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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“It will not disappear for quite a long time because if you look at the figures, for workers 50-59 years old, more than half have less than secondary qualifications. For the younger workers, the educational standards are higher. But even for the younger age group, aged 40-44 years old, about one-third have less than secondary qualifications, and they are going to be in the workforce for another 20 years. So the Government will go the extra mile to help these older workers. This will be one major focus of the new Continuing Education and Training statutory board. These workers have contributed to the nation's growth and they have made possible what Singapore is today. Like in the PSA retrenchment exercise, we will do all that we can to help the displaced workers, counsel them, help them with job search and with job matching. Dr Jennifer Lee and a few other MPs also asked us to subsidise older workers. They define older workers as 40 years and above - that is a generous definition. It is a possible approach, but we do not have to consider it yet. The proportion of older workers suffering from structural unemployment is still low, only 11/2%. We should try to solve the problem for this specific group of people with targeted assistance, and not through some broad policy to subsidise many other older workers who are still managing well on their own. Otherwise, you will incur great expense and yet miss the target. Furthermore, you will distort the economy and end up with deficits and inefficiency. Our approach, as a Government, is a three-level one. Firstly, generate good growth and create new jobs. There are jobs available if the older workers are flexible and prepared to adapt.”
“We are not just targeting the high end of the services industry, as Mdm Yu-Foo Yee Shoon pointed out. There are opportunities in our traditional segments like hair-dressing, retail and entertainment. However, in Singapore, there is no non-tradable sector that we can shield from competition. Mr Sin Boon Ann suggested that maybe if we build a strong globalised economy, then we can support an inefficient domestic sector which can provide jobs for older Singaporeans. I listened to him twice to make sure, but he did mean that - to support an inefficient domestic sector and provide some jobs. Other countries have tried that, like Japan, where in the retail sector, lots of people are employed, but they just look pretty and stand at the elevators and bow each time you go past. It has not worked for Japan, and it is not feasible for Singapore. We have no domestic service which can be shielded from global competition or from the neighbourhood. Mr Chiam See Tong highlighted the competition across the Causeway in healthcare services. I am not sure that I would go across to another country if I needed a heart operation, but if I need a haircut, if I want to do some shopping, or entertainment, the facilities are there, it is cheaper, why not? Many Singaporeans do. Even for bridal shops and retail outlets, there is competition. So it is not possible to have a protected inefficient domestic sector in Singapore. We have to be efficient everywhere, and we have to look after our people who cannot find jobs and help them to find jobs, which brings me to the question of structural unemployment. Several MPs raised this - Dr Ong Seh Hong, Mr Zainul Abidin and Dr Warren Lee. It is a difficult problem to solve.”
“The ERC's recommendation is that we have to upgrade manufacturing and services. There is no guaranteed business, not even at the lower end. But we are confident that we can do well by upgrading what we have. Yes, others will pursue the same strategy, but I believe that we can implement this strategy better and faster than others. We have the edge, as our foundation is strong. We are nimble and we can move faster. Mr Khaw Boon Wan touched on services in his speech. The Government is serious about promoting this as the second engine of growth, and there is good growth potential in healthcare, education and creative services. I agree with Dr Lily Neo that we are well positioned to be a regional healthcare hub. I spoke to some private sector doctors recently and they expressed great optimism about our chances. We have traditional markets in Malaysia and Indonesia, and we are also expanding our markets further afield, to new customers like Arabs in the Middle-East, Bangladeshis, even Mongolians. I asked them, "Do Mongolians speak English?" They said at the upper end, it is no problem. They have the money, and they will come. Similarly for education services. Raffles LaSalle Limited now runs five schools in China, with an intake of more than 1,000 students. Today, in Singapore, we have more than 23,000 PRC students studying here. There are social considerations involved here too, and also in service sectors like healthcare. If they are really students studying, that is fine. If they are just students in name, that may be a problem. But we have to manage these problems, and we cannot turn away the business. The Ministerial Committee is going to make the trade-offs and strike the balance between the social and the economic considerations.”
“Unfortunately, smells from chicken farms pose a real problem in a compact city like Singapore. The Government did introduce a new odour control rule when we started building flats around the farms. However, it is not true that the Government kept changing the rule. The National Environment Agency is still pursuing the matter, simply because the farms have not met the required odour standards - meaning they have not installed what they were supposed to install. Let me tell you the real story. There were four chicken farms in Sungei Tengah. They were causing an odour problem. They were given a choice of closing down and accepting an ex gratia payment or continuing and installing odour control filters. Three closed down and took the ex gratia payment, one chose to proceed and upgrade. But after it committed to install the odour control equipment, it failed to install everything it was supposed to do, causing a great smell nuisance to residents in the neighbouring constituencies. Hence the problem, which in due course will be solved. But let me remind Members that after all the promotional efforts, all the rules cutting, all the incentives, whether we can be successful as an entrepreneurial society and economy, ultimately it boils down to talent. Do we have the people who can seize the opportunities? Do we have businessmen with a business sense and that drive and dare? Without them, all the efforts and the nurturing will be in vain. I think if we confine ourselves only to Singaporeans, we will not have enough entrepreneurial talent. There will be a few, but we will not have enough. If we really want to be an entrepreneurial society, we must attract foreign entrepreneurs to Singapore to start their business here, and that we are doing. Let me now talk about services.”
“There is a pro-enterprise panel chaired by the Head of the Civil Service, with ten members, six from the private sector, and Mr Inderjit Singh is one of the members. The panel receives feedback, suggestions and complaints from businesses against rules and on difficulties dealing with the different agencies. It has received more than 600 suggestions since it was formed in August 2000, and about half of these have been accepted. On average, it took 29 days to settle a case. Change has been quite quick, because issues are put directly to the Heads of Departments and CEOs of statutory boards. For example, we amended the Auctioneers' Licences Act as a result of feedback to the panel and this enabled on-line auctions. So, I advise anybody who is unhappy about any rule to put his case to the panel and it will give a full hearing. There is also a Rules Review Panel which we set up in May last year. Every Ministry and statutory board has to review all its rules within three years - that means by the end of FY 2004 - and thereafter on a five-year rolling basis, as Amy Khor says, this is a rule about rules. One result is that about one-third of 173 statutory declarations required by the Government will be removed by the end of this financial year. To give another example, Mindef reviewed 135 rules, deleted 80, simplified 40 and retained 15. But Prof. Low Seow Chay gave an example of a rule which we ought to retain and that has to do with odour control. He was talking about chicken farms. His neighbouring MPs will know exactly what he is talking about. His complaint was that we could not specify the standard of air freshness needed or be sure what odour control process would produce fresh enough air.”
“In addition to - he is correct. We will encourage small companies and start-ups but we still need the MNCs. SMEs can complement them but cannot replace them. We have hundreds of multi-nationals in Singapore. Even if our efforts to grow Singapore companies are wildly successful, we will only create a dozen or so MNCs of our own, and even that is being very, very optimistic. We need both MNCs and Singapore companies to diversify and to grow our economy and to create enough jobs for our people. However, I agree with Mr Inderjit Singh that more can be done to help SMEs navigate our bureaucracy. SPRING Singapore is the focal agency for assisting them. We have many things in mind, including helping SMEs to get access to financing in a market-based way. However, we have to bear in mind that no matter how much financing we provide, there can never be enough for all the SMEs which want it. SMEs will have to compete for financing, and only those which look viable and can convince the investors or lenders will be able to get it. This is an unavoidable Darwinian process of attrition. Without it, you will not have strong SMEs. Many MPs, Chew Heng Ching, Ng Ser Miang, Zainudin Nordin and, memorably, Dr Amy Khor, have spoken out for mindset change from the civil service to be more pro-business. Indeed, the civil service is already trying to do this, and we will have to do more. From time to time, we organise sessions in the civil service for the private sector to come and to share their perspectives with the civil servants. I will ask them, in future, to invite some MPs to speak, and I think if Dr Amy Khor and others can come and present to them the way they presented it in this House, it will have an impact, and some positive effect.”
“I asked the agencies and they tell me that they had good reasons, and there are significant issues in assuring the standards of her training courses, but that they are doing their best to resolve these with Dr Gan expeditiously. It is our job to help, even when it does not appear that we are doing so. Mr Inderjit Singh suggested that we should shift our focus away from multi-nationals and rely on SMEs. He is mistaken.”
“In the earlier years, when our growth was high and incomes were rising rapidly, we emphasised more on CPF's role as compulsory savings and pushed it up whenever we could, so as not to let people get used to spending the money. Now that we are in a tougher operating environment, we have to strike a different balance between the two perspectives. But we should not give up the first perspective of the CPF as compulsory savings entirely, because it is still valid. Without the CPF scheme, we would have a different Singapore. A second major theme is entrepreneurship and SMEs. Mr Raymond Lim has adequately addressed this in his speech. As Ms Indranee and Dr Chong Weng Chiew pointed out, entrepreneurial spirit is about taking personal responsibility and achieving success through his or her own efforts and abilities, rather than depending on largesse from the Government. If you say, "Please help me to become an entrepreneur", chances are you already miss one of the ingredients for starting. In many aspects, the Government should do less rather than more. It should act as a last resort, and not a first recourse. Yesterday, we heard Dr Gan See Khem tell us in vivid personal terms her first-hand experience, her gung-ho spirit and her passion, fighting for what she believes in. And her HMI Holdings is exactly what we are looking for. It will always be challenging to start up new businesses, and to venture outside Singapore will be even harder. If entrepreneurship was simple, and anybody could do it, the rewards would not be great. Dr Gan See Khem is exceptional, as she persevered and fought against the odds. We need more people like her, and the Government will do its best to help them succeed. I am sorry it has taken her so long for her to deal with the agencies.”
“We have to find ways therefore to keep our older workers employed and working beyond their 50s and 60s, though not necessarily in the same job or at the same pay. Workers have to be prepared to take on second or even third careers. What can we do to help them? First of all, mindset change and skills upgrading are important, as pointed our by Ms Braema, Mr Seng Han Thong and Mr Andy Gan. Workers must be prepared to adapt and to make adjustments. We have to continue training to stay on the job or reskill and move on to another job, and many also have to take on lighter jobs at lower pay and work part-time. To carry on doing what you used to do, at a slower rate, and yet expecting employers to pay the same or even more, is simply not viable. But it is essential to find other work or work on different employment terms. We must keep the labour market flexible so as to preserve jobs and maximise employment, especially for older workers. The CPF system adds to business cost. If the CPF system is to be sustainable, it cannot impose too onerous a burden on companies to employ workers. Indeed, workers, especially those at the lower end, want more take-home pay. Hence, we are reducing employee's contributions for the lower-income workers and also for the older workers aged 50-55. But there is a trade-off because if CPF contribution is too low, workers would not have saved enough for housing, healthcare or old age and, as Miss Penny Low analysed, they will fall back on the Government when they need a house, fall ill or grow old. So, we have to balance two perspectives - the CPF as compulsory savings, which we would like to have as high as possible, against the CPF as a cost to businesses which we would like to keep as low as possible.”
“We are also making other strategic changes, exempting foreign source income, domestic interest income and enhancing taxation on intellectual property, and so on. As Mrs Fang Ai Lian has told Members, and she knows the business, these are important structural changes which, over time, will develop a lot of new businesses for Singapore. On CPF, which is our second major change, I would like to thank MPs like Mr Ong Ah Heng, Mdm Halimah and Mrs Lim Hwee Hua who have voiced support for the CPF deferment. We are grateful for their support from the unions and the workers. They have understood and accepted the need for the change. There is no expectation of a restoration of the CPF this year anyway. And even if the economy does moderately well this year, by January 2004, it would probably not have done strongly enough for us to be confident enough to warrant a restoration of the CPF in 2004. So what we are essentially asking Singaporeans to do is merely to commit now what we would have to decide in 12 months anyway and to say, yes, let us decide now, we will freeze it for 24 months and get on our feet during that time. It is a commitment which we can make, and a commitment which will be an important signal to investors that we are prepared to do what it takes to get our economy back on track. Mrs Lim Hwee Hua and others raised the question of the long-term CPF structure and the question of the concept of retirement. How can we save enough in our CPF accounts while we are working, so that we can retire at 62 and then live on our CPF savings and hopefully our children for another 20 years or longer? It is not realistic and it will become an increasingly serious problem as life expectancy goes up, our population ages and our birth rate goes down.”
“He found a niche in the knowledge-based industry in China, by animating the 12 zodiac characters into cartoon characters and created an industry - cartoons as well as all the products to sell with the cartoons. And he is doing well. His creations are now broadcast in over 130 stations across China and 10 stations in Asia. And there are people who venture into India too. You would have read about a group of retrenched Singaporeans who made good setting up a factory producing ring binders in a small rural Indian village called Tiruvallore. When President Nathan visited Tamil Nadu recently, they turned up to meet him, which is probably how the Straits Times found out about them. It was a remote village. They went there, they set up shop, they made it viable, they even learnt Tamil, albeit a few words, and I think they take turns coming home because living conditions there are hard. But they press on. And there is another company which invested half a million dollars and set up something called Technigroup India to provide modern office furniture in India. They managed to break-even within a year and generated $3 million turnover last year. The opportunities are there and we must take advantage of them. And that is the international backdrop against which we are making our domestic changes, starting with our tax changes. Mr Inderjit Singh asked airily what was so radical about our tax changes. It is a very significant shift to bring individual and corporate tax rates down to 20% by YA 2005 and to raise GST to broaden our tax base. How many other countries can do that? Our tax rates are competitive for now, but we will need to keep tabs over the long term and be prepared to go lower, if necessary.”
“And the result of this is 11% unemployment, because the more you try to protect jobs, the fewer jobs will be created. German companies avoid hiring workers even when there is business, and they invest all over the world, rather than in Germany itself, and little foreign investment goes to Germany. On the other side, we see countries which are rising rapidly, like China and India, which puts pressure on all other countries. China's competitive advantage will be low-cost labour for some time yet. While China dominates the world in labour-intensive products, it will also become a major importer of capital-intensive goods and knowledge-intensive services. In the longer-term, the emergence of China and India are undoubtedly positive developments for us. A more prosperous China and India would mean bigger markets, more investment opportunities, bigger trading partners for Singapore and the region. Our business to China is growing. We are not just importing more from them, we are exporting a lot more to them. Last year, our exports to China grew by about 28%, to more than $12 billion. Our combined exports to China and India now equal to more than half our total exports to the US. Those countries and those companies which can get organised faster would be able to move ahead and seize the opportunities that these rising economies bring with them. And some of our companies and people are already making inroads into the Chinese and Indian markets. For example, you may have heard of Dr Tan Hock, a Singapore entrepreneur in Shanghai, whose story was carried on some of our radio stations.”
“We may say that the spending is temporary, but the reality, as you will know from your appeals on the rebates, is that it is very difficult to withdraw temporary concessions. Hong Kong is now having to raise taxes in a slow economy, which is extremely tricky, both politically and economically. So, given the uncertain outlook, it would be premature for us to have a highly stimulative budget to try to boost our economy. It is better for us to take a conservative stance now. If things do worsen later on, Singaporeans can take comfort that the Government has available bullets to expend. Not only should we not shoot off all our bullets now, but we need to see the situation develop further before it will be clear what targets we should aim at with our bullets so as to get maximum effect. These are the short-term considerations. We should also not lose sight of the longer-term dimensions, starting with the international backdrop. Global competition is intensifying. Mr Tan Soo Khoon eloquently cited some examples, so did other MPs. We have got to keep our system lean. We have got to remain nimble, and search for new growth niches and opportunities. Our past success is no guarantee of continued high growth. We can see many examples of countries which have run into difficulties because they cannot change and adapt fast enough, not that they do not know it, but they are frozen, they are unable to do it. For example, in Germany, as reported in the Business Week recently, enormous structural impediments have stalled Germany's progress. At the core of it all is a job protection law that makes it almost impossible for employers to lay off workers. Any company with more than five employees is subject to this law. So companies stay below six so as not to be caught.”
“We can only do it once and after that, we will be poor. It is precisely to stop populist governments from spending these reserves that the bigger statutory boards like JTC are protected with the President's second key. Many MPs, of course, would prefer us to have budgeted for a larger deficit so that more sweets could be distributed all round. But are they sure that a larger deficit would instill greater confidence among analysts and investors? Might analysts and investors not see it as a weakening of fiscal discipline, an inability to tighten our belts? The same people who now say that they are disappointed we did not open our purses, would turn around and say that they are alarmed that we have taken leave of our prudence. Mr Iswaran and others made a comparison with Hong Kong's recent Budget. This is a very, very relevant comparison. I draw three conclusions from the Hong Kong experience. Firstly, it shows how quickly a country can move from a large budget surplus to a chronic fiscal deficit. Hong Kong was in an enviable position, just a few years ago, generating a surplus of more than 6% of GDP in 1997, the year of the handover. Now, it is projecting a deficit of about HK$70 billion, 5% of GDP for this year, after running deficits for the preceding two years. Secondly, despite the large deficit, the Hong Kong economy is stagnant. Like Singapore, Hong Kong is a small and open economy, and deficit spending is not an effective way to boost demand. So do not think that, if only we would open our wallets, the problems would go away and we would all get a warm feeling. It is not true. Thirdly, once we fall into the pattern of a large deficit, it is very difficult to get out from the black hole.”
“But I am glad that, as a result, we were able to make additional special transfers to the Lifelong Learning Fund and the Medifund. However, we cannot expect such happy surprises all the time. From time to time, the Budget out-turn swings against us. For example, in FY 2001, we forecasted a budget surplus but we ended up with a deficit of $2.7 billion. And there are many uncertainties when you are looking ahead, even 12 months, especially in a year like this one. Therefore, we had to decide very carefully how large a deficit we needed in this FY 2003 Budget. We are running a budget deficit for the third year in a row. This is not an illusion. Where the items are meritorious, we have not cut back on spending, for example, on security. And we are making a special transfer of $600 million to the ERS account. It is a special transfer, but it is money which is going to be paid out and that will put cash directly into people's hands for them to spend if they wish. Mr Tan Soo Khoon also said that the Government should draw upon the surpluses of the statutory boards as a supplementary source of revenue. It is a plausible presentation of a seductive idea. The surpluses of these statutory boards have been accumulated over very many years. But on a year-to-year basis, the statutory boards are only running modest surpluses, which they ought to, because they are meant to generate sufficient revenue to fund their activities and we should be thankful that they are able to do so and do not need to fall back on Government spending. Statutory boards do make regular contributions to the Government but, compared to our overall revenue needs, these are not significant. Also, to put it bluntly, we should not be thinking of raiding the bank.”
“Either the users pay, or we have to fund it out of general taxes, which may mean raising tax rates. Or we will have to cut back on services and provide fewer or lower quality services, contrary to all the requests which I have heard over the last three days from MPs to improve the service quality of Government departments. Mr Tan cited DVDs getting cheaper year by year. That is true. But services are not getting cheaper year by year, unlike electronic goods, because skilled people are not getting cheaper. For example, medical costs are getting more and more expensive everywhere, as medical science and technology improve. The Government will make sure that its operations are run as efficiently as possible and, sometimes, this will mean retrenchments and downsizing, like in HDB. But we cannot avoid these tough choices. However, the best way to keep costs down for businesses is not through ad-hoc rebates but, rather, through prudent Government spending to keep the overall tax burden on businesses as low as possible permanently. And we have kept this Government lean, with Government spending this year accounting for only 19% of GDP. The Government will continue to keep its size small. Several Members - Mr Tan Soo Khoon, Mr Inderjit Singh, Mr Loh Meng See and Dr John Chen - said that the deficit is not real, and that the Government should have run a bigger deficit. We did better than expected in FY 2002 because, fortunately, we underspent our budget. It is true that we had higher than projected Net Investment Income contribution but, remember, our tax revenues were lower than expected and the two variations cancelled each other out. Some Members seem to regret this. Somehow, they are sad that we did not run a deficit as big as we expected.”
“The CPF is a statutory cost imposed on employers and employees. It is an imposition. It achieves important social objectives, but it is a burden on businesses. We can only raise the CPF rates and increase the burden when the economy is strong enough, which means not earlier than two years from now. On the other hand, the JTC and HDB rental rebates are concessions to the existing tenants. In principle, tenants should pay market rentals all the time, whether the economy is up or down, and, of course, the market rentals will go up and down with the state of the economy. In that way, the companies which are viable will come into the business, and the companies which are no longer viable will leave the business. But to give the people who are already tenants, who are already in business, some respite, some time to catch their breath, we have given the rebates to help them to pay less than the market rentals, and to give them more time to adjust to the new conditions. Over the long term, however, we cannot freeze this flow. We must allow the natural entry and exit of companies and businesses because, if we continue the rebates for too long, then in fact we are holding back the restructuring of our economy. So, it is better to extend the rebates for six months, and reassess the situation again next year. Mr Tan Soo Khoon raised the concern of Government fees and charges contributing to the cost of doing business. I have great sympathy with this view. They may be small amounts, but they do add up. We are very conscious of this, and we are making every effort to keep our fees and charges as low as possible. However, we cannot totally do away with all fees and charges. Nothing is for free. Ultimately, someone has to foot the bill.”
“Because, every year, some leases will expire and the land is taken back and can be re-allocated again. We have also been successful in intensifying the use of the land so that we can get all the industrial floor space that we need, whether to attract new investments or to enable existing investments to expand. Mr Heng Chee How and several other MPs suggested that the Government's land use policy was to blame for our woes. Particularly, they cited an alleged policy whereby we priced land in terms of its alternative use. But industrial land prices are not pegged to alternative uses, such as residential or commercial purposes. Land is zoned specifically for different uses, such as for industries, and tendered out for that purpose. So, industrial uses are only competing against other industrial uses, and commercial against other commercial uses, and so on. With ample supply, prices should remain competitive. Dr Wang Kai Yuen suggested that high industrial land cost contributed to the recent PSA retrenchment. He is not right, because PSA is charged very reasonable land prices, and land cost is not a significant component of PSA's total costs. Labour is. The retrenchment in PSA is not due to land pricing but, rather, through redundant overheads. Faced with intensifying competition, PSA cannot afford to carry overheads which no longer contribute to its businesses, and they have no alternative but to rationalise. On rebates, a number of MPs - Dr Warren Lee, Dr Teo Ho Pin and Mr Nithiah Nandan - have asked for the various rebates which I introduced to be extended, preferably for two to three years. Members should remember that rebates are meant as temporary measures, and they should not be permanent. They are different in nature from the CPF freeze. Let me explain why.”
“Mr Inderjit Singh, Dr John Chen, Mr Nithiah Nandan and several other MPs raised this. We cannot match the lowest land prices available in China or Vietnam, nor do we need to do so. In fact, sometimes, land is given away for free in these countries. But the Government will ensure an adequate supply of industrial land to achieve stable and internationally competitive land prices. Already, industrial land prices have come down by about 45% from their peak in 1996. Mr Inderjit Singh suggested that the Government should announce its intention to lower industrial land prices drastically. I think the last thing the Government should do is to destabilise the property market. He may recall that, last year, he made the same proposal on residential properties - to reduce their prices by 30%. And I advised him to be very careful about what he said, because his voters who own their HDB flats would not be pleased, and they are also my voters. Unfortunately, this year, he has repeated the argument for industrial land. There are thousands of companies owning industrial land, and many banks have lent money to factories against industrial land as collateral. It would be reckless to alarm all of them with rash statements. We do not need to be rash. We can ensure that our land market is efficient and flexible, and that multinationals coming here have enough affordable industrial land for their operations. There is enough. We can do that because, under the Master Plan, we have reserved at least 12,000 hectares for industrial use and, so far, only 7,300 hectares of this are in use by industries. As most industrial land is held on a leasehold basis, the supply is renewable and ample to meet long-term demand.”
“Rightly, we have focused our help on the lower income group. However, we have also implemented measures for the middle income group. The Utilities Save and the S&CC rebates are weighted towards the 1- and 3-roomers, but they have also been extended towards the 4- and 5-roomers. Furthermore, the middle income group will benefit significantly from the 1% GST deferment, because their consumption level is a lot higher than the lower income group. So, we have not forgotten the middle income group in this Budget. Many MPs, including Mrs Fang Ai Lian, Mr Gan Kim Yong and others as well, expressed regret that we did not give further rebates for personal income tax and corporate income tax this year, nor did we lower the rates by another one percentage point. But do not forget that individuals and companies are already enjoying lower personal and corporate taxes this year, as a result of last year's substantial tax cuts. There is no justification for giving them tax rebates on top of these, considering the tight budgetary position. As for lowering the rates by another one percentage point, remember that it would only affect the taxes to be paid next year, in the Year of Assessment 2004. It is not going to put money in people's pockets this year. So, given the uncertainties ahead, it would be unwise of us to commit now to being generous next year. If the situation pans out favourably, it will not be too late to consider an income tax rebate next year. If it does not, we will have to reconsider our position. But what counts for investors and businesses is our long-term tax plan. For that, we have already committed to bringing down the top rates to 20% by the Year of Assessment 2005. On help for businesses, one item of attention has been industrial land costs.”
“The Government has already implemented substantial measures to help all Singaporeans in this year's and last year's budgets, specially focused on the lower income group. We are providing additional help where it means the most, in basic household expenditure items, such as utilities and Service & Conservancy (S&C) charges. The Government extended the Utilities Save scheme by one year, and granted an extra month of rebates on S&C charges for all 1- to 5-room HDB flats. So, come April, all the flats will be spared S&C charges. And these are over and above the previous provisions. Also, we should not forget that by staggering the GST increase into two steps, we have effectively given Singaporeans a very large rebate this year of $650 million. Mr Ahmad Khalis, Dr Warren Lee and Mdm Ho Geok Choo also spoke on maintaining the social fabric and providing additional help to those who cannot pay utilities bills. We will do that. However, we should keep the lines of responsibility clear. Power Supply is not a welfare organisation. Its bills have to be paid. But people who need help paying these bills should try to get help from the CDCs and CCCs, where ample help is available. We will have to depend on the grassroots leaders to distinguish between those in genuine need and those who can help themselves to be more self-reliant. With their assessment, with their sensitive management, where there is discrimination, we can deliver the help where it is most needed, without discouraging a lot of other people from working and looking after themselves. Several Members, including Mr Inderjit Singh, Mr Iswaran and Mdm Cynthia Phua, have said that the middle income group's concerns have not been addressed. I think they are mistaken.”
“But all the budget measures are only enablers, because success lies in our people seeing, creating and seizing the opportunities that come our way. In the immediate term, reducing costs is important. But, ultimately, to create more jobs, we need to look for new businesses and create new value. We are making major strategic shifts, and we must get them right and implement the changes speedily. Mr Low Thia Khiang complained that the cost of living is very high. If I may borrow a phrase from the Ministry of Foreign Affairs, he is a very good storyteller. In fact, last year, the consumer price index fell by 0.4%, despite the public transport fare increase. Many basic food items cost less, like rice, cooking oil, meat, seafood and vegetables. Housing cost 2.2% less, because of electricity tariffs coming down, accommodation and household durables becoming cheaper. Transport and communication costs fell by 1%, because of cheaper petrol and the lower road tax. Only healthcare and education costs rose marginally. While the CPI fell, nominal wages went up by about 1% last year. Mr Steve Chia asked for a 30% cut in Ministers' salaries. How will this solve our problem? If it is to be a symbolic gesture, then we had already done it in November 2001, when we cut monthly salaries of Ministers by 10%. And, if we take it together with cuts in annual payments, in fact, the result was an overall reduction of 20% in annual remuneration. Last November we extended the cut for another 12 months till December 2003. Several Members, such as Dr Warren Lee and Dr Teo Ho Pin, have asked for more help to be given to the lower income group. This we will do.”
“Since Europe and Japan remain weak, a US recession would leave the whole world without any engine of growth. This is still a minority view, but it is one that we have to take seriously. I met one experienced US analyst recently and he told me that in more than 20 years he had never seen a time like this, where people were so uncertain as to which way the US economy was heading and market analysts were so divided in their views. And, therefore, he was very worried. Despite these dark clouds on the horizon, right now, our own economy is still growing. We had 2.2% GDP growth last year and the unemployment rate improved somewhat to 4.2% at the end of the year, coming off from its peak of 4.6%. So far, this year, the signs have been positive. For January, our non-oil domestic exports increased by 18% year on year and our industrial production manufacturing output also went up 14% year on year. The early indications are that the first quarter GDP growth is quite steady. Our early estimate, based mainly on January data, is plus 2.7%. And this is despite the major uncertainty of war hanging over the global economy. Therefore, I think Dr Wang Kai Yuen may have been a little bit too pessimistic when he said that the worst is yet to come. But it is certainly possible that things can get worse and we will need to monitor and assess developments closely, and be prepared if this happens. The main concern among many Singaporeans is jobs. Many people have said this is a pro-business budget. But, as Mdm Halimah Yacob and Mr Matthias Yao have pointed out, in fact, this is a pro-jobs, pro-growth and pro-worker Budget. The Budget aims at preserving existing jobs and creating new and better jobs for our people.”
“Mr Speaker, Sir, this Budget is an important step forward in restructuring our economy. It builds on the strategic shifts which we began last year, especially the tax changes, the offset package for the tax changes, including the ERS distributed on 1st January, and also the CPF changes. So, as aptly pointed out by Ms Indranee Rajah and other MPs, the measures and policies in this Budget should be seen in that context, and not in isolation. The Budget will also have to be seen in the context of the current global outlook, and the short-term prospects for the Singapore economy. The global outlook is very uncertain. Much hinges on what will happen in Iraq. The whole world is now anxiously following developments at the UN Security Council, watching to see if war breaks out over the next few days and, if there is a war, how events develop and what happens afterwards. One significant question is which way oil prices will move. Oil prices are already very high, both in anticipation of the war disrupting supplies and also because problems in Venezuela have already reduced supplies. Analysts are not optimistic that oil prices will fall rapidly, as happened after the Gulf War in 1991. If oil prices stay high, it will dampen the global economy. From the US economy, the recent signs have been mixed. The consensus is still that we can expect a modest US recovery in the second half of the year and that, as a whole, 2003 should be slightly better than 2002. But this is not at all a sure thing. Some well-respected analysts are worried about the US economy, particularly Steve Roach of Morgan Stanley. They fear that high oil prices, high consumer debt, deflation and the lingering hangover of the burst dot-com bubble will result in another US recession.”
“But everyone who makes the effort will find a place in the new Singapore economy. And all will get focused assistance from the Government and support from employers and unions. Through our joint efforts, our economy will bounce back. At the end of the day, the purpose of restructuring is more than finding new growth sectors and creating new jobs. It means forging a bond between all Singaporeans, in a spirit of joint endeavour, to secure our common future. In an uncertain and volatile world, we have to overcome new challenges and set fresh goals for ourselves. We have to grow as a united people, to create a better tomorrow for ourselves and our children, regardless of race, language or religion. And we must bring to this task tough minds and warm hearts. Mr Speaker, Sir, I beg to move. [Applause.]”
“PART V: NEW CHALLENGES, FRESH GOALS Mr Speaker, Sir, we cannot predict how the international security situation will evolve, nor do we know for sure when the global and regional economy will regain its health. But we can and will use our resources and strengths to give ourselves the best chances to succeed, whatever the circumstances. In this spirit, the Government accepts the ERC recommendations to revitalise the economy in the immediate future and sustain growth over the longer term. Vigorously implemented, over a decade these strategies will make Singapore a leading global city, a hub of talent, enterprise and innovation, and one of the best places in Asia to live and work. We will be host to both global MNCs and emerging business networks linking up China, India and Southeast Asia. Our broad economic base will have services complementing manufacturing industries, start-ups operating alongside established companies, and Singaporean companies reinforcing MNCs. These diversified activities will provide a wide range of rewarding jobs for Singaporeans, either as knowledge workers, skilled technicians, or semi-skilled workers. Change will not be effortless. There is no safe harbour where our ship can shelter to rebuild and refit, before heading out to sea. In a rapidly unfolding situation, all work must be done onboard ship while we are sailing and battling the elements. The Government will act to bring about and facilitate these structural shifts, but success ultimately depends on the resourcefulness and resilience of Singaporeans. We must shake free of our old mindsets, and adjust our positions to better face a changed world order out of which new opportunities will arise. Some of us may not find this easy to do.”
“Donation of Land and Buildings From 1st April 2003 onwards, I will be giving income tax deductions for donations of buildings and parcels of land made to Institutions of a Public Character (IPCs). Donors will have the flexibility to decide if they would rather donate the sales proceeds of the asset, or the asset itself, as both options will now allow them an equivalent amount of tax deduction. Stamp Duty on Donations At present, IPCs have to pay stamp duties when they receive donations of immovable properties and shares. To lessen the burden on IPCs receiving such donations and to encourage bequests and donations from estates to IPCs, I have decided to exempt all donations to IPCs from stamp duty. This will take effect immediately. Donation of Public Sculptures As we develop our economy, we should not neglect to preserve our cultural heritage. I am introducing three enhancements to the Public Sculpture Donation Scheme, with effect from 1st July 2003. The enhanced scheme will incentivise donors to adopt existing sculptures, commission and donate sculptures or publicly display sculptures from their private collections. The National Heritage Board will be releasing the details of this scheme by 1st July 2003. Overall FY 2003 Fiscal Position Mr Speaker, Sir, the tax changes in response to ERC measures, taken together with the rebates and other tax and fee changes, will cost the Government $324 million in FY 2003. This will increase the deficit from the $900million projected in the FY 2003 Budget to $1.2 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.”
“Childcare benefits defray the cost of alternative care arrangements for their children and encourage them to stay in the workforce. I have therefore decided to exempt from income tax employer-subsidised childcare benefits paid to licensed childcare centres with effect from YA 2004. This is in line with the Government's efforts to promote pro-family practices in the workplace. Stamp Duties Stamp Duty on Leases Presently, all property leases are levied with stamp duty. To reduce the tax burden on families living in rental flats, and the inconvenience to businesses and the general public, I have decided to exempt from stamp duty leases with annual rents that do not exceed $1,000. This change will benefit some 3,500 households that start a new lease or renew the lease of a 1- and 2-room HDB rental flats each year. The exemption will also cover the fixed duty levied on 99-year leases that some 32,000 households enter into each year when they purchase flats from HDB. About 30% of all leases will now be exempted. Households and businesses can expect to save about $340,000 a year from 1st April 2003 onwards. Seller's Stamp Duty The seller's stamp duty on the sale of residential properties within three years of purchase was introduced in 1996 to curb property speculation and to stabilise the property market. It was suspended indefinitely in November 1997 when the property market cooled down. Since the property market is stable, there is no longer any need to retain the seller's stamp duty. I have therefore decided to abolish this duty. Promoting Philanthropy Our tax system recognises taxpayers who support charitable causes.”
“This will take effect from 1st April 2003. Motor Vehicle Taxes Valuation Method The Government will change the basis for valuing motor vehicles. We will change from the Brussels Definition of Value (BDV) method to the Customs Valuation Code (CVC) method. This new basis will exclude obligatory expenses such as advertising, promotion, warranties, showroom and warehousing costs from a vehicle's taxable value. The effect will be to decrease the ARF and excise duty payable for most vehicles by 3% to 5%. This is consistent with our policy of gradually lowering the costs of owning a car and raising usage costs, in order to strike a better balance, and enable more Singaporeans to own cars. For a typical 1,500 cc car with an assessed open market value or OMV of $15,000 under the existing valuation system, a 5% tax saving would amount to about $1,100. This change will take effect from 1st April 2003. Details about the valuation method can be found in Annex I (Cols. 139-140). ANNEX I - VALUATION OF MOTOR VEHICLES (Cols. 141-142) ARF and Excise Duty Rebates for Wheelchair Lifts To help the elderly and disabled meet their transport needs, I have decided to exclude the cost of wheelchair lifts and other costs associated with the installation of such lifts from the OMV of a vehicle when computing the ARF and excise duty payable. This change will take effect immediately, and will complement other efforts by National Council of Social Services and voluntary welfare organisations to provide transport services for this group of needy Singaporeans. Childcare Benefits Many parents find it difficult to juggle both work and childcare, and one parent may have to stop working as a result.”
“To discourage smoking, and especially to deter the young from picking up the habit, the Government will take every opportunity to raise excise duties on cigarettes and other tobacco products. Last year, I raised the excise duty on cigarettes from $180 per kg to $210 per kg. I have decided to further increase the excise duties on all tobacco products with effect from today. Excise duty on cigarettes will go up from $210 per kg to $255 per kg. The new excise duties on other tobacco products are at Annex H (Cols. 137-140). ANNEX H - CURRENT AND NEW EXCISE DUTIES FOR TOBACCO PRODUCTS (Cols. 137-140) The Government has also noticed the emergence of low-priced cigarettes with slightly lower tobacco content. The low prices make such cigarettes more accessible to our youths. I have therefore decided to tax cigarettes by sticks, instead of by weight so that these cigarettes are subject to the same duty rates as regular packs of cigarettes. Under this new system of taxation, the excise duty on each stick of cigarette less than 1g will be 25.5 cents, and each additional 1g or part thereof will attract a duty of 25.5 cents. So there is no point having an extra long cigarette. To give traders and cigarette companies time to adjust their systems, this new system of taxation will be implemented from 1st July 2003. The annual revenue gain from these changes is about $194 million. Travellers can currently bring in tobacco products not exceeding 2 kg without a permit, by paying duty on them. This is equivalent to 100 twenty-stick packs of cigarettes. Some people have found that paying duty on cigarettes bought overseas is still cheaper than buying cigarettes here. I have decided to lower the limit to 400g, which is equivalent to 20 packs of cigarettes.”
“To encourage employers to support the additional cost of relocating top talent with their families, I will increase the deduction limit for the employer from $15,000 to $25,000 for P1 employment pass holders, and from $5,000 to $15,000 for P2 employment pass holders. I will also increase the cap for tax deduction from $150,000 to $275,000 for employers. These changes will take effect for expenses incurred from today. Further details can be found at Annex F (Cols. 133-134). ANNEX F - OVERSEAS TALENT RECRUITMENT (Cols. 133-134) PART IV: TAX AND FEE CHANGES Mr Speaker, Sir, these tax and policy changes are the Government's response to the main recommendations of the ERC. The report contains other suggestions, which the Ministries will follow up expeditiously. Some of the ERC's ideas require more study. The Government will examine these ideas carefully to find the best ways to implement them. In addition to the ERC-related measures, I am making several other tax and fee changes. Liquor Duties To rationalise our liquor taxes, we will adjust selected liquor duty rates. Excise duties will be raised for some types of liquors, and reduced for other types in order to rationalise the duties and bring them in line with our international obligations. The new rates are at Annex G (Cols. 135-136). The changes will take effect today and result in a revenue gain of about $9.4 million every year. ANNEX G - CURRENT AND NEW EXCISE DUTIES FOR LIQUORS (Cols. 135-136) Tobacco Duties Although the proportion of smokers in Singapore dropped from 18% in 1992 to 14% in 2001, the percentage of young female smokers aged 18 to 24 increased from 2.8% to 8.2% in the same period.”
“The Government agrees that lifelong learning and training to maintain employability is becoming more important in today's volatile and uncertain economic environment. I have therefore decided to increase the course fee relief to $3,500. This will cost the Government an additional $6.4 million per year. At the same time, the Government has reviewed the conditions for claiming course fee relief. Seminars and conferences are becoming increasingly necessary to upgrade oneself. I have therefore decided to expand the scope of the relief to include seminars and conferences. Secondly, people may need to retrain not just for their present jobs, but to prepare for possible career shifts. I am therefore extending the relief to courses that are not directly related to one's current profession. To qualify for the relief, the applicant has to establish that the course resulted in a career switch to a relevant job within a period of two years. Resident taxpayers who complete courses, seminars or conferences starting from 1st January 2003 will enjoy the enhanced course fee relief. Overseas Talent Recruitment The Double Tax Deduction (DTD) for Overseas Talent Recruitment Scheme introduced in 1998 allows employers to claim a further tax deduction for approved relocation and recruitment expenses incurred in the hiring of top talent from abroad. The scheme helps offset the extra cost that companies bear to employ such persons. The decision to relocate is often easier if the individuals are able to bring their families with them.”
“ANNEX E - TAX MEASURES TO HELP THE MANUFACTURING AND SERVICES SECTORS (Cols. 123-132) Human Capital Since the quality of our human capital underlies the success of all other restructuring efforts, the Government will introduce a number of measures to upgrade our human capital. Continuing Education and Training In future, workers will to have to change jobs more often, and to upgrade their skills continuously to keep pace with economic restructuring. To help them, the Government will put in place a comprehensive continuing education and training (CET) framework, focused on enhancing the employability and competitiveness of our workforce. The Government will establish a statutory board under the Ministry of Manpower to enhance the development and promotion of continuing education and training for adults. The statutory board will coordinate CET and employment assistance efforts by working closely with various economic agencies, as well as the private and people sectors. The statutory board will build up professional capabilities to strengthen the curriculum design and delivery of adult education and training, and promote the upgrading of all segments of the workforce. It will also drive industry-focused workforce development programmes and oversee the training and placement of unemployed workers. Its mission is to bring greater coherence and coordination to the CET effort, and ensure that our resources committed to workforce training and employment assistance are effectively spent. Course Fee Relief Since 1986, resident taxpayers have been able to claim tax relief for approved courses related to their employment or courses that result in academic or professional qualifications. The ERC has recommended raising the course fee relief from the current level of $2,500.”
“Under the enhanced scheme, an approved global trading company would be granted concessionary tax rates of 5% and 10% on qualifying offshore trade incomes, depending on the company's turnover and business spending. In addition, the GTP will be expanded to include high-growth, medium-sized trading companies. This will give a further boost to Singapore's status as an international trading centre. Tax Holiday for the Singapore Commodity Exchange The Singapore Commodity Exchange (SICOM) has developed into a global rubber futures trading centre. In order to compete with other emerging exchanges in the region, SICOM must continue to improve on its facilities and strengthen its financial reserves. I have therefore decided to grant another five-year tax holiday to SICOM, with effect from YA 2004. Submarine Cable Capacity To encourage telecommunications operators to provide international connectivity, I have decided to exempt from withholding tax payments for the use of capacity on submarine cables operated by non-resident persons, with immediate effect. I have also decided that payments for the purchase of Indefeasible Rights of Use on submarine cable system will be granted a writing-down allowance over its useful life with effect from YA 2004. Ministerial Committee on Services The issues involved in growing our services sector cut across various Government agencies. Given that it is impractical to designate a single agency to resolve diverse economic and social objectives, the Government agrees with the ERC recommendation to set up a Ministerial Committee on Services, which I will chair, to coordinate policy and make the necessary trade-offs. The details of the tax changes to promote manufacturing and services can be found in Annex E (Cols. 123-132).”
“To further encourage the development of marine insurance expertise in Singapore, I have decided to extend the Approved Marine Hull and Liability Insurer Scheme to also cover income derived from writing onshore marine hull and liability insurance business with effect from YA 2004. Approved Third Party Logistics Company Scheme Third party logistics companies generally undertake vendor-managed inventory operations where they import and hold goods belonging to foreign principals, and deliver the goods to local customers only upon instruction by the foreign principal. In line with ERC recommendations, I have decided to introduce a scheme whereby qualifying companies can import goods belonging to them or to foreign principals without payment of GST. Under the new scheme, these companies can also move goods to their customers who are under the Major Exporter Scheme, and other qualifying companies under the same scheme, without charging GST. This scheme will be effective from 1st January 2004. Improved Global Trader Programme International trading is a highly mobile and tax-sensitive industry. Although Singa- pore has flourished as a regional trade hub, we are neither key producers nor consumers. Instead we have leveraged on the presence of international trading companies to build up our global reach. As countries around us develop their own infrastructure and networks, Singapore will face stiffer competition. The Global Trader Programme (GTP) now offers a 10% concessionary tax rate on all qualifying trade income. I have decided to enhance and expand the GTP with immediate effect.”
“Secondly, by 1st June 2003, the existing lists of designated investments and specified income under the ATC scheme will be replaced with an exclusion list. Thirdly, to reduce compliance costs for trust companies currently having to comply with different sets of conditions for the purpose of income tax exemption for foreign trusts and the zero-rating of trustee services provided to foreign trusts, I have decided to align the set of conditions for both from 1st June 2003. Lastly, the current GST relief provision in respect of trustee services will be extended to trust administration services provided by a Singapore trust company to a foreign trust of which it is not the trustee from 1st June 2003. Apart from improving the tax environment for trusts, the Government is conducting a comprehensive review of the Singapore Trustees Act. We must bring our trust laws up to date so that they are relevant to today's needs and supportive of financial sector activity. This is critical in developing the trust industry. The revised legislation will be tabled in FY 2003. Approved Marine Hull and Liability Insurer Scheme The services provided by our transport and logistics industry account for about 8% of GDP and establish Singapore as a leading centre for global trade. With intensifying competition from lower-cost regional centres and changing trade patterns towards Northeast Asia, we must transform ourselves into a leading supply-chain management hub. The Approved Marine Hull and Liability Insurer Scheme currently provides tax exemption for income derived by approved marine hull and liability insurers from writing offshore marine hull and liability insurance business for a period of 10 years.”
“Marketing or other high value-added activities are concentrated in the main company, with other activities distributed to its regional subsidiaries. To accommodate this business model, I have decided to introduce an "Integrated Industrial Capital Allowance" incentive from 1st March 2003. Under this incentive, companies will be allowed to claim capital allowances on equipment that is used by their subsidiaries outside Singapore. Upfront Land Premium for Leased Land I have explained earlier the importance of competitively priced industrial land for attracting manufacturing investments. Currently, tax deductions are granted for the upfront land premium paid by a lessee in respect of a designated lease for the construction or use of a building on JTC or HDB industrial land, provided the lease tenure is not more than 30 years. This restriction was imposed at a time when it was unlikely for lessees to have upfront premium scheme terms exceeding 30 years for an industrial land. To encourage companies to undertake investments in Singapore over longer periods, I have decided to extend the current 30-year lease tenure restriction to a 60-year limit with effect from YA 2004. Private Wealth Management As we upgrade our manufacturing sector, we must also spur our services sector to become our second engine of growth. In financial services, the development of world-class trustee and custodian services in Singapore is integral to Singapore's development as a wealth management centre. To support this, I have decided to introduce the following changes. Firstly, I have decided to extend income tax exemption to foreign trusts administered by all trust companies in Singapore, and not just those administered by Approved Trustee Companies (ATCs) from YA 2004.”
“IP Acquisition Companies can currently apply to EDB or IDA for writing-down allowances over a five-year period for capital expenditure incurred in acquiring intellectual property such as patents, copyrights and trademarks. To increase Singapore's attractiveness as an international IP holding location, I have decided that writing-down allowances will be granted automatically, subject to the condition that the legal and economic ownership of the IP lies with the Singapore entity. This will apply to IP acquired on or after 1st November 2003. Patenting Costs To encourage more companies to patent their inventions and make Singapore an attractive base for IP management, I have decided to complement the Patent Application Fund Plus grant scheme with tax deductions for the costs of patenting an invention. This will apply to patenting costs incurred on or after 1st June 2003. Foreign Income for R&D To increase the stockpile of funds for R&D activities conducted in Singapore or controlled from Singapore, I have decided to introduce a new R&D incentive, which will be effective from 1st June 2003. Companies under this incentive will be granted tax exemption on foreign sourced royalties and interest income that are used for R&D purposes. Provision of Information and Digitised Goods I have decided to facilitate the flow of online information and digitised goods by granting exemption on withholding tax for payments made by end-users to non-resident persons. This will take effect immediately. Integrated Industrial Capital Allowance Our manufacturing sector draws strength from its international linkages, for example with Batam and Bintan. Corporate groups increasingly split their activities across geographical boundaries.”
“Mr Raymond Lim, Minister of State for Trade and Industry, who chaired the Entrepreneurship and Internationalisation Sub-Committee of the ERC, will take charge of the Government's efforts to facilitate entrepreneurship in Singapore. Manufacturing and Services The Government will introduce a range of new or enhanced measures to sustain the competitiveness of our manufacturing and services sectors. Intellectual Property On manufacturing, the ERC recommended that we move beyond being a production base, to become an innovative creator of products and new businesses. On services, the ERC proposed that we focus on exportable services, and develop new services like healthcare, education and creative industries, in order to service the region. These are all high value-added and knowledge-intensive activities. Investors in these fields do not look for the cheapest location, but for the country where their intellectual property (IP) enjoys the best protection, and where the environment is most conducive to the creation of new IP. This is an area where we enjoy a significant advantage over our regional competitors. We will build on this lead. We will continue to build up and attract talents in R&D and in the creative fields. The Ministry of Law is conducting a comprehensive review of our current IP laws to support the growth of new industries, to take into account technological advances, and to strengthen further IP protection. To make Singapore a key node for developing, managing and commercialising IP, I have also decided to introduce the following tax measures: Royalty Income To encourage firms to hold their IP rights in Singapore, I have decided to extend the Unilateral Tax Credit Scheme to royalties remitted from all non-treaty countries. This will take effect from YA 2004.”
“If a private sector vendor can deliver the service more cost-effectively, it will be engaged to do so. Statutory Board Companies In addition, the Government will progressively stop providing services that the private sector can supply. Ministries and statutory boards will no longer set up new companies, except in strategic areas or where the private sector is not ready. The Ministries have started a review of all their companies, to be completed by this fiscal year. It will be repeated every three years to determine which companies should be retained, and which should be divested. We have so far identified a few dozen companies, mostly small, which are non-strategic and can be divested within the next few years. Two larger examples are Ascendas and PSB Corp. Ascendas develops, markets and manages business parks in Asia, while PSB Corp's core business is in testing, technology, consultancy and training services. A third, smaller example is Hdbay, which provides interior designing services and develops e-commerce applications. It also accredits and recommends renovation contractors to homeowners. Minister of State in Charge of Entrepreneurship Strengthening the spirit of entrepreneurship is a long term effort, involving not just policy changes, but also changes in mindsets and culture. The ERC recommended that the Government designate a Minister or Minister of State to work with the Entrepreneurship 21 Ministerial Committee, and be responsible for promoting and driving the diverse initiatives to develop a more entrepreneurial Singapore. The Government agrees.”
“A Rules Review Panel of five Permanent Secretaries is currently overseeing an effort by all Ministries to review their rules by the end of FY 2004, and thereafter every five years. One outcome is that one-third of all required statutory declarations have been removed. Furthermore, 12 Government licences are due to be removed in FY 2003. This includes a hatchery licence administered by the Agri-Food and Veterinary Authority. Currently, Singapore only has one hatchery and it is already issued with a Farm Licence. Hence, it does not make sense for the agency to duplicate its regulatory efforts. If Members discover any other licences which seem redundant or meaningless, please let me know about it. As for those licences which are still needed, and there are a few, putting them online allows us to reduce processing time and costs for entrepreneurs. BizFile is a fully online system that cuts the time taken to incorporate a company from a few days to a couple of hours. By July 2004, an entrepreneur will be able to apply for many of the registrations and licences required to start up a company through a single online form on the eCitizen portal. From 1st March 2003, a new Government-wide authentication system called SingPass, short for Singapore Personal Access, will be made available to any individual who seeks to transact with the Government online. Public Sector Market-Testing Apart from streamlining its rules, the Government will create more opportunities for businesses. My Ministry is introducing market-testing for non-core Government services this year, beginning with new services. Public sector agencies will be required to compare the cost of providing the service in-house against the price quoted by private sector vendors.”
“With effect from YA 2004, I have decided to regard the first day of the accounting year in which a business earns its first dollar of trade revenue as the point at which the business starts trading. Businesses will benefit from tax deductions for all revenue expenses incurred during that accounting year. If a business is able to prove that it has started trading and incurred revenue expenses even earlier, it will be allowed to deduct these expenses as well. Revised Overseas Investment Incentive Currently, the Overseas Investment Incentive allows an approved company to deduct losses arising from the sale of shares or liquidation of an approved overseas investment against its statutory income. To help our companies expand overseas, I have decided to revamp this incentive to allow an approved company to defer its income taxes for two years if its approved overseas investment incurs operating losses during the first three years of the investment. This will affect all new investments made from 1st January 2004. The details of the tax changes to foster entrepreneurship are in Annex D (Cols. 121-122). ANNEX D - TAX MEASURES TO PROMOTE ENTREPRENEURSHIP AND SINGAPORE COMPANIES (Cols. 121-122) Government Procedures and Rules The ERC has underscored the importance of minimising Government rules and regulations so as not to stifle entrepreneurship. The Government has set up several channels to streamline and review its procedures and rules to make them more pro-business. The Pro-Enterprise Panel is a joint public- and private-sector committee which frequently solicits feedback on rules and regulations that can hinder entrepreneurs. Out of 500 suggestions received from entrepreneurs over the past two years, 50% have been implemented and regulations were either removed or relaxed.”
“New Business Vehicles The Government will introduce two new business vehicles next year to give businesses more options in structuring their business activities. The Limited Partnership and Limited Liability Partnership structures will be available to all businesses. They offer limited liability to the partners, as well as the flexibility of being structured as partnerships. Small businesses and start-ups may find these structures useful for their business activities. Company Secretaries To lower business costs for private companies, the Government will remove the statutory requirement for private companies to appoint professionally qualified company secretaries. Although a private company must still appoint a company secretary to keep proper records, it is free to choose between doing so internally and outsourcing the job to professional company secretaries. Audited Accounts Audited accounts will no longer be required for dormant companies, and for exempt private companies with small annual turnovers. This will reduce compliance costs for small businesses, leaving them to decide whether they need audited accounts. The annual turnover threshold for exempt private companies will initially be set at $2.5 million, and will be raised to $5 million after one year. I have decided to make this change in two steps after taking in feedback from both companies and audit firms. The legislative changes to the Companies Act will be made soon. Concession for Enterprise Development Some of the expenses incurred by businesses before trade revenue is earned may not be eligible for tax deduction.”
“Furthermore, if a worker develops a long term medical condition, without portable medical benefits he will face difficulties finding another employer willing to take him on and incur the expense of treating his medical condition. To address this problem, the ERC recommended that the Portable Medical Benefits Scheme or the Transferable Medical Insurance Scheme be developed. The Portable Medical Benefits Scheme will involve additional contributions to the CPF Medisave account by employers. To encourage employers and workers to switch to the new scheme, I have decided to raise the tax exemption limit for additional Medisave contributions for private sector employees from 1% of an employee's monthly salary at present, to a lump-sum of $1,500 per employee per year. This will take effect from YA 2004. Presently, medical benefits are tax deductible expenses for employers, up to a limit of 2% of payroll. From 1st April 2004, employers who implement either of the new schemes will continue to enjoy a 2% deduction limit. However, employers who do not implement these schemes will only be allowed to deduct 1% of their total payroll for medical expenses. Entrepreneurship and Singapore Companies Let me now take the House through what the Government plans to do in response to the ERC's call to facilitate entrepreneurship in Singapore. Companies Act Amendments Last October, the Government accepted all the recommendations of the Company Legislation and Regulatory Framework Committee (CLRFC) which aim to simplify business regulations, support entrepreneurship and lower the cost of raising capital in Singapore. Let me highlight three of the Committee's proposals.”
“Our current practice of taxing domestic source interest income encourages funds to be parked offshore in interest-bearing deposits and instruments, thereby benefiting the financial and commercial banking sectors of other countries. I have therefore decided to exempt from tax interest paid to individuals derived from standard domestic savings, current and fixed deposits. This change will help retain domestic funds in Singapore, and also attract back funds currently placed offshore. The exemption will be implemented in two phases. Depositors with POSBank already enjoy tax exemption on the interest from the first $100,000 of their deposits. From YA 2004, in addition to this tax exemption on POSBank deposits, I will exempt interest from amounts exceeding the first $100,000 in each of the standard savings, current and fixed deposit accounts of individuals from the first dollar. From YA 2006, the exemption will be extended to the full amount of these deposits of individuals from the first dollar. This two step process is necessary because under an agreement between the Government and DBS Bank, depositors with POSBank enjoy the exclusive right to tax exemption on interest from the first $100,000 of their deposits until 31st December 2004. This exemption will cost the Government $43 million per year. The IRAS will release more details by April 2003. Portable Medical Benefits As workers get older and change jobs more frequently, it becomes more important for them to have portable medical benefits. This will provide them with medical coverage not only when they are in employment, but also when they are in between jobs.”
“This is difficult to detect. Notwithstanding the Government's view that this was not a problem, we have continued to receive feedback from the business community, and now from the ERC, that taxation of foreign income indeed poses difficulties to companies. Companies find the existing tax credit system more cumbersome than an exemption system. As more companies globalise and earn a larger share of their income from overseas operations, this will be an increasing problem. Simplifying and improving the tax treatment of foreign income will make us a more attractive business hub and boost our services exports. Moreover, other countries, for example, Germany, the Netherlands and Malaysia, have shifted from the tax credit system, to exempting specific categories of foreign income from tax. I have therefore decided to exempt from tax all foreign income in the form of dividends, branch profits and services income from 1st June 2003 onwards. This will mean that about 90% of all remitted foreign income will be tax exempt. The exemption will be available to all taxpayers, whether individuals or companies, but it will apply only to income earned from jurisdictions with headline tax rates of at least 15%. All other foreign income will continue to be subject to the existing tax credit system. This will curb round-tripping and transfer-pricing while keeping our system simple. An alternative would be to impose anti-avoidance rules, but that would be complex to administer and burdensome to businesses. The IRAS will release more details by May 2003. Domestic Interest Income The ERC also recommended that interest income sourced domestically be exempted from tax.”
“Mr Speaker, Sir, let me now set out the measures, especially tax measures, that the Government will implement in this budget to support the strategies for restructuring our economy. Competitiveness and Flexibility To enhance Singapore's economic competitiveness, the Government will implement the ERC recommendations on restructuring taxes, on exempting foreign income and domestic interest income from tax, as well as on portable medical benefits. Corporate and Personal Income Tax Rates Last year, I reduced our corporate and top personal tax rates from 24.5% and 26% respectively to 22%. In my assessment, our present rate of 22% is still competitive for now. Therefore, I will not be reducing corporate and personal income tax rates further this year. Nor, given the tight budget position, will I be giving any rebates on these taxes. However, I reaffirm the Government's intention, which I announced last year, to bring the tax rates down to 20% by YA 2005. Foreign Income Over the years, the Government has received repeated requests to exempt from tax foreign income remitted into Singapore. Until now, we have resisted this proposal. We already have a comprehensive network of double taxation agreements and unilateral tax credits, under which we give credit for taxes paid on foreign income. We may also exempt taxes on foreign income from specific overseas projects under section 13(8) of the Income Tax Act. In practice, foreign income which has been taxed elsewhere usually does not get taxed again in Singapore. At least that's the Government's view. We were also concerned that this exemption would create a loophole, which could seriously erode our tax base. Individuals and companies could avoid tax on their Singapore income by round-tripping and transfer-pricing.”
“Today, more than 90% of services which can be delivered electronically are already online, making Singapore a world leader in e-Government. To the public, this means faster and more convenient access, as well as more innovative and seamless public services. From next month, the Government will be providing an online consultation portal on eCitizen to obtain public feedback on new policies. This will include the consultation on the changes to income tax laws following from this Budget. However, not all Singaporeans are IT-literate. To help those who do not have access to a computer or are not able to use one, the Government has established eCitizen Help Centres at CDCs and CCs. This is part of our plan to ensure that everyone may enjoy the convenience and benefits of e-Government and e-services. From March 2003, eCitizen Help Centre services will also be available from private sector outlets such as Fuji Film and NTUC Fairprice which sign up to offer the service. Despite the cost of these improvements, the Government's administrative functions will only consume 5% of total expenditure. As always, the bulk of Government resources goes to the operational ministries to deliver services to the public. The Government sector will remain lean and efficient, and will restructure itself if necessary to deliver value-for-money services.”
“The ICA will exploit cutting-edge technology such as gamma ray scanners and biometric identification tools to prevent undesirable people and goods from entering Singapore. The Home Team will also enhance its ability to prevent and respond to accidents and incidents. Economic To help Singapore develop new economic capabilities and sharpen our competitive edge, MTI's budget will be significantly increased. The Government will set aside $500 million to grow Singapore companies and help them venture abroad. We will invest $1.0 billion to strengthen our R&D capabilities and $1.8 billion to enhance industry capabilities. Another $1.2 billion will be spent on land reclamation and upgrading our industrial and tourism infrastructure. Our first-class transport infrastructure is a key competitive advantage. It raises the efficiency of the economy and enhances our quality of life. MOT will spend $1.2 billion to expand and improve our rail and road networks, including the MRT Circle Line and the Kallang/Paya Lebar Expressway. The Government will continue its strong support for re-training and upgrading workers' skills. In addition to the $500 million top-up for the Lifelong Learning Fund in the FY 2002 budget, this year I am setting aside another $37 million to enhance MOM's many employment assistance and training programmes. This will generate 20,000 additional training places under the Skills Redevelopment Programme and 7,500 job placements through the People for Jobs Traineeship Programme, which provides financial support to employers who hire older unemployed workers. Government Our e-Government Action Plan for the public sector was launched three years ago.”
“This will ensure that truly needy Singaporeans receive adequate support, despite our budget constraints. Expenditure Priorities Let me move on to the Government's expenditure priorities. TABLE 7: SECTORAL SHARES OF FY 2003 BUDGET Social The Government will maintain the balance of expenditure across the four sectors: Social, Security, Economic and Government Administration. Nearly half of the Government's FY 2003 expenditure will be on social development. MOH will spend $1.2 billion to subsidise Singaporeans' healthcare costs through 13 public hospitals and healthcare institutions, 17 polyclinics and 64 voluntary welfare organisations. MOH will also spend $270 million on health research and promotion, as well as the Interim Disability Assistance Programme and Eldershield. The Government will continue to invest heavily to develop Singapore's human capital to the maximum. Some 660,000 students will benefit from the $4.5 billion that MOE will spend on their education from primary school to university. Security We will devote 36% of total expenditure to the Security and External Relations sector. This will maintain and raise Singapore's preparedness to handle both conventional and terrorist threats. We must maintain and upgrade our conventional defences. A strong SAF is the shield for our security and our deterrence against potential external threats. At the same time, Singaporeans must be vigilant against the threat of terrorism. While we have broken up the Jemaah Islamiyah group in Singapore, the group is still active in the region and key members remain at large. The formation of the Immigration and Checkpoints Authority (ICA), in April this year, will enhance security at our checkpoints.”