits to brew at home. So, he asked for exemption of the liquor duty and licence fee for people who brew beer at home for their own consumption. I suppose they are not allowed to invite their friends to a party! So, MOF had to review its rules and come up with a position. The first question was not the licence fee. It was whether to allow home brewing at all. And there were many possible objections. We consulted all the agencies and wrote a staff paper. There were concerns about smell, binge drinking, social disturbances to their neighbourhood, etc. And from MOF's parochial point of view, loss of tax revenue. If you keep your home brewery going all the year round and produce the maximum amount of beer, you can lose $1,000 of tax revenue per year per kit, at full capacity.”
“Unless they do that, no amount of subsidised labour or land will make them cost competitive. And I remind Members of this because, to see it in perspective, we have to watch our labour costs but, remember, it is not just wages. It is also what employers do with their workers. And if they do not do the right thing with their workers, then the workers will go and work for somebody else. A pro-enterprise civil service Just as businesses need to change, the civil service also needs to change. So, I fully agree with Mr Leong Horn Kee, Mr Yeo Guat Kwang and Mrs Fang Ai Lian that civil servants need to be more responsive, innovative and prepared to accept change. Do not be "bureaupreneurs"; too complicated. Just be entrepreneurs! Part of this involves trimming our rules and regulations to create space and opportunities for enterprise to flourish. But, of course, when we relax rules and regulations or apply them more flexibly, then we have to be prepared to live with untidiness and stop taking care of every aspect of people's lives. Equally, people must be prepared to accept some risks and inconveniences. I will just give you two recent examples. They are not big ones, but they just show the mindset change which is necessary. One, reverse bungee jumping. We took the plunge recently and decided to allow reverse bungee jumping even though some of us were worried about public safety. But it was not the end of the story, because our instincts are very deep. So, when we allowed reverse bungee jumping, we said stop jumping at 10.30 pm because, after 10.30 pm, you jump, there may be screams, squeals, etc, and you may wake up the neighbours. But, in Singapore, it is very warm.”
“So, JTC is charging market prices, but these are low market prices. They have come down, reflecting the new market realities. Similarly, with Government charges. The foreign worker levy was high before the crisis, because the market was tight and there was a great demand for foreign workers coming in and we had to control the inflow. But we brought it down to very low levels during the crisis. Now, the crisis is over, we have to bring it up, but we have only brought it up by a little bit for the skilled workers, from $30 to $50. And we are not aiming to restore the foreign worker levy to the pre-crisis rate. We are going to set it depending on the circumstances now. If there is an inflow, we have to adjust it up; if there is no pressure, we will leave it where it is. But the market, the benchmark, is now, not five years ago. So, we are very mindful of costs and its impact on businesses, and businesses should not worry because, if you look at the Government part of the costs, statutory items, eg, CPF, taxes, they have also come down significantly in recent years and overall business costs today are quite a lot lower than a few years ago. As Prof. Koo Tsai Kee said, "We have been right-sized, Singapore is now ready to row once more." But even as we focus on keeping costs low, the more important challenge for us is for companies to reduce their overall costs by what they themselves can do, ie, operating more efficiently and increasing the productivity of their workforce. So, they have to continually restructure their organisations, redeploy their workers, adjust their labour costs, and make the most of their office and factory space. These are business decisions which they have to take. They have to make themselves efficient. They have to trim.”
“I think everybody understands the strategic reasons why. But now, with NEWater, we will be able to supply more cheaply to the industries, as we are already doing with the wafer fab plants, and we are building the second, third and a fourth NEWater plants. Mr Inderjit Singh has suggested that we keep business costs low by giving permanent rebates and subsidies so that costs will stay low even when times are good. I think that would not be the right approach. We have to go on what the factors of production cost. We cannot subsidise services below their true costs. If you have to buy oil and gas, you have to pay for the oil and gas. I cannot charge you less for the electricity than it costs me to buy the oil and gas to generate the electricity. That will only lead to over-consumption and a misallocation of resources and a drain on the exchequer. We can make temporary concessions when we are in a downturn but, once that passes, we have to reassess and adjust to the new situation. It does not mean that we are going back to the status quo ante. Rather, the rates should reflect the prevailing economic and market conditions. That means the rates will be set by supply and demand, and will settle at a level that businesses can afford and people are prepared to pay. People do not understand this. When we say market prices, they fear, because they think that market prices are something which they cannot pay. But if nobody can afford to pay, it cannot be the market price, something must be wrong with the price. The market price must be one which people can afford to pay. We have industrial land and factory space, we are producing utilities, that is the rate, that is what it costs us, that is what people can afford to pay, and that is the market clearing price.”
“Since 1998, industrial rentals in Singapore have been declining steadily, and this decline is quite independent of Government rebates, because it has happened even for the private properties and not just for the Government properties. I showed Members this same chart last year. I have updated the figures, and you can see that, even in the last one year between 2002 and 2003, land and property prices have come down by another 9%. * Cols. 1089-1090 So, in January this year, JTC reduced its rentals of ready-built factories by as much as 17% and land rents by up to 6%. With this reduction, JTC's rentals would have fallen by nearly 40% on average since the start of the financial crisis in 1997. You can see a similar trend downwards for private industrial factories, and for commercial and office rentals. As for the cost of utilities, competition in the liberalised electricity market has also gained us benefits. As of the end of last year, electricity tariffs are at least 9.5% lower than in December 2001, after adjusting for oil prices. Mr Ong Kian Min spoke about how vesting contracts in the electricity industry have led to higher prices for some industrial users. I think the matter is more complex than Mr Ong makes it out to be. Vesting contracts seek to curb the market power of generating companies to stimulate greater competition. Since the introduction of these vesting contracts, pool prices have fallen, which reflects the over-capacity which was there but might not have surfaced in the absence of competition. I do not have time to explain all of this now, but the Minister for Trade and Industry will respond to Mr Ong in greater detail during MTI's COS. In the case of water, our tariffs are higher than in other countries.”
“Opportunities for enterprises Reducing business costs There is no question that companies need to watch their business costs. But lowering the cost of factors of production - land, labour, utilities, which MPs have talked about - is only half the equation. The other critical part is how efficiently companies make use of these factors of production which determine what the company cost is. The unit cost of labour in Singapore - we have been watching it - has not increased significantly even though wages have been rising. And this is because our productivity has risen together with our wages. In the last 10 years, overall unit labour costs only increased by 4% while unit labour costs for manufacturing actually fell by 19%. So, overall, labour costs have gone up by 4%, but in manufacturing where we are, I think both open to international competition, productivity went up faster than wages and over 10 years, our wage cost per unit output has gone down by 19%. But there are some cases where the wages have gone out of line, and downward adjustments would have to be necessary. And that is what PSA and SIA have had to do. It is also critical that our wages respond flexibly to changing market conditions. This would allow companies to adjust to the ups and downs in the business climate and give workers more job security, of course, with the trade-off which is more variability in their wages. If you are prepared to accept some uncertainty in your pay, not from 0% to 200%, but maybe from 80% to 150% as a range, then it is possible to have greater certainty that your job will not be lost. Not an absolute certainty, but a better chance. The cost of land has also been on the downtrend. Chart 5* shows this.”
“It is not easy, but our great advantage is that the unions have supported these changes because they accept and understand and are convinced that these changes are in the long term interest of the workers. Unlike many other countries, we are able to implement these reforms. Because of the excellent relationship and trust built up by the tripartite partners, that is the master key, that is the magic. It is not the formula. Anybody can design the policy. But without that foundation of tripartite relationships, you cannot make the policy work. As Mr Yeo Guat Kwang pointed out, good tripartite relations should not be taken for granted and they have got to be constantly nurtured. So that is the answer to Dr Tan Cheng Bock who asked why it was necessary for the Senior Minister to intervene in the SIA pilot issue. As SM explained, this is not just an ordinary management-labour dispute in a company. SIA is not only a big employer, but it is also an icon of Singapore and the anchor to the whole aviation sector in Singapore. Hundreds of thousands of jobs are at stake. And, more importantly, the way the issue was developing could have undermined the foundation of the tripartite approach that we have painstakingly built up over the years. Therefore, it was critical to nip the problem in the bud effectively, while maintaining the trust of all parties involved. Why did SM do this rather than one of the other Ministers? The short answer is because this was unfinished business. It was left over from 1980, when there were troubles between SIA and the pilots which SM handled. So this time the problem had not been cleared. SM went in, and I hope this time the matter is done.”
“This is not 'S' Pass, but another example of where we have to be flexible because there is an opportunity which we have created. We signed the US-Singapore FTA (USSFTA). As a result, we have given a new lease of life to the textile industry. We thought we had left textiles behind. But now with the USSFTA rules of origin, preferential access, we have an advantage, and textile companies want to come to Singapore now to take advantage of our tariff savings. But the window of opportunity is small because other countries are also signing FTAs with America and negotiating FTAs with America, and they will secure the same tariff preferences. So we have to move quickly to get the companies here. How do we do that? All our old textile workers have retired. So we need to help our companies ride on our competitive advantage quickly and gain a headstart. We do not have enough Singaporeans, and those we have are not going to be able to pick up the skills overnight. So MOM will exercise flexibility for these companies to bring in additional skilled foreign workers during this ramp-up phase, so that they can start operations immediately. And, over time, Singaporeans can learn new skills and take up the jobs. Preserving jobs I know that many Singaporeans are a little unsettled by the changes we have to make to the labour market in recent years. And there are many changes - talk about flexible wage, talk about co-payment, medical benefits, retrenchment benefits, capping that, and many more. In order to preserve jobs, we have had to do all these changes to make ourselves more competitive and flexible.”
“When I was in India recently, I visited one of these IT companies and they raised this with me. They said, "Please understand, we are very happy with Singapore. Compared to any other country, you are much more flexible and that is why we are there. But there are still some practical difficulties which we would like to draw to your attention, and please can you do something about it." So I have looked into the matter and I think these are issues which can be resolved, particularly with the 'S' Pass. But they are real problems. Do we want the companies? If we do, then we have to make these adjustments. The new 'S' Pass scheme allows the companies to hire these skilled workers. The criterion is not just the $1,800 salary floor, but also the fact that the worker must have an acceptable tertiary qualification, that means, a degree. We are prepared to be flexible what the degree is, but it has to be an acceptable tertiary qualification. So we are talking about qualified trained people. And furthermore, we have put in place control mechanisms. It is not a blank cheque. We have a 5% quota. We have a $50 levy. It is not onerous. But it is an instrument which is in place and a tool with which we can manage the demand if we need to tighten or loosen, and we can adjust. So we do not have to worry that we are going to be flooded with 'S' Pass holders. Ms Olivia Lum suggests that we vary the quota depending on the sector and the type of activity. I think this is the way forward if we are going to compete and to seize opportunities. We need flexible systems where a company can get quick access to skilled workers, whether it is local or foreign, to meet new opportunities and business demands. Let me give you another example.”
“Without this one-quarter of foreigners, I do not think Standard Chartered could employ the other three-quarters of its employees who are Singaporeans. And it is not just Standard Chartered, Citibank has almost as many countries represented. DBS, if they are going to be in fore, they also have to trawl the same talent pool. So I asked them. They have got foreign employment pass holders from 14 different countries. DBS has to do that in order to compete. IT skills are always going to be in demand, and high order IT skills, we will need very bright people, imaginative, hardworking, creative. We have NEC Solutions Asia Pacific here, which is a well-established IT service provider and it has been here for 25 years. It has continued to expand its operations in Singapore. It has not hollowed out, gone off to India, China or somewhere. Why? Because it is able to grow here and get the talented ones. It set up new R&D centres here, hospital information systems, global e-procurement, biometrics technologies, that means, measuring your thumbprint, measuring your face, measuring your iris pattern. They could only do this because we allow them to employ IT professionals, many of them from India, to meet part of its need for skilled manpower. If we had not done that, they would be gone. The companies that EDB is now bringing to Singapore are knowledge and technology companies. They all depend heavily on skilled workers, technicians and specialists, not on low cost labour. One major reason they come here is because they know we will allow them to hire the people they need, whether Singaporean or foreign, without hassle. The foreign skilled workers we allow in complement our own skilled workers and enable companies to grow and, in turn, hire more Singaporeans.”
“The foreign workers on 'S' Passes will complement these polytechnic and university graduates, and allow our companies to grow and hire more Singaporeans. I give you two examples. We started the petrochemical industry in Jurong in the 1990s. We linked the islands together, building Jurong Island. There were no locals who could do the job. There was no expertise available to train the locals. Mr Nithiah would know because he represents that group of trade unions. So we allowed the companies to bring in chemical technicians and process specialists from abroad. He may not be a graduate, but he is trained, he is skilled. He is in charge of the whole petrochemical plant, sitting in the control room, and if something goes wrong, it is his job to carry out an orderly shutdown before some disaster happens. Because we allowed them to come in, so now many Singaporean managers and engineers work on Jurong Island, and many more Singaporeans benefit from the supporting activities, eg, in port, shipping the staff in and out, banking, dealing with the financial side, logistics, and so on. If we had said no foreign workers, no technicians, I think we could not have started. Take banking - the major banks operating in Singapore have people here from more than a dozen countries. Standard Chartered Bank, I asked them, one-quarter (26%) of their total staff strength are foreigners. They have 31 nationalities. They have people from North America, the UK, the Indian sub-continent, various parts of Asia, and all over the world. They are not just in the top management. Many of them occupy middle executive positions. They are in corporate finance, in treasury, in private equity, in wealth management. And they possess specialised skills which are in demand worldwide.”
“Because there were not enough locals and if we have not given the jobs to foreigners and let the foreigners come in, our economy would have overheated, our growth would have been lower, and I think we would have been worse off. * Cols. 1085-1086 In the second half, in the second five years, 1998-2003, this was the Asian financial crisis period and post-Asian financial crisis. We lost many jobs, especially immediately after the crisis, and then again in the last couple of years, first, because of the September 11 attack and because of the global economic downturn. But if you look at the breakdown (Chart 4*), the locals were not badly hit. The foreigners took the largest hit, especially in the past two years, as their numbers nosedived all the way down. * Cols. 1087-1088 So my conclusion from this is that the foreign workers play an important role in our job market. During good times, they top up our supply of workers and enable us to grow faster. But during bad times, they cushion the impact which would otherwise fall squarely on Singaporeans. Many Members expressed concern that the 'S' Pass scheme would hurt workers. Mr Nithiah Nandan spoke for the unions and explained how his members and his colleagues saw this. I understand their concern. But, overall, I believe that the 'S' Pass scheme will benefit Singaporeans and Singaporean workers. Let me explain why. Even as we upgrade and train our local workers, we cannot provide the full range and diversity of skills and experiences which the companies need. No single country can. It is not just numbers. It is the range. It is the experience. It is what you are able to bring to the table. So we have polytechnic graduates and university graduates.”
“So, I think if we can keep our manufacturing jobs here by upgrading the industry, by bringing in new investments and replacing the jobs which leave, we are doing well. Dr Maliki had asked where our new jobs are going to come from. So I have a Chart (Chart 2*) to show Members. This is a Chart of the jobs which have been created, net jobs, over the last 10 years. And you can see that we created more than half a million jobs over the last 10 years, but manufacturing generated * Cols. 1083-1084 hardly any net jobs, in fact, from beginning to end, almost flat. Construction a few, particularly during the boom. Services generated 480,000 new jobs, and I think services is where the new jobs are going to come from and that will remain the main engine of job creation in future. Leveraging on foreign workers Mr Seng Han Thong pointed out that we would need to bring in foreign workers even as we upgrade and develop our own local workers. Indeed, if our local workforce is fully employed, we will still face shortfalls, particularly if the economy grows strongly and particularly in some sectors. I think before we discuss the 'S' Pass, which many Members have been focusing on, it is useful for us to see how the foreign workers have helped us over the last 10 years. I have divided the last 10 years into two periods, the first five and the next five. If you look at Chart 3*, you can see the first five years, 1993-1997, boom years before the crisis. We attracted strong flows of investments. We created many jobs, nearly half a million, 470,000, and the jobs went to locals as well as to foreigners. 180,000 jobs to locals, 290,000 jobs to foreigners. In fact, in this period, more jobs went to foreigners than to locals, but nobody complained.”
“But the older workers themselves have to be prepared to undergo training to upgrade and equip themselves with new skills, and take on jobs which can be quite different from their previous jobs. We have the People-for-Jobs Traineeship Programme (PJTP) which continues to be popular for placing older workers. Every month, it places about 500 to 800 older workers and there is a subvention, part of their pay, up to half, up to quite a high limit, for up to six months. Since the scheme started in June 2001, it has placed more than 16,000 workers. Under the PJTP, the Government pays up to 50% of the wages of an older worker who takes a job in a different field for six months. Last year, 44% of the older workers stayed on with their employers, even after the salary support from Government ended. And now the proportion has gone up to 57%. So I think that we are making some headway. Other unemployed low-income Singaporeans can also make use of the Work Assistance Programme to help them get back to work as quickly as possible. For FY 2003, the scheme helped about 2,500 unemployed Singaporeans. A global economy means more intense competition for investments and for jobs. Even as the output of our manufacturing sector grows, I do not expect the number of manufacturing jobs to go up. Increasingly, the growth will be through higher output per worker, not through more workers. Over the years, manufacturing has held its share of GDP to one-quarter, but the share of employment has been going down for over a decade. But this is happening in almost every economy in the developed world, and the only countries where there are big increases in manufacturing employment are in China and Russia.”
“The middle and lower middle-income households, they gain about $11,000, so long as they have no car, no maid but two children. Even households at the 60th to 80th percentile level (that means, the 5-room or executive HDB flats), if you do not own a car and do not have a maid, you are still getting about $7,400 each year in net subsidies. In contrast, for the top 20% of households owning a car and with a maid, which most of them have, taxes exceed subsidies by more than $42,000 each year. So, that is how it balances out. And I think that is the background which we should remember when we talk about the middle class squeeze which Dr Amy Khor and Dr Wang Kai Yuen mentioned. In many ways, the "middle-class squeeze", or the squeeze on middle-class households, really boils down to lifestyle choices, whether or not you want to own a car, and the car is a very big item. To some extent, the high cost is unavoidable because it reflects our need to control congestion in a land-scarce city. However, the Government recognises that many Singaporeans hope to own cars, and we have been reducing the upfront cost of owning a car. Over the last two years, we have reduced the upfront car taxes, which include the ARF and the excise duty, from 171% of OMV to 130% of OMV. Even though we have done that, if you look at the COE prices, they have not really gone up that much. So, overall, the cost of owning a car has come down. With the ERP, I believe, over time, we can gradually lower the upfront ownership taxes further. Help for the unemployed Mr Othman Haron Eusofe asked how the Government is helping the older workers who have been laid off. The Workforce Development Agency (WDA) administers training programmes, grants and other assistance measures, especially for older workers.”
“In assessing how the middle and lower income groups have fared, we have to look at a broad range of factors, not just in this Budget - consumer prices, wages, taxes, benefits. By almost any measure, the middle and lower income groups have not been left behind. First of all, on the cost of living. This is a perennial subject. But inflation in Singapore continues to be low. Last year, the CPI rose by only 0.5%, although for lower income groups, it went up slightly more - by 1.1% - but this is still very low. Secondly, the purchasing power of Singaporeans has increased over the years. Their real wages have gone up. In the last two decades, nominal wages have nearly tripled - they have gone up by 190% - whereas the CPI has only increased by 28%. So, real wages have more than doubled. MOF recently did a study to compare different households, different income groups, different housing, all the taxes they paid compared to all the subsidies they received. I have a Chart* which is also on the screens. And you can see that we have taken in all the taxes they paid - personal income tax, GST, property tax, foreign maid levy, car taxes, and all the subsidies they received (healthcare, education, public housing, plus one-off transfers like ERS and rebates on rental, utilities, and S&C charges). You can see how each household fares in terms of what they paid and what they received. * Cols. 1081-1082 Overall, 90% of the households gain more in subsidies than they pay in taxes, that is, if they do not own a car. If you own a car, even then more than half the households gain more than they receive. If you look at a typical household from different income levels, the bottom 20% of households (those who are in the 1- and 2-room flats), they gain the most - $13,000 or so a year.”
“Secondly, HDB households are receiving rebates this year on the Service and Conservancy (S&C) charges (up to five months), rentals (up to four months) and they are getting Utilities-Save rebates too (up to four months), and the S&C and rental rebates are going to continue for another couple of years. Thirdly, needy persons affected by the downturn can turn to the Interim Financial Assistance Scheme (IFAS) for help. In FY 2003, we had disbursed more than $4 million to assist more than 8,000 individuals. In this year's Budget, I decided to make Medisave top-ups from $50 to $200 for older Singaporeans, and to inject another $100 million into Medifund for needy patients. Dr Jennifer Lee did not think that Medisave top-up was necessary, and she preferred to put the money into Medifund. But I think, on balance, it is necessary. Firstly, because the older workers are suffering a deeper CPF cut when we made the changes to the CPF system last year, and I think we owe them an obligation. I said then that at the next opportunity, the Government would do a little more for them in terms of top-ups. Secondly, we have structured the Medisave top-up to give more to those with lower Medisave balances, who are likely to be the less well-off. And if they already are on Medifund, this will help to pay for the MediShield premiums. Thirdly, I have not neglected Medifund, and I have put $100 million into Medifund to bring the fund to its target size of $1 billion, to look after the group that Dr Lee is concerned about, which we are also concerned about. Middle/lower income groups gain more Many MPs have expressed concern with the well-being of middle and lower income Singaporeans. Let me assure the House that this is a group that the Government pays close attention to.”
“In other words, tax the middle-class and lower middle-class in order to benefit the middle-class and lower middle-class. That is how welfare states work. That is how the British work - the first pound you earn, you pay about 20 pence on the pound. In Singapore, the first $20,000 you earn is tax-free. So, that is what it amounts to. And if Mr Low were candid, I think he would admit this. Opportunities for individuals Mr Chiam See Tong and some other Members have commented that this Budget does not offer much to the man-in-the-street. But maybe they have forgotten the many rebates which are still in place for the households and many programmes to get the unemployed back to work. Some were from the GST offset package two years ago; others were from the off-Budget package last September. As these are quite generous, there has been no need to increase them, especially with the economy picking up and unemployment going down. Instead, this Budget focuses on creating opportunities for individuals to help themselves. Help for households Let me just briefly name the items which are still in force. We had a second tranche of Economic Restructuring Shares in January and February this year. Altogether, we have given out $814 million worth of shares. $814 million - that is equal to the whole corporate tax cut this year. And of this, $562 million has been encashed, that means nearly 70% has been cashed out. And there is a third tranche, which is worth an estimated $900 million, which will be allotted next year.”
“Ministries' budgets are tied to the GDP. Because we are projecting growth this year, in dollar terms, the spending caps for all the Ministries are higher this year than last year, despite the 2% cut. Because you take a percentage of GDP, GDP grows, so your budget grows, then a 2% cut. If the GDP grows by more than 2%, in fact, in dollar terms, you still get more. So social subventions for healthcare, schools, voluntary organisations and town councils will not be cut. In fact, we are budgeting for 14% more social subventions this year compared to last year, of $287 million. "No free lunch" I think all the PAP MPs understand the importance of keeping the Government trim. Even Mr Steve Chia supports our prudent fiscal position. He said so. In contrast, Mr Low Thia Khiang argued against the Government's fiscal policies. He questioned the 2% cut in Ministries' budgets; he opposed changing the basis for university fees, and he also opposed using means testing in healthcare. These are easy, populist demands to make. But supposing we agree. Who is to pay? We are already drawing on the returns on our reserves, up to the constitutional limit. Is Mr Low Thia Khiang suggesting a further increase in GST? Or should we raise income taxes, instead of reducing them? He did not say. But his unspoken message is that someone else, presumably someone else richer, can cough up, not middle or lower-income Singaporeans. But it is not possible simply to pass on the cost to someone else. Today, the top 20% of people working already pay 93% of the net income tax assessed. So, if we go the way Mr Low proposes, then we are going to have to tax the majority of Singaporeans more heavily, in order to pay for the benefits to themselves.”
“Agencies will have to be more circumspect in expanding their manpower needs, and must trim back wherever possible. I am reluctant to impose a freeze again, but MOF is working on ways to control total headcount numbers, while allowing Ministries flexibility to grow and to shrink their departments and agencies. One of the ideas that we are thinking of is to impose a headcount tax. If we think that is what you should have and you have more than that, I would not stop you, but I am going to levy a tax here. If you do not want to pay the tax, then you bring your headcounts down in line. These are things which we have to work out. Mr Yeo Guat Kwang and Mdm Halimah asked what this means for jobs in the public service. Just like in the private sector, every public officer must continually improve his productivity, work smarter, upgrade and learn new skills. When missions and needs change, which from time to time they do, then Government departments and statutory boards will have to restructure, and sometimes they will have to shed staff. It is inevitable, but when it happens the civil service will work closely with the public sector unions to manage the change, as we did in the case of the HDB restructuring last year. Where possible, we will redeploy the officers but where it cannot be done, then we will have to release them on fair separation terms. For the FY 2004 Budget, we impose a permanent 2% cut on the budget caps of all the Ministries, except MINDEF, and we are going to cut by another 2% by next year. Mrs Lim Hwee Hua and Mr Leong Horn Kee expressed concern that the 2% cut should not be achieved by sacrificing social programmes or passing on costs to the private sector. Let me assure them that the cut will not be onerous to the Ministries.”
“They have to restructure and streamline their operations and share resources in order to derive greater economies of scale and better efficiencies. These are primarily Ministries' responsibilities but also Ministry of Finance's duty to ensure because we are guarding public money. So, MOF has been working with the Ministries on this and we will regularly and systematically review the functions and the activities of the Ministries and statutory boards, to make sure that they are effective - not just efficient, but effective, doing the right thing. We need to watch the costs of Government, and one cost which we particularly need to watch is the rising manpower expenditure, which several MPs have mentioned. Our total Government spending is now about 18% of GDP. By world's standard, this is not high. The OECD, typically, is 30%-40% of GDP. But considering that we were at 14% of GDP just a decade ago in 1995, from 14% we have ballooned up to 18%, just in nine years, I think there is reason to be watchful. For a long time, the civil service had a headcount freeze. Then in 1996, MOF lifted it, mistakenly believing that controlling budget dollars was enough. We thought that if we just limited the amount of money the Ministries had, they would spend within their means and make sure that they were lean. But it does not quite work that way and, as a result of lifting the controls, the public sector headcount has grown by 17% since 1996. In eight years, it has grown 17%. In other words, more than 2% a year. Some of the increases have been necessary, eg, teachers, we want to improve teacher-student ratio, and we have recruited more teachers. But overall, I believe there has been some slackening. Sir, going forward, we will have to be more stringent on headcounts.”
“The Government remains committed to cut the top personal income tax rate to 20% as soon as our fiscal position and our economic conditions permit. We have not changed our goal. Keeping Government trim Low taxes mean low spending and a trim and efficient Government. No doubt there will always be strong pressures for higher Government spending. We want better teacher-student ratios. We hope for more healthcare subsidies. We press for more public transport infrastructure, more train lines, unemployment allowances, more housing benefits and so on. They are all reasonable requests, and some of them are worthwhile public expenditures. Others are desirable, nice to have, but may or may not be sustainable. So, we have to review each proposal, decide whether it is something that the Government should do first. And if we think we should do it, then we rank it against all the other demands on the exchequer to decide where it ranks, how much we should support it, and whether it has to wait or not, so that we can meet all the pressing demands within our budget. I therefore agree with Mr Inderjit Singh and Mr Chew Heng Ching that all Government agencies should review their missions and objectives periodically and assess the relevance of their programmes. First, we have to decide: are we doing the right thing? Then we can examine whether we are doing it efficiently or not. So, Ministries have to prioritise their activities, instead of simply employing more people to do new functions while retaining existing officers in old and outdated functions. They have to subject their functions to a market test to see which of them can be better done by the private sector.”
“Yes, we will need a safety net. Every society needs to provide a safety net, and we will provide a safety net. But we should focus the safety net on those who need it most. Keeping taxes low We have been steadily reducing our direct taxes over the last few years. This year, we have lowered the corporate tax rate down to 20%. There are no plans to lower it further, but let me assure Mrs Fang Ai Lian that neither is 20% a sacred cow. In fact, they have become an endangered species! Many countries are cutting their corporate income taxes. We have to continue to monitor our competitiveness. If it should become necessary to cut the corporate income tax again, we will have to do so. If the Americans bring their rate down, and if the Europeans bring their rate down, we have to do so. But, remember, it will mean we have to make up the revenue in some other way. Some other taxes will have to go up. Sir, we watch the other countries. We see Hong Kong, 16½%, going up slightly. I am not sure what they will do today - it is their Budget day. Or Ireland, 12½%, as Dr Gan mentioned. But there are trade-offs. In Hong Kong, the corporate tax is low; the personal income tax is low; the budget deficit is 7% of GDP. They hope to cover it but it is going to be a tough slog. In Ireland, the corporate tax is very low, 12½%, but the GST is something close to 20% and the personal income tax is something close to 50%. So, there are trade-offs which we have to make. As for personal income tax, Dr Gan expressed disappointment that we have "mothballed" the reduction in personal income tax to 20%. Let me assure her that we have not mothballed the idea. We had to postpone the reduction, but I have not given up the objective.”
“I am not an extreme fiscal conservative, but I do not think this is necessary or wise. It is not a sustainable path to take. We are prepared to run a deficit in a downturn, as we have done in the last few years, but we must not end up with structural deficits, as Hong Kong has done. Because that would undermine investor confidence, crowd out the private sector and, in fact, far from promoting growth, after a while, it will dampen growth and weaken the Singapore dollar, and inflation will go up. Fiscal choices As the economy recovers to its potential growth path - that means growing as fast as it has the potential to grow - we have to strengthen our fiscal position, not too early, but not too slowly either. So, as a first step, we aim to balance our budget by next year, FY 2005. But balancing the budget is only one decision. The other major decision is in what way we are going to balance the budget. And there are two ways to do this: (1) high taxes, high spending; or (2) low taxes, low spending. And that is a fundamental policy choice: do we want high spending, universal social benefits and be subject to much higher taxes, or do we want free enterprise, more targeted social benefits and much lower taxes? It is a basic choice. If we want Singapore to be a land of opportunity where the private sector is the engine of growth, then we have got to keep both taxes and spending low. Because by keeping taxes low, we foster a dynamic society where individuals will strive to achieve and excel, and where they are free to decide for themselves how they wish to spend their own money. They earned it, it is their choice. And by keeping public spending low, we foster a self-reliant society where individuals assume primary responsibility for themselves and their families.”
“Fiscal prudence The first macro consideration in this Budget is to decide whether to aim for a surplus or a deficit. We need to run deficits in difficult years, but we must balance the budget when the economy recovers, and that is what we mean by fiscal prudence. Balancing the budget This year, we are running a deficit of $1.35 billion, which is 0.8% of GDP. Many MPs have supported this as an appropriate fiscal stance to support the economic recovery which is already underway. Mr Iswaran has asked if the projected deficit for this year is too conservative or cautious. I do not think $1.35 billion deficit is conservative, given that the economy is on the mend. We have to judge the fiscal stance with reference to the state of the economy. If the economy is down, we must do more. If the economy is picking up, we need to do less, or we may even have to dampen the economy. This year, the economy is recovering. I think a modest boost like this is about right. We are projecting GDP growth of 3½%-5½% this year. In fact, if we look at the projections, they are at the top end of that range. But we have set that range this way, down to 3½%, because of what Donald Rumsfeld would call "unknown unknowns". We do not know what may strike us. It could be a terrorist attack. It could be another virus. Or it could be some totally unexpected mishap. So, just to be careful, we are telling everybody, "Watch it." But if we are just going on momentum, I think the momentum is strong and there is no need for a larger fiscal stimulus. I note that Dr Gan See Khem felt that the Constitution forces "extreme fiscal conservatism", if I may quote her, and she argued that the Government should have a more aggressive fiscal policy and run budget deficits for many years to come.”
“Mr Speaker, Sir, first, may I thank all the MPs for their contributions and, particularly, thank all those who have supported this Budget. I am happy to note that nearly all of the MPs support the long-term vision set out in this Budget. It builds on the strategic changes launched in recent years, and sets the directions for the next few years. On the economic front, the Budget is a continuation of the Economic Review Committee's strategies to enhance our competitiveness, to promote entrepreneurship, and to create jobs. We have lowered the corporate tax rate to 20%. That is a big move. We have exempted from tax all foreign sourced income remitted by resident individuals in Singapore, as well as all Singapore sourced investment income derived by individuals. These are moves which we have thought over for many years before finally deciding to act this year. We have expanded the scope of the Technopreneur Investment Incentive to the Enterprise Investment Incentive. It is a change of one word but it is a change of mindset. And we are exempting start-ups from corporate tax on the first $100,000 of chargeable income for the first three years of assessment. The Budget also sets the stage for restoring our fiscal health, following deficits in two out of the last three years, and another projected deficit this year. The Government aims to balance the budget by FY 2005, barring exceptional circumstances. On the social policy side, we are moving to focus subsidies on those who need them the most with a more equitable and sustainable basis for financing university education, and for expanding means testing in healthcare. And we have set out the principles which we will use to tackle the procreation issue.”
“Fresh terrorist attacks could undermine confidence in the region. New diseases more dangerous than SARS or avian influenza may emerge. China and India will pose fresh challenges as they continue to open up to the world. Our strategy in this environment of growing competition is to keep our economy open and continually enhance our competitiveness. This means upgrading our skills, making our wages more flexible, encouraging entrepreneurship, and promoting free markets. We must not seek to shield ourselves from competition but to meet it and excel. We are on the right track. We are lowering taxes, spending only on essentials, and maintaining a prudent fiscal position. We are creating the conditions for new businesses and enterprises to flourish while building on our strengths in manufacturing and services. And we are creating opportunities for enterprising Singaporeans, while targeting social safety nets at the truly needy who lack other means of support. Looking ahead, there is much to be hopeful about. We are at the heart of a resurgent Asia, midway between the booming economies of China and India. Opportunities abound in the region and beyond. The Government will play its part to make things possible. And I have every confidence that Singaporeans will seek these opportunities, grab the openings and create new possibilities for ourselves. We will adjust to change, overcome adversity, and confront challenges courageously and imaginatively. We will press on with confidence, and reach out for success. Together, as one Singapore, we will build a future of opportunity for ourselves and our children. Mr Speaker, Sir, I beg to move. [Applause.]”
“The removal of standard sizing will save the liquor industry about $3.7 million in duties each year.Tobacco Duties A local study by NUS shows that healthcare, absenteeism and loss of productivity stemming from smoking- related diseases cost between $700 million and $800 million in 1997. I have decided to further raise the excise duties on all tobacco products with effect from today to discourage smoking, especially among our young. Excise duty on cigarettes will go up from $255 per 1,000 sticks to $293 per 1,000 sticks. I am also harmonising the excise duties on other tobacco products with cigarettes. The new duties are at Annex F*. *Cols. 541-4 Overall FY 2004 Fiscal PositionMr Speaker, Sir, this Budget will deliver $1 billion of tax savings and Medisave and Medifund benefits for businesses and individuals. It will support our economic recovery this year. More importantly, these measures will build long-lasting competitive advantages for the economy, enhance our capacity to deliver good public services particularly in healthcare and education, and provide more help for families with dependents. The tax changes and incentives I have announced will increase the deficit from the $750 million projected in the FY04 Budget Book to $1.35 billion. The Government is able to finance this deficit from funds accumulated in its current term and will not need to draw on past reserves. PART V - CONCLUSION2003 was a tough year, but we emerged from it stronger. Our response to SARS demonstrated our resilience as a people. We are well-placed to ride the upturn in the global economy this year. Most importantly, we have what it takes to sustain Singapore's dynamism and growth over the long term. But we must also be prepared to encounter more shocks and uncertainties.”
“Administrators/Executors will now have six months to file a complete return before interest starts accruing. Also, after the Notice of Assessment has been issued by IRAS, a grace period of 30 days will be provided for payment of estate duty where no penalty is levied. The penalty only kicks in after the grace period expires. This new arrangement ensures that administrators/executors are not unduly penalised if they co-operate with IRAS to file complete returns and make payment promptly. Motor-Vehicle Taxes To lower the upfront costs of car ownership, I have decided to reduce the Additional Registration Fee (ARF) from 130% to 110% of Open Market Value (OMV). This will apply to cars with COEs obtained from the first COE bidding exercise in March 2004 onwards. Taxis and cars have previously been taxed differently. Our policy has been to progressively harmonise the ARF and Excise Duty (ED) that they pay. Thus I am raising the ED for taxis from the current 10% of OMV to 20% of OMV, the same rate as that for cars. This will be effective today. Taken together with the ARF cut, new taxis will still enjoy a net reduction in upfront taxes of 10% of OMV. Liquor Duties To rationalise our liquor taxes and to bring them in line with our international obligations, I am raising the excise duties on certain types of liquor and reducing them for others. The new rates will take effect today and are set out at Annex E*. *Cols.539-40 Currently, Singapore Customs assesses the duty on liquors based on standard sizes. Most liquors are sold in standard sizes, but brandy, whisky and sake occasionally come in non-standard size bottles. Singapore Customs will therefore stop the practice of assessing liquor duty based on standard bottle sizes, and instead assess liquor duty based on exact volume.”
“The tax exemption of individuals' foreign-sourced income and Singapore-sourced investment income that I have just announced will make Singapore even more attractive as a wealth management hub. As financial sector activities are continually changing and ever mobile, we have updated our existing incentives to keep them relevant and help maintain Singapore's attractiveness as a leading financial centre. Among other changes, I have decided to enhance our incentives to promote the short-term debt market, the structured finance market, processing services for financial institutions, commodity derivatives trading, secondary loans trading, and SGX trading. (Details are at Annex D*.) I have also decided to expand the scope of income that will be exempted for Designated Unit Trusts (DUTs) and the tax exemption schemes for foreign investors and foreign trusts. Examples of income covered by this expansion in scope are rental and discount income derived from outside Singapore and received in Singapore. (Details of these enhancements are at Annex D.) *Cols.533-8 Other Tax Changes Approved International Shipping Enterprise Scheme To retain and attract international ship owners and operators to operate from Singapore, the current Approved International Shipping Enterprise (AIS) scheme will be expanded. Currently, the onshore charter income of an AIS company is not tax exempt, except when the charter income is received from another AIS company. With effect from YA 2005, all onshore charter income received by an AIS company will be tax exempt. Streamlining the Processing of Estate Duty I am streamlining the processing of estate duty. For deaths occurring on or after 1st January 2005, the first six months from the date of death will now be an interest free period.”
“Currently, the Technopreneur Investment Incentive (TII) encourages private angel investors to fund high-tech start-ups. But not all successful start-ups need to be high-tech. Some succeed by selling mundane items, from coffee, sushi to hamburgers, in innovative ways. I have decided to expand the current Technopreneur Investment Incentive (TII) to include all forms of start-ups and not just high-tech start-ups. The TII will be renamed Enterprise Investment Incentive (EII). Investors in start-ups awarded the EII will enjoy tax deductions for losses incurred if these companies fail, or if they have to sell their shares at a loss. The EII is expected to cost Government $36 million each year. The Government will also embark on a SME loan securitisation project this year to help a wider pool of SMEs gain access to financing. Promoting Financial Services In financial services, we have a unique opportunity to become the private wealth management centre of Asia, serving high net worth individuals from the region and beyond. The industry estimates that there are 1.8 million high net worth individuals in the Asia-Pacific region, with private wealth totalling US$5.7 trillion. This wealth will grow even more, with the rapidly rising incomes and high savings rates in the region. Our strong economic fundamentals, socio-political stability, efficient legal infrastructure, and sound regulatory regime place us in a good position to service their needs. We have done well so far. Existing private banking players have expanded their activities in Singapore. We continue to attract new players, who bring a diversity of new products and business models that have added depth and range to our financial markets. Employment in this industry has nearly doubled over the past three years.”
“Withholding Taxes on Royalty Payments Exploiting new knowledge and ideas is important if Singapore companies are to compete internationally. As our economy upgrades, more Singapore companies will develop their business by exploiting Intellectual Property (IP). Much IP is held outside Singapore and our companies have to pay royalties to the IP owners to be licensed to use them. Withholding taxes on royalties is a business cost that will discourage Singapore companies from exploiting IP. I have therefore decided to lower the withholding tax on royalty payments from 15% to 10% with effect from 1st January 2005. This will be of greatest help to smaller businesses that are not enjoying any of the existing incentives for royalty payments. Withholding tax is usually an item for negotiation in avoidance of double taxation agreements, but we are taking a unilateral step in our own interest to spur our transition to a knowledge-based economy. Encouraging Entrepreneurship Tax Exemption for New Companies New companies represent our hopes for a more entrepreneurial economy. Government will give these start-ups every opportunity to thrive and succeed. I have therefore decided to fully exempt from tax the first $100,000 of normal chargeable income (excluding Singapore dividends). This exemption will apply to new companies for each of their first three years of assessment that fall within the period YA 2005 to YA 2009. This, together with the current partial tax exemption feature of our corporate tax regime, underscores our commitment to keep statutory costs on entrepreneurs as low as possible. Details of this scheme are provided at Annex C*. *Cols. 531-2 Financing for Start-UpsOne of the key pre-occupations of new enterprises is access to financing.”
“These arrangements still stand. These two changes - exempting individuals' foreign-sourced income and exempting Singapore-sourced investment income derived by individuals - will cost the Government about $42 million each year. Details of the scope of both exemptions are set out in Annex B*. *Cols. 527-30 Promoting Singapore as a Business Hub Regional HQ incentive To be a land of opportunity, Singapore must continue to be the choice location in Asia for MNCs to base their HQ operations. But we face increasing competition from within and outside the region. I have decided to extend the maximum duration of the existing Regional HQ scheme from three to five years, with immediate effect. Companies that have already been here for more than a year will now also be eligible for this scheme. This will strengthen Singapore's reputation as a prime location for HQ operations and attract more HQ companies to Singapore. Pioneer Incentive We must also attract and root new MNC activities in Singapore, to create new jobs and opportunities. This is why, even as we diversify our economy and build up our domestic sector, we must stay attractive to MNCs. But competition for MNC investments has increased in the last decade, making EDB's task more challenging than ever. Our response is two-fold. First, our workforce must have the skills and expertise to undertake more knowledge-intensive and higher value-added activities. Second, the package of tax incentives that we offer to MNCs making large investments in Singapore must remain attractive. To this end, I have decided to extend the maximum duration for the pioneer incentive from 10 to 15 years, with immediate effect.”
“Exempting Individuals' Foreign-sourced Income Currently, foreign-sourced income received in Singapore by Singapore resident individuals is subject to tax unless specifically exempted. Last year, I announced a foreign-sourced income exemption regime under which foreign dividends, branch profits and service income are exempt from tax. This mainly benefits companies, with individuals benefiting only insofar as they earn dividends or service income from abroad. The ERC had recommended that all foreign-sourced personal income remitted to Singapore be exempted from tax too. This would encourage Singapore resident individuals to remit their offshore funds to Singapore for investment and management. This in turn would boost our private wealth management industry. I have therefore decided to exempt from tax all foreign-sourced income received in Singapore by resident individuals from YA 2005. With this change, Singapore will now tax individuals on a purely territorial basis. Exempting Individuals' Singapore-sourced Investment Income I have also decided to exempt from tax all Singapore-sourced investment income derived directly by individuals from financial instruments. This will help ensure that the exemption of foreign-sourced income does not bias individuals against investments in Singapore instruments. More importantly, it will align the tax treatment of different kinds of investment income, and encourage individuals to save and plan for their retirement. The tax exemption for all financial instruments other than standard deposits, for example bonds, annuities and unit trusts, will take effect from YA 2005. For standard deposits, last year I announced a partial tax exemption on interest income for YA 2005, to be followed by full exemption from YA 2006 onwards.”
“In 2002, Government accepted the ERC's recommendation to lower the corporate tax rate to 20% by Year of Assessment (YA) 2005 and as the first step, brought it down to 22%. I have decided to reduce the corporate income tax rate to 20% with effect from YA 2005. This is expected to cost the Government $800 million annually. It will make Singapore a more attractive business hub, encourage new investments, and spur entrepreneurship. Deferring the Reduction of Personal Income Tax The Government had also set the target of lowering the top personal income tax rate to 20% by YA 2005. While this remains our target, the unexpectedly difficult economic conditions in the last two years have forced us to reconsider the timing of the reduction. First, our spending commitments have increased, as I explained earlier. To balance the budget by next year, we not only need to tighten our spending, but also to husband our tax revenues. Second, the delay in raising the GST rate to 5% has dented Government revenues. The extra year taken to phase in the GST increase cost $700 million in revenue foregone, more than the $425 million that would be lost annually if we reduced the top personal income tax rate to 20%. Third, while we expect stronger growth this year, we are not certain if this will be sustained into FY05 and FY06. Should the US economy slow down after the Presidential election, our growth and fiscal position will be affected. I have therefore decided to defer lowering personal income taxes for the time being. However, a 20% top personal income tax rate remains the Government's goal. The Government will watch the budgetary position and economic outlook carefully, and will reduce personal taxes as soon as conditions permit.”
“I am therefore raising the tax relief ceiling on cash top- ups from $6,000 to $7,000, with effect from YA 2005. Non-working spouses, such as full-time housewives, may also be financially vulnerable in their later years. At present, individuals are not entitled to any tax relief when they make cash top-ups to the Retirement Accounts of their non-working spouses. We should encourage individuals who have the means to contribute to the financial security of their non-working spouses to do so. I will therefore be extending the tax relief to individuals making cash top-ups to non-working spouses who are 55 years old and older, and who earned not more than $2,000 in the preceding year. I hope these steps will help bolster the financial resilience of Singaporean families. PART IV - LANDOF OPPORTUNITY Making Singapore a Land of Opportunity Singapore is what it is today because it has been a land of opportunity for enterprising people from all over Asia. Our attractions are unique. We are at the crossroads of East and West, a modern, cosmopolitan city connected to the world of finance and business, yet rooted in the ancient cultures of our forebears. We offer a vibrant economy where people can earn a good living, a stable society where they can raise strong families, and opportunities for all to build a brighter future. And now with Asia on the rise, we must remake Singapore as a land of opportunity. A Competitive Tax Regime Reducing Corporate Income Tax A key element of our efforts to remake Singapore is a globally competitive tax regime. Lower direct taxes encourage businesses to make new investments and individuals to work hard and achieve.”
“They are both welfare states and they have succeeded in bringing their birth rates up. Netherlands and France have succeeded in bringing their birth rates up. Italy has not. We wanted to know why one worked and the other did not. We will study the lessons drawn and come up with our own measures. As several ministries are involved, I have tasked Mr Lim Hng Kiang, Minister in the Prime Minister's Office, to take charge and to make specific proposals. He will be assisted by an inter-ministry civil service Working Committee on Population chaired by Mr Eddie Teo, Permanent Secretary in the Prime Minister's Office. I have asked the committee to complete its work before National Day. Adequate Finances for Retirement With the ageing of our population, we have to ensure that working people put aside enough resources to support themselves in their old age. Today, most of the elderly in Singapore receive some financial support from their children. But longer life spans, rising singlehood, and low fertility rates are making it harder for old people to rely on their children for support. There is a pressing need to make sure that Singaporeans are self-reliant and financially independent in their old age. Under the CPF Minimum Sum Topping-Up Scheme, individuals are allowed to make top-ups to the CPF Retirement Accounts belonging to themselves, their spouses, parents and grandparents. They can make top-ups in cash or out of their CPF Ordinary Account, up to the Minimum Sum in the Retirement Account. Currently, individuals making such cash top-ups enjoy a tax relief of up to $6,000 per year. With lower CPF contributions and the higher CPF Minimum Sum, we want to encourage more people to voluntarily top up their own or their family members' Retirement Accounts.”
“We have hitherto been reluctant to increase statutory maternity leave. But many working mothers feel that the current two months is too short. A major worry of working mothers is that they will have too little time with their children, particularly in the first few months after birth which are crucial to bonding mother and child. We may need to extend the period of maternity leave, but without overburdening employers with added costs. Next, when the mother returns to work, she will often want to put her child in affordable and reliable child care facilities. The Government already subsidises child care, but infant care is more expensive. We will therefore look into providing more financial help for infant care. Next, we need to strike a better balance between work and family life. Many couples cite the lack of family time and flexible working arrangements as an impediment to having more children. As an employer, the Government will review civil service work arrangements, without affecting essential public services. We will set a clear example to companies of how employers can create a work environment that is supportive of families. Finally, while families should not have babies just because of financial incentives, tax reliefs and rebates for parents and working mothers appreciably lighten the financial burden of bringing up children. We need to simplify and enhance the existing tax incentives, to make them more accessible and attractive to couples. In fact, I find them quite hard to understand too. I think my wife has figured them out. Two civil service teams visited Europe recently to study how other countries are tackling their falling birth rates. One went to Italy, the Netherlands and France, and the other to Norway and Sweden. Norway and Sweden have one model.”
“Thus our measures must focus on encouraging more Singapore citizen babies. Secondly, the problem is more serious for the mothers who are more educated and earn higher incomes. The higher the woman's career attainment, the less likely she is to get married and the fewer children she is likely to have. This is true not just of graduates, but also of women with secondary education. It is understandable because the more a woman is able to earn a living, the heavier the opportunity cost to her of having children. Therefore while our measures must cover all families, we must especially make sure that the incentives are effective for the better qualified women. Thirdly, while encouraging procreation is critical, realistically it will be very hard to raise our TFR back to the replacement level of 2.1. Even other countries which have managed to reverse falling birth rates have not achieved replacement fertility. We therefore need to boost our population through other ways. In particular, we need to open our doors to immigrants who can contribute to Singapore. After getting them here, we need to help them settle down and integrate into our society. We need the right policies to encourage them first to become permanent residents (PRs), and then to take up citizenship. This means treating PRs and citizens differently, so that PRs have incentives to take up the privileges and responsibilities of being Singaporeans. As for specific measures to encourage procreation, a comprehensive approach should include adequate support facilities such as infant and child care arrangements, better balance between work and family life, and of course financial help measures. To start with, we have to consider the issue of maternity leave.”
“Only 36,000 babies were born last year, far fewer than the 50,000 babies we need to replace ourselves. *Cols. 523-4 The accelerated decline in TFR since 1998 was partly caused by economic uncertainty - these were the years of the Asian financial crisis and the two recessions. But the underlying downtrend in birth rates is real and will continue unless we take decisive steps now.Our existing measures are not enough. We must take a more comprehensive approach to solving this problem. We must encourage young people to marry and marry earlier, and make it easier for young couples to start and raise a family. And we have to take a long-term view. The impact of our policies on birth rates may not be felt immediately, because changing attitudes, mindsets and practices take time and patience. We need to shift social attitudes towards having children, even while we recognise that having children is a very personal decision which couples have to make for themselves. There is no single magic solution. The approach must be both holistic and coherent, addressing parents' concerns from childbirth through the years of bringing up their children. As these are complex issues that require thorough discussion and deliberation, the Government will study them in depth over the next few months, before deciding on the most effective set of measures. Today I shall set out the principles that will guide our thinking. Firstly, the aim of our measures must be not just to produce more children, but to produce the next generation of Singapore citizens. We want to grow the total population of Singapore, but equally important, we also have to reproduce and maintain the core group of citizens who will build and defend our country, and without whom we would not be a nation.”
“The amount ranges from $50 to $200, and will vary based on age of the recipient and his existing Medisave balance, as shown on the screens*. This will cost the Government $104 million. *Cols.523-4 I will also be injecting an additional $100 million into Medifund to help needy patients who cannot afford to pay their hospital bills even after subsidies. This injection will bring the total size of Medifund to its targeted size of $1 billion.Building the Next Generation Our children embody our hopes for the future. Singapore's birth rate is way below replacement level and falling. This is a serious problem. A declining birth rate will sap the vitality and resilience of our country. Over the years, we have introduced many measures to encourage and support parenthood. After our first package in 1987, the total fertility rate (TFR), which reflects the number of children a woman is expected to have during her lifetime, jumped up to 1.96, as seen in the chart*. This was partly because 1988 was a "Dragon" year, but the impact of the package was felt through the first half of the 1990s. Unfortunately the effect seems to have worn off over time, and the underlying trend of a falling TFR has reasserted itself. By the next "Dragon" year in 2000, the TFR had declined to 1.60. I am not sure what the next dragon will be. It may be a lizard! The Baby Bonus scheme and further generous tax incentives introduced in 2000 have failed to reverse this trend. We give out over $200 million annually in tax reliefs and rebates, and more than $100 million has been disbursed under the Baby Bonus scheme. Yet the TFR for 2003 dropped to a historic low of 1.26. This is one of the lowest birth rates in the world.”