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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“But then COE prices increased to offset the lower ARF rate. This is not entirely surprising as the prices of cars will reflect the forces of supply and demand, either in the form of higher COE prices or other costs. On his suggestion to do away with COE for taxis, the principle has always been to subject all vehicles to demand management measures, as exempting one type of vehicle would only mean greater restraint on other types of vehicles. Since they too occupy the road space and generate unnecessary congestion due to empty cruising, they have to be subject to the same measure as other vehicles. Some Members have expressed concern over difficulties faced by our local small and medium enterprises. They have asked whether the Development and Expansion Incentive will take into account their difficulties and limitations. Another Member suggested that to encourage entrepreneurship, Government should exempt the profits of newly formed companies from tax for the first three years. I would like to assure the House that all companies, including SMEs, which meet the eligibility criteria recently disseminated by EDB, can apply for the Development and Expansion Incentive (DEI). On tax exemption, since most small companies are unlikely to make reasonable profits in their first few years, they will not be able to benefit from any such scheme. There are other forms of assistance that are available for local SMEs. The Local Enterprise Financing Scheme provides low cost loans to help local companies to upgrade their operations and to expand their capacity. In 1995, a total of over $512 million worth of loans has been extended under this scheme to help fund about 1,600 projects.”
“If owners seek to retain the tax savings indefinitely, the improved rate of return will induce new supply leading to lower rents. Data also show that about 70% of businesses in industrial and commercial premises are either owner-occupied or are tenants of Government through the HDB or JTC. To take the lead, therefore, Government agencies owning properties would be asked to pass on most of their tax savings to their tenants, and I strongly urge other private landlords to do likewise. Mr Lau Ping Sum has asked that instead of raising property threshold levels, the stamp duty rates on property transfers should be lowered. Mr Lau has also asked that different stamp duty rates be imposed for genuine home buyers and speculators. Raising the property thresholds has the same effect as lowering the stamp duty rates. In fact, almost all buyers of up to 4- and 5-room HDB flats would benefit from the higher property thresholds with a significantly reduced stamp duty payable. Also, in practice, it will be difficult to differentiate between genuine home buyers and speculators. I would like to assure the Member that we will continue to monitor the situation and review stamp duty rates regularly, if necessary. The Member for Bukit Gombak has also made some comments on the various taxes and measures used to curb car ownership in Singapore. As stated in the White Paper on a World Class Land Transport System, the Government will rationalise the current vehicle tax structure with the introduction of the Electronic Road Pricing system. When the Government started the Vehicle Quota System, it lowered the Additional Registration Fee (ARF) from 175% to 160% of open market value on 1st November 1990, and further to 150% on 1st February 1991.”
“Let me assure the Member again that the Government has increased its grants to Government and restructured hospitals and clinics to cover the cost of GST on subsidised services. The reason for not exempting medical service from GST is for efficient tax administration purposes. Mr Lau Ping Sum has asked why GST is imposed on utilities tax. I would explain that the GST is a tax on the final value of goods and services consumed locally, which includes any indirect taxes or levies imposed in the cost of supply. Utilities tax, which is an indirect tax, is thus included as part of the final value of the supply consumed for the computation of GST payable. The same practice is adopted in other countries with value-added taxes. Mr Stephen Lee has suggested on-the-spot GST refunds to help retailers. The matter has been explored by the relevant bodies which include the Singapore Retailers' Association. They have decided not to introduce refund at the point of sale but to continue with the existing system. The Member may wish to note that this proposal would involve retailers running the risk of having to bear GST should the tourist fail to notify the relevant authorities subsequently. He has also asked for a clearer demonstration that GST implementation has been revenue-negative. As I pointed out in the Budget Statement, the GST offset package amounted to $1.8 billion in fiscal year 1995 against $1.6 billion of GST collected. Should the Member require a further breakdown of the offset package, I would be happy to provide him with the information. The rental market for industrial and commercial premises is relatively price-sensitive over the medium to long term.”
“Dr Ow Chin Hock has requested information on the tax savings for those staying in HDB flats. I have asked that the information be made available to Members in the form of Annex 1 (Cols. 1049 - 1050), which I believe has been distributed. The table shows that the average savings for households in 1- to 5-room HDB flats as a result of the tax changes in this year's budget, including the rebates for S&C charges, rentals and utilities. As shown, the savings on average ranged from $195 to $874. For comparison, the net benefits arising from the GST offset package introduced in 1994 are presented in Annex 2 (Cols. 1049 - 1050). Annex 1 & 2 - SAVINGS FROM FY 96 BUDGET, NET BENEFITS FOR DIFFERENT TYPES OF FLATS (Cols. 1049 - 1050) Mr Zulkifli bin Mohammed has asked whether Government could, in view of the good Budget surplus, consider giving higher S&C rebates for the 1- and 2-room HDB flats to alleviate their financial burden. He suggested six and five months of S&C rebates for the 1- and 2-room HDB households respectively. Let me remind the House that the rebates are not intended to be financial aid. Rather, they are given in recognition of the contribution of this group of people who could not benefit from income tax rebates and tax cuts. The Member may wish to note that this year's rebates for S&C and rental charges are already higher than in past years. However, I would still like to point out that there is a need for Government to ensure that the relief given in this form is not too excessive and does not eventually lead to welfare dependency, otherwise Singaporeans will come to expect bigger increases of such rebates year after year. The Member for Bukit Gombak has raised the same issue last year that hospital charges should be exempted from GST.”
“The foreign workers levy was introduced as a control mechanism to reduce dependence on foreign workers. Over time, the levy has developed into a significant source of revenue and this has to some extent allowed the Government to lower direct taxes on individuals so as to encourage savings and investment. As I have explained in my Budget Statement, the Government recognises that the middle income group bears a higher non-tax burden. For this reason, the new tax structure has been designed to specifically lighten the tax burden of this group. If the fiscal position allows, Government will continue to lower direct taxes as a means of lowering and reducing the overall tax burden. Some Members have suggested that certain reliefs, such as those for the wife and other dependants, should be increased. Others have suggested that medical expenses be given as tax reliefs. There has also been a specific call to allow orphans maintaining siblings to claim tax reliefs. The House should note that with the implementation of GST related personal income tax changes, about 71% of taxpayers no longer pay income tax. Increasing tax reliefs will hence not benefit the majority who do not pay income tax. The Government has instead chosen to grant rebates on S&C charges, rentals and utilities to assist the lower income group which falls outside the tax net. On the expenditure side, the Government will continue to subsidise basic services such as education and health care. Some Members have proposed giving rebates and imposing tax based on the family as a single unit as a means to promote family cohesiveness. Currently, our tax system already provides tax reliefs and rebates which are based on family relations. Examples are child relief, aged parent relief and wife relief.”
“Mr Ling How Doong has asked the Government to build more homes for the aged and to provide more subsidies for medical treatment. The Government currently operates three Homes for the Aged, namely, the Pelangi Home, Woody Lodge and the Woodlands Home for the Aged. The Government is building four new homes to replace the Woodlands Home for the Aged. In addition, the Government has also funded up to 80% of the capital cost for the building of three Homes for the Aged operated by other voluntary welfare organisations. On medical subsidies, subsidised patients seeking treatments at polyclinics and restructured hospitals are subsidised based on real costs, and not market prices, as the Member for Bukit Gombak has suggested. The Member has asked the Government to waive the co-payment for SOTUS III for housewives and children. The SOTUS scheme, being an asset enhancement scheme, requires co-payment as the individual should contribute to the enhancement of his personal asset. This co-payment principle also applies to other asset enhancement schemes such as the upgrading of HDB flats. It is therefore not tenable to exempt housewives with children or any other special group like retirees who might have no income as they can get their husbands or children to contribute on their behalf. This would help to build up strong family ties. Housewives with children and retirees can benefit directly from both the CPF and Medisave Top-Up schemes instead. I shall now turn to specific tax issues raised. Dr Arthur Beng has commented that the tax savings announced in the Budget are not sufficient to offset the higher non-tax burdens such as the foreign maid levy borne by the middle income group.”
“Some Members have asked for more funding to encourage parenthood, family values and other areas related to a gracious society. The Singapore Family Values Fund was launched in 1994 to encourage and sponsor projects initiated by the private sector in promoting family values. In addition, another $2.2 million would be spent in FY96 to promote and publicise various family education programmes like parenting. I can assure the House that the Government is committed to preserving family values and the family unit in Singapore and that funds would be made available for all worthwhile programmes. On helping Singaporeans to be more gracious, I would like to point out that graciousness is not something that can be bought or achieved overnight. It takes time to cultivate graciousness in the society. Government will continue to encourage Singaporeans to be more gracious and to set aside appropriate funds for this purpose. However, it is ultimately up to the individual to decide whether he wants to behave more graciously and set an example for his children and those of the younger generation to emulate. On the suggestion that more be done to upgrade the common areas in private estates to match the rebates and upgrading projects enjoyed by HDB dwellers, an inter-agency committee chaired by the Senior Parliamentary Secretary of the Ministry of National Development is looking into this issue. There are, however, significant differences between HDB estates and private residential estates. Government would have to consider carefully to what extent funds or rebates should be given to private residential estates. The recommendations of the Committee are presently being studied and details would be released by the Ministry of National Development in due course.”
“I would like to inform the House that the Government will be spending more on education and the training of young people by increasing the operating budget of the Ministry of Education by nearly 10% to $3 billion in fiscal year 1996. This is higher than the overall increase of 7.9% for the whole Government. The Edusave Endowment Fund will also be increased by another $500 million to $4.5 billion or just short of the targetted $5 billion total sum. For sports facilities, the grant to the Singapore Sports Council will be increased by 8.4% in fiscal year 1996. Sufficient funds have been set aside for Overseas Scholarships. The problem here is not one of funds but the low take-up rates, since PSC scholarships have to compete with a host of other equally attractive scholarships offered by statutory boards, banks and multinationals to attract bright "A" level students. The problem generally is not a lack of funds or Government's unwillingness to spend but often it is due to the unavailability of good programmes. Another Member has expressed disappointment over the budgets of MITA and the Ministry of Community Development. I would like to point out that the figures cited are for the total budgets of these Ministries, ie, they include development expenditure. As development expenditure depends on the nature of the Ministry's development plans which could vary from year to year, it would be more appropriate to use the increase in operating expenditure as a yardstick for the Government's spending on arts and community development. For MITA and MCD, the operating expenditure increases are 22% and 13% respectively, higher than the average of 7.9% for the Government as a whole.”
“The Government will continue to monitor the progress of major projects to ensure satisfactory progress in the spending of budgeted provisions. The revised fiscal year 1995 budgeted and revised estimates are now satisfactory. Operating revenue is under-estimated by only 0.8% while total expenditure is over-estimated by only 1.6% resulting in a surplus being revised upwards by 8.6%. Some Members have asked whether more funds can be channelled to charitable organisations and volunteer groups so that they can spend more time doing charity work instead of raising funds. Currently, the Government funds voluntary welfare organisations on a cost-sharing basis. The cost-sharing formula is that Government funds 50% and 80% of operating expenditure and capital expenditure respectively. Cost-sharing is the cornerstone of Government's policy to involve both the community at large and the Government in assisting the less fortunate in our society. However, I agree that there should be a balance between fund raising efforts and participation in charitable activities by volunteers. Government will review the cost sharing formula ratios regularly and adjust them, if necessary, to achieve a better balance. Mr Kenneth Chen has suggested that cash grants be given to those who are destitute, disabled or on welfare. I think there are already many schemes set up to assist the less privileged such as the Small Families Improvement Scheme and MediFund. Financial assistance under these schemes is regularly reviewed by Government to ensure that they meet the basic needs of the less privileged without undermining the work ethos. Some Members have asked for more spending on education and training.”
“Mr Chew Heng Ching, as Chairman of the Estimates Committee, has scrutinised and studied the reasons for this, and he has spoken on this issue. But I just like to repeat what we have said in the past. The variance in the surplus position over the period FY90 to FY94 was due to the fact that actual operating revenue was 19% higher on the average and expenditure was 13.3% lower than budgeted. In recent years, revenue collection had been much higher than projected because of exceptionally buoyant high economic growth. Revenues have also been boosted by COEs and stamp duties which are subject to the vagaries of car owners' bidding behaviour and fluctuations in stock and property markets. And they are therefore very difficult to predict accurately. Members will recall the height which COEs were raised during the boom and the volumes of stock market transactions until the more recent retracing of the stock market. We will however continue to review our methodology and systems to achieve greater accuracy in our revenue estimates. The main reason for the under expenditure was the underspending of the development budget caused by delays in development projects. As a consequence, the Central Block Vote provision for funding urgent development proposals was largely unutilized since Ministries have sufficient savings for this purpose. To reduce over-provision for the development expenditures, we have abolished the Central Block Vote and Ministries will be required to find savings or to seek supplementary funds for urgent initial expenditures on new projects. In addition, from fiscal year 1995, Ministries' annual budgetary requirements have been moderated in accordance with their fund utilisation rate over the previous preceding three years.”
“The alternative to imposing a levy on foreign workers would be to use quota controls. While overall caps can be set to limit the actual number of foreign workers allowed, we will still face the problem of distribution of foreign workers among sectors, and for foreign maids among households. A tendering system like the COE could be implemented, but a tendering system will have the same effect of raising cost of employment as a levy, if not more, as companies and households are now competing for a limited pool of foreign workers. Considering all factors, the levy remains the most feasible and acceptable control mechanism as it creates minimal market distortion and allows companies or households access to foreign workers according to ability to pay. Employing more foreign workers is only a stop-gap measure. It cannot be a long-term solution. Employers should instead look for ways to optimise the use of our local workforce, eg, by re-engineering their processes to raise productivity or to engage more of our retired workforce. They could also persuade more women to rejoin the workforce by way of flexible and part-time work arrangements which are better suited to the needs of this untapped workforce. Mr Ling How Doong has made several suggestions on the CPF Minimum Sum Scheme. I should point out that CPF savings are meant to provide for retirement needs. If a member is allowed to pledge his property for the full minimum sum, he may not have cash income for retirement. He may have to sell his property and live on the proceeds. The revised Minimum Sum Scheme thus helps to ensure that he has some cash for his retirement without having to resort to selling his home. Some Members have raised concerns over the discrepancy in our budgeted, revised and actual budget surplus figures.”
“Further, the bus companies also face competition from alternative transport modes like the MRT and the future LRT, and high-end bus transport like the Bus-Plus. The Members for Bukit Gombak and Potong Pasir have asked how the Government's reserves are invested and what are the returns obtained. If they will take the trouble to read the Budget book, they will find most of the information they need in the book. The bulk of our reserves are invested overseas through portfolio investments and direct equities. A part of it is invested locally, mainly through our shareholding in Government-linked companies. Our portfolio investments are spread over several asset classes, namely, bonds, stocks, real estate, venture funds and are diversified in currencies. We also invest our reserves through direct equity and joint ventures with companies that have good operating track records. Our investment objective is to achieve good long-term returns on a sustainable basis. I would like to assure the House that our investments have been earning good returns. A few Members have suggested easing the current controls on the hiring of foreign workers. The Member for Bukit Gombak has also asked for a reduction of the foreign maid levy. I believe it is not desirable to ease existing control measures or to reduce the foreign maid levy to create more demand for foreign workers as they already account for over 20% of our total workforce. In addition, we must be mindful of the attendant economic, social and political implications of this large number of foreign workers in Singapore. The levy is the main control mechanism in the regulation of foreign workers, including foreign domestic workers (FDWs). It prevents foreign workers who are willing to work for lower wages from depressing local wages.”
“When we corporatise a statutory board, we take the opportunity to revalue the assets, as this is good accounting practice. It ensures that the full economic cost of providing the service is reflected. However, it does not mean that the revalued assets will always be recovered from fees and tariffs in every instance. Dr Lee Tsao Yuan has also commented on the Government's principle of accounting for full costs in pricing production factors. I am happy to note that Dr Lee supports the Government in this respect. Indeed, all land sites are cost at full market prices and when they are alienated for housing developments under the HDB or industrial developments undertaken by JTC. The Member for Bukit Gombak has commented on the lack of competition in the bus services industry. The Government's policy is to encourage competition and let market forces prevail where possible. However, this is not always possible. The bus industry is one example where the Government has used market forces to create as competitive an environment as possible and one customised to suit our circumstances. With our small domestic market and limited resources, we cannot afford the luxury of fragmenting the market as this will deprive the operators of reaping the economies of scale and the necessary resources to invest in service improvements. We have therefore opted to create territorial monopolies for bus operations on condition that the bus operators provide all residents within their territory reasonable standards of service, running prescribed services at regulated frequencies. As a result, basic public transport services are available to all at affordable prices.”
“In the area of telecommunications, the price control framework also serves to ensure Singapore's position as a telecommunications hub, by making sure that our rates are internationally competitive. In deciding on the appropriate tariffs, the regulators would have to balance the interests of the consumers and the providers, both in terms of affordability and service standards. Dr Lee Tsao Yuan has asked for a review of the effectiveness of corporatisation and for the review to be made public for greater accountability. In the case of Singapore Telecom, privatisation has resulted in both higher productivity and profitability. Turnover per employee, for example, has increased from about $230,000 per employee in FY91 to $316,000 per employee in FY94. Operating profit has also increased from $1.1 billion to over $1.7 billion over the same period. These statistics are published in Singapore Telecom's Annual Report. Singapore Telecom has also been able to return some of its productivity gains by lowering its rates to the public. For example, ST had three rounds of IDD rate cuts in 1994. This resulted in customers' savings of over $200 million annually. ST has recently announced that it will further reduce IDD rates to 43 destinations on 1st April 1996, passing back to customers another $50-$60 million on an annual basis. I wish to assure the House that the Government closely monitors the performance of corporatised entities to ensure that they are run efficiently. Those which are subsequently privatised will also be subject to the scrutiny of shareholders. Whether a corporatised entity is privatised or not, the Government will always ensure that the interests of the public are safeguarded. Mr Lew Syn Pau has asked whether all assets are revalued before privatisation.”
“In the case of Singapore Power, the tariffs have to be raised whether or not it is privatised. Some Members have asked why the Government is prepared to subsidise land and infrastructure costs of schools, hospitals and the MRTC, and not Singapore Power. The simple answer is that the Government has made a conscious decision to subsidise education, health and public transport, but not electricity. Although electricity is an important factor of production, it is also a consumption item, the use of which is discretionary, so that it must be priced correctly to avoid waste of a product which is made almost entirely from imported materials. I should also point out that in Singapore, domestic customers consume only 18% of total electricity generated, the rest (82%) being consumed by non-domestic customers. To encourage energy conservation in the latter, we have introduced incentives to encourage the installation of energy efficient equipment and systems. Domestic customers can also do much to save on electricity consumption. Because of the large number of other questions raised in connection with the raising of electricity tariffs and the privatisation of Singapore Power, many of which deal with matters of detail, the Minister for Trade and Industry has said that he will address them in the Committee of Supply. I would also like to assure the House that the tariffs of corporatised entities like Singapore Telecom and Singapore Power which provide basic public services are subject to price regulatory frameworks imposed by their respective regulators, namely, TAS and PUB. Each regulator has its own system of price control based on its own operating environment. The objective of such controls is to protect consumers from monopolistic or oligopolistic pricing by the providers.”
“In addition, the Ministry of Finance will also be scrutinising the performance of AAs during the annual budget exercise. I, therefore, do not think it is necessary, at this stage, to set up advisory committees to receive feedback on AAs. A few Members have asked about the policy and effectiveness of the Government's corporatisation and privatisation programmes. Others have expressed concern over the corporatisation of statutory boards and that privatisation might result in price increase and inflation. There were also specific points raised on the tariff of Singapore Power. The objectives of the Government's privatisation programme are to reduce its participation in the economy, to enlarge and deepen the stock market, as well as to enhance the assets of Singaporeans by offering them stocks of blue-chip companies at a discount. The privatisation of Singapore Telecom (ST) was a huge success, both in terms of increasing the volume of shares listed on the Exchange and helping Singaporeans to own shares in ST which are now worth more than twice their purchase price. We expect Singaporeans to find the second offer of ST shares to be a good and attractive investment opportunity, just like the first offer. Some Members have expressed concern over price increases as a result of corporatisation and privatisation. I think it is most unfortunate that these two matters have been linked in people's minds. As I have explained at length in the Budget Statement, we need to price our factors of production correctly to remove any hidden costs and subsidies. Otherwise, we risk misallocating our resources which will result in waste and economic inefficiency. If the price is not set right, we need to correct it.”
“The conversion of Government departments into AA merely changes the operating framework of the organisation. AAs will continue to set their fees and charges based on current cost recovery principles. As before, their fees and charges would be adjusted periodically to take into account increases in operating costs. Through regular reviews, increases will be kept small to minimise the impact on the public. This has been our policy and it will not be affected by the new status of departments as AAs. Some Members have also asked whether there will be a change of tenure for civil servants working in the AAs. As AAs are still part of the civil service, people working in AAs would continue to be civil servants. There is no change in tenure. Still on the subject of civil service reforms, a Member has suggested that the Government consider some form of advisory committee with public representation to serve as a feedback channel. Let me first explain that the Government sees AAs as a form of management. An AA is not an organisation separate and distinct from the civil service, like a statutory board. Under this concept, Ministry Headquarters and departments can be managed as AAs once they have clearly defined output and performance targets. They would be vested with considerable managerial flexibility to achieve these targets. However, their supervision and management will still rest with their respective permanent secretaries working under their Minister's guidance, who will ensure that their performance in terms of efficiency, effectiveness and quality of service lives up to expectations. Any feedback on the performance of AAs can continue to be directed through existing channels, eg, through its supervising Ministry or the Feedback Unit.”
“Under the present civil service structure, decision making is highly rule-based and centralised which makes it difficult for a department to tailor its services to the changing needs of its customers in a speedy, innovative and responsive manner. The reform is intended to change this by pushing the decision process downwards as far as possible within the framework that emphasises results and accountability in return for managerial autonomy. Under the Budgeting For Results (BFR) framework, AAs would be accountable for the quality of service, which is an important performance target in addition to output targets. AAs are therefore also accountable for the quality of service they provide. Examples of quality of service targets to be achieved by AAs include waiting time by the public and percentage of satisfied customers based on surveys. As I have explained in my Budget Statement, for units whose output and services are not easily measured, the nominal GDP growth rate will be used as a proxy for output growth. It is a reasonable proxy since workload and operating costs are expected to grow in tandem with economic growth and inflation. It is therefore financially prudent to allow Government's expenditure to grow only in tandem with the economy as this will ensure that the Government sector does not consume a disproportionate amount of resources in the economy. As for accountability, the targets and the actual performance of AAs would be published and subject to public scrutiny. This will make the Government even more transparent. There has also been concern that the introduction of AAs will lead to an increase in Government fees and charges. I would like to assure the House that this will not be the case.”
“Dr Soin has suggested a framework for managing the surpluses. I would like to thank the Member for her suggestion but I do not believe that we should manage our surplus based on a rigid formula, especially in the face of a fast changing environment. Fixed allocations of budgets lead to inflexibility and often to waste because it means that, whether a project has a specific need or a suitable programme, we would be obliged to spend them. The Member for Leng Kee has asked for comments on the art of giving. I would like to assure him that Government is careful not to raise expectations in sharing surpluses with its citizens. First, the sharing is done only when economic growth is healthy and the budget surpluses are actually achieved. Second, there is usually an element of co-payment involved on the part of the individual so that he also contributes to the enhancement of his own assets. The Government would try to be more personal in its surplus sharing wherever possible, of course. But, sometimes, the sheer number of CPF account holders and households makes this a difficult proposition. Mr Chay Wai Chuen has proposed that transfers and grants given under the asset enhancement scheme should be reflected in the CPF statement to show individuals the value of Government's contributions. I would like to thank the Member for his suggestion. I will look into this. Several Members have raised questions on the civil service reforms that were announced in the Budget Statement, principally on the accountability and management of autonomous agencies (AAs) and the nature of the targets that would be set. One of the key objectives of the reform is to deliver better quality service to the public.”
“Rather, they are the result of unexpectedly strong economic growth made possible by sound economic policies, prudent fiscal management, taking advantage of strong growth in the regional economies and the world economies over the last four years. Nonetheless, the Government recognises that there are non-tax burdens, such as COEs and foreign workers levy, but these are necessary mechanisms to allocate scarce resources. Our surpluses have allowed us to proactively adjust our tax rates to minimise the overall tax burden on the economy and on individuals. On the expenditure side, our philosophy has been to contain the growth of the public sector, focusing our expenditures on basic public services and in areas that will support and sustain non-inflationary economic growth. Welfarism and expenditures that could undermine incentives for self-reliance and industry are avoided. The provision of subsidy has thus been selective and confined mainly to education, health care and housing. Even then co-payment and other mechanisms are put in place to avoid over-consumption and to guard against a dependent mentality. Mr Speaker, Sir, I am clarifying these broad policy issues because it is necessary to constantly reiterate these fundamentals. The Government has been consistent in its fiscal policies. The tax cuts are to strengthen our long-term competitiveness. It is also timely to implement these changes now as the economy is expected to moderate after successive years of strong growth. The rebates and top-ups should not be seen as handouts but as rewards for the good economic performance. They are the ways for Government to return some of the budget surpluses to the economy and will only be given if the economy continues to do well.”
“Since it was returned to power in August 1991, it has more than fulfilled all its election promises. Over the past four years, the Government has provided full employment and real GDP growth has averaged just below 9% per annum with the cost of living index averaging only 2.4% per annum. Over the same period, we have obtained substantial budget surpluses in every year. But this has been accompanied by a strong 16% compounded annual growth in non-oil domestic exports between 1992 and 1995. The budget surpluses have allowed the Government to cut taxes, give rebates and fund large HDB upgrading programmes without creating a drag on the economy. With this track record, I do not see why the Government needs election gimmicks. I will now move on to clarify the broad policy issues raised by Members over the last two days. Mr Speaker, Sir, several Members have indicated that it is now timely for the Government to conduct a review of its tax policies. Let me assure the House that Government constantly reviews its tax policies. The tax changes I have announced in this year's budget reflect the Government's underlying philosophy of taxing the factors of production as lightly as possible and investing in Singapore's long-term needs and in human capital. This will keep our fiscal environment attractive for business and individuals. It will also position Singapore to achieve the vision contained in its strategic economic plan to become a developed country in the First League. Other Members have also commented that our tax structure has consistently generated large budget surpluses and asked if this should be reviewed. As I have explained to the House on several occasions, the surpluses are not due to high taxes as our tax rates are extremely competitive.”
“Mr Speaker, Sir, I would like, first of all, to thank all hon. Members who have spoken on the Budget for their suggestions and comments. Unfortunately, time cannot permit me to address Members' concerns point by point. Matters of detail under the purview of individual Ministries will be dealt with in the Committee of Supply. Instead, I will focus on major issues relating to the Government's financial policy. But before doing so, I would like to deal with some of the sarcastic remarks by Members of the Opposition. Attacks by the Opposition are to be expected. But Mr Ling How Doong and Mr Low Thia Khiang have called the budget give-aways as a small strand of wool and a drop in the ocean. They said that it is small relative to the Government's total revenue, although they amount to nearly 10%. I do not know where Mr Ling and Mr Low learnt their arithmetic. But such a comparison is totally invalid since the great bulk of the Government's total revenue is spent on providing services to the public. For example, in FY96 budget, the total estimated revenue is $26 billion of which nearly $19 billion is to provide services for the public and there is a balance of $7 billion as budget surpluses. So if any comparison is to be made, it is in relation to the give-aways to the budget surplus, and not to the original total revenue. By making such a comparison, about $2.5 billion worth of give-aways are proposed and this amounts to one-third of the budget surplus, not a small drop, a big drop indeed. Mr Chiam and Mr Cheo have also suggested that the Government's budget is an "election budget". I would like to point out to both of them that the Government does not need to resort to election gimmicks.”
“If we persevere in upgrading our human resource and domestic technical capabilities and at the same time capitalize on the opportunities abroad, I am confident we will continue to progress and excel in the future. [Applause].”
“(Cols. 823 - 824) Annex IV - STAMP DUTY RATES ON LEASES (Cols. 823 - 824) Rationalisation of Instruments Subject to Stamp Duty Currently, stamp duty is levied on a variety of instruments specified in the First Schedule to the Stamp Duties Act. The last major review of stamp duties was undertaken in 1980 at which time the number of articles in the First Schedule was reduced from 68 to 47. To further reduce costs and inconvenience to businesses and members of the public, I have decided that the stamp duty on a further 13 types of instruments will be abolished. The rates of the stamp duties that are retained will be streamlined. This will take immediate effect. The estimated revenue loss for these changes is $6 million. Details are set forth in Annex V. (Cols. 825 - 830) Annex V - STAMP DUTIES TO BE ABOLISHED, STAMP DUTIES RETAINED (Cols. 825 - 830) CONCLUSION Mr Speaker, Sir, Singapore has come a long way. More opportunities and challenges lie ahead. To meet the challenges, we must upgrade our skills, technical know-how and the strength of our companies. To do this, we must continue to maintain a conducive fiscal environment for businesses to innovate and thrive. Our tax regime must support the next phase of economic development. In particular, as we gear towards knowledge based activities, attracting and retaining talent will be instrumental in sustaining our economic prosperity. The Asian and regional economies are growing strongly. We in Singapore can sustain high growth by engaging our economy with the region. In the coming years, international competition will become more intense. Uncertainties will abound. We must be nimble and responsive to external changes while pursuing steadfastly our long term goals and aspirations.”
“Nonetheless, our property tax rate is still higher than some neighbouring countries. This is exacerbated by our relatively high property values. I announced in previous Budgets that the property tax rate would be lowered to 12% over 4-5 years. To help reduce business costs and further enhance Singapore_s competitiveness, I have decided to expedite the reduction of property tax rate. With effect from 1st July 1996, the property tax rate will be reduced by 1% from 13% to 12%. The revenue loss is estimated at $118 million. The Government strongly urges landlords to pass on the savings in property tax to their tenants. JTC, HDB and other statutory boards will pass on the tax savings in full to their tenants. The 4% concessionary tax rate for owner-occupied residential properties will remain unchanged. Stamp Duty on Property Transfer Stamp duty on property transfers in Singapore is currently levied at the rate of 1% for the first $90,000, 2% for the next $60,000 and 3% thereafter on the value of the property. To keep pace with property price increases, I have decided to adjust the threshold values for stamp duty on property transfers to: a) 1% for the first $180,000; b) 2% for the next $180,000; and c) 3% thereafter on the value of the property. This will take immediate effect. The estimated revenue loss for the Government from such an adjustment is estimated at $245 million a year. Stamp Duty on Leases Currently, the stamp duty rates on property leases range from 0.8% for those with a lease period of less than 1 year, to 3.2% for those with a lease period of more than 3 years. To reduce business costs, I have decided to halve the stamp duty on leases with immediate effect. This is expected to reduce stamp duty revenue by $161 million a year. Details are given in Annex IV.”
“They will come with a loyalty bonus package to encourage Singaporeans to hold on to the shares as a long-term investment. This is expected to take place in the second half of 1996. The details are being worked out and will be announced at a later date. Income Tax on Net Annual Values of Residential Properties Presently, the Net Annual Value (NAV) of a property used for residential purposes is deemed to be profits arising from property and is liable for individual income tax unless specifically exempted. Currently, for owner-occupied property, the first $75,000 of its NAV is exempted from tax. To allow for increases in the values of residential properties, the exemption limit will be increased to $150,000. This will take effect from Year of Assessment 1997. Estate Duty Currently, estate duty is structured in two tiers: the first $10 million value of estate chargeable to duty is taxed at 5% and all subsequent amounts at 10%. Exemption is given to the first $3 million of all residential properties and the first $500,000 of all movable assets, including CPF balances. CPF balances in excess of $500,000 are also exempt. To allow for the effects of inflation and rising asset prices over the years, the Government has decided that the $10 million threshold below which the first tier rate of 5% will apply will be raised to $12 million. The exemption limits for residential properties and movable assets, including CPF balances, will also be raised to $9 million and $600,000 respectively. CPF balances in excess of $600,000 will continue to be exempt. This tax change will take immediate effect. OTHER TAX CHANGES Reduction in Property Tax The property tax rate for industrial, commercial and let out residential properties was reduced from 15% to 13% last year.”
“The Government will therefore make contributions to CPF accounts as follows: $300 to all Singapore citizens $400 to citizens who have performed NS $500 to citizens on active NS. To qualify, CPF members must credit at least $500 into their accounts during the 12-month period from 1st March 1996 to 28th February 1997. The Government will pay in its contributions on 28th February 1997. Members who contribute less than $500 will receive a pro-rated contribution from the Government. This is expected to cost the Government $480 million. Second Offering of Singapore Telecom Shares In order to build a share owning society, the Government will from time to time offer Singaporeans stocks of blue-chip Singapore companies at a discount. This will give Singaporeans a more direct stake in the growth and prosperity of Singapore. The first offering of ST shares to Singaporeans in November 1993 was a resounding success. The Group A share scheme increased the number of Singaporeans owning shares from 250,000 to 1.4 million. The scheme has also succeeded in getting Singaporeans to hold on to the shares as long term investments, instead of stagging them for a quick profit. 95% of Group A ST shareholders still own their ST shares. Those who bought 600 Group A ST shares in November 1993 for $1.90 each and have kept them now have 720 ST shares, worth about $3.50 each. Their initial investment of $1,140 is now worth $2,520 - more than double in less than three years. The Government has decided to make a second offering of Singapore Telecom shares to Singaporeans. The offering will be packaged like the Group A scheme in the initial ST flotation. The shares will be offered at a discount to the market price to CPF members.”
“The Prime Minister has said that the second instalment due in January 1997, and the third instalment due in January 1998, would depend on the state of the economy. As the economy has done well, I am happy to confirm that the Government will pay the second instalment of the Pre-Medisave Top-Up Scheme in January 1997 as scheduled. The top-up grant will be paid into the CPF Medisave accounts of eligible Singaporeans who are 62 years or older on 1st April 1996. As with the first instalment, eligible recipients will have to make a co-payment of $50 between 1st July 1996 and 31st December 1996 into their CPF Medisave Account. The Government will match this $50 with a contribution of $100 to $350 depending on the age group. 300,000 senior citizens qualify for the scheme and the total cost of this, if fully taken up, is $85 million. In addition, the Government has reviewed the Pre-Medisave Top-Up Scheme, and decided to enhance it by adding one more instalment, increasing the package from three to four instalments. The fourth instalment will be paid in January 1999. The eligibility criteria and the co-payment requirements are the same as for the earlier instalments. The fourth instalment will also be subject to the state of the economy then. CPF Share Ownership Top-Up Scheme (SOTUS) To help Singaporeans build up sufficient CPF savings to buy shares in Singapore Telecom and other Government owned companies and statutory boards which will be privatised from time to time, the Government implemented two SOTUS exercises in 1993 and 1995. This year, the Government will implement a third SOTUS scheme to top-up CPF accounts of citizens aged 21 and above. Special recognition will be given to national servicemen, as recommended by the RECORD II Committee.”
“Rebates on Public Utilities Bill To further assist lower income households, the Government will grant a rebate on the public utilities bills of citizen households living in 1, 2, 3, 4 and 5-room HDB flats (whether rented or owner-occupied). The amount will be $150 for 1 and 2-room HDB flats, $120 for 3-room HDB flats and $100 for 4 and 5-room HDB flats. Payment of the rebate will be made in the second half of this year. Details will be announced in due course. This is expected to cost the Government $73 million. If the economy continues to do well, I will consider granting similar rebates on public utilities bills for lower income households in 1997 and 1998. This rebate will far exceed the likely increase in annual public utilities bills for these households arising from revisions of electricity tariffs for several years. CPF Medisave Top-Up Scheme Medical costs are matters which concern every Singaporean, especially older citizens. Medisave, Medishield and Medifund have provided for the medical needs for nearly all citizens. Nevertheless, many still worry whether they have provided enough for themselves and their families. This worry is really not justified. But as a gesture to reassure Singaporeans and to emphasise the key role of Medisave in providing for the medical needs of citizens, the Government will pay $200 into the Medisave account of every Singapore citizen aged 21 and above. The payment will be made on 1st October 1996. This is expected to cost the Government $390 million. Pre-Medisave Top-Up Scheme The Prime Minister announced last year a Pre-Medisave Top-Up Scheme in three instalments, to help older Singaporeans who retired before or soon after the onset of Medisave to build up their Medisave accounts. The first instalment was paid in January 1996.”
“The tax reliefs will apply to NSmen and the parents and wives of NSmen who have served in the SAF and also in other services, like the Police Force and the Singapore Civil Defence Force. These reliefs will take effect from Year of Assessment 1997. The estimated revenue loss is $16 million. Rebates on HDB Service and Conservancy and Rental Charges Many lower income Singaporeans do not pay personal income tax. To ensure that they too benefit from our economic success, the rebates granted last year on HDB Service and Conservancy (S&C) charges and rentals to citizen householders staying in rented and owner-occupied HDB flats will be extended for another year, with some modifications. The rebates will be as follows: a) One-Room Flats. Three months' net rent and three months' net S&C charges, after deduction of the GST offset rebates. The rental and S&C rebates will be made on 1st July, 1st September and 1st December this year. b) Two-Room Flats. Two months_ net rent and three months' net S&C charges, after deduction of the GST offset rebates. The rental rebates will be made on 1st July and 1st December, and the S&C rebates on 1st July, 1st September and 1st December this year. c) Three-Room Flats. Three months' net S&C charges after deduction of the GST offset rebates. The rebates will take effect on 1st July, 1st September and 1st December this year. d) Four-Room Flats. Two months_ gross S&C charges, to be made on 1st July and 1st December this year. e) Five-Room Flats. Two months_ gross S&C charges, to be made on 1st July and 1st December this year. The estimated cost of these rental and S&C rebates is $53 million.”
“Many such families pay substantial amounts of car-related taxes or foreign workers levy, if they own a car or employ a maid. The changes will take effect from Year of Assessment 1997. Revenue loss is estimated to be $375 million. Tax Relief for National Servicemen Our NSmen play a crucial role in guaranteeing the security and prosperity of Singapore. In Year of Assessment 1993, the Government introduced tax reliefs for NSmen of $1,000 for active NSmen and $500 for other NSmen in order to recognise their special contributions. However, the value of these reliefs have been eroded by subsequent reductions in personal income tax rates. The Government has reviewed the amount of these reliefs and decided: a) The relief for active NSmen will be doubled from $1,000 to $2,000. Active NSmen are those who are called up annually for in-camp training and other activities to maintain their operational efficiency. b) The relief for all who have done their full time national service but are not now in the active national service will also be doubled from $500 to $1,000. In addition, the Government also recognises the contribution of parents and wives of NSmen to Total Defence. The parents are the ones who brought up the NSmen. The wives have to share the burden of looking after the family when the NSmen are called up for in-camp training. The Government has therefore decided to extend the tax relief scheme for NSmen to the parents and wives of NSmen who are themselves Singapore citizens. Each parent will receive a tax relief of $500, regardless of the number of children who have undergone national service. Wives of NSmen will also each receive a tax relief of $500. The $500 relief is half the amount for NSmen who are not now in active national service.”
“With the rate of tax on such payments reduced to 15% of the gross amount, the rate for withholding of tax on these payments will be similarly reduced. This reduced rate of tax will, however, not apply to interest, royalty and rent for movable properties derived by non-residents through their operations carried out in or from Singapore. Such interest, royalty and rent will continue to be taxed on the net amount at the normal corporate income tax rate. Notwithstanding this reduction in the rate of tax on interest and royalty payments to non-residents, full or partial exemption on such payments will continue to be granted selectively under the various incentive schemes for projects which contribute significantly to the economic and technological development of Singapore. TAX CHANGES FOR INDIVIDUALS Personal Income Tax Because of the good performance of the economy in 1995, an across-the-board one-off tax rebate of 10% on individual income tax will be granted in Year of Assessment 1996. Revenue loss to the Government is estimated at $250 million. There are 14 tax brackets in the present personal income tax schedule. To simplify the tax system, I propose to reduce the number of brackets from 14 to 10. At the same time, to further encourage hard work and to reward talent and enterprise, the top marginal income tax rate will be lowered from 30% to 28%, with appropriate reductions in the other rates. The new brackets and rates are shown at Annex III. (Cols. 821 - 822) Annex III - REDUCTION IN PERSONAL INCOME TAX RATES WITH EFFECT FROM YEAR OF ASSESSMENT 1997 (Cols. 821 - 822) The new structure of tax brackets has been designed especially to lighten the tax burden of the middle income group, with chargeable incomes between $25,000 and $100,000.”
“809 - 820) Reduction of Withholding Tax Rates Currently, payments of royalty and interest (other than interest on bank deposits and inter-bank transactions) to non-residents are subject to tax at 27% of the gross amount payable less allowable expenses. In practice, as the law requires withholding of tax on such payments to non-residents at 27% of the gross amount, and the recipients either cannot or do not claim the expenses, the tax is effectively 27% of the gross amount. Unless reduced under a double taxation agreement, this tax rate of 27% is high in comparison with the rates of other countries in this region. This high level of tax discourages the development of activities which require high input of technology or funding from overseas. To facilitate the development of Singapore as a knowledge centre and a node for technology transfer, I have decided to reduce the rate of tax on royalty and rent for movable properties payable to non-residents to 15% of the gross amount with immediate effect. This will benefit creative services as well as knowledge and technology intensive activities. Similarly, I have also decided to reduce the rate of tax on interest payments to non-residents to 15% of the gross amount with immediate effect. This will make it more flexible for Singapore companies to diversify their borrowing sources to include financial institutions overseas, particularly in the financing of operations outside Singapore. It will further facilitate our regionalisation efforts as business enterprises which need to borrow offshore for venturing overseas or expanding their overseas operations will benefit from lower borrowing costs.”
“The need to conserve energy and protect the environment cannot be over-emphasised. To achieve the objective of energy conservation and improving the quality of our air and water, industries are encouraged to install highly efficient pollution control devices and use highly energy-efficient equipment. Currently, all enterprises are allowed to write-off their plant and equipment for tax purposes over three years. To encourage the use of highly efficient pollution control and energy-efficient equipment, I have decided to allow all expenditure on such equipment incurred with effect from 1st January 1996 to enjoy 100% depreciation in the first year. This means that the qualifying expenditure on such equipment can be written off completely against the taxable income of the enterprise in the year following the year of purchase. If the enterprise does not have sufficient profits to take full advantage of the 100% depreciation allowance, the balance will be available for deduction in subsequent years. I hope that all enterprises in Singapore will take advantage of this concession to install highly efficient pollution control and energy conservation equipment as soon as possible. The scheme will be administered by the Ministry of The Environment. Details of the guidelines and qualifying criteria for these incentives are set out in Annexes (Cols. 809 - 820) I and II. Annexes - ACCELERATED DEPRECIATION ALLOWANCE TO APPROVED ENERGY-EFFICIENT EQUIPMENT AND TECHNOLOGY, ACCELERATED DEPRECIATION ALLOWANCE TO APPROVED HIGHLY EFFICIENT POLLUTION CONTROL EQUIPMENT, QUALIFYING CRITERIA FOR HIGHLY EFFICIENT AIR POLLUTION CONTROL EQUIPMENT, QUALIFYING CRITERIA FOR HIGHLY EFFICIENT WATER POLLUTION CONTROL EQUIPMENT (Cols.”
“It is therefore crucial for finance companies to build up adequate provisions to cushion against unexpected losses and diminution in the value of their assets. This will enhance the overall soundness and stability of our financial system. To encourage finance companies to build up their reserves, I have decided that with effect from Year of Assessment 1997, finance companies will be able to claim tax deduction for general provisions made for loans and investment in securities. This tax concession has been available to banks since Year of Assessment 1992. The tax concession will be available only to finance companies which meet the statutory minimum capital funds requirement of $50 million and minimum capital adequacy ratio of 12% as prescribed under the Finance Companies (Amendment) Act. This is to ensure that only those finance companies whose shareholders have demonstrated their commitment to strengthen the companies_ capital will be allowed the incentive to further build up their general provisions. At present, 11 of the 22 finance companies are able to meet such capital requirements. As in the case of banks, the total amount of general provisions eligible for tax deduction will be limited to 2% of each finance company_s prescribed loans and investments. The amount deductible each year will be limited to 1/2% of such loans and investments or 25% of each finance company_s qualifying profit, whichever is the lower. First Year Depreciation for Highly Efficient Pollution Control and Energy-Efficient Equipment As Singapore continues to develop, increasing amounts of emissions will be released into the environment from more factories and motor vehicles. The demand for energy is also expected to increase significantly, bringing with it the potential for more pollution.”
“When this incentive comes into operation, it will replace the post-pioneer incentive. Further details of this incentive will be announced shortly. Investment Allowance Incentive (IA) for Water Recycling Plant Under the present investment allowance incentive, the investment allowance granted to a company on the capital expenditure incurred for an approved project can only be set-off against the chargeable income from that project. Consequently, companies which carry on projects or activities where the income is already granted exemption from tax are not granted the investment allowance incentive. This is because there is no benefit from setting-off such allowances against exempt income. In line with the national thrust to encourage water conservation, companies in water-intensive industries have been asked to reduce their water consumption through the installation of efficient water recycling plants. The high capital expenditure on such plants can qualify for investment allowances. However, companies in water-intensive industries may already have been awarded tax exemption or other incentives. I have therefore decided to allow the investment allowances which are granted to such companies for water-recycling plants to be set-off against chargeable income taxed at the normal rate, provided they satisfy certain water conservation levels. This will apply to investment allowance granted for qualifying water-recycling plants incurred on or after 1st January 1996. Tax Deduction for General Provisions of Finance Companies Finance companies have grown over the years. Their loans and deposits now account for 13.5% and 12.4% of total domestic loans and deposits.”
“As a further step towards the medium term target of 25%, the corporate tax rate will be reduced by 1 percentage point, from 27 to 26%, with effect from Year of Assessment 1997. This will help maintain our attractiveness to foreign investors and at the same time lighten the burden on local industries. Revenue loss is estimated to be $200 million annually. Development and Expansion Incentive We have used tax incentives ever since Independence to promote economic development. The pioneer and post-pioneer incentives have played a major role in attracting high value-added investments to Singapore. There are however no appropriate incentives today for companies which either do not qualify for pioneer status or whose post-pioneer status has expired. To encourage companies which engage in high value-added activities to operate in Singapore and continue to invest in high technology projects and the major upgrading of equipment and operations, I intend to introduce a new incentive which will replace the post-pioneer incentive. Under this new incentive, which will be known as the Development and Expansion Incentive, income from qualifying activities will be taxed at a concessionary rate of not less than 10%. The incentive is intended for companies which engage in new projects and expansion or upgrading of their operations. For a company awarded this incentive, the initial period of the incentive will not exceed 10 years. Extensions of the incentive after the initial period may be granted. Each extension will not exceed a period of 5 years and the total period for this incentive will not exceed 20 years. The Development and Expansion Incentive will apply to qualifying income derived from any period beginning in or after 1996.”
“So long as the Government continues to be prudent with its expenditure, there will be no need to tax the economy heavily. As the growth outlook in 1996 remains buoyant, there is no pressing need to stimulate the economy with drastic tax cuts. However, margins in some business sectors have been squeezed by rising manpower costs and the strong Singapore dollar. There is therefore a case for continuing our policy of gradually reducing Government levies and taxes in order to reduce business costs and improve profitability. We will also fine-tune tax incentives to promote high value-added activities and encourage investments in equipment for pollution control and the conservation of water and energy. Also, while tax incentives will continue to be used, other incentives, such as equity participation, grants and loans, will play a greater role to supplement tax incentives in attracting desirable activities. Human capital will be an increasingly important source of comparative advantage for the economy. To compete for and retain talent, the Government is committed to lowering the tax burden on individuals whenever its fiscal position allows. We will also simplify and restructure the personal income tax system to encourage hard work and reward achievers, particularly for the middle income groups. As 1995 was another successful year, the Government will continue to implement special schemes to return part of Government's surpluses to Singaporeans who fall outside the income tax net. This will be done in ways which enhance the assets of our citizens and do not create dependency expectations. Let me now deal first with the tax changes for companies. TAX CHANGES FOR COMPANIES Corporate Income Tax Corporate income tax was last reduced to 27% in 1994.”
“The quality and efficiency of the public sector is a major contributor to the competitiveness of a country. BFR should enable us to maintain and improve on our competitiveness. III REVENUE AND TAX CHANGES Mr Speaker, Sir, let me turn next to the fiscal position and the proposed tax changes. GDP growth in 1996 is forecast at 7-8%, in line with our medium term growth potential. Revenue collection is expected to be $26.0 billion. With operating and development expenditures budgeted at $18.9 billion, a surplus of $7.1 billion is anticipated. A comprehensive GST of 3% has been implemented for 2 years since April 1994. GST revenue collection in FY95 is projected to be $1.6 billion. This is less than the value of the GST offset package, which is estimated at $1.8 billion. Hence, the introduction of GST continues to be revenue negative, as the Government had promised. The implementation of GST has generally gone smoothly but we will continue to fine-tune procedures to facilitate the conduct of businesses. The GST has broadened our tax base and put us in a strong position to take the reform of our tax system a stage further. The Government_s basic aim is to simplify the tax system and tax factors of production as lightly as possible. A simplified tax system facilitates compliance and lowers both administrative and business costs. The strong revenues from levies imposed for specific purposes, such as COE and foreign workers levy, help to keep our direct and indirect taxes as low as possible. Lighter taxes will strengthen incentives for the population to work, save and grow the economy. The level of taxation needed depends on the Government's spending requirements.”
“Previously this took about 21 days. Under BFR, Permanent Secretaries will be accountable for achieving their targets. Secondly, a unit's operating budget will depend on its output levels. The driving force of the budgeting process will shift from resource requirements to output levels. For example, Toa Payoh and Tampines Polyclinics will be funded this year based on the number of patients they serve. Immigration Department will be funded by the number of persons cleared at checkpoints as well as the number of passports issued. For units whose output and services are not easily measured, their operating budget will be allowed to grow roughly at the nominal GDP growth rate. In these cases, GDP growth rate is used as a proxy for output growth. When applied across the board, the effect of this is to limit the share of the economy taken up by the public sector. Thirdly, as an incentive for better financial management, Ministries will be allowed to carry forward a portion of their savings to the next financial year. Such savings may be used to finance new programmes, purchase capital equipment or meet future contingencies. This will discourage the rush to use up operating budgets at year end. Fourthly, units will be given maximum autonomy to achieve their goals. For instance, Permanent Secretaries will be allowed to increase their headcount to cope with increases in workload or initiate new activities within the agreed budget. Elements of AA and BFR will be introduced progressively in all Ministries, Departments, Organs of States and Government-funded Statutory Boards over a two-year period. From FY96, 14 Government Departments, including three Ministry HQs will start operating as AAs. The rest of the Civil Service will be managed as AAs by FY97.”
“To meet the challenges ahead, we need a first class Civil Service that can create the conditions for Singapore to stay ahead of competition and, at the same time, provide a level of public services that will meet Singaporeans' aspirations. To do this, civil servants need more autonomy than is possible under the existing structure, which is built around centralised control. We cannot accept a Civil Service mindset that places compliance above initiative, process above people and rules above flexibility. This is no different from what progressive business organisations are doing in response to changes to their environment. All over the world, well-run corporations are dismantling internal bureaucracies, empowering front-line employees, focusing on quality and getting closer to customers in order to stay ahead of competitors. The Civil Service will be restructured along similar lines. We have called this process Budgeting For Results, or BFR for short. Under BFR, all government units such as Ministries and Departments will be managed as autonomous agencies. Each autonomous agency, or AA in short, will have considerable autonomy in financial and personnel management in exchange for greater accountability for the results to be achieved with the public funds allocated to them. I will now explain briefly how the AA and BFR system works: Firstly, every government unit will be required to specify its outputs and set performance targets as part of the annual budgeting process. That is, they must identify the results to be achieved with their budget allocations. These targets will be monitored and will form the basis for evaluating the performance of the units. For example, the National Registration Department has set a target of issuing ICs within 14 days.”
“The Civil Service is in the process of introducing fundamental reforms to its management and control system. This will have wide-ranging impact in the way public sector organisations operate. The goal is to create a public sector which will provide higher quality service at lower cost through better management practices. Let me explain the need for this reform. Over the years our public sector has been kept lean and efficient, and has provided an efficient, honest and competent public service. This has contributed to our economic growth and competitiveness. However, there is no room for complacency. We cannot take for granted that what has worked well for us so far will also see us through the future. Singapore is entering a new stage of development. We are approaching developed country status, and face intense competition not only from low-cost developing countries that are fast catching up, but also from advanced countries in a rapidly changing and highly competitive external environment. On the domestic front, the emergence of a generation of better educated Singaporeans and an ageing population means higher expectations of and demands on all aspects of public services. The response cannot simply be to expand the size of Government. The experience of many developed countries has shown that unrestricted expansion of bureaucracies, even with the best of intentions, just leads to bloated and inefficient public sectors. The result is not better services but higher taxes to finance the cost of Government, which in turn becomes a drag on the economy. Indeed, many developed countries which expanded their public sectors during good times are now taking painful steps to downsize and cut back. Others cannot do so for lack of political will.”
“Half of this will go towards subsidising new flats and paying for the discount on the sale of HDB tenanted shops and rental flats. The upgrading of HDB flats, including interim upgrading to improve older estates, takes up a significant portion of the balance. Development funds are also set aside to enhance social cohesion, strengthen the fabric of society, and promote healthy living. These will be used to develop, upgrade and maintain our sports facilities, upgrade Residents Committee Centres, construct a new Grassroots Recreation Club, and develop Community Centres/Clubs and Child Care Centres. Provisions are also made to develop homes for the aged and facilities for disabled and low income families. The programme to cover sewage treatment works to reduce smell nuisance will continue. The development of an offshore sanitary landfill on Pulau Semakau is in progress. Land reclamation works are currently underway on Sentosa Cove, Jurong Island, the Southern Islands, Tuas View and Changi East. R&D expenditure is budgeted at $238 million or 0.18% of GDP. Of this, $197 million will be managed by NSTB for the promotion of economically relevant R&D. The balance is set aside to promote academic and medical research under the Academic and Medical Research Funds. The Economic Development Assistance Scheme will be extended for another 5-year term to develop our human resources, upgrade local companies, draw in strategic investments and help our local companies venture into the region. A sum of $58.5 million has been provided for FY96. MANAGEMENT AND CONTROL OF GOVERNMENT EXPENDITURE I will now update the House on what is being done by Government to achieve greater efficiency and accountability in public expenditures.”
“To prepare our young for the information age, the Government will also invest heavily in upgrading computer facilities in schools and tertiary institutions. Development spending on healthcare is largely for building new hospitals and medical institutes, and upgrading existing ones to provide quality healthcare service. The major provisions are for the construction of a combined Institute of Health/National Dental Centre, the New Changi Hospital, NUH Phase 3 development, the new Kandang Kerbau Hospital, Tan Tock Seng Hospital, and the Communicable Disease Centre. Spending on civil defence and other projects of the Ministry of Home Affairs is set to double with projects such as the Civil Defence School, civil defence shelters, a new Immigration Building, redevelopment of the Woodlands Checkpoint and building a new checkpoint at the second crossing to Malaysia. Funds have also been provided to upgrade and replace operational and training equipment to further enhance the operational readiness of our Police and the Civil Defence forces. The Government is committed to maintaining the free-flow of people and goods on our roads. The on-going programme to widen and upgrade roads and expressways, and construct junction interchanges will continue. The ERP Project is making good progress. In public transport, the Woodlands MRT Extension has been completed on schedule and below budget and came into operation on 10th February 1996. A decision has also been taken to proceed immediately with the North-East MRT Line and the Bukit Panjang LRT and to bring them into operation as soon as possible. Funds are also provided for feasibility studies into new MRT and LRT lines, such as the Marina LRT. The capital subsidy on public housing is expected to increase in FY96 to $903 million.”
“8 billion, a 8% increase over FY95. As a percentage of total operating expenditure, defence accounts for the largest share at 42%, followed by education at 24%. From FY96, operating expenditures have been classified into Running Costs and Transfers. Running Costs refer to the day-to-day operating expenditures of Government. It includes manpower and other operating costs. Transfers on the other hand refer to payments made by Government to the public and outside organisations. They include payments for public assistance. Scholarships, compensations, direct subsidies, contributions to local and international organisations are also classified as Transfers, as these are grants to bodies outside the civil service to carry out approved programmes. This reclassification will provide a better picture of the actual cost of running and maintaining government's services. For FY96, Running Costs and Transfers will amount to $11.9 billion and $0.9 billion respectively. Compared to FY95, Running Costs will be higher by 7.4%, while Transfers will be higher by 15.2%. Development Expenditure Development expenditure in FY96 is estimated at $6.1 billion, a slight decrease of $0.3 billion compared to FY95 and accounting for 32% of total expenditures. Development spending on education will be significantly higher in FY96. The bulk of it will go into the building of new schools, technical institutes and tertiary institutions, and improving facilities in existing ones. Specific projects include building a permanent campus for Nanyang Polytechnic, boarding facilities for Nanyang Girls' High School, upgrading of the NUS campus, and the relocation of NIE to NTU.”
“This will free more human and financial resources for the private sector to play its role as the engine of growth. The government's budgetary policy is to ensure that all expenditures are met from operating revenues. Income from investments is retained in reserves to preserve their real value. Singapore has few natural resources. Our financial reserves therefore constitute our national wealth and resources. They are critical, not only to see us through times of crisis, but also to secure investor confidence in our future. Because of continued strong economic growth, the FY96 budget is expected to yield a surplus. Some of this can therefore be channelled to augment Medifund and Edusave. I propose a contribution of $100 million to Medifund to ensure that healthcare remains affordable to all, and another $500 million to Edusave to broaden the choice and enhance the quality of education for our young. THE FY96 EXPENDITURE ESTIMATES Total expenditure in FY96 will amount to $18.9 billion or 14.4% of GDP. As in previous years, Social and Community Services will take the largest share at 42%. Education alone accounts for half of this. The rest will go into healthcare, public housing subsidy, the environment, community development, and information and the arts. National security accounts for the next largest share at 36%. Spending on economic and infrastructural development accounts for 12% of the expenditure estimates, which includes the development of the transportation system, civil works, research and development, the upgrading of our economy and workforce, and the promotion of inward investments and regionalisation. Let me now elaborate on the FY96 expenditure proposals. Operating Expenditure Operating expenditure in FY96 is projected to increase by $0.9 billion to $12.”
“In fact the Government will make a special effort to conceive and implement projects which achieve specific social objectives. One good example is the Edusave Merit Bursary scheme, which has helped us to reach out to a large number of young Singaporeans from lower income families, and encouraged them to study hard in order to uplift themselves and their families. CONCLUSION Although it is not possible for us to have perfect information about the future, we do know that some things never change, like Singapore_s small size and the keener competition that we will face. We therefore must be prepared for the future. Singapore has many good things going for it. We occupy a strategic location in Asia, the next economic powerhouse of the world. Domestically, we have a competent Government, a hardworking and rational people, sound institutions and, above all, the will to succeed. I am therefore confident that we will be among the more prosperous cities of an affluent Asia in the 21st century. II THE FY96 BUDGET Mr Speaker, Sir, I will move on to the Budget for the next financial year. EXPENDITURE POLICY Our expenditure policies will continue to focus on building a competitive economy. The strategy is to channel more funds into productive infrastructure and into areas which yield lasting returns and support growth. Our philosophy is to promote a cohesive, resilient and upwardly mobile society. We will therefore continue to spend heavily on education, primary healthcare, public housing and community development. As we are approaching developed country status, our aim is also to develop a more gracious society. More funds will therefore be allocated for the development of the arts, recreation and sports. Government will also continue to restrain growth in the size of Government.”
“But because of their size, they must nevertheless be taken into account in our macroeconomic policy. The Government_s budget surpluses have not been a drag on the economy. Economic growth has remained high, and in some years has in fact exceeded the long term sustainable rate. The surpluses have enabled the Government to enhance the wealth of Singaporeans in good years, through schemes like the HDB upgrading programme and the Share Ownership Top-Up Scheme. There is therefore no reason for us to be apologetic about our budget surpluses or to make drastic changes to fiscal policy. Over the longer term, our surpluses give us the flexibility to look ahead at how best our fiscal policy can support continued growth. As the Singapore economy matures, its growth will gradually slow down. When this happens, the Government will have room to reduce taxes, to strengthen incentives for individuals to do well, take risks, and save, in order to promote investment and economic growth, without running into a budget deficit. In previous Budgets, I had mentioned a target of 25% for the corporate tax rate and 12% for the property tax rate. Provided we continue to keep a tight rein on expenditure, these rates should still enable us to set aside a modest surplus to meet contingencies and cope with any unexpected economic downturns. I will elaborate on this year_s adjustments later in Part III. At the same time, our surpluses enable the Government to take non-tax measures to benefit those who pay little or no taxes, like remission of HDB conservancy and service charges for lower-income households, or the Share Ownership Top-Up Scheme. On the expenditure side, the Government will continue to evaluate projects on their economic merits. No worthwhile project will be held back.”
“When there is an upsurge in demand, the Government has made supply-side adjustments, like relaxing controls on foreign workers, so that companies_ operations are not hampered. We are also consciously streamlining paperwork and red tape in order to cut down response time to investors. ROLE OF FISCAL POLICY The Government_s fiscal policy aims to provide a stable and conducive environment for the private sector to thrive. Our target is to contain expenditure within operating revenue and run a modest budget surplus over the long run, so that the public sector does not drain resources from the economy. Our budget surpluses have averaged 4.4% of GDP over the last 8 years. This healthy state of public finances is the result of careful expenditure and buoyant revenue. The Government has been very careful with its expenditure. It has embarked on projects only on their own merits, and not just because it has the money. Yet, we have not in any way stinted on investments for economic and social purposes. 30% of government expenditure is devoted to development projects, like building schools, hospitals, roads and parks. Investors and analysts rate our infrastructure highly. Our people enjoy good public amenities and a high quality of life. On the revenue side, despite successive reductions in income tax rates, collections have risen because of strong economic growth. At the same time, non-tax measures like Certificates of Entitlement (COEs) and Foreign Workers Levy, which were introduced for purposes other than revenue, have developed into significant revenue sources. These revenue sources are not as stable as taxes. They are likely to fall sharply in a recession, as demand for foreign workers falls, and Singaporeans have less to spend on buying cars.”
“For example, China has an enormous number of highly talented workers, professionals and government administrators. But China will take many years to build up the institutions, the management systems, the legal framework, and the respect for transparent, impartial rules, all of which are necessary before talented individuals can work together to realise their full potential running outstanding organisations. China realises this, and is working hard to master this _software_. The Suzhou Industrial Park project is only one of the ways China is trying to pick up ideas from other countries, adapt them to local conditions, and then apply them in more areas. At the same time, we are mindful that the world around us is changing. What works for one industry today may not work for another industry tomorrow. We must never mistake a sea change for _noise_ and fail to respond. We need to keep our ears close to the ground, keep in close touch with our customers and find out what they want. We then adjust our policies to ride on opportunities as they arise. The Government has always taken a developmental approach. It will customise advantages to suit the needs of different investors, especially those who can make a significant contribution to Singapore_s economic development. We have used tax incentives like pioneer status extensively over the years. But increasingly, other countries, better endowed than us, are offering similar or even better incentives to ride the global electronics boom, while investors are looking for more partnerships to share the high costs of product and market development. So we have adapted our tactics, eg, by co-investing with investors in strategic projects or by setting aside enough land for key projects.”