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 risk severe revenue loss and it is not going to be easy to plug this loophole administratively. Everybody says, "If you allow this, then the funds will flow back". What you will not see is that there will be tenants. There will be many ways that funds will flow offshore invisibly and you will not be able to stop it. Nevertheless, the idea of a reverse pioneer, meaning do not tax overseas profits during a pioneer period, is an interesting idea. It amounts to not taxing companies for sending back their small profits in the initial years, but taxing them when the profits grow in the later years. But this idea cannot be addressed on its own. It has to be considered together with other proposals like extending group relief, which Mr Leong Horn Kee suggested. Let us not get too complicated at this point - get Singapore companies to go overseas and make good money first. If they make money, then we can talk about how to arrange the taxation. If there is no money made, we cannot get started. As for preferential tax for companies improving productivity so that we can continue to have a viable manufacturing sector, we already have a wide range of tax incentives for doing this. Many of these tax incentives aim to improve productivity, encourage value-added activities and technology innovation. For example, we have a reduced corporate tax rate of 10%, and now it would be 5%. If the company is awarded the development and expansion incentive we take into consideration the value-added contribution to productivity in the company when we assess whether it is eligible for the incentive. 2.”
“The UK has got this scheme for loss transfer from foreign companies. I think they did not volunteer to do this. They had to do it because the European Court of Justice ruled in 1998 that their regional law was in conflict with EU community law, so they have no choice. We have no EU community law to be consistent with, so we better study this carefully. Mr Inderjit Singh also asked for variable property tax on businesses, low fixed rate plus a variable rate based on percentage of profits, subject to a cap. But this would change the principle of the property tax. In fact, the property tax is a wealth tax on asset ownership. I am told this is based on the annual value of the property, which is the estimated annual rental the property can fetch, regardless of whether it is in fact let out, owner-occupied or vacant. If we switch to what Mr Inderjit Singh has suggested, we would be changing that wealth tax to an income tax, and instead of taxing the property, we will be taxing the income of a company, and the more income the company earns, the more it will be paying in tax. We already have a corporate income tax for that. We are bringing the rate down, I think we leave that alone and keep the wealth tax element in the property tax as a separate component of our overall tax structure. They complement one another. Mr Inderjit Singh also recommended a reverse pioneer tax status for companies that internationalise and invest overseas. In fact, we already have a scheme to bring income back to Singapore without tax under section 13(8) of the Income Tax Act. But the condition is that the income must be reinvested and must contribute to productive economic activity here. To have a general scheme for a complete tax exemption of foreign income remittances, it is too big a loophole.”
“There is a trade-off, but when the corporate income tax rate used to be 40%, it was important to have a full imputation system because the impact was large. But now that the corporate income tax rate is coming down to 20%, the full imputation is desirable, but less critical. On the impact of a tax treatment on Real Estate Investment Trust (REIT), the Government is studying the issue and we will release further details at a later date. As for group offsetting of corporate tax, which Mr Leong and Mr Inderjit Singh also raised, we have already decided to introduce a system of group offsetting at 75%. This is quite a low rate. In fact, if we compare with other countries, we are one of the lowest in the world. Most countries have a threshold closer to 100%. In fact, Australia's threshold is 100%, while the US' threshold is 80%. Let us get experience operating this first at 75%, and later on, if it is successful, we can reconsider widening, lowering to 51%, pro-rating and so on. These are complicated measures. Even to introduce group offsets into our corporate tax system is already a major departure. We will have to craft the legislation and gain experience operating it before we take it further. As for foreign subsidiaries, that is a separate problem because right now, foreign income is not taxed unless it is remitted to Singapore. If you can offset foreign losses against local profits, but you do not tax foreign income because foreign profit may not be remitted to Singapore, then we are actually subsidising foreign ventures from domestic tax revenue and this revenue loss could be significant. There are people who have suggested ways to get around this, short of having a full global taxation system. It is not a simple matter. Let us take it one step at a time.”
“Under the one-tier tax system, retirees and other shareholders, who pay low marginal income tax rates, will lose their ability to reclaim their tax paid by the company on the dividends. But the loss will be compensated, at least to some extent, because the new one-tier system will remove current restrictions on the distribution of dividends from capital gains and other non-taxable corporate income. So the base on which the companies can pay dividends will be broader. It would free companies from a number of restrictions related to distributing corporate profits as dividends and would also enable unlimited flow-through of dividends, meaning the subsidiaries can flow the dividend up to the parent and then beyond that, to the parent's parent and so on, without having to be taxed, which presently cannot be done, because it can only flow through one level. These features of the one-tier tax system, along with new measures in group relief and lower corporate tax rate, will increase company income available for distribution. This could result in higher dividend payments for all shareholders and this would benefit all shareholders, including individuals who either do not pay income tax or are at the lower-income tax brackets. We have introduced a five-year transition period from 1st January 2003 to 31st December 2007, during which shareholders will still be able to receive dividends with credit attached. This would give companies time to consume their accumulated credits and shareholders time to adjust to the new system. The main reason for this change is to simplify the corporate tax system and to facilitate financial transactions, like share buy-backs or share borrowing and lending.”
“Sir, may I start with Mr Leong Horn Kee who asked whether we have plans to bring our corporate income tax and personal income tax rates below 20% and if so, whether the GST will have to go up further. As I explained yesterday, our plan is to bring the corporate and personal income tax rates down to 20% by FY2004 and to push up the GST to 5% from 1st January 2003. We think this is adequate and there is no need to go below 20% in the near future, because with our various tax incentive schemes, companies qualifying for these schemes often have effective tax rates lower than Hong Kong's. But we cannot tell, depending on how the situation develops. It may become necessary for us to go below 20%, and if we have the wherewithal to do so, we can do. If we do not have the wherewithal to do so, and it is a totally different environment, then we will have to re-look at all our calculations again. But on our present plans, this is where we stand. We work on this basis. On reliefs, Mr Leong asked whether we have become a nation of reliefs and rebates. I hope not. Our approach is to grant reliefs in recognition for individual efforts and for achieving certain social objectives. We grant new reliefs only after very careful consideration. We do not have a policy of creating new reliefs in every new Budget. In fact, this year, we have incorporated the personal relief into the tax structure and made a minor simplification to our scheme. We agree that our tax system should be as simple as possible, and this is actually one of our competitive advantages in Government administration. Mr Leong also asked about the one-tier tax system and noted that this disadvantaged low-income groups and the charities.”
“There have been times when I have to talk to a Japanese minister and I make a remark to him and the Minister says, "Hm", and the interpreter gives me three sentences as to what their Minister actually meant. And I am quite sure she was right. I think it would be difficult for us to provide either Ministers like that or interpreters like that, but we will try to improve our standards.”
“Mr Chairman, Sir, in response to Mr Seng Han Thong's question, there are two working groups headed by MITA and the Subordinate Courts which are working on how we can improve the structure of the schemes to provide better career development and progression opportunities for translators and interpreters. They are also exploring how we can enhance the learning and training opportunities for officers in order to raise the professional standards of interpretation and translation in the civil service. The PSD has been assisting in this review. We will wait for the working groups' final recommendations which, I am sure, will help the public service better attract, retain and motivate our interpreters and translators. On the suggestion to have a system of accreditation for interpreters used by Government bodies, I think we may leave it to the courts, who are the major users of interpreters, to study this suggestion. Perhaps, I may add that I think it would be difficult for us to equal the standards of the interpreters which the Japanese and the Chinese have. For them, it is their only way to connect with the rest of the world. Their ministers often do not speak English, French or foreign languages, and they have to deal with the world constantly. Whenever we have to meet their Minister, he deals through an interpreter. Whenever he makes a speech, the interpreter is there to provide a version, both ways. When we meet them, we recognise that we are dealing with not only a very capable interpreter but somebody who has a comprehensive understanding of the issues and, indeed, might be a very senior official himself.”
“We can improve. We already have a programme called ZIP (Zero in Process) which we introduced in October 2000, which aims to reduce the number of instances where the public has to go separately to various agencies for related Government service. So if you have, for example, a feedback on noise pollution, refer to ENV and they would deal with all the parties. If you have problems concerning maintenance of roads, street fixtures, street lightings which need fixing - Mrs Lim Hwee Hua, if you have another problem with street lightings, please refer them to the Land Transport Authority - and if you do not get satisfaction, please come and let us know. We have a list of lead agencies and a ZIP website (www.zip.gov.sg) and if you have feedback for the ZIP secretariat you can give the inputs at the website or call PSD. We are committed to improving service. We are not quite satisfied with what we have achieved and we will try our best to do better.”
“So we need some way to tie up and make sure nothing falls between the cracks and, furthermore, where there is overlap, we do not have gridlock. We have mechanisms like this, where we have got lead agencies which take on coordinating roles, and work with other agencies, so they provide a point of contact to the public, you deal with one and he would manage the complexity. For example, the Building and Construction Authority coordinates the approval of building plans that involve various Government agencies and we should work to improve such inter-agency coordination. Somebody told me if you want to start a pub in Singapore you need a dozen different permits from a dozen different agencies, which drives you round the bend. I have never started a pub but I take him at his words and I suppose we should start a project to see whether ----- An hon. Member: We have a one-stop centre.”
“We have to study each of these privatisations specifically to make sure that it will work because, as Mrs Yu-Foo pointed out, the key role of the public sector is the provision of public goods and services and also you have to worry about social objectives and these cannot be left entirely to the private sector to provide, especially public education and public safety and security. But in many other areas it is possible to depend much more on the private sector and we are doing so through various programmes. As for the Government itself, we are also trying to improve the quality of the service we provide, which despite our best efforts, sometimes it is frustrating to the public, even to well-informed, knowledgeable members of the public, and even to members of the public who have ready access to MPs. When you have to deal with departments, sometimes you find they are not as flexible as you would like it to be. There are times when there is reason why the department cannot be flexible, but there are other times when a more practical approach, a more sympathetic and understanding approach would have helped to solve the problems expeditiously. So we have things like PS21 (Public Service for the 21st Century) and MFE (Managing For Excellence). They are buzzwords, but they are also specific programmes and activities which remind civil servants that it is their job both to be civil and also to be servants of the public. We also have mechanism to coordinate inter-agency which, as Mrs Lim Hwee Hua pointed out, is one of the most difficult things to do. When two agencies are responsible for one problem, their complexities doubled, when three agencies, each have some jurisdiction, it becomes quadrupled.”
“I know that many MPs, especially the female MPs, feel that times have already changed and that the Government should set the lead in establishing new social norms. The fact that some male MPs supported them is some evidence that perhaps times are beginning to change. But the Government's view is that on a matter as basic as the family structure, we should follow, rather than lead social changes. So it is something which we will review, but for now I think we will leave the status quo be. As for a National Women's Council which Miss Irene Ng also suggested, I am not sure whether this is necessary because we already have a Singapore Council of Women's Organisation, which is an umbrella body for women's groups. The Youth Council is not really meant as an advocate for youths but really has a developmental role, which is not quite a similar situation as the women are in, because the women are really adult members of society. In Singapore, our principle and practice of meritocracy is the best assurance for the increasingly full and equal participation of women in all walks of life, especially in our education system, providing Singapore women the opportunity to participate fully in all aspects of life in Singapore. So I am not sure that we need a council. Mrs Yu-Foo asked about customer-focused inter-agency coordination, improving the public service, points also raised by Mrs Lim Hwee Hua. I agree with both of them. Already, we have been trying our best to privatise Government services so as to subject them to competition and cause them to operate more efficiently and competently.”
“We cannot do this to everybody, but we hope to do it with a significant proportion of our people. There is no model anywhere in the world where the civil service depends mainly on people who join in mid-career. There will be some who join in mid-career but not everybody. 1.15 pm Miss Irene Ng raised again the question of medical benefits. As I have explained yesterday, and as she recapped for Members, indeed the practical difference for the new medical benefits scheme - Medisave-cum-Subsidised Outpatient Scheme, MSO - is really very small. But the difference is one of principle. So I think she will appreciate it if I am direct and honest and explain what the principle was, which led us to where we are today. And the principle is, as she has put it, one of basic social philosophy. Because this is an Asian society, and in an Asian society the husband is responsible for taking care of the family, including the medical expenses. Our medical benefits schemes should reflect this and should not undermine the rationale for holding the husband responsible. All MPs, even new ones, I am sure, have met constituents at MPS sessions, where the husband has deserted the family and abandoned his responsibilities and the wife comes with young children to seek help. We seldom, not never, meet a husband seeking financial assistance because his wife had left him. It is a reality of our society. So we have no immediate plans to change the medical benefits schemes but, like all other Government policies, this one is not set in stone either. As our society evolves, we will review it periodically and as Members know, in our new scheme we have already substantially narrowed the difference, although not to the satisfaction of all Members of Parliament.”
“What we try to do is to attach them to companies like Shell or even management consultant companies, like McKinsey or other institutions where they can learn something and come back with a different perspective, and know what it is like to be on the receiving end of a directive or instruction, and also to know what it is like to have a bottom-line responsibility and be more profit-focused, when they come back into the civil service. In the private sector, time is money. To you, it is two weeks to write a paper; to them, it is two weeks' worth of salaries and overheads. We do want to encourage this further and we are trying hard. Mr Steve Chia suggested allowing scholars to serve their scholarship bonds for five or ten years with the Fortune 500 companies. I think this is difficult to do because the fundamental motive of Government scholarships is to ensure that the public sector gets its fair share of talent to contribute to the development of Singapore and, particularly, for places where you cannot readily bring people in from the private sector, off the streets. You think about the SAF, which needs SAF scholars, you think about the Singapore Police Force, they need SPF scholars. When we think about the Administrative Service, as I explained just now, it does not find it so easy to recruit people at mid-career and to fit in. If we work on the basis of giving people scholarships, then they go off and do their own things for 10 years and they start their careers with the civil service, maybe in their mid-30s, I think we have lost a good part of his working life, where not only should he be contributing to us, but he should also be learning about the Government of Singapore and imbibing values and knowledge which would stand him in good stead over the long term.”
“Sir, Dr Wang Kai Yuen talked about scholars not necessarily making good Administrative Officers and recommending that we recruit from the market and depend less on scholars. I would agree with him that academically able people are not automatically good managers or good Administrative Officers. When we select scholars, we try our best to find people who are not only academically good, but have something extra, so that they have a good chance of turning out to be successful Administrative Officers. Some do, some do not. By and large, I think the quality of our civil service is not bad. We do want to have more come in mid-career or from the private sector, as Dr Wang Kai Yuen and Mr Chew Heng Ching suggested. We have been quite successful generally bringing in people from different walks of life. But in the Administrative Service itself, we have not been so successful. We only had a small number come in. Perhaps, it is because our standards are high. Perhaps, it is also because in the Administrative Service, it is necessary to build up, over a long period of time, knowledge of the Government, how it works, as well as the culture and the way the organisation operates. That is not easily achieved for somebody who comes in mid-way, however able and however broad his past experience to do. It is not a problem unique to the Singapore civil service. Many other civil services have tried the same - the Australian, New Zealanders and British - and they tell us that they have the same difficulties. But we will continue trying. As for seconding Administrative Officers to companies, we do that. Yesterday, we were criticised for doing that with the GLCs. We do not just do it with the GLCs.”
“Mr Inderjit Singh also spoke about the need for regular interaction of our school children with other races and suggested twinning of schools where students can do their co-curricular activities or extra-curricular activities together. It is an idea which is worth exploring. I understand that MUIS, the Madrasahs and our schools are actively looking on programmes to enable their students to interact with other races and appreciate the national perspective. The Ministry of Education and MCDS will study to see how we can promote this further. Mr Inderjit Singh also suggested that the IRCCs be given a budget to tap on for their activities to promote racial interaction. The IRCC is really an extension of the Citizens Consultative Committee. It is not meant to be another formalised and structured or activity-centric grassroots committee. For a start, to better understand ground conditions and build rapport with the relevant local establishments, many IRCCs have visited religious institutions like temples, mosques, churches and so on. For the next phase, they could initiate informal dialogue and chit-chat sessions with local groups to identify pressing areas and practical opportunities for building inter-ethnic understanding. Both the CDCs and the CCCs can finance these efforts and the People's Association will seek the concurrence of the Grassroots Grants Committee to increase the allocation of grassroots grants to the CCCs for activities promoting racial harmony.”
“They were set up for a specific purpose, ie, to help the under-achievers in each community to overcome their problems and uplift themselves, especially educationally, in a way which a multi-racial group will find difficult to do. In this respect, the self-help groups have done well and will continue to play a role. At the same time, the self-help groups do encourage their respective communities to interact more with other communities. Often, they have volunteers from other communities and they collaborate to organise activities at festivals such as Deepavali, Christmas, Hari Raya Puasa or Chinese New Year. These events help bring Singaporeans together from different ethnic groups and better understand and appreciate each other's values and customs. But looking ahead, the self-help groups can do more to work closely in partnership with one another. As the Prime Minister suggested last week, they should partner other groups and agencies to run tuition and other programmes, rather than duplicate services. For example, the self-help groups are planning to organise and run a joint service centre in Toa Payoh with an integrated management and staff, and cooperating with the CDC and, if this works, we will be able to do it in other towns as well. This partnership approach will prevent us from swinging unwittingly to the undesirable extreme which the MPs have highlighted, where more and more social services and programmes are provided along ethnic lines. It will also enable us to pool resources, minimise duplication and address Mr Inderjit Singh's concern that the small self-help groups may be disadvantaged because of their limited access to funds and resources.”
“The MPs have raised points on an important subject. Our philosophy has always been to promote social integration and a common national identity among Singaporeans while ensuring that each community can retain its own cultural identity and heritage. So, we facilitated ways for Singaporeans to live, learn and socialise in an integrated environment. We have key policies in education, public housing and People's Association programmes as examples which help to maintain the common space where Singaporeans can interact with other races. But, at the same time, we cannot force the pace beyond what people are comfortable with, otherwise it will be counter-productive, because each community wants to retain its own identity and to have its own space where members can interact with one another, as Mr Sin Boon Ann says, their comfort zone. And we must also recognise that the tendency for different groups to segregate will always be present because of different customs and religious requirements. And heightened religious consciousness, strict observance of rules of diet, dress, conduct, particularly among Muslims, have accentuated this tendency to separateness. In the present situation, we need to make greater efforts to strengthen inter-racial ties, especially among the leaders of the different communities, so that we can deal with any problems which may arise. And we are actively doing this through IRCCs and via activities in the community centres to reach out and bring together Singaporeans of different races. Self-help groups are not the root cause of ethnic consciousness or of the distance between the different communities.”
“So, that is the way the world is going. How do we assure a good life for the not-so-rich Singaporeans? By making conditions in Singapore conducive so that successful people will come here, start business here, do business, live here, and provide employment and grow our economy, and enable many other Singaporeans also to enjoy the new economy and live in this new environment. That is the turning point we are at today. Question put, and agreed to. Resolved, That Parliament approves the financial policy of the Government for the financial year 1st April, 2002 to 31st March, 2003. ADJOURNMENT Resolved, "That Parliament do now adjourn." - [Mr Mah Bow Tan]. Adjourned accordingly at Ten Minutes past Seven o'clock pm. Committee of Supply - Estimates of Expenditure for the Financial Year 1st April 2002 to 31st March 2003 (Cols. 1085-1088) Chart - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1089-1090) Table - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1091-1092)”
“Mr Deputy Speaker, Sir, it has been a very long debate. So I will try and keep my answers short. What do I mean by a "chronic" deficit. I mean a situation where you find yourself running a deficit. You hope it goes away the next year. It does not go away. The next year, it still does not go away and you are unable to fix it. The European countries, most of them, are in a chronic deficit. Hong Kong now has a deficit which they fear is structural. They are hoping it is not, but it has not gone away. We have not reached that situation. In my judgment, if we reduce the direct and personal taxes and do not offset the GST, we will risk a chronic deficit. The Member thinks that we are in a happy position, and we will have an enormous surplus in 2005. I do not know what are the bases for his econometric projections. I hope he is right. If he will share them with the Ministry of Finance, maybe we will update our model. But our model does not show any such enormous surplus. It shows pressure on the Government budget, because we are needing to spend more for healthcare, for education, maybe even for housing; certainly investments in transport, trains. These have to be funded. We can either not build them or we can make these adjustments and fund them within our means, and we have chosen to do the second. This is a turning point. The rich are getting richer. That is happening the world over. Some of the richest people in Asia are in communist China. In fact, the rich ones are now being invited to join the Communist Party. Because that is the way the economy is moving. Where are there no rich people? Well, in North Korea, there are very few. In Cuba, there are also very few. In North Vietnam, there are not many, but in South Vietnam there are quite a number.”
“I fully agree with Mrs Yu-Foo that we must take heart, and we must not be discouraged. There is reason to be confident. With the economic restructuring package, we have made the first step, and we can look forward to facing the future with hope and confidence. [Applause.]”
“So before you sign on, better find out what the deal is. This is not a complete response to the challenges which face us, as Dr Amy Khor and others have pointed out. Dr Amy Khor said it is just one piece of a jigsaw puzzle. She is right. The ERC's recommendations are yet to come. We are working on it. There are sectoral policies to deal with financial services, manufacturing, other services to deal with SMEs, to deal with helping the older workers cope. We have a human resources package working on it. We have to deal with the CPF and wage issues. It will take time to work these out and implement them. But the first step is fiscal reform, and this we have done. Our competitive pressures are increasing, but we can rise up to the challenge, and I think we have strong reasons to believe that we will succeed. Our political and social stability, our market access to major economies, our pro-market Government policies, our ability to adapt to changes quickly - these are traditional strengths - we have repeatedly cited them, but they remain valid and they will help to see us through the next period. We are still competitive. We are acting now, not because we already have a problem, but because we see the problem ahead. World-class companies still find Singapore a good place for investments. We have had a big project between AMD and UMC to build a 15th wafer fab plant - $7 billion. We are attracting regional HQs from Dupont, IBM, Toyota. We are building capabilities in emerging growth areas, supporting R&D, investing in higher education, trying to anticipate the next wave, but not just on one front. We are doing the right things - getting growth and investments and making the tax changes to put our economy on a sound footing, to enjoy economic growth beyond the short term.”
“On HDB parking charges, this point will be dealt with amply, I am quite confident, when the Committee of Supply discusses Mr Mah Bow Tan's budget for MND. On older workers, this is a separate problem, not addressed by our tax restructuring package. The problem is not funding. It is not availability of training programmes. It is a matching of workers with vacancies. We have the People-for-Jobs Traineeship Programme. It has trained about 2,000 unemployed workers and executives. Some workers are still not taking advantage of it. But let us pursue these programmes. Let us try and get them to work before introducing or thinking about more permanent measures, like subsidies and rebates. Finally, Dr Amy Khor and Mr Yeo Guat Kwang asked the Government to take care of Singaporeans who are struggling to cope with economic restructuring. Yes, I fully agree that this is indeed the basis for the generous offset package for the GST, and we have given special attention to make sure that the lower-income group will not be worse off. Sir, I think I have addressed all the major points raised. I have not fulfilled all the wish lists, but perhaps it is just as well. Because, for example, Mr Inderjit Singh asked for a 30% reduction in the price of all properties. I would suggest to him to consider this very carefully because it means that all his residents, who are also my residents, will suffer a 30% reduction in their property values, and that is not likely to be considered. And if we halve the petrol tax and ERP charges, foreign workers' levy and property tax, what he has not told you is that Santa Claus comes and the bill arrives the next day, and the Government's bill to do all this may be a much higher GST than 5%, maybe 6%, maybe 7%, maybe 10%.”
“He put it in a very neat and succinct form yesterday and I would like to quote him in toto because this is something which bears repeating and which I think Singaporeans need to be reassured of. We are not going to muck around with the CPF. CPF, as Matthias said, is for retirement, housing and healthcare. Everything else should be secondary and we should not use CPF as a macro-economic tool to alter the money supply or disposable income. Workers should be receptive to changes that might be necessary if they are not to be priced out of a job. So it may be necessary for us to adjust the CPF scheme but any changes made will be phased in carefully and we will give as much time as possible for Singaporeans to adjust. And I may add what I have said before, that we promise to restore it to 40%, and that stands. It may take us some time, but we will do it. Now, I would like to address a few points briefly. On medical benefits, Members made their sentiments unambiguously known, many lady MPs and a few men too. I should explain that under the new Medisave-cum-Subsidised Outpatient (MSO) scheme, in fact, we have essentially equalised, because whether you are a male or a female officer, what you get is one extra percent on your CPF in Medisave. You have $350 worth of outpatient allowance, which you can use for yourself. At the end of the year, if you do not use it, it goes into your Medisave. The men can use it for their children, the women, cannot. But at the end of the year it goes to the women anyway. So essentially, it is the same. For the older schemes, we have not changed it yet. There is still a distinction. I am sure we will discuss that in the Committee of Supply.”
“Even if we privatised the GLCs and the Government washed its hands altogether and found a good private owner to own and manage it, they would still be formidable competitors to the SMEs. They are well organised. They are bigger. They have the depth of management expertise and they are able to deliver a service or a good and get the job done. So whoever owns the GLCs, the SMEs are still going to face severe competition. The broader question for us, as a Government, is not whether the GLCs win or the SMEs win. The question is: are the GLCs competing fairly? Is the result that the most efficient company succeeds and delivers the best service for the economy and the best value-added and the highest productivity? Or is the GLC winning because there is some inside track, some unfair advantage, some improper information which they are taking advantage of and therefore clobbering the SMEs and the private companies? If there is, they are harming the economy and we must put a stop to it. If there is not, and they are competing fairly, I say a certain amount of robust competition is unavoidable. But it is not their job to go and look for small business. Their mission is what we have defined for Temasek and Temasek will have a charter which will be published soon. Next, CPF. Mr Inderjit Singh argued for lower contribution rates in the longer term. It was one of his wish-list items. Mr Othman Haron voiced concern that workers might face difficulties with their housing commitments if CPF contribution rates were lowered. I agree with Mr Othman Haron. I also agree with Mr Matthias Yao that the fundamental objectives of the CPF should not be diluted.”
“But our policy is that we should maintain a strictly arm's length relationship between such companies and their statutory boards. In fact, we should cut the umbilical cord as soon as possible and separate them, either divest them off completely or they should go and be put under Temasek or under some other Government agency. So it is not directly held by the statutory board and there is no incentive for transfer pricing or some non-transparent arrangements, which will cause problems and inefficiencies and difficulties to the private sector. We do not post senior civil servants to the GLCs. Dr Wang Kai Yuen says we do it for talent development. I think he was being polite. We do not do it. Mr Inderjit Singh also said we have senior civil servants posted there for career rotations. We do not do that. The GLCs have their own staff. They recruit their own. They recruit on the market. They find the best they can get and if the people are not good enough, they have to go. They are run commercially by their managements. They are not run by the civil servants. The civil servants have enough to do without going into other business. Mr Inderjit Singh cited vigorously problems of GLCs stifling entrepreneurship, crowding out local companies through unfair practices, or dominating and predatory practices, compelling foreign companies to work with GLCs. It sounded awful but, unfortunately, he did not give any particulars. So I would encourage him, if he has any specific information of actual cases, to let me have the evidence. I will expunge his name and pass the evidence along, investigate it personally and put it right. Let us be quite honest and adult about this. Competition is a fact of life.”
“The Japanese have tried, the Germans have tried, other countries have tried. It is better to have schemes to help the SMEs get started, help them improve their productivity and capability, and then they have to compete and hold their own. And if they cannot hold their own, if they cannot compete, then the market has to sort it out. We hope that many will succeed, but we cannot expect none of them to fail. But the future of our economy does not just depend on the SMEs. We will rationalise the traditional SMEs. We will promote new SMEs to start, but we also need new growth areas. We also need MNCs. We also need major companies, to create new jobs to replace jobs which are being lost. The GLCs are part of the solution, not part of the problem. Many MPs have asked whether the GLCs have been stifling entrepreneurship, crowding out local players. Dr Amy Khor asked this. Mr Inderjit Singh says, why not the Government simply divest GLCs. I would if it were so simple. It is not the mission of Temasek or of the GLCs to crowd out small and medium enterprises. We gain nothing. Our job, as I explained, is to have companies which are strategic to our economy, or which have regional potential to grow and become international players. Other companies not relevant, Temasek will progressively divest when the conditions are right. At the borders, some overlap is inevitable, and it is especially troublesome with statutory board companies in the process of being completely privatised but not quite there yet. Members mentioned PWD Consultants. There are a couple of others which are in the process of being privatised, where moratoriums were given, and there is some feeling that this is not quite at an arm's length relationship yet.”
“EDB has a venture capital outfit. Temasek also has a small venture capital outfit. They want to expand, I say, "Be careful. You do not have the skills." Seed the process, yes. Kick start it. But as soon as possible, let the private sector take over. Let them do it. They know, they can judge. It is not just a matter of thumping up the money. It is also a matter of knowing whom to back, which are good risks, who will be promising, how to guide the project as it grows along the way so that it does not go wrong and you go bust. These are all very specialised skills. You need the touch, you need the experience. The Government is not in it. But even if you had venture capital in Singapore, not everybody will get funding. In Silicon Valley, only one project out of 20 gets funding. That is why the projects which do get funding are promising, because there is ruthless competition, survival of the fittest. Only the best get funding, and even then after being funded, many of them fail. So if we try to short-circuit this Darwinian process and say I will give more generously, let us hope a hundred flowers will bloom. Are you sure? You may have thrown your money away and planted weeds. So you have to be very careful talking about venture capital. We also have to be very careful in favouring small and medium enterprises for Government contracts. It sounds good, it is very popular, but it can result in inefficiency. If you want to cut back on Government spending, this is not the way to do it. Tender, best bidder, best qualified to provide the service, most efficient, best quality, wins contract, he supplies the Government. Countries which have tried to favour SMEs have found that it leads to great inefficiencies.”
“And, two, the newer SMEs in the technology line who are looking for venture capital, angels, risk money, who want enterprise, a suitable environment and so on. Their problems are different. The existing SME retail sector faces a structural problem, because there is an excess supply of shops and not enough business. It is a legacy of history. In older housing estates, MPs know we have often one shop per 70 flats, because we built the shops in order to resettle the shopkeepers. Now, the population has thinned, aged or moved out and there is no business. Whereas in the newer estates, you are talking about one shop for 120 flats. So it is more flats per shop and easier to do business. So some rationalisation is unavoidable and HDB has schemes to help shop tenants who want to exit their business to exit and they get some ex gratia payment, and then we can restructure and redevelop the neighbourhood centres and do something better of it. We have done a few and if they are successful we will do some more. We cannot solve this problem overnight, but I hope, over time, we will be able to improve business conditions for the SMEs. The new SMEs, the start-ups, they are different. They are facing difficulties securing funding, especially the tech start-ups, and they want the Government to step forward and produce the money. Well, the Government is not good at being venture capitalist. We are not good businessmen, as we are regularly reminded in Parliament, and therefore we should really stay out of it. There is truth in the criticism. We are not good businessmen. We have to let companies run commercially and where we have to put our money in, I think we should be very careful not to be left with lemons. We can, at best, kick start the process on a small scale.”
“If you look at the table which I distributed with the Budget Statement, for the rental flats you have 8-10 years' worth of offset, whereas for the lower middle income, you are talking about 6-8 years depending on family circumstances. So I think that we have been fair, given the objective of the exercise. A very popular subject for many MPs has been small and medium enterprises. The complaint has been that this Budget has done nothing for the SMEs and they have not benefited at all. In fact, they do benefit, because the decrease in the corporate income tax also benefits SMEs. Furthermore, we had a big package last year with a significant component which was focused on SMEs, the offset package in October, which was really a mini-Budget. Members may have forgotten because it was six months ago, and some were not here. So I ought to remind you that there were rental rebates, which went up to 30% of rentals. There was lower foreign worker levy, which will be reviewed at the end of the year. There was property tax rebate, $8,000 worth of property tax, the result of which is that many HDB shop-owners pay no property tax at all. And there was a 2-tier corporate tax system, which was introduced in the last Budget, the effect of which is to reduce the corporate tax payable by small and medium enterprises by half or even three-quarters. So while this Budget does not have additional specific items, significant steps have been taken, which are still in effect, helping the SMEs. I think we should distinguish between two categories of SMEs, which may get confused together. One, the existing SMEs in the retail sector, which are hurting for various reasons.”
“We have not done utilities rebates deliberately because, instead of giving household utilities rebates, which means they have to spend it on utilities, we have given them Economic Restructuring Shares. It is cash. It is better than cash because it earns good interest. If you want to use this to pay your utilities bill, that is fine. If you want to save this, that is fine. If you want to use this for some other urgent requirement, your children's school needs, uniforms, your parents' hospitalisation expenses, that is fine too. So what we have given actually is something better than an utilities rebate. And the total amount we have given you, I think, is eminently reasonable for a long transition period. Miss Irene Ng asked why we did not give a higher weighting for the poor. Our answer is that this package is meant to offset the net increases in the taxes, particularly the GST. It is not meant as a wealth-sharing exercise. It is not meant to address income inequality. We have other schemes to do that. At the right moment, under the right circumstances, we will do - whether it is New Singapore Shares, whether it is HDB upgrading programmes, whether it is lift upgrading. We have other schemes to help lower income groups, specifically. But this one is specifically designed to offset the GST package and to make sure that everybody is covered during the transition period. Even then, because of the rental and service and conservancy rebates, the lower income groups, in terms of the number of years of additional tax offset, are somewhat better off than the middle and upper income groups.”
“I can say this with some confidence because, actually, the people who are the lowest income should have no problem. Once we have ERS, it should be sorted out. I will just do one more sum. Let us say you are earning $2,000 a month. 2% extra of GST means $40 extra of GST per month. For a year, it is $480 extra of GST per year; five years, $2,400 of extra GST. Husband and wife, ERS is $2,400. Even not counting any service and conservancy rebates, even not counting any rental rebates or any Singapore Allowance, the ERS alone will cover the entire GST increase for you for five years, if your household income is less than $2,000, and there are two adults in the household. So the low-income Singaporeans will already be all right, just based on the ERS. The people who might not be all right are the ones who are not quite such low-income, but earning between $2,000 and $3,600 and they may fall between if they are living in private property, in which case, come to the CCC, we will help you. If you are earning more than $3,600 - just now, Dr Wang Kai Yuen said who is the group who suffer - he will look in vain, because even if you are earning more than $3,600, even if you are in the middle-income group, the package has been constructed such that for nearly everybody, you also have at least five years' worth of offsets. If you add in the savings on your road tax, in fact, it will be more than five years' worth of offsets if you own a car. Of course, if you smoke and drink, that is a different arithmetic, but I advise you not to smoke and to drink less. The net effect is that we have looked after nearly everybody.”
“Having considered that, we decided it is easier for us to go back to housing, but we will not make fine distinctions between 5-room, 4-room and 3-room in our main component of our offset package, which is the ERS. Let us give nearly everybody $1,200. But at the top, if you are living in a fairly large private property, which is what the $10,000 annual value means, then we will give you $600 worth of shares, instead of $1,200 worth of shares. It is a rough and ready measure, but it is approximate. Why did we even give $600, some people asked, maybe they do not deserve. Well, because I cannot be sure that if you are living in a condominium that you have a high income. As many MPs have pointed out, you may be living in a condominium and you may be a retiree and you may need the money. So, as a rough and ready measure, we said, "$1,200, and at the top, $600 worth", not perfect but reasonable and practical. Our fall-back solution, in case anybody says, "It is not fair to me" is that if any household is not fairly treated because of your circumstances - for example, you are a retiree living in a terrace house - then you should approach your CCC. Your CCC will study your case and help you through the CCC assistance scheme. Of course, if you are a low-income Government civil servant, retired, then we are going to revise the Singapore Allowance. We have not decided how much yet, but if you just do some rough sum, even if it is $10-$20 worth of a revision, that is worth a lot, in terms of extra GST payable, because that is $10-$20 per month. Therefore, we can promise that if you are the lower-income, lower half of the population, the offset package will look after you for at least five years. If you feel that it has not, see your CCC and they will sort it out.”
“Since 1997, despite the economic difficulties, we were able to build up surpluses and we had something put aside which we could use when we needed to. If we did not have that, we would not be able to have that flexibility to help Singaporeans. In any case, I really ought to point out that Mr Chiam got his sums wrong on the FY2002 Budget surplus, because we are not expecting a small surplus, as he has said. After we have made the tax changes and made the offset package, we are expecting a small deficit. Now, let me deal with the offset package. Mr Iswaran and Mdm Ho Geok Choo said that one's housing type was not a good criterion for distributing the ERS. I agree. It is not ideal. We had considered the alternative, which is to use income. But income also is not ideal and raises other problems. Let me just go through them briefly. First of all, if you had no earned income, it does not mean you are poor. Your husband may be looking after you, your wife may be looking after you, you might be living in a big house, you may have wealth. So, to go on a person's income is not quite a reliable measure. Also, we have to use the household income. You cannot look at the income of the person, but you have to look on a household basis, which means that I have to check who are all the members of the household, how much do they individually earn, tally it all up, add it together, all of which means using IRAS numbers, and then informing the household that, "I have added up all your incomes and it adds up to this amount of money, and this is what you are entitled to". I think it would be very complex and rather intrusive and many households would prefer us not to add their incomes together and tell us how much it adds up to.”
“I am not sure that I would say we are obsessed but I think we are highly preoccupied with it. We have a reason to be highly preoccupied because, unlike other countries they can always fall back on timber, oil, gas. Somebody said oil wells but, alas, it was only a slip of the tongue. The only resources we have are our people and our financial reserves. That is all. The stability of our Singapore dollar and of your savings and your CPF money depends on our maintaining healthy financial reserves and fiscal surpluses. A strong financial position instills investor confidence, it instills confidence in the Government, it instills confidence in the Singapore economy, it gives Singaporeans confidence in their country. That is why we must maintain the reserves, gradually build them up, and not lightly draw upon them. But we never say never. There will be occasions when we need to tap on the reserves in extremis. It could be an emergency. It could be a dire economic situation. It could be a security emergency, and you have to expand Government's spending and you cannot raise taxes, and you have to draw on the reserves. You never know how long the bad times will last and you should be slow to squeeze the trigger because once you spend them, it will take you very long to build them back up again. With the reserves, we have the flexibility and the capability to respond to the needs of Singaporeans in difficult times. We had an off-Budget package last year. We said $11.3 billion. Nobody blinked an eyelid in Singapore. No other government can make an offset package of 7% of GDP, $11.3 billion, and you do not need to worry where the money has come from. We could do it last year because we had reserves, and even then, only because we had been lucky.”
“The parts supplier paid $5 of GST to IRAS, because his price was $100, he paid $5. The manufacturer paid $10 of GST to IRAS because his price was $200, 5% of $200 is $10. But because the manufacturer paid the supplier $100 plus $5, so he claimed from IRAS a refund of $5, so the manufacturer paid $5. The retailer pays $15 of GST, which he collected from a consumer, to IRAS. But the retailer had already paid $10 of the GST to the manufacturer, so he gets a refund of $10 from IRAS. So the total amount of GST collected by IRAS on the television set, from the start of the process, when it was components all the way to the end when it was delivered to the consumer is $5 plus $5 plus $5, it is $15. In other words, there is no tax on tax. And if the retailer was not GST-registered, he has a small shop, then we look at the right-hand side of the page. In that case, he does not collect GST, but he has to pay $10 of GST to the manufacturer. And having paid $10 to the manufacturer, he marks up his product, and sells it for $310. He did not have to deal with IRAS. The consumer got the television for $310, instead of $315, and the SME still gets the same mark-up as before. In other words, whether the SME is registered or not, you only pay GST once on the product. Furthermore, if the SME is not registered, he is at an advantage, compared to the registered company. And when the tax went up from 3% to 5%, his advantage grew bigger, because now he can sell for $5 less. Previously, it was a $3 difference. This explains why it is not a tax on tax. It is fair, it is efficient, it taxes just once. Let me address another basic issue which Mr Chiam raised: why is this Government obsessed with surpluses and reserves?”
“I am happy to learn that he has invited Mr Chiam See Tong who has agreed to sit on the committee. Mr Steve Chia has also agreed to serve on the committee. So, it is all entirely aboveboard. We will show you the statistics. We sample, we go and measure prices across the board, and you will see the statistics. If it is up, it is up. If it is not up, I hope you will be able to vouch for it that this is what the real situation was. Finally, on GST, there are many misperceptions. Mr Leong Horn Kee pointed out some of them and Mr Hawazi too, and encourage us to do more to dispel misconceptions about the GST, and especially the misconception that GST involves tax on tax, and because it is on many stages of production, although you say it is 5%, at the end of the day, the GST adds up to more than 5%. I have prepared a chart (Cols. 1089-92) which tries to explain this. I would like to ask the Clerk to distribute this to Members and I would take you through it briefly. [Chart distributed to hon. Members.] Chart - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1089-1090) Table - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1091-1092) Let us just look at the left side of the chart. There are two examples. On the left, there are two scenarios: one, where the retailer is GST-registered; one where the retailer is not registered. Let us, just for simplicity, look at scenario A. You are buying a television set, it costs $300, without GST. You pay the retailer $300, GST of $15, so it is $315. The retailer paid the manufacturer $200 for the set. His mark-up was $100. The manufacturer paid the parts supplier $100 for the set. The manufacturer's mark-up was $100. Now, how much GST was paid?”
“Several MPs, such as Mr Heng Chee How and Mr Iswaran, have raised this question. I would say that if we did not offset the GST increase, we would have a problem. It happened in Japan. They went from 3% to 5% at an inopportune moment, people held back on spending, the economy went into a tailspin. But we have an offset package which more than offsets the GST for five years and, in fact, it is front-loaded. So, we are giving the ERS over three years to offset spending for five years. The offset package will restore the households' purchasing power and may even cause some of the households to bring forward their spending because, on 1st January 2003, if you have the offset package, you can withdraw $300 and spend it. I would not recommend it because then you would not get the bonus shares but, if you want to, you can. Will the GST raise prices? Some, but I do not think it will be a big impact. As Mr Low Thia Khiang pointed out, hawkers are not doing that well and will not be able to increase prices that much. I think he understands what the real market balance is. When we introduced the GST in 1994, there was a little bit of a blip in inflation but it was hardly noticeable. Inflation was about 2%, it went up to 3% for one year, came back down to around 2% and stayed there for a long time. This time, we are expecting zero or negative inflation in 2002, and the GST increase is only 2%, compared to 3% in 1994. So, the impact should be less and it should not trigger inflation. But, if it does, or if there are some shops, hawkers or unscrupulous profiteers who want to take advantage of this, we have a committee on profiteering who should name them, shame them and highlight alternatives where people can go to. Mr Chan Soo Sen is chairing this committee.”
“So, if we want to ponder the alternatives, even if we are not sure, I think we make this fundamental move now. Mr Chiam See Tong wants the Government to promise not to increase the GST for five years. In 1994, we promised this. When we introduced the GST, we said 3%, five years, no change. This time, I can honestly say that a GST increase within the next five years is not in my plans, and not in the Government's plans. But I cannot promise this because, this time, it is a different situation from 1994. In 1994, we were going swimmingly, the region looked good, we did not expect 10% but we expected steady growth, we calculated our sums, we felt safe for five years. Now you can have the most massive super computer, you cannot predict what is going to happen in the next five years. Will there be a war in Iraq? What will happen on the West Bank between the Israelis and the Palestinians? What will happen with Laskar Jihad in Indonesia? If you could tell me that all those would be no problem, I could give you a promise. You cannot, and we cannot promise, but it is not our plan. We have calculated our offset package based on 5% GST and a certain amount of ERS and other items, and we think that it will offset more than five years. So, that is the basis on which we are calculating. But, if the kaleidoscope turns, that is a new ball game, and it is only fair that we warn everybody. Raising the GST to 5% will be sufficient for us to cut our corporate and personal income taxes to 20% and we will not need to raise the GST again just to move the corporate and personal income taxes down to 20%. We have calculated that it is enough. We are prepared to take the loss, and we will be able just to keep our noses above water. Will the GST increase raise prices and cut consumption?”
“It is true because the economy grew more than we expected. We did not plan for 10% growth per year. We were lucky we enjoyed it. We did not plan for 5% in the middle of the crisis, but we enjoyed it. So, revenue from GST was higher than we expected. But so, too, the discounts on the personal and the corporate income taxes were higher than expected. Because revenues were buoyant, so the percentage discount was correspondingly bigger. There is no column for the discount there because it was not in the IRAS annual report. But if you had computed them, you would have seen that they too would have grown and, overall, they would, more or less, have broken even. So, the figures sounded good, the table looked interesting, but I think the conclusion was mistaken. The question is: going forward, will we be lucky to have a table looking like this again? Since 1994, we have enjoyed high growth. Therefore, revenue was buoyant. Furthermore, expenditures could be capped - the population was young, social spending was not high, we did not worry about structural unemployment, many pressing demands on our exchequer. The question is: do we believe that we are at a turning point, that the world has changed, that going forward, what was will not again be? If we believe that the world has changed, then can we really not increase the GST and raise the extra $1.3 billion? On the other hand, if we believe, as Mr Tan says, the economic pie will expand, then we have no problem. If he is right and I am wrong, then the Government will be in a happy position of sharing out the surpluses. If he is wrong and, unfortunately, we are right, this is a turning point and we did not take the bend and we went off the road, then our problems will be very, very serious.”
“Whether it is $1, $100 or $100 million, that is Government money. Do not spend it unless you absolutely have to. In fact, when we built this Parliament House, we had a special committee to make sure that it did not end up too plush, and Mr Tan Soo Khoon will know. He was Chairman of the committee. If you go around and you find the furnishings somewhat spartan, you will know it is the good work of the former Speaker. And that is what we should do with all our buildings. But even if I turn all our buildings back to Central Supplies Office furniture and put MPs on Government issued benches, it will not come to $1.3 billion. So we have to do this. Mr Tan Soo Khoon raised several basic points about the package. First, he questioned whether the 1994 package of GST, plus direct tax reductions, was in fact revenue-neutral. He showed us a table, he raised some questions but, if I may refer Members to the table, I think it does not show that the package was not revenue-neutral. What we said, when we introduced GST in 1994, was that for the first five years we will be revenue-negative, because there are offsets, there are expenditures to ease it in. After five years, we hope to be revenue-neutral. If we look at his Table 2, , Actual Surplus, we started off with an actual surplus of $8.5 billion in 1994, it went down in 1995 to $6 billion, thereafter it fluctuated: $2 billion, $5 billion, $1 billion, $5 billion and $4 billion. So it shows that the surplus has gone down. Our expenditure has varied some too. But, overall, it does not show that our surplus has gone up. So, on this basis, there is no reason to believe it was not revenue-neutral. Table 1 shows that the revenue from GST was more than we expected. Yes, that is true.”
“If it turns out that things are better than we expected and we collect more revenue than we estimate, I would say that is a happy problem. But the solution to that problem is not to reduce the GST. I say keep it at 5%. If I have surpluses, I can share the surpluses. If the economy does well, I can have New Singapore Shares. Alternatively, if my revenues are strong but it is a competitive environment which has become even more competitive, I have the flexibility to bring my direct taxes down further, below 20%, to 19% or 18%, depending on what we need and how soon we need to move. But it gives us options, cards, which we can play in a game where we do not really know what the rules are and every card we have, we better keep in our pocket and save for a difficult moment. This is not yet a difficult moment. This increase in GST, we expect, will raise $1.3 billion extra of tax revenue per year. This is assuming growth is about 4%. If growth is more, then there will be more revenue. If we forgo this increase in GST, that means we are giving up $1.3 billion of revenue a year. In other words, we will have to reduce Government development expenditure by 15% in order to balance the Budget. And $1.3 billion is roughly equal to one year of HDB upgrading and public housing subsidies. It is not a small sum. We will save on buildings, we will save on renaming, we will make sure that all our little expenditures are well justified and, where MPs have questions, whether it is A*STAR, SPRING Singapore or the furnishings in some buildings, raise them in the Committee of Supply and argue about them. The Ministers will defend and justify what they have done. And I fully sympathise with the sentiment that we should be very careful when we spend public funds.”
“The reason we are sitting pretty today is because we have not allowed this procrastination to happen and allowed ourselves to drift into a weak fiscal position. And if we put it off until we are really in difficulty, and then implement a goods and services tax, will we be able to do it as now, with a comprehensive package to make sure that everybody can accept it and ease it in so that in five years' time, after the package is over, the tax is in place, the economy has grown and everybody is all right? If I do it five years from now, will Mr Low or even Mr Inderjit Singh stand up and tell me, "Well, now we are in straitened times, let us proceed, we will take it cold turkey, no need for offset package." I cannot see that. So I think we better take it now. We have an offset package that looks after nearly every Singaporean. Let us get over this hurdle and then a new vista will open, and we have new possibilities. Some MPs, of course, have asked whether we need to raise GST at all - Mr Low Thia Khiang, followed by Mr Tan Soo Khoon and a few others. I would say that raising GST to 5% is the anchor move in this tax restructuring strategy. We are bringing down our direct taxes, we are bringing up GST. The key parameter, the key shift, is to move the GST from 3% to 5%. We fix that, then we will adjust the other parameters, depending on what we can afford and how the economy turns out and what the external circumstances are. We have calculated that if we go from 3% to 5% with the GST, we can afford to bring down direct taxes to 20% by FY2004 and, at the same time, we can afford to fund all the programmes we need. It is going to cost us about $1 billion in revenue lost but, if we do our sums carefully and we are careful with our expenditures, I think we can afford that.”
“Recently, the Economist Intelligence Unit rankings have placed us first in Asia, ahead of Hong Kong, and mainly in recognition of our planned tax cuts and our avoidance of budget deficits. And, recently, over the weekend, I had a visitor from America who runs a think-tank. He spent a few weeks in the region, including Singapore, and he congratulated me on our Budget. He said, "You are doing absolutely the right thing, bringing down the direct taxes, shifting over to consumption tax, encouraging enterprise and investments." If he thinks that, and if his think-tank reflects those views, I think other Americans will also know and it will make a difference. If we do not do this, of course, then the chances of our maintaining 4%-6% growth in the medium term will be considerably dimmed. Granted that we have to do this, is the timing right? Mr Iswaran and Mr Inderjit Singh and others have questioned the necessity of raising GST in 2003. Why not put it off? After all, we have an offset package, so it is not going to raise much revenue next year, so why not do it later on, five years from now? I think we are at a turning point. Let us take all the measures we have to do and do them now, take our medicine and, if we can have a bit of sugar to go with it, let us have the sugar to go with it, but the medicine is in place. You say push it off - maybe I do not have a deficit, can push it off; maybe the deficit is not permanent, push it off; maybe it is not a big permanent deficit, push it off further; maybe I can afford a permanent deficit because I have reserves. Eventually, we will be in a chronic position, unable to salvage our situation.”
“If you take this whole package together, in fact, for the vast majority of Singaporeans, the amount which you receive in benefits very far outweigh the amount which you pay in tax, and adjusting the GST is just a small correction to this overall balance. We did a calculation once that, for a household around the median, $50,000 annual income, 4-room HDB flat, tax burden overall, all things considered, would be $7,500 a year; benefits in kind, $18,600 a year, more than double. So I think we can stand up honourably and proudly and say we are doing the right thing for Singaporeans. Many MPs have asked me in this debate: will it work? Mr Yeo Guat Kwang raised this, Dr Chong Weng Chiew raised this, and Mr Low Thia Khiang asked this too. Will it work? If you cut CIT, PIT, if you raise the GST, will business come? We cannot be sure. As many MPs have pointed out, there are other factors at work, there is a pull of China, there is a concern over the region, there is the smallness of our market and the image of Southeast Asia as being not an exciting place to be. In fact, there is no image because it is off the radar screen for many investors. But all the more, because of these negative factors, we must get our tax rates right and register that if you do come to Singapore and you do make money, then it is worth your while to be here. Direct taxes are the primary fiscal tool that the Government can use to attract investments and talent. It is not everything, but it makes a difference. Once we read the Budget speech, EDB, always fast off the mark, went and knocked on doors in America to try and get new business, and they have reported that American companies have fed back that they have taken note of our Budget package. They have noted that we have made the right fiscal moves.”
“But we have to look at the whole tax system which is very progressive, and the whole tax system includes personal income tax, corporate income tax, property tax, which is a wealth tax, and includes taxes on cars, which is a very heavy wealth tax even after these changes, and it includes the GST. After we have done these restructuring, after we have brought the corporate and personal taxes down to 20% and pushed the GST up to the horrendous figure of 5%, we will still only be collecting $4 billion in GST, compared to $12 billion of revenues from corporate and personal income taxes. In other words, direct taxes will still account for three times as much revenue as our GST, and two thirds of working Singaporeans do not pay personal income tax. So if we take the tax system as a whole even after this change, it will be a very progressive tax system, not just looking at it in itself, but looking at it compared to other tax systems in other countries. For example, in Britain, you pay tax almost from the first pound you earn, 20 cents per pound, or thereabouts. But in Singapore, we say the first $20,000 is yours. So, let us not get carried away by rhetoric added in the middle of the night. If we account not just for the tax system but also for the expenditure, the spending of the Government, then you will see that, in fact, we have an even more progressive system than that. Because the Government's social spending is very heavily focused on the lower income groups, our housing subsidies, our HDB flats, subsidised rents, free education, almost free or very cheap tertiary education, subsidised basic medical care.”
“If we had stayed where we were, 40% in 1985, you can say you are happy to pay tax, and maybe Mr Tan Soo Khoon will be happy to pay tax truly, but I do not know how many others would be, and we would not be sitting pretty today. So, in the same way as we go forward, we have to bring our direct tax rates further down, and we have to bring our GST up. Some MPs, Mr Ong Kian Min and also Mr Low Thia Khiang, have described this as a tax change which will only benefit the rich. One of them put it colourfully, although not very originally, by the rich, for the rich, of the rich. But, in fact, this is a tax change to benefit the whole economy. The way to help Singaporeans, and especially lower income Singaporeans, is not to tax the better off Singaporeans as heavily as possible. If that were the way to prosperity and nirvana, it would be quite simple. I just push the tax rates up, 40%, 50%, 60%, collect, redistribute. Happiness all round. But if you try to do that, the high income individuals and certainly the profitable companies would leave Singapore together. We would lose the jobs that they created as well as the taxes which they would have been paying. As Mr Matthias Yao put it picturesquely, you can rob the Sheriff of Nottingham, but the Sheriff has gone off to Hong Kong, and he is on his way to Shanghai. When that happens, all Singaporeans would be the worse off for it. Low income Singaporeans do not pay personal income tax. So they will not benefit directly from the cuts in the income tax, but they will benefit. They will benefit from the increased growth, they will benefit from the job opportunities that the tax cuts will foster. Mr Tan Soo Khoon says that GST is regressive. Yes, it is.”
“Mr Deputy Speaker, Sir, I thank all the MPs who have spoken and the many who have supported the Government's financial policy for this financial year. These tax changes are a vital part of our economic restructuring efforts to secure economic growth and to create new jobs for Singaporeans. I stated the rationale in the Budget speech. To create jobs, we need to attract investments and talent to Singapore. To attract investments and talent, we must bring down our taxes and, particularly, we have to bring down our direct taxes - the corporate income tax and the personal income tax. That is the only way we can be competitive in attracting companies and talent here. But if we bring down our direct taxes, we are going to have a shortfall in revenue and to make up the shortfall in revenue, we have to raise the GST. This is not a quick fix for this year, or for next year, but it is a strategic shift for the medium and long term for Singapore. I am happy that the growth this year is turning out well. But that is not the measure of our success. Our measure is that the economy continues to grow 4-6% per year for the next decade, and to deliver prosperity to Singaporeans. How much difference will this shift in taxes make? It is hard to quantify. But it is quite clear that if you look back over the last 17 years since 1985, had we not made a strategic shift from corporate and personal taxes at 40% in 1985, progressively down to 33% after the recession in 1985, then down to 28% when we introduced the GST, then gradually down to around 25% today, we would not have had the high growth which we enjoyed, nearly 10% per year after 1997, and even in the last five years, nearly 5% per year.”
“Mr Speaker, Sir, it is both a revenue measure and also a form of vehicle usage control. It is less important as a usage measure now because we have the ERP, but it is still not insignificant. OLDER WORKERS The following Question stood in the name of Ms Irene Ng Phek Hoong - 7. To ask the Minister for Manpower (a) what is the success rate of job-matching for workers aged above 40; (b) how many older workers have been employed under the People for Jobs Traineeship Programme since it was introduced and (c) whether his Ministry has received complaints of age discrimination in the job market and, if so, how does it address this concern of older workers.”
“Mr Speaker, Sir, for every dollar of the retail pump price, 35 cents go to petrol duty and 3 cents to GST. Petrol duty was reduced from 40% to the current 35% last October as part of the off-Budget package to help Singaporeans cope with the economic downturn. I do not propose to further lower the duty on petrol. Singapore's pump prices and petrol duty are not excessive compared to those of many other countries. For example, in the UK, the price per litre of petrol is about S$1.90. In Japan, it is about S$1.80; in France S$1.62. In Singapore, the average price is about S$1.20. The price of petrol in Malaysia is about half of that in Singapore. But Malaysia is an oil-producing country and the retail price of petrol is subsidised and controlled by the Government, and kept well below world prices. As for petrol tax, it is up to 78% of the petrol price in the UK. In France and Japan, the tax on petrol is about 73% and 56% of the price, respectively. Singapore's petrol duty is 35% of the pump price.”
“Mr Speaker, Sir, the Government grants income tax rebates for procreation to encourage working parents who pay income tax to have more children. The income tax rebate is not meant to be a general tax rebate or a grant which a parent may use to offset other taxes. PETROL (Tax dollars earned and tax reduction) 6. Mr Steve Chia Kiah Hong asked the Deputy Prime Minister and Minister for Finance (a) what is the amount of tax dollars earned for each litre of petrol consumed at petrol stations; and (b) whether, in view of the rising petrol prices, there are plans to reduce the petrol tax.”