Richard Hu Tsu Tau
Singapore
“Sir, I think it is eminently fair, because the proposal really is for the Government to spend money to give shares to Singapore citizens. Either you agree or you do not agree. Or, if you agree, perhaps you consider the amounts insufficient or too much.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time". The purpose of this Bill is to make provision in accordance with Articles 148(2) and 148C(2) of the Constitution for additional expenditure in excess of the provisions authorised by the Supply Act, 2001.”
“I think the Prime Minister and DPM Lee have already explained it will be based on income levels, with people living in flats as a proxy. So there is no political content in it. It depends on the income level, whether you have served national service or whether you are an elderly person.”
“I really do not understand. I know you are arguing on technicality for which I agree that you may have a point. But, nevertheless, because it is a proposal to share Singapore's surpluses with the population, the distribution is not something which you can argue against.”
“As I said, the estimates will be available around mid-October. I do not think, at this time, I want to give a specific date when the second package will be announced, but it will be done as soon as practicable. IN-PRINCIPLE AGREEMENT WITH MALAYSIA ON OUTSTANDING BILATERAL ISSUES (Assessment) 4.”
“Mr Speaker, Sir, when the $2.2 billion off-Budget package was announced in July this year, we said that the Government would do more to assist Singaporeans if the global economic situation worsened in the coming months.”
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“These measures will help to further develop the syndication market in Singapore. They will take effect from 1st April 1998. Tax Deduction for General Provisions Made by Banks and Merchant Banks In 1991, we introduced an incentive to encourage banks and merchant banks to build up their level of general provisions as a cushion against unexpected losses. Each year, banks and merchant banks are allowed to claim tax deduction on general provisions of up to 25% of qualifying profits or 0.5% of qualifying loans and investments, whichever is lower. For each bank or merchant bank, the level of tax deductible general provisions on a cumulative basis cannot exceed 3% of qualifying loans and investments. Many banks and merchant banks have taken advantage of this incentive to build up their general provisions. This has helped to enhance the soundness of individual banks and merchant banks, and also the financial system, especially during this period of regional financial turbulence. To encourage banks and merchant banks to further build up their general provisions, I have decided to temporarily suspend the annual limits of 25% of qualifying profits and 0.5% of qualifying loans and investments for a period of two years with effect from Year of Assessment 1998. This will give banks greater flexibility to make as much general provisions as possible to cushion against potential losses arising from the regional financial difficulties. The overall limit of 3% of qualifying loans and investments, which was raised from 2% last year, will remain unchanged. Extension of Tax Holiday for SIMEX The Singapore International Monetary Exchange Limited (SIMEX) was granted a 5-year tax holiday when it was first established in 1984.”
“The incentive also granted a concession to resident individual unit holders who were taxed only on 10% of the distributions made out of gains from the disposal of securities. To make investments in unit trusts more attractive to resident individuals, I have decided to remove the tax imposed on resident individual unit holders for 10% of the distributions paid out of gains from the disposal of securities. Further, to simplify the management of unit trusts, I have also decided to remove the withholding requirement on taxable distributions made to unit holders who are tax residents of Singapore. Unit holders who are tax residents are however still liable to pay tax on the distributions. The changes will take effect from 28th February 1998. Tax Exemption Scheme For Syndicated Offshore Credit And Underwriting Facilities The tax exemption scheme for syndicated offshore credit and underwriting facilities was introduced to promote the development of loan and debt syndication activities in Singapore. Under the scheme, income earned by financial institutions in Singapore from arranging and participating in syndicated facilities denominated in foreign currencies for non-resident borrowers is exempt from tax. The scheme has resulted in the growth of the loan and debt syndication activities in Singapore. In the past three years, an average of $13.5 billion of such facilities were syndicated by financial institutions in Singapore annually. The scheme is due to expire on 31st March 1998. I have, however, decided to extend it for another five years. In addition, I have also decided to extend the scheme to credit and debt facilities which are syndicated by financial institutions in Singapore for Singapore borrowers, provided the funds raised are used outside Singapore.”
“I have therefore decided to introduce a package of incentives to promote the development of an active bond market in Singapore. They are: (a) tax exemption on fee income earned by financial institutions in Singapore from arranging debt securities in Singapore, including the underwriting and distribution of such securities; (b) a 10% concessionary rate of tax on interest income earned by financial institutions and corporations in Singapore from debt securities arranged by financial institutions in Singapore; (c) tax exemption on interest from debt securities arranged by financial institutions in Singapore and earned by non- residents who do not have any permanent establishments in Singapore. The exemption will apply automatically to debt securities which meet the criteria. There will be no need to seek approval for the tax exemption for each debt issue as is currently the case; and (d) a 10% concessionary rate of tax on income earned by financial institutions in Singapore from trading in debt securities. The new tax treatment for fee and interest income will apply to debt securities issued within a period of 5 years commencing 28th February 1998. The incentive for income earned from trading in debt securities will be granted for a period of 5 years from 28th February 1998. Taxation of Unit Trusts In the 1995 Budget, I introduced a tax incentive to promote the domestic unit trust industry. Under this incentive, income except Singapore dividends received by a designated unit trust would be taxed at the time of distribution instead of at the time when the income was received by the trustee. The trustees are however required to withhold tax on the taxable distributions.”
“To encourage more fund managers to expand their operations in Singapore, I have decided to lower the threshold requirement to qualify for the full tax exemption. Fund managers which manage at least $5 billion of non-resident funds will now enjoy the full tax exemption for fee income earned from managing non-resident funds for a period of 5 years. This will replace the existing concessionary tax rates of 5 and 0% for fund managers which manage $5 billion and $10 billion worth of non-resident funds respectively. For those which already manage $5 billion of non-resident funds and have made strong commitments to further increase their level of fund management activities in Singapore, a longer exemption period of up to 10 years may be considered. In addition, fund managers which manage less than $5 billion of non-resident funds may qualify for the tax exemption for up to 5 years if they increase their fund management activities in Singapore substantially. MAS will negotiate these conditions with individual fund managers, on a case-by-case basis, in the same way that EDB negotiates pioneer status and investment allowance awards with individual companies. This new incentive scheme will be effective from Year of Assessment 1999 and will be reviewed after 5 years. Tax Incentives to Promote the Bond Market Singapore has grown in importance as a regional centre for the issue of bonds and other debt securities. However, our bond market is still less developed compared to our equity market as most corporations still prefer to raise funds through equity listing on the stock exchange or through direct borrowing from banks. This is generally true of most markets in Asia. A vibrant bond market is important to the overall development of Singapore as an international financial centre.”
“In particular, there will be a package of incentives to promote the development of the financial sector. These refinements will sharpen our competitive edge and ensure that when the region recovers, we will be ready to take advantage of the opportunities. Let me now deal first with the tax changes for companies. TAX CHANGES FOR COMPANIES Tax Incentives to Promote Fund Management Currently, fund managers approved under the Tax Exemption Scheme for Fund Management enjoy a concessionary tax rate of 10% on the fee income earned from managing non-resident funds. In addition, fund managers which manage at least $5 billion worth of non-resident funds can also enjoy a reduction in the tax rate to 5% on the incremental income earned compared with the previous year. Further, those which manage at least $10 billion of non-resident funds are totally exempt from tax for the income earned from managing non-resident funds. These tax incentives, coupled with the Government's decision to place more public funds with the private sector for management, have boosted the growth of our fund management industry. In 1996 alone, total funds managed by financial institutions in Singapore jumped 45% to reach $125 billion. While growth in the fund management industry may have slowed somewhat amidst the current financial turmoil, we remain optimistic about Singapore's long-term potential as a major fund management centre in the region. I have therefore decided to introduce further measures to enhance the competitiveness of the industry. These complement the initiatives to promote the fund management industry, announced by DPM Lee on Thursday, 26th February.”
“The regional crisis has clearly demonstrated the importance of such reserves, especially for a small and open economy like ours. If not for our strong fiscal and reserves positions, our currency and stock market would have been much more severely affected by the fallout from the financial crisis. The comfortable reserves position which we enjoy today is the result of prudent fiscal policies steadfastly pursued in the past 30 years. We are committed to continuing with these policies, and remain confident that our strong fundamentals will carry us through the current financial turmoil. For the FY98 budget, substantial increases in infrastructure expenditure will provide stimulus to offset slowdowns in sectors affected by the regional crisis. Although GDP growth is expected to slowdown substantially this year, a decline to negative growth is not foreseen, so major stimulus initiatives are not contemplated at this time. Our tax rates remain competitive and no major tax changes will be made against a background of declining revenue collections and rising development expenditures. However, as the economic outlook in the region this year is volatile and unpredictable, the situation will be closely monitored. If a sudden downturn should take place, Government will not hesitate to respond with off-budget measures, as we have more than adequate resources to cope with any eventuality. In the interim, we will make some adjustments to lower the cost for businesses. We will also provide some assistance to individuals and households to help them tide through a more difficult year. I will elaborate on the details later. In addition, we will continue to fine-tune our tax incentives to promote activities with high growth potential.”
“Mr Speaker, Sir, let me turn next to the fiscal position and the proposed tax changes. Revenue growth is expected to slow in 1998 in tandem with slower economic growth. Estimated revenue collection is $29.9 billion, while operating and development expenditures are budgeted at $27.2 billion. The operating surplus for FY98 is therefore expected to be $2.7 billion or about 1.7% of GDP. As a percentage of GDP, the surplus is much lower than the average of nearly 7% achieved over the five years between 1991 and 1995 and even lower than the 3.8% average of 1996 and 1997. Apart from the direct impact of the regional turmoil on lowering growth and revenue in FY98, there are two other reasons for the smaller surplus. One is a general slowdown in the growth of revenue collection due to the cumulative effects of tax cuts introduced over the past 12 years. The other is the substantial rise in development expenditures in recent years. Over the 5-year period between 1991 and 1995, development expenditures averaged 4.3% of GDP per year. In 1996 and 1997, development expenditures jumped to nearly 6.5% of GDP when we embarked on major programmes to upgrade and expand our economic and educational infrastructures. Development expenditure will rise further to 7.5% of GDP in FY98 as implementation of the Education IT Master Plan, North-East MRT Line and land reclamation programmes accelerate. These expenditures are expected to peak in FY99. Despite slower revenue growth and higher development spending, the forecast surplus of 1.7% of GDP will allow us to continue with the policy of adding to our surpluses each year. The need to build up our financial reserves cannot be over emphasised.”
“This includes $150 million in capital grants to HDB, $350 million for the main upgrading programme, and another $130 million for the interim upgrading programme.”
“2 billion is provided for the North East MRT Line, Changi MRT Extension, Bukit Panjang LRT, Sengkang LRT, a new MRT station at Singapore Polytechnic and the construction of a building directly above and integrated with the Dhoby Ghaut MRT station. Also on the cards are several improvements to our road network, such as the upgrading of expressways and the building of new junction interchanges and roads to ease congestion for faster movement of people and goods. As a result, spending on economic and infrastructural development as a whole is set to more than double from 1.3% of GDP in FY93 to 3.1% of GDP in FY98. For the second consecutive year, it has overtaken social and community services as the top priority in development spending. But this has not been achieved at the expense of reduced development spending on social and community services. In fact, development spending on social and community services has also risen steadily and strongly over the past five years, from 1.7% of GDP in FY93 to 2.7% of GDP in FY98. This is driven mainly by increased spending on education projects, which will almost double, from 0.7% of GDP in FY93 to 1.2% of GDP in FY98. Spending on drainage, sewerage and waste disposal facilities under the Ministry of the Environment has also gone up three-fold from 0.2% of GDP in FY93 to 0.6% of GDP in FY98. On the slate are a fourth incineration plant, a landfill at Pulau Semakau, and the upgrading of various sewerage works and facilities to expand processing capacity to accommodate future demand. Capital expenditure on public housing is expected to remain at about 0.5% of GDP, increasing by 8% to about $790 million.”
“As Singapore's economy graduates from the ranks of developing country status to an advanced developing economy, we will face new challenges and stronger competition. We will need to quicken the pace of economic infrastructural development and renewal, and to accelerate the development and education of our workforce. Notwithstanding the current regional economic turmoil, we intend to implement all the essential development programmes. We will then emerge stronger and more robust once the storm blows over in this part of the world. Economic development programmes under the Ministry of Trade and Industry are expected to cost $2.8 billion and account for the largest share of development expenditure. Its share of GDP will rise from only 0.3% of GDP before FY95 to 1.8% of GDP. The thrust of development is in land reclamation on Jurong Island to meet expansion needs of the petroleum, petrochemical and chemical industry, an important and growing arm of our manufacturing sector. More than $1 billion is committed in FY98 for reclamation of 1,800 hectares and a road link to Jurong Island. In addition, another $420 million has been earmarked for on-going reclamation and development at Tuas View. Funds are also provided under the Economic Development and Assistance Scheme, and the building of a mega exhibition centre, a centrepiece of the Tourism 21 plan. Communications ranks second with a development budget of $1.8 billion. This is 1.2% of GDP, doubling from 0.66% of GDP in FY96, as we are committed to create a world-class land transport system. A sum of $1.”
“We believe that extensive welfare programmes damage the fabric of our society as they diminish individual responsibility, self-reliance, community support and the work ethic. Even in the UK, the Government has realised that welfarism is not the right way to go, and is trying to roll back many of the welfare programmes and policies introduced after the Second World War. Our approach is one of many helping hands, with co-funding from Government and public donations, and services rendered by volunteers and members of the community. Development Expenditure As a percentage of GDP, we spend much more on development than the G-7 economies. This reflects the emphasis we place on building up a world-class infrastructure, focusing on areas which bring high returns and lasting benefits. We will invest in infrastructure to support economic activities. We will develop a first-rate road and rail network system to transport people and goods efficiently and more industrial land will be made available through reclamation. School buildings and teaching systems will be constantly upgraded to prepare our young to deal with future challenges in the workplace and society. We will continue to invest in affordable and good quality public housing, and in modern drainage, sanitary and waste handling systems to support healthy living. Not least, we need to constantly upgrade our defence and internal security infrastructure so that our families and assets are well protected. Over the last three years, that is, FY95-97, spending on development has risen steadily from between 3-5% of GDP prior to FY95 to 6.3% in FY97, and now, to 7.5% in FY98.”
“Since annual increases in cost factors are generally lower than GDP growth, any increase in running costs as a share of GDP is due entirely to new programmes and higher workload. Transfers, the other component of operating expenditure, are budgeted at $1.2 billion. These constitute less than 10% of operating expenditure. More than half will go to restructured hospitals as healthcare and medical subsidies, another 16% will go to town councils to subsidise estate management costs, and 10% will go to welfare and community self-help organisations. This reflects the Government's philosophy on subsidies. Subsidies are given selectively, and only on essentials such as basic healthcare and public housing on a cost-sharing basis. For example, medical subsidies on hospitalisation are fixed as a percentage of charges and skewed heavily in favour of the lower income groups. At the same time, genuine cases of dire need are never ignored. Medifund, set up in 1993 as a fall-back for those who cannot afford to pay their share of medical cost, is expected to pay out some $18 million in medical subsidies in FY97 to cover the needs of those who cannot afford even the heavily subsidised C class charges. Since its launch, the Medifund has received $600 million in transfers from the Government to build up its capital endowment. Based on the current level of capital in the fund, projected income will be adequate to meet projected drawdowns in FY98. I do not therefore propose to make an additional transfer of capital to the Medifund this year. The absence of large scale public assistance programmes reflects the Government's stand on state welfarism.”
“This is the result of a deliberate policy to keep the public sector lean and trim, avoiding welfarism and confining Government's role to one of providing basic public goods and services, thus freeing more manpower and financial resources to the private sector as the engine of growth. At the same time, the growth of operating expenditure will not be held down dogmatically without regard to public expectations for new and higher quality services as well as increased workload. Where warranted, we will provide for increases in operating expenditure. Since 1994, we have also introduced a financial management system called Budgeting-for-Results or BFR, to raise the quality and efficiency of public services. Under the BFR programme, the public sector is managed along the lines of Autonomous Agencies, or AAs. With effect from April last year, all AAs are required to pre-specify output and performance targets that they hope to achieve for the budgets voted to them in return for greater autonomy in financial and personnel management. Wherever possible, they will attempt to link their outputs directly to their funding. In this way, there is greater accountability for deliverables, and transparency in the utilisation of public resources. The aim is to ensure that public sector recurrent spending does not outstrip nominal GDP growth rate, with compensation made for increased workload and new programmes and services. The BFR framework is appropriate and effective in regulating the running cost of Government departments and Government-funded statutory boards. Running costs constitute more than 90% of our operating expenditure.”
“We can take pride in having developed an educational system which we believe is one of the best in the world. Our students' performances have been outstanding in international mathematics and science surveys and Olympiads. This year, higher enrolments are projected in schools and tertiary institutions, leading to a 12% increase in operating expenditure. The main boost in the education budget however comes from a 80% increase in development spending on the building of new and better schools and campuses, the single session secondary school building programme and the roll-out of the IT Master Plan in schools. Defence spending will amount to 4.6% of GDP, up from 4.4% in FY97, but still well below the 6% of GDP that Government is prepared to commit to develop and maintain a strong and credible defence force. So long as revenues hold up, we should not slacken spending in this area since the security of our nation is the very basis of our survival and prosperity. With the emphasis on education, the social and community services sector as a whole will account for the lion's share of 37% of total expenditure in FY98, with security coming in close at 34%. The share of spending on economic and infrastructural development will exceed 20% for the second consecutive year, up from an average of only 15% over the period in FY93-96. The increase in this sector is driven by higher development spending. Operating Expenditure Operating expenditure in FY98 is expected to be 9.8% of GDP. As a share of GDP, this is consistent with levels in previous years, barring the one-time compensation of $1.5 billion to SingTel in FY96 for removal of monopoly privileges. At around the 10% GDP level, our operating expenditure is also considerably lower than that of most developed countries.”
“As mentioned earlier, this will mainly be in the areas of education, economic infrastructure and defence. However, because of the considerable uncertainties which continue to overhang the region, we will exercise fiscal restraint in other non-crucial areas of expenditure. The FY98 Budget Estimates have been prepared on this basis. FY98 EXPENDITURE ESTIMATES Total Government expenditure in FY98 will increase by 15% to $27.2 billion. This is more than double the expected nominal GDP growth rate, which will provide some fiscal stimulus to the domestic economy. As in past years, we have however continued to keep a firm rein on operating expenditure, which will rise by 7.8% to $15.5 billion. This is 9.8% of GDP, up marginally from 9.7% of GDP in FY97. On the other hand, development expenditure is expected to jump by 25% to $11.7 billion, carried by the momentum of economic and infrastructural development which began in recent years. This accounts for 7.5% of GDP, up by more than 1 percentage point from 6.3% of GDP in FY97. I will now highlight the salient features of this year's expenditure budget against the backdrop of our budgetary policies. EXPENDITURE PRIORITIES Overall, this year's budget continues to emphasise the Government's priorities on education, security, health, public housing, environment, transportation and economic development. Chief among these are education and security which have a strong bearing on Singapore's long-term strategic interests. Total spending on education will rise by a hefty 30% from $4.4 billion in FY97 to $5.7 billion in FY98. The jump from 3.0% to 3.6% of GDP brings our spending on education closer to the medium-term target of 4% of GDP.”
“Provided stability is maintained and effective reform measures are implemented, market confidence will be gradually restored in the regional economies and further fall-out will be minimised. But if reform measures are unsuccessful or stability is shaken, it could trigger off further uncertainty and economic difficulty. The regional crisis will affect the Singapore economy significantly in 1998. We must all be prepared for the slower growth. However, Singapore is in a strong position to weather this regional storm. Provided businesses, workers and the Government rally together, we will successfully weather this difficult period and emerge more resilient. Intense economic competition is already a reality. When the region recovers, the regional economies will be leaner, fitter and more competitive. Singapore must use this time to invest wisely, restructure, consolidate and build up our capabilities and productive capacities. Whether we can ride the next wave of growth when the region recovers depends on whether we continue to add value to the world. II THE FY98 BUDGET Mr Speaker, Sir, let me now present the Budget for Fiscal Year 1998. EXPENDITURE POLICY Operating revenue in FY98 is expected to grow by 3.8% in FY98, lower than the average growth rate of 6.7% over the past three years. This is due to the effects of lower economic growth and the follow through of tax cuts introduced in previous years. Notwithstanding the slower increase in revenues, our revenue base remains robust and a deficit budget is not envisaged. Adequate funds will be available to maintain, and even increase, where necessary, expenditures needed to support long term growth and future competitiveness.”
“It plans to release a total of 2,500 units for private residential development in the second half of 1998. We will continue to monitor the regional and domestic situation, and if necessary, adjust the land sales programme again. The policy to release sufficient land over the medium term to meet Singaporeans' aspirations to own private properties is unchanged. The Government will resume selling a steady supply of land when the market recovers. Executive Condominiums Like private residential properties, the demand for Executive Condominiums has also been affected by the economic slowdown. The Government will reduce the land supply for Executive Condominiums in 1998 from the 3,000 units originally announced to 1,500 units. Commercial Space & Hotel Rooms The Government will release land for about 80,000 square metres of nett commercial space in 1998. This is about half the 166,000 square metres made available in 1997, and takes into account the demand and supply situation in the medium term. As there are enough hotel rooms to meet the needs of the tourism industry in the medium term, the Government will not release any land for hotel development in 1998. The Ministry of National Development will separately announce details of the sites to be released in 1998 for private residential properties, Executive Condominiums and commercial development. The Government will also be making some tax changes and concessions to help ease business costs. I will elaborate on the details in a later part of my speech. CONCLUSION The regional financial crisis arose out of financial excesses and a rapid erosion of investor confidence.”
“These steps were part of the Government's continuing efforts to review and moderate cost pressures on businesses. JTC and HDB will now extend additional rental concessions to their tenants and lessees. (a) JTC and HDB will freeze their posted land rentals for an additional 12 months, till end June 1999. They will moderate rental adjustments for their industrial land lessees who are paying less than the posted rates. (b) JTC will freeze the posted rentals of its factories, workshops and warehouses till end June 1999, and similarly moderate rental adjustments for existing tenants. (c) To help tenants and lessees who may have temporary cashflow problems, HDB and JTC will make upfront collections of rental payments monthly rather than quarterly. JTC and HDB will be releasing more details of these concessions separately. (E) Government Land Releases Another area of concern is the health of the property market in Singapore. An unstable property market will not only affect the property value of homeowners, but also has repercussions on the financial and economic system. In November, the Government announced adjustments to the private residential policies to avoid aggravating the excess supply in the market. The sale of sites for some 2,000 units from the 1997 Government Land Sales (GLS) programme was deferred to the first half of 1998. The 1998 GLS programme was postponed until the second half of 1998, and the original sale quantum of 5,000 units was to be reviewed. But the situation has altered considerably since November. The Government has decided on further adjustments to its land sales in 1998 as follows: Private Residential Properties The Government will defer the sale of sites for 2,000 units, scheduled for the first half of 1998.”
“For services companies, the cap on maximum employment size will be raised from 200 to 300 employees. Second, the Government will share a greater part of the risk in LEFS. Currently, for factoring loans, the risk is borne fully by the financial institution administering the LEFS loan, while for working capital loans, the Government and the financial institution share the risk 40:60. The Government will now co-share the risk for both factoring and working capital loans on a 50:50 basis with the financial institution. However, the financial institution must still undertake the necessary credit analysis, and satisfy itself that the company is a good risk. Third, the maximum loan quantum per company for factoring and working capital loan facilities will be increased from $5 million to $8 million. To cater for the expected increase in the volume of LEFS loans, the Government will increase its provision in LEFS loan lines from $760 million to $1.1 billion. We will review these enhancements to LEFS in 2 years' time. The Productivity and Standards Board and the Economic Development Board will be releasing more details of the enhanced LEFS shortly. (D) JTC/HDB Rentals Besides wages and the cost of capital, rentals form another significant component of business costs. In July last year, the Jurong Town Corporation (JTC) implemented several measures to moderate or defer rental increases for its lessees. These measures are up for review on 1st July 1998. Similarly, in December 1997, the Housing and Development Board (HDB) implemented a package of rental concessions for its industrial and commercial tenants. The HDB package included moderating rental adjustments at 3rd renewal of tenancies and staggering increases in rent for sub-letting and assignment cases.”
“Companies too need to tighten their belts during this period. They should look at streamlining and consolidating their operations to cut costs. They should also take the opportunity to upgrade their capabilities, and enhance their existing products and services to prepare for the upturn. At the same time, they should make more efforts to upgrade their workers. While MNCs and larger companies have made significant progress in worker training, reaching roughly 4-6% of investment payroll, smaller companies still lag behind, spending an average of only about 2%. Just as the Government is not letting up on our investments in education, companies too should not neglect to improve the quality of their workforce. (C) Local Enterprise Financing Scheme Another key concern of businessmen during this period of slower growth is the availability and cost of capital to support their business activities. Some businesses have reported that they are facing higher interest rates and that their credit lines are being pulled back. Some tightening of bank credit and increase in interest rates is inevitable at a time of regional uncertainty. The Government has explained that it cannot intervene to ask banks to extend loans or to lower interest rates. These are commercial lending decisions, which the banks themselves have to take. However, the Government will enhance its Local Enterprise Financing Scheme (LEFS) to help local businesses to obtain working capital. First, we will expand the scope of LEFS to cover more local enterprises. For factoring and working loan facilities, we will raise the eligibility threshold for manufacturing companies from a maximum of $15 million in fixed productive assets, to $30 million.”
“In 1987, when the flexible wage system was introduced, the variable component was, on average, 11% of total annual wages. Today, in the civil service the variable component has increased to at least 20% of annual wages, while in the private sector, the variable component is about 16%. We built up the variable component of salaries precisely to meet a situation like this year. If we need to trim wage costs this year, these variable components will be the first line of defence. This will depend on the NWC recommendations. Slower economic growth also makes it more urgent for workers to re-skill, re-train and upgrade themselves. There will be retrenchments as industries and companies consolidate. Workers who add significant value to companies are those who will keep their jobs. The key challenge for workers is to remain relevant and employable. The Government's policy has always been to create the right conditions for companies to create good jobs, and to provide ample training and upgrading opportunities for workers. We have not opted for unemployment insurance, but instead have kept our labour market flexible. This approach has served workers well and produced full employment for many years. However, despite this, nobody can expect lifetime job security. From time to time workers will be retrenched, even in a full employment economy. When this happens, those who have been retrenched must be willing to be flexible in their expectations, and if necessary accept a little less pay to secure a new job. The longer a worker stays unemployed, the more difficult it will be for him or her to rejoin the workforce. Even now the number of foreign professionals and workers is still increasing in Singa pore. There are more jobs to be filled than Singaporeans available to do them.”
“A professional and effective defence force with cutting-edge capabilities is not built up overnight, but through prudent and consistent investment over many years. Defence spending must be seen as a long-term investment, not dependent on the ups and downs of the economy from year to year. A credible defence capability is the pre-condition for Singapore's continued peace and prosperity. (B) Wage Restraint & Skills Upgrading Our overall cost structure is not significantly out of line. Singapore is internationally competitive, unlike in 1985. But we should be careful to do nothing to weaken our competitiveness during this period of slower economic growth. Cost containment will be a major concern for all businesses. Wages form the largest component of business costs. We need to watch wage costs very carefully. Our priority this year should be to protect jobs. Companies are already trimming back wage increases, and in some cases freezing wages. The Government has announced that salaries of ministers and civil servants will effectively be frozen this year. Wage moderation and flexibility are an important part of our response to the regional crisis. Up to the 1985 recession, our wage system was too rigid. This made it difficult for companies to trim wage costs when the economy slowed, and contributed to deepening the recession. To trim costs, we had no alternative but to cut the employers' CPF contribution rate. So after the recession, we set up the flexible wage system. As the economy grew, year by year we built up a variable component of wages, instead of locking in all the wage increases of good years in the fixed wage. This variable component would be a buffer that could be reduced not too painfully when business conditions changed.”
“But we are increasing capital expenditures, particularly in the key areas of education, economic infrastructure and defence, in order to invest for the long-term. Education Human talent has always been our most precious resource, and will become increasingly critical as we develop into a knowledge-based economy. The quality of our education system will determine whether young Singaporeans will be able to access, process and apply knowledge creatively. The Ministry of Education (MOE) has embarked on a comprehensive plan to upgrade both the hard and soft aspects of our school infrastructure. For example, the Master Plan for Information Technology in Education seeks to impart thinking, learning and communication skills through the use of information technology (IT) in our schools. At the same time, the Master Plan aims to continually anticipate the needs of society in future and cater courses to meet these needs. Economic infrastructure Our world-class infrastructure has helped to keep us in front in a highly competitive environment by keeping our total business cost relatively low. We must continue to invest in building our longer-term productive capacity. Key economic infrastructure projects we will push on with include reclamation at Changi East, Jurong Island Phase 3 and the upgrading of industrial facilities at Tuas. This counter-cyclical spending will boost the economy, and enable us to take advantage of lower construction costs during the regional slowdown. Defence Economic prosperity depends on a framework of stability and security. A strong, credible SAF deterrent has been a key element of this framework.”
“Our current account surpluses and reserves are healthy, our export markets are well diversified, and our industrial and services base is broad. Overall, our fundamentals remain sound. The Government is watching closely the impact of the regional crisis on our economy. The Committee On Singapore's Competitiveness has gathered private sector feedback and recommendations. We must make some adjustments to keep our business environment competitive, but drastic policy changes are not appropriate or necessary at this juncture. In formulating our policies, the Government's key objective is to maintain the framework for economic activity. Market forces will compel industries to consolidate and restructure. Some industries will feel the fall in business demand more than others. Weak and over-extended companies may have to merge or fold. We must accept this. It is the normal process of adjustment to new economic conditions. The Government cannot prevent it from happening, or intervene to support companies which are in difficulty, without paying a high price in terms of misallocated resources and moral hazard. At the same time, we will push ahead with plans to restructure our economy towards higher value-added activities, and enhance our economic capabilities and competitiveness to support future growth. (A) Fiscal Policy During this period of uncertainty, we have emphasised fiscal prudence in planning the Government Budget. We have decided to adopt a conservative fiscal stance, and target for a modest budget surplus, smaller than in recent years. Government revenues will be stagnant. We are keeping a tight lid on operational expenditures.”
“Under present conditions, the Ministry of Trade and Industry (MTI) expects the Singapore economy to slow down significantly, but not to the extent of going into a recession. MTI's economic growth forecast for 1998 is 2.5 to 4.5%. MTI will continue to monitor future developments closely, and review its forecast where necessary. Lessons from the financial crisis The rapid development of the regional crisis and the regional outlook for 1998 contains two important lessons for Singapore. First, even while the external environment appears favourable, things can deteriorate rapidly. We cannot assume that the external environment will remain benign forever. We should never be complacent. Policy vigilance is necessary. We must save and invest wisely in good times, to build up a deep and firm economic foundation. Second, the regional crisis has reaffirmed the importance of preserving and instilling confidence internationally and domestically for continued stability and economic growth. International and domestic investors determine demand, invest ment and hence the level of business activity. The Government must therefore build up the confidence and trust of investors through credible, consistent and pro-growth policies. During crises, we must be responsive and ready to effect rational measures judiciously and promptly to restore market confidence. Policy Stance/Adjustments We should use this period as an opportunity to build on our considerable strengths, review our longer term strategies and position ourselves for future growth. Fortunately, our economy is now much stronger and more resilient than it was in 1985. Our economic structure is more mature, our costs more aligned with productivity and economic growth, and our people better trained and skilled than a decade ago.”
“Activity in the foreign exchange and stock markets is also expected to moderate from the high levels in the second half of 1997. The commerce sector has already registered early impacts from the regional crisis. Entrepot trade will moderate as import demand from regional countries for consumption and capital goods slows. The other domestic segments within commerce will also not be spared. The tourism and retail trades are already seeing slower tourist arrivals and consumer spending, with no immediate prospects of a pickup. The transportation sector, especially our air and sea ports, will also be adversely affected by the fall in tourist arrivals and regional transhipment activities. However, the telecommunications sub-sector should continue to expand, albeit at a more moderated pace. In manufacturing, the continuing robustness of our major export markets in US and EU will help to sustain growth. The US is enjoying an unprecedented stretch of strong growth accompanied by low unemployment and low inflation. The uptrend in US demand for electronics components since the second half of 1996 is continuing. Growth in the EU is also expected to remain firm. The healthy pipeline of investment commitments over the last few years will also contribute to additional industrial capacity in 1998. These positive factors will help our manufacturing sector, although we will still see some consolidation in industries where there is global over-capacity and keen competition. Construction should see robust growth. Private residential developments are sluggish. But growth will be supported by the continued healthy pipeline of public sector infrastructure projects, including the North-East MRT line and public housing projects.”
“Depending on how successfully Governments manage economic recovery, maintain political and social stability, and restore investor confidence, the regional situation could either gradually stabilise and start to recuperate, or continue to deteriorate before it gets better. Even if regional countries take all the right steps and see through painful but necessary political and economic reform policies, the recovery process cannot be immediate. Overall, we can therefore expect slower regional growth over the short to medium term. Outlook for the Singapore Economy Looking ahead, it is difficult to predict precisely the immediate economic outlook for Singapore. The regional context is too volatile and fraught with uncertainties. Further, political, social and economic changes can trigger off new discontinuities, and render past trends irrelevant. What we can do is to assess the economic outlook based on the current situation, assuming there are no drastic developments. The Singapore economy is expected to feel the full impact of the regional economic crisis this year. The latest business expectations survey results indicate that nearly all major sectors expect weaker business conditions for the next 6 months. The Composite Leading Index, which leads economic activity by about 9 months, has been slowing down since September. Growth in the financial services sector is likely to moderate significantly. The Asian Dollar Market, one of the key financial growth engines, will slow considerably. With the risk premium for the region having risen significantly, financial institutions are adopting a wait-and-see stance before committing any new loans to the region.”
“Economies such as China and Latin America emerged as keen competitors. These developments coincided with a cyclical downturn in the global electronics industry and precipitated a regional export slowdown in 1996. With the export engines stalled, investors and creditors grew nervous of the regional countries' continued ability to service the growing foreign debt burden. Eventually, the market lost faith in the sustainability of the linked exchange rate systems adopted by regional economies. Thailand was the first to suffer this loss of investor confidence. Speculative attacks against the Baht mounted as concerns about the Thai economy grew. The breaking point came when Thailand's foreign reserves dipped below its short-term foreign debt obligations in the middle of 1997. Without sufficient reserves to defend its currency, the Thai Government was forced to allow the Baht to float on 2nd July 1997. The contagion effect of this de-facto devaluation of the Thai Baht quickly spread to Malaysia and Indonesia as the market switched its attention to other Southeast Asian economies with similar structural weaknesses in their financial and banking systems. By September, the financial crisis extended to North East Asia. Hong Kong's US dollar peg came under severe pressure, but managed to hold. Long standing structural weaknesses in Japan's financial and banking system caused some major institutions to fail. South Korea, with weaker fundamentals and large private sector debt, took the biggest hit. A massive US$57 billion IMF-led bail-out package was necessary to stabilise the Won, and to keep the Korean economy on its feet.”
“Second, the upswing in global electronics demand also supported our manufacturing growth, generating favourable spin-offs for our related hub services. ECONOMIC OUTLOOK FOR 1998 The regional crisis is far from over. While its impact on us in 1997 was minimal, the same cannot be said for 1998. Being at the heart of South East Asia, we are not isolated from regional conditions. We have comprehensive economic linkages with the region and a strong stake in our neighbours' prosperity. In particular, our tradable services sectors like finance and tourism have a strong regional orientation and will be directly affected. It is useful to review how the regional crisis started and spread, assess its impact on the Singapore economy and businesses, and identify the measures which the Government, companies and Singaporeans can take to tide over this difficult period. What Caused the Crisis The roots of the crisis can be traced back to the huge influx of cheap foreign capital to the region in the early 1990s. With inadequate prudential supervision, regional financial institutions over-extended themselves and lent excessively, often to unproductive sectors and projects. This rapid build up of foreign debt was not sustainable. It created asset bubbles in the property and stock markets. For a time, strong regional economic growth enabled the countries to service their debt obligations through buoyant export revenues. Confidence in the region's export potential began to waver towards the mid-1990s, with various exchange rate realignments. In 1994, China devalued the Yuan. In 1995 the Japanese Yen started depreciating against the greenback. In countries whose currencies were tightly pegged to the US dollar, exports began to lose competitiveness.”
“Mr Speaker, Sir, I beg to move, That Parliament approves the financial policy of the Government for the financial year 1st April, 1998 to 31st March, 1999. I REVIEW OF THE ECONOMY ECONOMIC PERFORMANCE IN 1997 Mr Speaker, Sir, the Singapore economy grew by a robust 7.8% in 1997. However, this did not reflect the seriousness of the ongoing regional economic turmoil which started in July last year. Economic growth in 1997 was largely shaped by two factors. First, we benefited from the recovery in the global electronics industry. Corrections in inventory overhang and healthy new orders in US and Europe boosted export demand, and confirmed our earlier assessment that the slowdown we experienced in the second half of 1996 was primarily cyclical. This turnaround provided the fillip for the manufacturing sector. We expected this. But nobody expected the second factor - the spread and subsequent deepening of the economic crisis in the region. The speed and severity of contagion caught everyone off-guard. What started off as a devaluation of the Thai Baht led to widespread financial and economic turbulence in the region. One after another, regional currencies and stock markets plummeted as international confidence in the region as a whole fell and global capital flowed out of East Asia. Singapore, despite our strong fundamentals, was not spared. Fortunately, the impact on the real economy in 1997 was muted. There were two primary reasons for this. First, a large part of Singapore's regional trade consists of intra-firm movement of parts, components and final products by multi-national companies (MNCs) for export to end markets in the OECD countries. As final demand from the US and EU was healthy, Singapore's overall trade was not too seriously affected by the regional crisis.”
“Resolved, That this Parliament, pursuant to section 7 of the Civil List and Pension Act (Chapter 44), resolves that the Schedule to that Act be varied by deleting the figures "$84,000", "$3,378,400", "$819,100" and "$226,000" in the second column and substituting the figures "$100,800", "$2,404,700", "$841,300" and "$17,000" respectively.”
“Mr Speaker, Sir, I beg to move, That this Parliament, pursuant to section 7 of the Civil List and Pension Act (Chapter 44), resolves that the Schedule to that Act be varied by deleting the figures "$84,000", "$3,378,400", "$819,100" and "$226,000" in the second column and substituting the figures "$100,800", "$2,404,700", "$841,300" and "$17,000" respectively. Sir, it is proposed to increase the provision for the Class I expenditure by $16,800 for entertainment allowance to cater for higher costs of hosting official functions. The provision for Salaries of Personal Staff is expected to decrease from $3,378,400 (for 103 posts) to $2,404,700 (for 52 posts) due to the transfer of the Horticultural Section from the President's Office to National Parks Board on 1st April 1997. A provision of $841,300 is required to meet Expenses of Household. This is $22,200 or 2.7% higher than the FY 97 provision mainly to meet the higher maintenance expenditure of the Istana grounds. A sum of $17,000 is required for Special Services for the purchase of office equipment ($5,000) and the honorarium payment to the President's legal adviser of $12,000. It is substantially lower than the FY 97 provision which included $140,000 for the replacement of a station wagon. It is therefore necessary to vary the provisions in the Schedule to the Civil List and Pension Act (Chapter 44) as indicated in the Motion before the House. Sir, I beg to move. Question put, and agreed to.”
“Mr Speaker, Sir, I beg to move, "That Parliament doth agree with the Committee on the said resolutions." Question put, and agreed to. Resolutions accordingly agreed to. FILMS (AMENDMENT) BILL Order for Second Reading read.”
“Mr Speaker, Sir, I beg to report that the Committee of Supply have come to certain resolutions. Resolutions reported "That the sum of $497,053,600 shall be supplied to the Government under the Heads of Expenditure for the Public Services shown in the Supplementary Main Estimates of Expenditure for the financial year 1997/1998". "That the sum of $1,329,541,300 shall be supplied to the Government under the Heads of Expenditure for the Public Services shown in the Supplementary Development Estimates of Expenditure for the financial year 1997/1998".”
“As I said, I do not run Singapore Airlines. You should ask them directly if you are interested. APPOINTMENT OF MINISTER WHO IS NOT A MEMBER OF PARLIAMENT 16. Mr Shriniwas Rai asked the Prime Minister whether he will consider amending the Constitution to provide for the appointment of a Minister who is not a Member of Parliament with the provision that the appointment will be made as the need arises and that the Minister must become a Member of the House within a stipulated period. BG Lee Hsien Loong (for the Prime Minister): Mr Speaker, Sir, I do not see the need for the suggested amendment. During the Third Reading of the Constitutional amendment on Nominated Members of Parliament (NMP) on 29th March 1990, this House decided against having an express provision prohibiting an NMP from being appointed a Minister. This House agreed with the Select Committee's view that future governments should have the flexibility of appointing some NMPs as office holders should the need arise. However, the Prime Minister does not have any intention or need to appoint any office-holders who are not elected MPs.”
“I have no special interest in this area unless some Singapore entity is charged.”
“I may or may not know anything about what happens in Lebanon. But as far as I know, no charges have been levied against SIA, and that is the important issue. Nor am I privy to SIA's pricing practices.”
“Mr Speaker, Sir, I am not aware that SIA has offered any inducement or gratification to any official of the Middle East Airlines (MEA) for leasing SIA planes to the airline. If Mr Jeyaretnam has any information that SIA has done anything wrong, he should report the matter to the police or the CPIB so that the complaint can be properly investigated.”
“Provisions for time extensions are made in the tender conditions as the successful tenderer may sometimes require a longer time-frame to arrange financing for the full payment of the land premium. Since 1993, a total of 33 cases have been granted extension of time for land premium. The breakdown is as follows: 2 cases in 1993; 3 in 1994 [these were boom times, I remember]; 16 in 1995; 2 in 1996; 2 in 1997 and recently 1998, 8 cases. These eight cases in 1998 were fully reported in the press recently. The tenderers were Centrepoint Properties Private Limited, Orchard Terminal Private Limited, Allgreen Properties Limited and the joint venture between Allgreen Properties Limited and Hoe Seng Company (Private) Limited. These tenderers have already made the initial 25% payment and have requested for an extension to pay the remaining 75%, subject to late interest charges. CENTRAL PROVIDENT FUND (Reduction) 9. Mrs Yu-Foo Yee Shoon asked the Minister for Labour, in view of the fact that workers depend on their Central Provident Fund to service housing loans and build up savings for Medisave and their old age and there is already a flexible wage system, whether he will give an assurance that CPF cuts will be allowed only as the last resort.”
“I think the number of companies in which Temasek Holdings has is, in fact, published in a book. There is a published book on Government-owned companies in which all the Government-owned companies and their subsidiaries are published. And each of these companies has its own balance sheet and therefore published. So you can quite easily aggregate the totals. I can make this book available to whichever Member is interested. The published book of Government holding companies, in which all the companies belonging to Temasek Holdings are, in fact, set out, with the Board of Directors, and so forth, and each of these companies in turn, particularly if they are public companies, would have annual reports. EXTENSIONS FOR COMPLETION OF SALES AND PURCHASES OF STATE LAND (Rationale) 8. Mr Low Thia Khiang asked the Minister for National Development what is the rationale for allowing developers time extensions to complete the sales and purchases of state land and whether he will provide a detailed list of developers and particulars of sites that were granted such extensions from 1993 up to the current year. The Parliamentary Secretary to the Minister for National Development (Mr Koo Tsai Kee) (for the Minister for National Development): Mr Speaker, Sir, first, I would like to thank the Member for asking this question to allow the Ministry to clarify some points. The successful tenderer of a Government land sale site is required to pay 25% of the land premium within 28 days from the date of award. The balance 75% is to be paid within 90 days from the date of award, or any further period as may be extended by the Government subject to late interest charges. These terms are quite clearly spelt out in the tender conditions.”
“Temasek does publish its accounts. But whether you have full access, it is a different matter. I think we will consider if it is necessary. At the moment, we would like to preserve our present arrangements.”
“I suppose that will take place if Government shareholdings fall significantly below 10% where it becomes a minority shareholder and therefore should no longer have any direct say on its management. So that would be a general criterion that applies not only to Government companies but to companies in general.”
“What holding companies is the Member referring to? Temasek is a main holding company. In Temasek's case, it is quite clear. The Government, through Temasek, manages and controls those companies in which it owns substantial shares. What other holding companies is the Member referring to?”
“One nominal share, but that share has overriding powers over the management of the company. In other words, it can determine the Chairman and the Board.”
“No single person or company can hold more than 3% of SPH shares. And Government holds one golden share to ensure that no third party can take over the company because of the sensitivity of its operations. That is all that is controlled. So financially, as far as the commercial operations are concerned, Government has no control over it.”
“For those where it retains significant shareholdings, yes. But for those in which it does not hold substantial shareholdings, it would not.”
“There are some. Can you name some specific companies that you are concerned about?”
“Yes, we have, in most cases, gone the route of full divestment without residual management control. I will give you a few examples of companies which we have fully divested and only retained a minimal control. In the case of Singapore Press Holdings, it has been fully divested, except that Government holds a golden share because it is a sensitive area. National Iron and Steel Mill has been totally divested. It is in the hands of the public and it has its own management. The others are UIC, Phillips Petroleum of Singapore and so forth. So there are many areas where we have totally divested.”
“I do not quite understand the Member. By divesting management, does she mean that Government has no longer any responsibility? You are talking about the difference between corporatization -”
“Government will continue to pursue its privatisation and divestment programme in an orderly manner as and when the opportunity presents itself.”