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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“Difficulties will arise with regard to the treatment of durable consumer goods such as housing. Every individual would also need to maintain a comprehensive set of accounts of their cash balances, borrowings and sales of assets. This will create tremendous scope for under-reporting and tax evasion. As savings will not be taxed, the rates of expenditure tax will generally have to be higher to generate the same amount of revenue. Finally, as I have pointed out before, expenditure tax has not been formally adopted by any country whereas income tax is accepted internationally. Over the years, we have built up a wide network of tax treaties to avoid double taxation. The introduction of an expenditure tax will have implications on these treaties as many areas involving cross-border transactions may have to be re-negotiated. Budget Surpluses Some Members have again questioned the wisdom of the Government in consistently maintaining budget surpluses and whether this might not be deflationary. The Government's long term fiscal policy aim is to contain expenditure within operating revenue. The large budget surpluses realised in the past few years are the direct result of strong economic growth linked to careful control of expenditure. We spend only what is necessary and need to create long term growth, not because we have the money or because other people spend more. We cannot presume that the large domestic budget surpluses seen in the past will continue indefinitely. This will be particularly so, as our population ages and the economy matures. Our strong fiscal position gives us some leeway to consider changes to fiscal policies to enhance the economy's competitiveness as it faces new challenges in the next decade, and has to develop new strengths.”
“2% of GDP he quoted for Singapore refers only to government expenditure on health care in FY 95. For his information, our total national health expenditure, both public and private, currently amounts to about 3% of GDP. We do not base our health care expenditures on what other countries spend but on what we consider is needed to maintain a high standard of health care. On the whole, our health care expenditures are lower than that of many other countries and there are several reasons for this. Firstly, currently we have a young demographic structure, notwithstanding our rapidly ageing population. Singapore's proportion of those aged 60 and above is only 9% now as compared to 16% to 18% for Japan and the United States, and more than 20% for the United Kingdom and Germany. Hence, lower health problems. Secondly, with fee-for-service and other mechanisms to curb excessive demand, Singapore is able to maintain an efficient health care delivery system. In fact, we have been ranked No. 1 in the World Competitiveness Report 1994 in this aspect. This means that we can get more value for money out of our health care system compared to the other nations. Thirdly, our GDP has been growing very rapidly. This reduces our health care expenditure as a proportion of GDP. Notwithstanding our low expenditure, the quality of our health care services has remained high. This is reflected in our low infant mortality rate and long life expectancy, which are on par with the developed nations. Expenditure Tax The Member for Tanjong Pagar GRC has resurfaced his proposal of an expenditure tax in place of GST and income tax. An expenditure tax is conceptually very attractive. However, in practice, it is a very difficult tax to administer.”
“Whether they choose to absorb the 3% GST or not, non-GST registered corporations also get to enjoy the tax savings from the 3% corporate tax reduction. I had promised last year that the tax authority will undertake a study on the compliance cost for businesses one year after the implementation of GST. The preliminary results of the first phase of this study, of a limited number of companies, indicate that compliance cost of GST is low. The tax authority is conducting a second phase of the compliance cost study. Businesses should by now have progressed beyond the learning curve and compliance cost settled at steady state level. We will have a more accurate picture of the compliance cost imposed by GST on various sectors of the economy when the study is completed. If necessary, appropriate measures will be taken to reduce compliance cost for those sectors that require it. Members have also raised several other questions in connection with GST. As these are matters of detail, I will find an opportunity to deal with them during the Committee of Supply. Expenditure on Health Care Mr Ling How Doong quoted figures to show that our expenditures on health care are well below that of other countries. Unfortunately, he has compared donkeys with zebras. I believe that the figures for health expenditures which he quoted for Hong Kong, Japan, USA and Malaysia came from the World Bank's World Development Report of 1993. He said that Hong Kong, Japan, US and Malaysia spent 5.7%, 6.5%, 12.7% and 3% of GDP respectively on health care in 1990 compared to 1.2% of GDP for Singapore. If he had read the tables carefully, he would have realised that the figures he quoted referred to the total health expenditures in each country, both public and private, whereas the figure of 1.”
“Compliance Cost of GST A survey by the Singapore Manufacturers Association (SMA) in August last year among 130 companies showed that although 72% of them encountered some administrative and accounting problems in the initial months of the GST implementation, the problems were relatively minor. Most of the problems arose out of unfamiliarity with GST procedures. All of these initial problems have since been resolved. Some Members have expressed concern with the administrative burden that GST has imposed on businesses. They argue that the reduction in corporate tax only applies to profits while GST is on revenue. I would like to point out that GST is a tax on consumption and is ultimately borne by the end-consumers and not by companies. Corporations which are GST-registered merely act as tax-collecting agents for the Government. It is therefore incorrect to say that their burden is in the form of the 3% GST on their revenue. Instead, the burden faced by GST-registered corporations should be measured by their compliance cost. The tax savings from the 3% reduction in corporate tax should be more than sufficient to assist businesses in setting up internal systems to comply with GST procedures. Non GST-registered corporations, on the other hand, may incur some form of GST burden as they cannot claim back the input GST incurred on taxable purchases. This is true for those which choose to absorb the 3% GST instead of passing it on to their customers. Even so, the final tax burden on companies which absorb the GST may be minimized somewhat by the fact that their prices will be lower, and hence more competitive than those who pass on the GST to their customers in the form of higher prices.”
“I would also like to point out that although GST collections have exceeded original estimates, it does not mean that all individuals are paying more GST as a result. The GST burden borne by individuals varies directly with their spending. For individuals with lower purchasing power, the offsets received by them as a group should be sufficient to cover the GST they incur on their basic expenditures. Those with higher purchasing power will tend to spend more. The higher than expected GST collection is therefore likely to have come from this latter group of individuals who, in turn, would have benefited from higher income tax offsets. A Member has expressed concern on the impact of GST on pensioners whose pensions were not adjusted and who do not live in HDB flats. This group of persons would thus not enjoy the rebates on HDB rental and service and conservancy (S&C) charges. In formulating the package of GST rebates in 1993, the Government had recognised that there would be a group of persons, such as retirees and pensioners living in non-HDB properties, who would not be able to enjoy the full benefit of the offset package. The CCC Assistance Scheme was set up precisely to cater for this group of persons. Under the CCC Assistance Scheme, those with monthly incomes below $1,500 may apply for a grant to top-up the difference between the GST they have incurred and the GST offsets they received. At this point, I would like to reassure the House again that the Government remains committed to implementing GST in a revenue negative way in the short term, and in a revenue neutral way in the long term. For FY95, GST collection is estimated at $1.6 billion while the GST offsets package is estimated to cost Government about $1.9 billion.”
“The high economic growth in 1993 and 1994 also raised the value of the GST offsets and rebates package above estimates by about $500 million. Most of this increase came from higher revenue foregone from corporate and personal income tax. The revenue foregone figures for corporate and personal income taxes were computed in 1992, based on figures for Year of Assessment 1991 which were the latest figures available then. Income tax collections are highly buoyant and increase rapidly with economic activity. Of the increase of $500 million in the GST offset package, about $160 million was in the form of revenue foregone from corporate tax, while some $270 million was from revenue foregone from personal income tax. In addition, revenue foregone from the reductions in the various indirect taxes accounted for about $20 million of the increase in the total offset package, while the property tax rebate accounted for another $6 million. Additional subsidies for health, education and public assistance to offset the impact of GST accounted for $4 million in the value of the offset package. The fact that actual GST collections have surpassed what was originally projected has led some Members to call for additional rebates to be given to individuals. Concerns have also been expressed over the impact of GST on the lower income groups. When the GST offset package was announced in the 1993 Budget, we had already analyzed the net change of expenditures for typical lower-income households before and after the introduction of GST, including the forecast impact of GST on the CPI. As actual CPI was substantially below forecast, most households should end up being better off after the implementation of GST.”
“The low CPI increase was due in no small part to the widespread support given by grassroots shopkeepers to community leaders' appeals not to raise prices and to keen competition in the retail sector. Credit must also be given to the efforts of CASE in publicising prices of essential goods. The implementation of GST has also clearly not dampened our economic growth in any way. The economy grew by 10.1% in 1994. If anything, our concern is with the overheating of the economy, rather than sluggish growth. Unexpectedly high economic growth last year raised GST collections to $1.5 billion, well above the original estimate of $960 million. At the same time, the value of the GST offset package was also increased to $1.7 billion. Overall, the implementation of GST remains revenue negative as promised by the Government. Some Members want to know why there was such a large variance between the projected and the revised figures. Let me explain the reasons for the variance. On the revenue side, the original estimate of $960 million was based on Private Consumption Expenditure (PCE) figures of 1992, adjusted to 1993 and 1994 levels. It assumed nominal GDP growth rates of 7.5% for 1993 and 8% for 1994. As it turned out, the actual nominal growth rate in 1993 was much higher at 13%, while that for 1994 was 14%. Assumptions were also made about the likely reduction in consumption arising from pre-GST purchases, the level of tourist refunds and possible revenue leakage. All of these factors would have reduced GST revenue. As this was the first year of GST implementation, accurate forecasting was obviously not possible. In addition, the PCE figures may also have been understated.”
“Mr Speaker, Sir, I would like to thank all the Members of the House who have spoken on the Budget over the past two days. Time will not permit me to address every Member's concern in detail and I will focus on the major issues and leave matters of detail to be considered in the Committee of Supply. With the implementation of GST, we have laid the foundation for a major transformation of our tax system. The necessary tools are now in place to ensure our long-term competitiveness and to support the development of our external economy. This year's Budget builds on this foundation. It fine-tunes the tax system further to meet specific needs. I will now address the specific major issues raised by Members. The Impact of GST on the Economy Let me first review the implementation of GST. On the whole, the implementation of GST has been smooth, considering that it is a new tax with a very comprehensive tax base. Apart from some minor hitches in the initial stages of implementation, businesses and the public have adapted very quickly to the new tax. Fears were expressed when GST was first mooted about its adverse impact on prices and on our overall competitiveness. Some Members had also expressed concern over the administrative burden that GST would impose on businesses. Let me deal with each of these in turn. For a start, the public's fear of sharp price increases on account of GST did not materialise. In the Budget debate last year, Mr Chiam See Tong predicted that GST would raise the consumer price index (CPI) to 9% in 1994. He will be pleased to know that the CPI rose by only 3.6% last year, significantly lower than the 5.5% earlier projected.”
“Currently, there are a few roads bearing the same name. These are roads which existed for a long time and were split into sections by new developments striding across them. Some are traversed by new highways and expressways that link new towns and estates built over the last few years. The disjointed sections of these roads thus end up bearing the same name. The street names of these roads have not been changed so as not to inconvenience residents who may have lived on these roads for a long time. These residents would have to change their addresses if the street names were changed. The Advisory Committee of Street Names is the body that proposes names for new roads. The Committee consults the Roads Division of PWD on future developments in any particular area before proposing a name for a new street. The Committee also ensures, as far as possible, that names proposed for new roads do not duplicate existing ones, nor cause any confusion to the public. MASSAGE ESTABLISHMENTS 3. Dr Kanwaljit Soin asked the Minister for Home Affairs (a) how many establishments in Singapore have massage as one of their services; (b) whether there has been an increase in the number of these establishments from 1992 to 1994, and if so, what is the reason for the increase; (c) how many of them have been reported for breach of rules and what penalty was meted out; and (d) what percentage of massage establishments had recurrent violations.”
“(a) Ministry of Finance does not use allocation guidelines to determine the funds to be provided to the various Ministries for use on advertisements in the TV and newspapers. Instead, each Ministry's request is submitted as part of its block budget, and Ministries are subsequently given some latitude in deciding how much they need to spend for this purpose, depending on their needs and priorities. (b) The total amount of money spent by Ministries on advertisements during the last 3 years is as follows : FY 92 $5,910,180 FY 93 $7,150,220 FY 94 $9,931,210 (estimated) As a percentage of Other Operating Expenditure, these amounted to 0.13%, 0.15% and 0.18% respectively for FY92, FY93 and FY94. (c) Around two-thirds of the advertisement spending over the past 3 years was in conjunction with national campaigns. Some of these include MOH's campaign against smoking and AIDS and MITA's Courtesy, Speak Mandarin and Sing Singapore Campaigns. Since most campaigns are geared towards developing a more civic and healthy society, their success can only be assessed in the long term, if at all. Nevertheless, independent research organisations are periodically appointed to gauge the reach and effectiveness of campaigns and thereby assist Ministries to fine-tune and improve on them. The remaining one-third of advertisement funds was spent on recruiting staff and the procurement of selected goods and services from the private sector. Such spending is necessary for the smooth running of Government. STREET NAMES 2. Dr Kanwaljit Soin asked the Minister for Finance (a) why are there multiple streets with the same names; (b) how did this happen; and (c) what plans his Ministry has to prevent any similar future occurrence.”
“In addition, local cigarette manufacturers will be exempted from excise duty on tobacco leaves used in the production of local cigarettes. Details of the duty changes for the various types of cigarettes and tobacco are in Appendix A (Cols. 117 - 120). Appendix A - CHANGES IN CIGARETTE AND TOBACCO DUTIES (Cols. 117 - 120) CONCLUSION Mr Speaker, Sir, we are facing a period of historic transformation of Asian economies. The region is taking off. Excellent opportunities abound. We, in Singapore, must seize the moment or risk being left behind. If our businesses explore the opportunities abroad, if they capitalise on our supportive and conducive fiscal environment; and if our people continue to be dynamic, daring and outward looking, we should be able to move forward in this sea of change. I am confident that with guts, gumption and enterprise, we will stay ahead and prosper. [Applause].”
“Stock borrowing is widely carried out in major financial markets. With the increased sophistication of stock market participants in Singapore, there is scope for the growth of stock lending and borrowing in SES stocks. To support the development of such activities and encourage the growth of stock options trading, I have decided to exempt loan agreements for lending and borrowing of Singapore stocks, for ASCs, ACUs and residents outside Singapore, from stamp duty with immediate effect. Water Conservation Tax The water conservation tax was last increased in 1992. This successfully brought down the increase in demand for water from 5.4% in 1992 to 4.9% in 1993. However, despite the continued efforts by the Public Utilities Board to encourage water conservation amongst households and industries, the increase in demand for water has since climbed back to 6.5% for 1994. Water is a scarce resource for Singapore as we import a large part of the water we consume. To restrain the growth in water consumption, Government has decided to increase the Water Conservation Tax on domestic customers who consume more than 20 cubic metres of water per month from 10% to 15%. The tax for non-domestic and shipping customers will also be increased from 15% to 20%. This tax change will take effect from 1st April 1995. Duties on Cigarettes and Tobacco Imported cigarettes are currently subject to both import and excise duties, while locally manufactured cigarettes are subject to an excise duty on the leaf tobacco and an excise duty on the finished product. To equalize the tax treatment between locally manufactured and imported cigarettes, import duty on cigarettes will be eliminated and excise duty on cigarettes raised to $115 per kg with immediate effect.”
“Property tax exemption for land under development will henceforth only be granted to certain approved building projects endorsed by the Economic Development Board. These building projects must fit in with Government's aim to build up capabilities in particular industry clusters as well as lead to substantial economic spinoffs and benefits for Singapore. Contract Note Stamp Duty on Trading of Stocks in Singapore Stock trading has become increasingly globalized as a result of technological advances and increased interest by investors in foreign stock investments. For example, Asian stocks are increasingly being listed or traded in the major stock markets outside their home exchanges due to the strong international investor interest in such stocks. To enhance our competitiveness and to continue to attract international investors to trade in Singapore and regional stocks on our Exchange, the Stock Exchange of Singapore (SES) has recently reduced its minimum stockbroking commission rate from 0.5% to 0.3% for transactions of Singapore stocks exceeding $1.5 million. This is a commendable initiative on the SES's part to encourage more trading activity. In support of the SES's efforts to keep stock transactions costs in Singapore competitive, I have decided to halve the contract note stamp duty on stock transactions from 0.1% to 0.05% of the contract value. This change will take immediate effect. Revenue foregone from the halving of stamp duty on contract notes is estimated at $135 million for FY95. Waiver of Stamp Duty on Loan Agreements for SES Listed Stocks To raise the sophistication of the stock market and to cater to the needs of institutional investors, the SES plans to facilitate lending and borrowing of SES listed stocks.”
“In line with this, the limit for the tax deduction will be raised to 20% of the assessable income from self-employment, subject to a maximum of $14,400. This will take effect from the Year of Assessment 1996. OTHER TAX CHANGES Reduction in Property Tax Last year, I announced a reduction of the property tax rate for industrial, commercial and let out residential properties from 16% to 15%, with the aim of ultimately reducing it to 12% over 4-5 years. As a measure to further enhance the competitiveness of doing business in Singapore, I have decided to reduce the property tax rate by 2%, from 15% to 13%. The reduction will take effect from 1 July 95 and will involve a revenue loss of $214 million per annum for Government. The Government strongly encourages landlords to share this reduction in property tax with their tenants. The 4% concessionary tax rate for owner-occupied residential properties will remain unchanged. Withdrawal of Property Tax Exemption for Land Under Development At present, land under development are exempted from property tax for a period of up to 5 years. This tax exemption was introduced in 1987 to help entrepreneurs tide over the economic downturn in the 1986 to 1987 period. Given the current strength of the economy in general, and the property market in particular, this tax exemption is no longer necessary. I have thus decided to withdraw the property tax exemption for land under development with immediate effect. The withdrawal of this tax exemption will only affect new projects. On-going projects that have been granted property tax exemption will continue to enjoy the concession until the projects are completed.”
“The rental payments will be made on 1st April and 1st December, and the S&C payments on 1st April, 1st August and 1st December this year. b) Two-Room Flats Payment of one month's net rent and three months' net S&C charges, after deduction of the GST offset rebates. The rental payment will be made on 1st April and the S&C payments on 1st April, 1st August and 1st December this year. c) Three-Room Flats Payment of two months' net S&C charges after deduction of the GST offset rebate. The payments will take effect on 1st April and 1st December this year. d) Four-Room Flats Payment of one month's gross S&C charges, to be made on 1st April this year. e) Five-Room Flats Payment of one month's gross S&C charges, to be made on 1st April this year. The estimated additional cost of these rental and S&C rebates to the Government is $30 million. CPF Top-Up Scheme The exceptional performance of the economy last year has allowed the Government to accumulate a substantial budget surplus. Although most of the surplus will be put into reserves as a bulwark for the future, a portion will be returned to Singapore citizens who have contributed to the growth of the economy. Government will therefore pay a sum of $200 into the ordinary CPF account of every Singapore citizen aged 21 and above. The payment will be made on 1st October 1995. The cost of this payment is estimated at $360 million. Tax Deduction for CPF Contributions by Self-Employed Self-employed persons who contribute to the CPF are allowed to deduct their contributions, inclusive of compulsory Medisave contributions, from their assessable income. The present limit for such deductions is 18.5%, subject to a maximum of $13,320. On 1st July 1994, the employer_s CPF contribution rate was increased to 20%.”
“Singapore's location at the centre of the region provides potential for its development into a regional aircraft leasing hub. Aircraft leasing companies wishing to operate from Singapore can already enjoy a 10% concessionary rate of tax on income derived from offshore aircraft leasing. I propose to introduce additional incentives to complement this concessionary tax treatment. Interest payments on foreign loans taken during the incentive period to finance the operating leases will be exempt from tax. Approved companies will also be allowed the flexibility to depreciate their aircraft bought during the incentive period over 20 years instead of the normal 5 years. The additional incentive may be granted for 5 years in the first instance, and may be extended thereafter. It will take effect from Year of Assessment 1996. TAX CHANGES FOR INDIVIDUALS Income Tax Rebate Because of the good performance of the economy in 1994, I propose to give an across-the-board one-off rebate of 10% on individual income tax for the Year of Assessment 1995. This is equivalent to a 3 percentage proportional cut in tax rates. The revenue loss to the Government is estimated to be $234 million. Rebates on HDB Service and Conservancy and Rental Charges With GST-related personal income tax changes which took effect from Year of Assessment 1994, 71% of individuals no longer pay income tax. As they have also contributed to the growth of the economy, Government will pay, on behalf of citizen householders staying in rented and owner-occupied HDB flats, the following charges: a) One-Room Flats Payment of two months' net rent and three months' net S&C charges, after deduction of the GST offset rebates.”
“These changes will apply to dividends received on or after 1st March 1995. Waiver of the 25% Shareholding Requirement for Unilateral Tax Credit to be Given on the Underlying Tax of Foreign Dividends A Singapore company does not have to pay any Singapore tax on dividends derived from investments in countries where the tax rates are comparable to or higher than Singapore, if it holds at least 25% of the share capital of the dividend paying company. The tax credit for foreign dividends received by such company includes the underlying tax, that is, foreign tax on the profits out of which the dividends are paid. For most investors, the 25% shareholding requirement to qualify for credit of the underlying tax poses no problem. However, there are cases where for valid reasons, the 25% shareholding cannot be achieved. I have therefore decided to waive the 25% shareholding requirement on a case-by-case basis. This will apply to dividends received on or after 1st March 1995. Double Tax Deduction for Approved Expenses Incurred in the Promotion of Master Franchising and Master Licensing To further encourage companies to invest and expand into the region, the Double Tax Deduction scheme for the promotion of Singapore services overseas will be extended to include the promotion of master franchises and master licences overseas. Approved expenses incurred by companies to promote master franchising and master licensing overseas will be granted double tax deduction. The extension will take effect from 1 Apr 1995 and will be administered by the Trade Development Board. Approved Aircraft Leasing Incentive Economic growth in the East Asian region will lead to increased demand for air transport services.”
“The total amount of general provisions eligible for tax deduction will continue to be limited to 2% of qualifying assets. Removing the Present Constraints for Onward Payment of Tax Exempt Dividends Out of Foreign Income I had earlier introduced a package of incentives to encourage our companies to venture abroad. These incentives have worked well for most companies. At present, a Singapore company does not have to pay any Singapore tax on foreign income received if tax exemption has been granted or the foreign tax credit is equal to or exceeds the Singapore tax payable. Such income is also allowed to be distributed as tax exempt dividends. This is to enable foreign income to flow through to shareholders without double taxation. Under the existing law, the flow through of tax exempt dividends is limited to two levels of shareholding and subject to a 50% shareholding requirement. There are, however, companies which have found it necessary to form consortiums and set up more complex group corporate structures to venture overseas. In such instances, the current restrictions can result in the foreign income being subject to double taxation when it is finally distributed to the ultimate shareholders. To overcome such constraints, I have decided to: i) extend the follow-through of tax exempt dividends beyond the two levels of shareholders where the 50% shareholding requirement is satisfied. Holding companies at every tier of a group corporate structure will be allowed to onward pay exempt dividends received where the dividends originate from foreign income received in Singapore. ii) waive the requirement of a 50% shareholding in the dividend-paying company for onward payment of exempt dividends on a case-by-case basis.”
“iii) distributions of other income such as interest and foreign dividends to resident unit holders will be taxed. For distributions which are taxable, tax will be withheld by the unit trust at the prevailing corporate tax rate at the time of distribution. As with Singapore dividends, unit holders will be able to claim a credit for the tax withheld at the trust level. This incentive will take effect from Year of Assessment 1996. The new tax treatment will make it more attractive for individuals to invest in unit trusts. This will boost our domestic unit trust industry, which will in turn help generate greater demand for fund management services and build up fund management expertise in Singapore. Tax Deduction for General Provisions made by Banks Because of the special role which banks play in the economy, I have allowed general provisions made by banks and merchant banks to be tax deductible with effect from Year of Assessment 1992. Since then, banks and merchant banks have recorded strong profit growth. While the economic prospects for Singapore and the region are expected to remain good in the foreseeable future, no economy is immune to business cycles. During periods of healthy profit growth, banks and merchant banks should build up their financial reserves to see them through business downturns. To encourage banks to set aside a greater proportion of their profits as general provisions, I have decided to increase the maximum annual limit on the amount of general provisions eligible for tax deduction. Currently the general provision allowable is the lower of 25% of qualifying profit or 1/4% of qualifying assets. With effect from Year of Assessment 1996, the 1/4% will be increased to 1/2% of qualifying assets.”
“With effect from Year of Assessment 1996, the increase in taxable income over the preceding qualifying year from the following activities will be taxed at a concessionary rate of 5%: i) the managing of funds of at least S$5 billion from foreign investors by Asian Currency Units and Approved Fund Managers; ii) the underwriting, managing or placing of foreign securities by Asian Currency Units and Approved Securities Companies, if the taxable income from such activities exceeds S$10 million; iii) the trading of foreign securities by Asian Currency Units and Approved Securities Companies, provided the taxable income from such activities exceeds S$10 million; and iv) the trading of new futures and options contracts on SIMEX by its members for a period of up to 5 years from the commencement of trading of the new contract on SIMEX. Only the top 20 most active firms will qualify for the 5% tax. Further details of the scheme will be announced later. The scheme will be effective for 5 years in the first instance and may be reviewed after that. Taxation of Unit Trusts I have decided to introduce a tax incentive to foster the development of the domestic unit trust industry. For a unit trust granted this tax incentive, all income except Singapore dividends received will no longer be taxed at the level of the unit trust. For distributions made out of income that is not taxed at the trust level, the tax treatment will be as follows: i) all distributions to non-resident unit holders will be tax exempt. ii) distributions paid out of gains from disposal of securities to residents other than individuals and partnerships will be taxed. In the case of individuals or partnerships, only 10% will be subject to tax. The remaining 90% will be tax exempt.”
“As a result, 71% of individuals no longer pay income tax. There is hence no need to make significant changes to the personal income tax structure this year, so soon after the last revision. Instead, other routes will be used to reward individuals for their contributions towards a successful year. Let me now deal with the tax changes for companies. TAX CHANGES FOR COMPANIES 5% Tax on Incremental Profits from High Value-Added Financial Activities The rapid growth of economies in the Asia Pacific has opened up new business opportunities for the Singapore financial sector. In line with government's efforts to encourage Singapore financial institutions to undertake high value-added activities, various tax incentives have been put in place over the years. These incentives have been successful. Nevertheless, our financial institutions need to continue to strengthen their capabilities in fund management and investment banking if Singapore is to position itself to play a key role in servicing the expanding financial needs of the East Asian economies. To further boost fund management, risk management and capital market activities in Singapore, I have decided to grant a concessionary tax rate of 5% on the incremental profits of such activities.”
“As the GST was not intended to increase overall tax collections, its introduction was accompanied by a package of tax cuts and rebates to offset GST revenues. The GST revenue collection was originally estimated at $960 million and the value of the GST offset package at $1.2 billion. Due to the unexpectedly high economic growth, both the GST collection and GST offset package have since been revised upwards to $1.5 billion and $1.7 billion respectively. Hence, overall, the introduction of GST will remain revenue negative. I would like to reiterate that Government is committed to making GST revenue negative in the short run and revenue neutral in the long run. As 1994 was another successful year, there is scope for returning some of the budget surpluses to the economy. However, the route chosen will have to take into account the fact that the economy is entering a third year of very strong growth and some care is needed to avoid over heating. On corporate tax, our medium term goal is to bring the rate down to 25%. However, there is no need to lower the tax rate again this year to further stimulate an already vibrant economy, so soon after the 3% cut which came into effect in Year of Assessment 1994. Instead, we will fine-tune our tax system to support regionalisation and high value-added economic activities. In line with Government's plan to promote fund management and investment banking activities, additional incentives to enhance their development will be introduced. We will also continue to review various taxes and duties, such as property tax and stamp duties, to lower business costs and improve business efficiency. Personal income taxes were substantially reduced in Year of Assessment 1994 to accompany the introduction of GST.”
“BFR will be an improvement over the existing budgeting system, which is largely input driven and puts little pressure on ministries to review their outputs or requirements or to reallocate resources between activities. There are also currently no clear performance targets nor incentives for staff to be more productive in the use of public funds. Fundamental to the BFR process is the identification of output and performance targets. Departments have already been asked to do this. Clearly defined outputs and performance targets should in turn lead to greater accountability and value for money from the organisation. Several concepts are being worked out in connection with the implementation of BFR. They relate mainly to the financial, procurement, and personnel managerial flexibilities that can be devolved to departments under BFR. To foster entrepreneurial behaviour, we are also exploring the feasibility of allowing departments to fund their operations from receipts and to charge other departments for their services. Once we are ready with some workable arrangements, these would be implemented in selected ministries and departments. PART III - REVENUE AND TAX CHANGES Mr Speaker, Sir, let me turn next to the fiscal position and the proposed tax changes. A healthy budget surplus is forecast for FY94 as revenue collections were buoyant because of strong economic growth. The outlook for growth in 1995 remains strong at 7.5-8.5%, which is still above our medium term growth range of 6-7%. Revenue collection in FY95 is estimated at $24.3 billion. With operating and development expenditures budgeted at $18.5 billion, a surplus of $5.8 billion is anticipated. A comprehensive GST of 3% was introduced in April last year as part of a major move to reform our tax structure.”
“The focus of R&D spending will continue to be on economically-relevant R&D, which is driven by the National Science & Technology Board (NSTB) through an allocation of $298 million. Another $50 million will be provided for the Academic Research Fund to enable academic research to be carried out by various institutions under the Ministry of Education. As a step towards keeping doctors abreast of medical advances and to develop more cost-effective methods of medical care, medical research will be stepped up under the supervision of the newly set-up National Medical Research Council. A sum of $20 million will be made available for this purpose. To promote our regionalisation drive, funds are allocated to the Economic Development Board (EDB) for venture capital funds to assist local SMEs to take advantage of regional opportunities. Funds will also be made available for EDB to make strategic investments and to assist local SMEs through various economic development schemes. MANAGEMENT AND CONTROL OF GOVERNMENT EXPENDITURE I will now update the House on what is being done by Government to achieve greater accountability and control over public expenditures. Budgeting for Results Last year, I informed the House that we have embarked on a process of financial management reform called Budgeting for Results or BFR for short. Under BFR, funds are allocated and greater managerial autonomies granted to a Government organisation in exchange for clearly defined pre-specified outputs. By making public servants more focused on the outputs to be delivered and more customer-oriented through BFR, we hope to enhance the performance of the public sector.”
“The capital subsidy to public housing is expected to be $719 million, almost 67% higher than in FY94. The upgrading of HDB flats, including interim upgrading to improve the older estates, will take up the bulk of the allocation. Funds will also be needed for subsidising new flats and paying for the discount on the sale of HDB tenanted shops and rental flats. Provision will also be made for specific works and other improvements to existing HDB estates. As part of the measures to improve the environment, open sewage treatment works will be covered to control odour emission, an offshore sanitary landfill will be built at Pulau Semakau for dumping refuse, and the drainage infrastructure will be upgraded and extended. Land reclamation works are currently underway at Changi East, Tuas, Buran Darat, and the cluster of petrochemical islands in the south-west to form Jurong Island. Projects to promote community cohesion and sports include the building and renovation of community centres, upgrading of residents' committee centres, redevelopment of the Outward Bound School, and upgrading of the Singapore Sports Council facilities. Funds will also go towards providing welfare homes for the aged and facilities for disabled and low income families. Other infrastructural projects include the development of waterworks and the relocation of the Queenstown Gasholder. Research & Development (R&D) is critical for raising our industrial competitiveness and for attracting higher value added investments into Singapore. We will therefore raise Government-funded R&D by nearly 30% to $368 million, which is slightly more than 0.3% of GDP.”
“A new grant will be given to the Trade Development Board to cover its operating deficit as the revenues from its sale of various quotas are expected to decline. Development Expenditure Development expenditure is projected to reach $6.7 billion in FY95, up by 46% from FY94. This is 36% of total expenditure, higher than the 30% spent in FY94. Development spending on education will continue to focus on building new schools and tertiary institutions or improving existing ones. Major on-going projects include the construction of Temasek Polytechnic, the upgrading of NUS campus and the construction of staff quarters at Kent Vale to house NUS lecturers. As computers have become increasingly important as educational tools, more money will be spent on upgrading computer equipment and facilities in schools and tertiary institutions. The near doubling of healthcare-related spending is mainly for the construction and fitting out of Eastern General Hospital, the new Kandang Kerbau Hospital and Tan Tock Seng Hospital, Phase III of National University Hospital, and the combined Institute of Health and National Dental Centre. The Government is committed to providing Singapore with an efficient and convenient public transport system and substantial funds are provided for transport-related expenditures, including the continued development and extension of the road network. The MRT extension to Woodlands is progressing well. Feasibility studies will be carried out on a new Northeast Sector MRT Line and an MRT extension to Changi Airport. Pilot studies will also be made to ascertain whether Light Rail Transit (LRT) feeder systems can be used to complement and extend the main MRT network. The development of an Electronic Road Pricing System to control road usage is on schedule.”
“The increase includes a $133 million contribution to the Pension Fund for on-going service liabilities mentioned earlier. The remaining increase is to cover normal salary increments and for filling vacancies. Increased workloads of Ministries will have to be accommodated through productivity improvements where this is possible without affecting the level of service. Other Operating Expenditure or OOE will increase by $1 billion or nearly 20% to $6.6 billion. In addition to higher workload and general cost increases, additional funds will be required for larger provisions for the armed forces. Part of the increase is also to pay for maintenance of new installations such as the flue gas cleaning system in incinerator plants, and more services being contracted out. Higher provisions are also made for teaching bursaries, scholarships, child care subsidies and the Small Families Improvement Scheme. Funds are also needed for the Malay tertiary tuition fee managed by Mendaki, setting up new overseas missions and technical assistance to third world countries. Grants-in-Aid to Government-funded statutory boards and other organisations including restructured hospitals will amount to $2.4 billion, up 7% from FY94. Schools and tertiary institutions will need larger operating grants to cater for a 11,000 increase in students and to pay for more teachers and administrative staff. Higher operating and rental subventions will also go to restructured hospitals and Voluntary Welfare Organisations for providing subsidised medical care. The Singapore Tourist Promotion Board will need additional subvention to compensate for a reduction in the cess rate from 4% to 1% with the introduction of GST.”
“THE FY95 EXPENDITURE ESTIMATES Total operating and development expenditure in FY95 is expected to amount to $18.5 billion, which is 16.2% of GDP, up from 14.8% in FY94. The increase is due entirely to higher development expenditure, which rises from 4.4% of GDP in FY94 to 5.9% in FY95. Operating expenditure on the other hand will remain at 10.4% of GDP. Total expenditure in FY95 is about 21% higher than in FY94. The largest share of the budget will continue to be allocated to social and community services, which will take up 38%. Education accounts for more than half of this share, with the rest going into healthcare services, subsidies on public housing, improvements to the environment, community development and promotion of the arts. The second largest share, at 36% of the budget, will be taken up by national security, including defence. The third largest share, at nearly 16% of the budget, will go to economic and infrastructural development, including transportation, infrastructure, research & development, promotion of the regionalisation effort and inward investments, and other infrastructural and civil engineering projects. Let me now elaborate on the FY95 expenditure proposals. Operating Expenditure Operating expenditure encompasses expenditure on manpower and other operating expenditure of ministries, and grants-in-aid to Government-funded statutory boards and other organisations. In FY95, operating expenditure is expected to be $11.8 billion, a 10% increase over FY94. Defence spending will account for the largest share, at nearly 45% of the total. Education will take up the second largest share at 23% of the total. Expenditure on Manpower or EOM will go up by $291 million or 11% to $2.8 billion.”
“As promised in last year's Budget Speech, we will implement a second CPF SOTUS this year as part of our aim to make Singaporeans a share owning society. Under SOTUS-II, Government will credit $300 into the CPF account of every Singapore citizen aged 21 and above provided he or his employer has credited at least $750 into his account between 1 March 1994 and 31 August 1995. Members who pay in less will get a prorated contribution from Government. There are still 6 months to go before the qualifying period expires. Government has set aside $380 million in FY95 to pay for the top-up. Pension Fund Last year, I informed the House that a Pension Fund would be set up to explicitly recognise Government's pension liabilities and to make provision for it as part of prudent financial management. Legislation to set up the Fund has already been passed. The Fund will accordingly be established on 1st April 1995 and all future pension obligations will be met from the Fund. Our pension liabilities have been estimated based on actuarial studies. To set up the Fund, a sum of $9.6 billion will be transferred from existing balances in the Consolidated Fund to the Pension Fund to meet past service and medical liabilities of pensioners and serving officers. This is so that current and future tax payers need not bear the burden of building up the Pension Fund in respect of these past service and medical liabilities. On-going service liabilities for serving pensionable officers will be funded by an annual budgetary contribution to the Pension Fund. This is currently estimated at 17% of pensionable emoluments. It will be reflected as part of Expenditure on Manpower or EOM in the Expenditure Estimates, to which I will now turn.”
“At the same time, we will seek new ways to improve our systems of financial and personnel management. Our budgetary policy is to keep total expenditure within operating revenues. This policy, coupled with buoyant revenues linked to strong economic growth in recent years has enabled Government to keep the budget in surplus since FY88. We have been able to set aside substantial sums each year to reserves without dampening economic growth or foregoing productive investments. Budgetary surpluses generated in the past have enabled us to start programmes like Edusave, Medifund and CPF-SOTUS. Better than expected economic growth has allowed the build-up of Edusave to its present level of $3 billion since its inauguration 3 years ago. This is much faster than the planned build-up rate of $1 billion initial capital and $500 million annually over 8 years. As a healthy budget surplus is also forecast for FY94, I am pleased to say that the FY94 contribution will be doubled to $1 billion. This earlier build-up of Edusave will allow students to participate in a larger variety of educational programmes to maximise their potential. Medifund balances presently stand at $300 million. Medifund is a scheme to help those who cannot afford basic medical care, even with the help of their relatives. Unlike Edusave, there is therefore no reason to accelerate its build-up unless income flows from the Medifund prove insufficient. As this has not been the case, I do not propose to accelerate the build-up of Medifund. A transfer of $100 million will therefore be made to Medifund in FY95 as planned. CPF Share Ownership Top-Up Scheme (SOTUS) We will also continue to use budget surpluses to enhance the assets of Singaporeans through the CPF share ownership top-up scheme or SOTUS.”
“In this endeavour, all Singaporeans whether rich or poor must feel as one and contribute in every way he can. All will enjoy the fruits of economic growth but we must accept that some will do better than others. Just as in football, top players are paid more than those who are reserves and play in only a few matches. But if the star players pay no attention to the others, they will stop feeding him balls and he will no longer be able to score any goals. While we cannot turn back the tide in global competition, we will continue to strengthen social stability in ways that do not undermine our economic vitality. We will continue to evolve new ways to meet the aspirations of all Singaporeans while balancing economic imperatives with social needs. So long as we do not lose sight of the challenges ahead of us and put in place rational policies to deal with them, I am confident that Singapore will enter the 21st century as an economically dynamic and socially cohesive nation. PART II - THE FY95 BUDGET Mr Speaker, Sir, I will now move on to the Budget for the next financial year. EXPENDITURE POLICY Our expenditure policy is designed to support our economic and social objectives. The FY95 budget's spending priorities are on education, infrastructure, affordable healthcare, quality public housing, and national security. To meet expectations for a better quality of life, and to develop a more robust, well-balanced and cohesive society, more funds will also be made available for the arts, sports, recreational facilities, community development and schemes to advance social cohesion. The size of Government will continue to be contained so as to provide the private sector with more resources, but care will be taken not to compromise the quality and level of public services.”
“Our strong fiscal position, built up through prudent management over many years, gives us some leeway to do this. As the Prime Minister said in his New Year message, taken as a whole, Singapore must offer its citizens a quality of life, abundant opportunities and a future for their children that will make them want to stay. Apart from adjusting fiscal policies, the Government has tried and will try to meet the aspirations of the talented in more creative ways. While we cannot promise everyone a piece of landed property, we will set aside enough land to develop different types of housing to cater to Singaporeans_ needs. We will also invest in public transport to make it a more attractive alternative to car ownership. We will continue to improve traffic management, introduce new measures to control car usage and make heavy investments in roads to help more Singaporeans own cars while controlling congestion. Whatever innovative solutions we can come up with to ameliorate the problems of being a small country, Singaporeans must realise that there is a physical limit to how far we can go. The quality of life in Singapore has to be taken as a package. Apart from material rewards, Singapore will offer a vibrant arts scene, a safe home for our children and highly efficient public amenities to make up for the high cost of owning cars and landed property. Building a cohesive society While we encourage our high achievers to do well, we need to instil in them a sense of social obligation to other Singaporeans who are less able to compete. They must feel that Singapore is not merely a place to make money but also a nation and a community within which we bring up our children and provide them with the means to build a better future for themselves.”
“Given the intense global competition, we must also be able to satisfy their aspirations for a better life in their many facets, ranging from the strictly material like owning a car to psychological and emotional factors like identifying Singapore as home and seeing a future for their children here. The Government will refine and adjust economic incentives to maintain Singapore_s competitiveness. One major aspect will be our fiscal policy. Experience has shown us the considerable benefits of keeping the overall Government burden on the economy and the individual low. In terms of tax revenue like individual and corporate income tax, property tax and consumption tax, Singapore_s tax burden is lower than the major industrial countries. We are comparable to the other Asian Newly Industrialising Economies (NIEs) except Hong Kong, and the other ASEAN countries. This is shown in Table 1 (Cols. 115 - 116). However, Government revenue is boosted by the use of fiscal measures to allocate scarce resources, like the COE system and levy on foreign workers. Our overall level of Government tax and non-tax revenue is around 22%, slightly above other Asian countries who are at 20%. Table 1 - TAX AND NON-TAX REVENUE OF SELECTED COUNTRIES (Cols. 115 - 116) The Government is studying possible changes to its fiscal policies to make the economy more competitive, and to strengthen the incentive for businesses and individuals to venture, succeed, and enjoy the fruits of their enterprise. It will keep the overall burden of Government levies on successful Singaporeans as low as possible, taking into account both income taxes as well as other levies like the foreign maid levy and revenues from land transport policies, including COEs.”
“Although recent retrenchment episodes by MNCs have raised some concern, it is reassuring that the retrenched workers easily found replacement jobs. Such restructuring of the manufacturing sector is a continuing necessity if we are to upgrade. So far, our economy has been able to adjust flexibly to new demands. We will need to maintain this flexibility even more as we enter the new global economic race. Giving maximum incentive for wealth creation As we equip Singaporeans in general with the skills to compete effectively, we need to pay attention to those among them who are most able to create wealth for all. These able people command a premium in the world market, and they can easily work and live overseas. The Singapore economy needs them to manage our companies and lead our workers to win in the global economic race. Economic competition is a team game like football, but each team needs its fair share of star strikers like Fandi Ahmad to score the goals and bring success to the team. It is essential to pay special attention to them, to nurture them so that they can give of their best and to reward them handsomely when they do well. The same applies to captains of industry, entrepreneurs and skilled professionals. Talent is scarce in Singapore. We should identify our best and brightest early, and invest in their education, for example, by setting up autonomous and independent schools, stretching them in the Gifted Education Programme or by giving them the best possible university education here or abroad.”
“We will achieve these targets by the year 2000. We have increased enrolments in institutions of higher learning without sacrificing quality. Each year, the "O" and "A" level results, which have international standing, have improved. Achievement in English and Mathematics is high and improving. With up to 85% of each cohort receiving post-secondary training in the Institute of Technical Education, the polytechnic and the universities by the year 2000, nearly all Singaporeans will be equipped with the means to compete in the global economy. But being well-educated only offers the worker a place at the starting line. Whether he completes the race and wins a prize depends on whether he can adapt to the changes in the economy. Experience from the developed countries shows that although unskilled blue-collar workers have borne the brunt of global competition in the developed countries, even white-collar and management staff are not immune to changes. White-collar jobs in data-processing, insurance claims processing and accounting can be done offshore, in the Philippines, China, India or Ireland. The restructuring of the American corporate sector in recent years was accompanied by "de-layering" of corporate hierarchies and the loss of many middle management jobs. The rise of a new class of "temporary professionals" in the US is a sign that even professionals are not immune to fundamental changes in the global labour market. The key to keeping ourselves relevant to the rest of the world is flexibility. Workers need to be able to learn new skills and knowledge and to adapt to new processes, new machines and perhaps even new employers to retain life-long employability. This will mean a concerted effort by the workers themselves, unions, employers and the Government.”
“At the same time, the larger number of better-educated people will increase demand for the traditional trappings of middle-class living like owning a car and a private house, thus hitting against a fixed supply of land. Aspirations could run ahead of our ability to meet them in the conventional way. Meeting the New Challenges The trends I have outlined have implications for how we need to manage our economy to ensure many more years of economic prosperity and social stability. There are three key areas in which we need to devote attention. They are: preparing Singaporeans to meet the challenges of the global economy, providing maximum incentives to able Singaporeans to create wealth for the nation, and building a more cohesive society. Preparing Singaporeans for challenges of the global economy In the new global economy, competition will get keener and the pace of change will become faster. No country can afford to sit back while the competition passes by. Technology is pushing the pace of restructuring. Companies and countries which cannot cope with the fast pace will be left behind. In Singapore, we have taken steps to meet the demands of a modern economy by investing heavily in education, training and re-training. Over the years, we have increased the proportion of young people going into tertiary education. In 1980, 19% of our young people were admitted to university, polytechnic or the then Vocational and Industrial Training Board. In 1994, the proportion was 71%, with 19% going to university, 35% to polytechnic and 17% to the Institute of Technical Education (ITE). We aim to raise the proportion of those with post-secondary training from the 71% in 1994 to 85%, broken down into 20% going to university, 40% to polytechnic and 25% to ITE.”
“What they have achieved is to transfer the problem from the labour market to the state treasury while delaying much-needed structural adjustments to their economies. The EU countries have run budget deficits to finance generous welfare states and unemployment benefits. The result is that public debt has mounted, unemployment is at a record high of 11% and labour costs are uncompetitive. Future generations of European workers and citizens will have to pay the cost of past fiscal deficits, either through a high debt servicing burden or through higher inflation if governments choose to inflate away their domestic debts. Singapore will need to address these issues head-on. I will elaborate on possible solutions later in my speech. Let me now turn to the second challenge, that of Singapore becoming a more middle-class society. Economic growth and improvements in education have enabled most Singaporeans to join the middle class. We are close to achieving our target of 60% of each cohort entering polytechnic or university. In twenty years time, up to 30% of the workforce will have either polytechnic or university education compared with only 15% today. The Singapore economy must stay competitive to create jobs for these ambitious and well-trained people. We must regionalise successfully so that our best and brightest will have a bigger pie to compete for. To cap the supply of university and polytechnic graduates is an unworkable and self-defeating alternative. It will slow growth and depress earnings for all, including the graduates, who will have few job opportunities in a stagnant economy.”
“Because the number of unskilled workers is so much larger, an increase in demand will first reduce unemployment or under-employment before it leads to rising wages. In contrast, as skilled workers are scarce, increased demand will lead to higher wages. Putting these two divergent trends together, it is not hard to imagine a world where income distribution could become more unequal. This is already happening in some developed countries. In the US and the UK, wage differentials between those with higher education and those without have widened in the last 10-15 years. Closer to home, Hong Kong has faced this problem since the mid-1980s. With keen competition from China in labour-intensive manufacturing, the Hong Kong manufacturing workforce has shrunk from about 1 million to only 600,000 whereas the workforce in Hong Kong-owned factories in southern China is estimated to be 3-4 million. Accompanying this massive shift has been a depression of wages in the Hong Kong manufacturing sector, particularly in lower-end industries, like textiles and toys. It is therefore not surprising that there is deep concern in the developed countries, especially Europe, that East Asia_s growth will be at the expense of their workers and their social stability. Some groups in the developed countries are advocating protectionism in various guises, including social and environmental protection. Singapore, as a small and open economy, cannot insulate itself from larger global trends. Without natural resources or a large hinterland or domestic rural sector to fall back on, we cannot afford to pay ourselves higher than world market rates or keep alive activities which are no longer viable. Countries better-endowed than ourselves have tried and failed to do this.”
“Almost all our children attend school and more than half of them enter Polytechnic or universities. Challenges for the Future In the next stage of economic development, we will face different challenges. In the 1960s, the priority was to create jobs, provide housing and build new schools. In the 1990s and beyond, we will face new issues. I will outline two key ones, viz, the entry of new players into the international economy and the development of a middle class society in Singapore. First, the entry into the world trading and production system of large economies like China, India, Indonesia and rapidly growing ones like Malaysia, Thailand and Vietnam will alter the world economic structure. It has been estimated that by the year 2020, 7 of the 10 largest economies in the world will be in Asia, viz, China, Japan, India, Indonesia, Korea, Thailand and Taiwan ("The Global Economy", survey in The Economist, 1st October 1994.). The entry of new players into the world economy will raise average income levels worldwide, but it will also change the distribution of income, both between countries and within individual countries. The more developed countries will increasingly be forced to specialise in higher value added activities, leading to greater demand for skilled workers who are in short supply worldwide. Demand for low-skilled workers will be met by less developed countries which concentrate in more labour-intensive activities. However, the supply of unskilled workers is far higher than the supply of skilled workers. As a result, in many countries incomes will rise faster for skilled workers than for unskilled workers. The reason goes back to the fundamental laws of demand and supply.”
“The ownership of telephones, TV sets and refrigerators is near universal, and more than three-quarters of households have washing machines or VCRs. One-third own air-conditioners, 31% have cars and 20% have personal computers. These ownership rates are high, by any international standards. Singapore's record of widespread social progress and equitable income distribution is partly the result of the development process. Economists have found that income distribution tends to improve as an economy develops because unemployment falls rapidly and the fruits of economic growth are shared among a larger group of citizens. This has been the experience of most East Asian economies, including Singapore, but it is not universal or automatic. Wrong-headed policies, like populist subsidies and restrictions on economic transactions, can worsen income distribution and impede growth. In Singapore, the Government has played a key role in improving the standard of living of all Singaporeans through mass programmes in public housing, primary health and education. The effects of these on the well-being of Singaporeans are clear. For example, 86% of our population live in public housing, which is of a standard far higher than public housing projects in other countries. Newer HDB housing estates like Bishan and Pasir Ris are comparable to private housing in Singapore. Unlike other countries, the public housing programme in Singapore is a social leveller. Professionals and workers live in the same HDB estates and share amenities. The public health programme and affluence have significantly reduced infant mortality in Singapore. We now have the lowest infant mortality rate in the world - 5 per 1,000 live births, as low as Japan and Sweden.”
“The Asian economies are expected to continue to enjoy robust growth. The generally favourable external environment means continued strong demand for Singapore products and services. The latest survey of business expectations show that industrialists and businessmen in the services sector are optimistic about prospects up to June 1995. However, following two years of strong growth, domestic costs are likely to rise. Increased cost pressures would have some negative impact on our growth prospects in 1995. In addition, the dominant electronics industry is highly volatile and growth could slow down significantly at short notice. Recent events in the international scene have also had some dampening effect on stockmarkets world-wide. After taking into account these factors, the Ministry of Trade and Industry has revised its forecast for 1995 slightly downwards, from 8-9% to 7.5-8.5%. LAYING THE FOUNDATIONS FOR SUSTAINED GROWTH I will now turn to a longer-term issue: how we can lay the foundations for sustained growth into the next century. Combining Economic Growth With Social Progress Singapore has successfully combined rapid economic growth with equitable income distribution. Real economic growth averaged 8.4% per year between 1960 and 1994. Between 1980 and 1990, real household income for the bottom 20% of households rose by an average of 8.9% per year, faster than the 7.9% for the middle 60% of households and 6.4% for the top 20% of households. More up-to-date figures from the Household Expenditure Survey show that, for the period 1982/83 to 1992/93, real household income for the bottom 20% has also kept pace with those of the middle 60% and top 20%. At the personal level, Singaporeans can see for themselves how their standard of living has improved.”
“Mr Speaker, Sir, I beg to move, That Parliament approves the financial policy of the Government for the financial year 1st April, 1995 to 31st March, 1996. PART I - REVIEW OF THE ECONOMY ECONOMIC PERFORMANCE IN 1994 Mr Speaker, Sir, the Singapore economy grew by 10.1% in 1994. Growth was broad-based and all major sectors did well. The manufacturing sector grew by 12.9% with strong growth across a broad spectrum of industries. Growth in the financial and services sector was lower than in 1993 because of significantly lower stockmarket turnover. The commerce and transport & communications sectors turned in creditable performances on the back of strong regional growth and stronger trade and investment linkages in the region. The construction sector saw double-digit growth due to the strong pipeline of contracts awarded in 1992 and 1993. Inflation remained low, at 3.6%, as domestic cost pressures were contained by good productivity growth while imported inflation was mitigated by the strength of the Singapore dollar. The introduction of the 3% Goods and Services Tax had a smaller than expected impact on inflation due to keen competition in the retail sector. The two years of double-digit growth in 1993 and 1994 were underpinned by strong productivity growth which averaged 6.0% in the two years. As a result, the Unit Labour Cost index for the manufacturing sector declined in 1993 and 1994. ECONOMIC OUTLOOK FOR 1995 The external environment remains favourable, though some caution is called for. World capital markets have recently been volatile, due to concerns over US interest rates, the devaluation of the Mexican peso and the earthquake in Kobe. The industrialised countries as a group are likely to see stronger growth but lower inflation.”
“Mr Speaker, Sir, I beg to move the Motion* standing in my name under item No. 7 in the Order Paper. * 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 "$1,190,400", "$55,000", "$2,175,700", "$561,600" and "$51,500" in the second column and substituting the figures "$1,341,300", "$62,000", "$2,908,900", "$737,300" and "$351,500", respectively. Sir, it is proposed to increase the provisions for the privy purse and entertainment allowance to $1,341,300 and $62,000 respectively. These increases are necessary due to changes in salary structures and anticipated higher entertainment expenditure. A higher provision of $2,908,900 is allocated for the salaries of personal staff to cater for normal salary increment, pension contribution and the filling of vacancies. A higher sum of $737,300 is required to meet Expenses of the Istana household. The increase is to meet higher expenditure on public utilities and maintenance of building. The allocation for Special Services is increased from $51,500 to $351,500 as a contingency provision in the event that the President's car has to be replaced. It is, therefore, necessary to vary the provisions in the Schedule to the Civil List as indicated in the Motion before the House. Sir, I beg to move. Question put, and agreed to. 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 "$1,190,400", "$55,000", "$2,175,700", "$561,600" and "$51,500" in the second column and substituting the figures "$1,341,300", "$62,000", "$2,908,900", "$737,300" and "$351,500", respectively.”
“CARRIAGE OF GOODS BY SEA (AMENDMENT) BILL Order for Second Reading read.”
“This will allow MAS to vet the introduction of any new contract, so as to ensure that such new contracts will not be susceptible to manipulation by market participants. MAS will also be able to assess that SIMEX has established a sound clearing system with adequate safeguards to ensure the financial soundness of the exchange. Thirdly, the Bill will require SIMEX to establish a compensation fund for the purpose of compensating retail investors in the event of defalcation by a futures broking member of the exchange. Fourthly, the Bill will allow MAS to remove any external auditor of a futures broker who is found to have failed to exercise its responsibility of vetting the adequacy of the futures broker's financial accounting and control system. This will encourage external auditors to invest greater resources in their audit of futures brokers. Fifthly, SIMEX currently has a number of business conduct rules which its futures broking members have to comply with. These business conduct rules generally aim at protecting the interests of customers, such as requiring the futures broker to give priority to customers' transactions, and to obtain customers' consent if the futures broker acts as a principal to the customers' transaction. The Bill will provide legal backing for such business conduct rules by introducing them in the Futures Trading Act. This will allow MAS to take more effective action against futures brokers who do not comply with the business conduct rules. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee; reported without amendment; read a Third time and passed.”
“(c) SIMEX will institute measures to require the head office of member firms to take more precautionary measures and strengthen their oversight over the internal controls of their futures subsidiaries in Singapore. (d) MAS will enhance cooperation with overseas futures regulators to provide for better coordination in the supervision of financial institutions participating in the futures markets. (e) SIMEX will strengthen its supervision and compliance department to enhance floor supervision and compliance by SIMEX members. (f) SIMEX will require member firms to ensure that the head of the dealing section should not take charge of the settlement section and that proprietary traders should not handle customer business. The proposals to tighten futures regulations contained in the Bill before the House will help to ensure that SIMEX will continue to remain financially sound in the event a future broking member should collapse like Baring. These proposals are as follows: Firstly, the Act currently exempts employees of futures brokers from the requirement to be licensed by MAS. The Bill will require employees of futures brokers to be licensed by MAS on an annual basis. This will allow for closer supervision of dealers who trade in futures contracts on behalf of customers. In licensing such employees, MAS will also be able to apply more stringent criteria as proposed in the Bill. The new criteria for licensing such employees will include the requirement that they have relevant experience, and that they are of good character and reputation. Secondly, the Bill will require SIMEX to seek MAS' approval for the listing of any new contract or the establishment of any subsidiary company, such as the setting up of a subsidiary company to handle the clearing functions of SIMEX.”
“Furthermore, as BFS had placed adequate margin deposits for its positions on SIMEX as required under the Futures Trading Act and SIMEX's rules, the impact of the Barings crisis is isolated and will not result in other SIMEX futures brokers having to step in to meet BFS' obligations. SIMEX has issued a press release yesterday to state that BFS has maintained sufficient margin funds with SIMEX to enable the exchange to manage its positions. Both MAS and SIMEX have also provided the assurance that margins deposited by other investors on the exchange would be used exclusively for the purpose of their positions maintained with the exchange, and would not be used for any other obligations of the exchange. This assurance has helped to restore investor confidence in the Singapore financial market as reflected in the relatively steady volume of trading on SIMEX. The Singapore stock market has also rebounded yesterday by more than 32 points compared with the initial fall on Monday. The Baring incident has however highlighted to SIMEX a number of areas which it could improve upon. I would like to inform Members that the following steps will be taken to further strengthen the financial soundness of the exchange: (a) MAS and SIMEX will jointly review SIMEX's rules on business conduct to enhance the monitoring of the risk exposure of member firms with the view to protecting the integrity of the exchange. (b) SIMEX will appoint experts from the global futures industry to be members of an Advisory panel to review and advise the exchange on protecting the exchange against similar crisis in the future.”
“No regulatory system can guarantee that there will not be any failure among investors who participate in the futures market nor can regulations protect investors from making losses. Investors, as profit making enterprises, are accountable to their shareholders and are responsible for ensuring that they conduct their operations prudently. Investors who trade in derivatives with the aim of making a profit are expected to exercise proper discipline in order to prevent possible losses from growing out of control. Sound regulation is necessary but not sufficient. There is also a need for proper internal controls and procedures on the part of the market participants to ensure that they conduct their futures trading activities prudently. Such internal controls should be adequate to detect any fraud or excessive risk taking by traders. This is because no law can be enacted to prevent fraud. Our financial futures regulation, which is modelled after that in the United States, is therefore aimed primarily at ensuring that the futures exchange will remain financially sound even if there is a failure of one or more of its participants. In this regard, the Futures Trading Act has proved to be effective in achieving its objective of protecting the integrity of the futures market in Singapore. This is so because although Baring had incurred large losses as a result of trading on SIMEX and other futures exchanges, SIMEX is not affected by the incident, and continues to be able to honour its obligations to futures brokers and investors.”
“Concern has been raised as to how BFS had managed to build up such a large position in futures and options contracts on SIMEX and on other exchanges. A full picture of BFS' trading operations which led to the crisis will not be known until investigations are completed. SIMEX did not deem it necessary to curb the increase in the open positions of the Baring entities trading on SIMEX since, until last Friday, BFS had not shown any signs of financial difficulty in its futures trading activities on SIMEX as margin calls were promptly made in full. Over the period from 1st to 24th February 1995, SIMEX made margin calls on BFS for 14 out of the 18 trading days, amounting to a net payment to SIMEX of US$128 million. BFS' speculative positions were also concealed as SIMEX was given to understand that BFS' open positions were undertaken for arbitrage trading purposes which involve less risks. The Baring group was also known as an internationally reputable and well established investment bank with a long track record in sophisticated financial activities. An incident of this nature inevitably raises questions concerning the effectiveness of the existing regulatory system for the financial futures industry in Singapore. I would like to assure this House that the regulatory framework is fundamentally sound, and that SIMEX's financial condition is not at risk. I should point out that the principal objective of our regulation of the futures market is to ensure that the futures exchange is financially sound and is able to meet its financial obligations so that investors will have confidence in participating in the market.”
“This requirement also serves to protect SIMEX, as futures broking members become liable for their customers' obligations to the exchange should such customers default; and Thirdly, under the Futures Trading Act, SIMEX requires its futures broking members to segregate monies belonging to customers from those belonging to the futures brokers. This serves as a safeguard against any abuse of customers' funds and thus ensures that customers' funds will be available to meet possible margin calls by SIMEX. As a result of these safeguards, SIMEX has more than adequate margin deposits from Baring for its open positions, even allowing for fluctuations in the prices of the contracts which Baring has entered into. These margin deposits are more than sufficient to offset Baring's unrealised losses from its positions on SIMEX. SIMEX is therefore able to honour all contracts made and cleared with the exchange. All customers' margin deposits with the exchange will be used exclusively for margining such customers' positions, and will not be diverted to meet the exchange's own obligations. As the Baring companies which had traded on SIMEX had become insolvent, SIMEX had, in the last two days, worked to wind down most of the open positions of the Baring companies and will continue to wind down the remaining positions so as not to cause disruption in the market. If the Japanese market remains orderly, the balance of BFS' open positions are more than adequately supported by existing margins and there should not be any need for SIMEX to call upon any funds to close off BFS' positions. However, in order to ensure the confidence of participants, SIMEX has arranged for a letter of credit of US$300 million from local financial institutions, but it is not likely to need to call upon this.”